SINFONIA TECHNOLOGY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥55.80B
• Operating Income: ¥6.09B
• Net Income: ¥4.55B
• EPS: ¥161.32

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

Verdict: Solid Q2 with steady top-line growth and resilient profitability, albeit with slight margin compression and limited visibility on cash flow. Revenue rose 7.8% YoY to 557.96, while operating income increased 6.0% YoY to 60.86 and net income grew 6.4% YoY to 45.51. Gross profit reached 151.92 with a gross margin of 27.2%, and operating margin stood at 10.9%. Ordinary income was 62.59 (+5.6% YoY), supported by modest net non-operating gains of 1.73. Net margin was 8.2%, in line with solid tax discipline (effective tax rate 27.3%). Based on back-solved prior-period values, operating margin compressed by roughly 19 bps YoY and net margin by about 11 bps, implying mild negative operating leverage. The quality of earnings cannot be fully assessed due to unreported cash flow data (OCF/NI not calculable), which is a key limitation this quarter. Liquidity is strong with a current ratio of 194% and quick ratio of 184%, and solvency appears conservative with liabilities-to-equity (reported D/E) at 0.66x and interest coverage at 81x. The balance sheet is sound: cash of 99.82 and modest interest-bearing debt (short-term 20.70, long-term 92.11) imply low net debt. Working capital is receivables-heavy (AR 326.23 vs inventories 38.89), suggesting project or equipment-driven revenue recognition; collection discipline remains a watchpoint. ROE is 5.5% per DuPont (NPM 8.2% × AT 0.407 × leverage 1.66x), adequate but below high-teens thresholds; ROIC at 5.3% is below the 7–8% target range. Non-operating contributions are limited (non-operating income ratio 7.5%), indicating profits are primarily operating in nature. The calculated payout ratio of 75.3% looks elevated relative to typical sustainability benchmarks, increasing reliance on stable OCF that we cannot verify this quarter. With resource allocation steady and leverage low, the company retains flexibility, but improvement in asset efficiency and ROIC remains a key medium-term focus. Forward-looking, modest growth with disciplined SG&A and tighter working capital could lift ROE/ROIC, while any slowdown in end-markets or weaker collections could weigh on cash conversion.

Profitability Analysis

ROE decomposition: ROE 5.5% = Net Profit Margin (8.2%) × Asset Turnover (0.407x) × Financial Leverage (1.66x). The most notable driver this quarter is asset turnover at a relatively low 0.41x, which caps ROE despite healthy net margins and conservative leverage. Operating margin of 10.9% slipped about 19 bps YoY (estimated), and net margin fell ~11 bps, reflecting mild negative operating leverage as operating income grew slightly slower than sales. Business rationale: revenue growth was solid (+7.8%) but cost absorption and SG&A intensity (SG&A at 16.3% of sales) likely limited incremental margin expansion; non-operating items were small and did not materially alter the margin profile. Sustainability: current margins look structurally sound given product mix, but upside depends on tighter cost control and mix improvements; absent major mix shifts, margin gains may be gradual. Flags: without SG&A YoY detail, we cannot confirm whether SG&A growth outpaced revenue, but the slight margin compression hints at cost pressure. Interest burden remains negligible (coverage 81x), so financial leverage is not a headwind to profitability.

Growth Assessment

Top-line growth of 7.8% YoY indicates healthy demand across key segments, while operating profit growth of 6.0% lagged slightly, implying limited operating leverage. Ordinary income rose 5.6% with minimal reliance on non-operating items, pointing to largely recurring earnings. Net income growth of 6.4% tracks operating trends and reflects a stable effective tax rate (27.3%). The current gross margin of 27.2% is adequate, but with modest YoY compression in operating and net margins, the near-term growth algorithm appears more volume-driven than margin-led. Sustainability hinges on order intake and backlog quality (not disclosed), as well as collection cycles given receivables concentration. With ROIC at 5.3% (below the 7–8% target range), incremental growth needs to be capital-disciplined to avoid diluting returns. Outlook: steady mid-single to high-single-digit growth appears achievable if demand holds, but upside requires improved mix/efficiency; watch book-to-bill, pricing, and component cost trends. Data limitations (no R&D, capex, or CF disclosures) constrain assessment of medium-term growth drivers such as capacity expansion and innovation spend.

Financial Health

Liquidity is strong: current ratio 194.2% and quick ratio 183.8%, comfortably above benchmarks; no warning (current ratio is not <1.0). Solvency is conservative with reported D/E at 0.66x (liabilities-to-equity) and ample interest coverage of 81.15x; leverage does not pose a risk (and is well below a 2.0x caution threshold). Interest-bearing debt totals 112.81 (short-term 20.70, long-term 92.11) versus cash of 99.82, implying modest net debt and low refinancing risk. Maturity mismatch risk appears limited: current assets of 723.27 exceed current liabilities of 372.37 by 350.90, and short-term loans are small relative to liquidity. Off-balance sheet obligations are not disclosed; no specific contingent liabilities reported here. Equity of 827.29 provides a solid capital buffer. The asset base includes investment securities of 162.26, which can introduce valuation volatility but also liquidity if needed.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be calculated; we cannot validate earnings-to-cash conversion this quarter. Free cash flow and capex are also unreported, preventing assessment of reinvestment intensity. Given receivables at 326.23 versus inventories at 38.89 and payables at 139.26, working capital is receivables-heavy; if sales growth continues, cash conversion may lag unless collection cycles shorten. No direct signs of working capital manipulation can be inferred from the limited data, but the AR load warrants monitoring for potential DSO elongation. The absence of cash flow data is the primary limitation to assessing cash quality and FCF sustainability.

Dividend Sustainability

The calculated payout ratio of 75.3% exceeds the standard sustainability benchmark (<60%), implying a higher dependence on stable OCF for dividend coverage. With FCF unreported, we cannot confirm cash coverage of dividends; balance sheet strength and low interest burden offer some buffer, but sustained high payout could constrain reinvestment if cash generation softens. Dividend policy details (DPS, interim/annual splits, buybacks) are unreported this quarter. Near-term sustainability is plausible given low leverage, but medium-term prudence would favor aligning payouts with FCF once cash conversion is evidenced.

Risk Assessment

Business Risks:

• End-market cyclicality in industrial/automation and equipment demand could pressure orders and margins.
• Receivables concentration (AR 326.23) raises collection and DSO risk during slowdowns.
• Input cost and component supply volatility can impact gross margin (current 27.2%).
• FX fluctuations could affect export margins and translation (exposure not disclosed).
• Project timing and product mix shifts may cause quarter-to-quarter margin variability.

Financial Risks:

• Limited cash flow disclosure this quarter obscures cash conversion and FCF adequacy.
• Investment securities (162.26) may introduce valuation volatility to equity and OCI.
• Payout ratio at 75.3% could strain cash if earnings or OCF soften.
• Moderate net debt position (cash 99.82 vs interest-bearing debt 112.81) requires ongoing liquidity management, albeit risk is low given coverage.

Key Concerns:

• Slight margin compression (~19 bps operating, ~11 bps net) despite revenue growth, indicating mild negative operating leverage.
• ROIC at 5.3% below the 7–8% target range, limiting value creation headroom.
• Lack of OCF/FCF data prevents validation of dividend coverage and cash quality.

Investment Implications

Key Takeaways:

• Steady growth with resilient profitability; operating and net margins only slightly compressed.
• Balance sheet strength (current ratio 194%, liabilities-to-equity 0.66x) and high interest coverage (81x) underpin low financial risk.
• ROE of 5.5% and ROIC of 5.3% indicate room for improvement via asset efficiency and mix.
• Receivables-heavy working capital requires monitoring for cash conversion.
• Elevated payout ratio (75.3%) suggests the need for confirmation of FCF support when cash flow data becomes available.

Metrics to Watch:

• Orders/backlog and book-to-bill (not disclosed) for demand visibility.
• Operating margin trajectory and SG&A as a percentage of sales.
• DSO and working capital turns (AR, inventory, and payables dynamics).
• OCF/Net income and FCF once disclosed.
• ROIC versus the 7–8% target range and capital allocation (capex/R&D).

Relative Positioning: Within Japan industrial/electronics peers, the company shows healthy liquidity and conservative leverage with solid but not leading margins; returns (ROE/ROIC) trail high-return peers, making operational efficiency and cash conversion the pivotal differentiators for medium-term positioning.

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