SINKO INDUSTRIES LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥25.88B
• Operating Income: ¥3.58B
• Net Income: ¥3.22B
• EPS: ¥37.67

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Shinko Industries (6458) delivered steady top-line growth in FY2026 Q2, with revenue of ¥25.878bn, up 6.9% YoY, indicating resilient demand in its core HVAC-related businesses. Gross profit of ¥8.910bn implies a gross margin of 34.4%, a healthy level for a project/solution-oriented manufacturer. Operating income was ¥3.576bn (+0.4% YoY), translating to a 13.8% operating margin, suggesting relatively stable cost control despite input inflation and wage pressures. Ordinary income of ¥3.883bn outpaced operating income, indicating positive non-operating contributions net of minor interest expense. Net income declined 16.8% YoY to ¥2.611bn, pointing to pressure below the operating line—likely from a normalized/higher tax rate and/or non-recurring items versus the prior period. Using available figures, the implied effective tax rate is approximately mid-30% (income taxes of ¥1.378bn against an estimated pretax of roughly ¥3.99bn), which could explain much of the YoY net profit decline. DuPont analysis shows a net margin of 10.1%, asset turnover of 0.287x, and financial leverage of 1.41x, resulting in a calculated ROE of 4.08%, in line with the reported figure. ROE is held back primarily by modest asset turnover and conservative leverage, despite solid profitability. The balance sheet is very strong: total assets are ¥90.282bn against total liabilities of ¥20.716bn and equity of ¥64.067bn, implying an equity ratio of about 70.9% (the disclosed 0.0% equity ratio appears unpopulated). Liquidity is ample with a current ratio of 313% and quick ratio of 306%, and working capital of ¥32.774bn. Interest burden is minimal (¥13m), and interest coverage is extremely high at 275x, underscoring low financial risk. Cash flow statements are not disclosed in this dataset (zeros indicate unreported), limiting evaluation of earnings-to-cash conversion and free cash flow generation. Dividend data are also unreported here; thus payout and FCF coverage cannot be assessed directly, though balance sheet capacity appears robust. Overall, fundamentals point to a quality margin profile and low leverage, but ROE remains subdued, and the YoY net profit decline highlights sensitivity to taxes and non-operating items. The near-term outlook hinges on sustaining revenue growth, maintaining gross margins amid cost pressures, and converting earnings into operating cash flow as project deliveries progress. Data limitations—particularly cash flow and share data—constrain the depth of this review; the analysis below focuses on disclosed non-zero items and derived metrics.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 10.09%
• asset_turnover: 0.287x
• financial_leverage: 1.41x (Assets/Equity ≈ 90,282/64,067)
• calculated_ROE: 4.08%
• commentary: ROE is modest due to low asset turnover and conservative leverage; margins are comparatively strong. Improving asset efficiency or modestly optimizing capital structure could lift ROE. margin_quality:
• gross_margin: 34.4% (Gross profit ¥8.91bn on revenue ¥25.878bn)
• operating_margin: 13.8% (Operating income ¥3.576bn)
• ordinary_margin: 15.0% (Ordinary income ¥3.883bn)
• net_margin: 10.1% (Net income ¥2.611bn)
• insights: Stable operating margin (+0.4% YoY in OI on +6.9% revenue) indicates decent cost pass-through and SG&A discipline. Net margin compression YoY stems from factors below the operating line (higher tax/other items). operating_leverage: Revenue grew faster than operating income (+6.9% vs +0.4%), implying negative operating leverage in the period—likely due to mix, cost inflation, or higher fixed costs offsetting volume gains. Monitoring gross-to-operating spread will clarify fixed-cost absorption and pricing power.

Growth Assessment

revenue_sustainability: Top-line growth of 6.9% YoY suggests healthy order intake and delivery, likely supported by HVAC demand in building refurbishments, energy efficiency projects, and potential public/private capex. profit_quality: Operating profit nearly flat YoY despite revenue growth, implying some margin headwinds at the COGS or SG&A level; ordinary income exceeding OI indicates supportive non-operating items net of minimal interest. outlook: Near-term growth hinges on backlog execution, pricing discipline to offset input costs, and stable tax/non-operating impacts. If the current revenue trajectory holds and cost pressures stabilize, margin recovery to convert growth into profit is plausible.

Financial Health

liquidity:

• current_ratio: 313.1% (CA ¥48.153bn / CL ¥15.379bn)
• quick_ratio: 306.0% (Ex-inventory; inventory ¥1.1bn)
• working_capital: ¥32.774bn
• commentary: Very strong short-term liquidity with limited reliance on inventory; ample headroom for project execution and seasonal swings. solvency:
• debt_to_equity: 0.32x (Total liabilities ¥20.716bn / Equity ¥64.067bn)
• interest_coverage: 275.1x (Operating income ¥3.576bn / Interest expense ¥13m)
• equity_ratio: ≈70.9% (Equity / Assets; disclosed 0.0% not populated)
• commentary: Balance sheet is conservatively financed with negligible interest burden; solvency risk is low. capital_structure: Low leverage and high equity buffer support resilience but weigh on ROE. With limited debt, the company retains flexibility for capex and shareholder returns, subject to cash flow generation.

Cash Flow Quality

earnings_quality: Cash flow data are unreported in this dataset; thus OCF/NI and FCF cannot be assessed. The strong balance sheet reduces immediate risk, but verification of cash conversion is needed. FCF_analysis: Free cash flow is not disclosed (reported as 0 due to unreported OCF/ICF). Capex and working capital swings around project timing could materially impact FCF intra-year. working_capital: Current assets significantly exceed current liabilities; inventories are modest (¥1.1bn), suggesting receivables and cash likely dominate current assets. Monitoring DSO/DPO/DOH will be important for cash conversion.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio are not disclosed here. Based on net income of ¥2.611bn in H1, earnings capacity appears supportive in principle, but lack of cash flow data prevents a robust payout assessment. FCF_coverage: Not assessable due to unreported OCF/FCF; coverage metrics shown as 0.00x are placeholders. policy_outlook: With high equity ratio and minimal interest burden, capacity for stable dividends is implied, contingent on sustained profitability and positive operating cash flow. Confirmation from company guidance and historical policy is needed.

Risk Assessment

Business Risks:

• Demand cyclicality in construction and capital investment affecting HVAC projects and equipment orders.
• Input cost volatility (steel, copper, components) pressuring gross margins if not fully passed through.
• Project execution and mix risk impacting operating leverage and margin realization.
• Regulatory and energy efficiency standard changes influencing product requirements and costs.
• Supply chain constraints and lead-time variability affecting deliveries and working capital.
• Competitive pricing pressure in domestic and overseas HVAC markets.

Financial Risks:

• Potential cash flow shortfalls if receivables collection is delayed given project-based billing.
• Tax rate volatility and non-operating/extraordinary items impacting bottom line.
• Currency fluctuations if there is export/import exposure (not disclosed here).
• Concentration risk in key customers or sectors (not disclosed here).

Key Concerns:

• Net income decline of 16.8% YoY despite stable operating profit highlights sensitivity to non-operating/tax items.
• ROE at 4.08% remains below typical machinery sector benchmarks due to low asset turnover and conservative leverage.
• Lack of disclosed cash flow data limits assessment of earnings quality and dividend coverage.

Investment Implications

Key Takeaways:

• Revenue growth of 6.9% YoY with steady operating margin indicates resilient demand and reasonable cost control.
• Net profit decline (-16.8% YoY) is mainly below the operating line—monitor tax and non-operating items.
• Strong balance sheet: equity ratio ≈71%, current ratio 313%, interest coverage 275x, low solvency risk.
• ROE of 4.08% is constrained by low asset turnover and under-leverage despite solid margins.
• Cash conversion and FCF are key unknowns due to unreported cash flow statements this period.

Metrics to Watch:

• Order intake/backlog and book-to-bill to gauge revenue visibility.
• Gross margin and SG&A ratio for pricing power and cost discipline.
• Effective tax rate and non-operating gains/losses driving net income volatility.
• Operating cash flow margin, FCF, and working capital days (DSO/DPO/DOH).
• Capex level versus depreciation to assess reinvestment needs and FCF.
• Dividend policy disclosures and payout trajectory.

Relative Positioning: Versus domestic machinery/HVAC peers, the company exhibits stronger-than-average balance sheet strength and healthy operating margins, but lower ROE driven by modest asset turnover and conservative leverage.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis