Quick View
| Metric | Current Period | Previous Year Same Period | YoY |
|---|---|---|---|
| Revenue | ¥32.24B | ¥24.15B | +33.5% |
| Operating Income | ¥4.21B | ¥1.77B | +138.1% |
| Profit Before Tax | ¥4.43B | ¥1.51B | +194.3% |
| Net Income | ¥2.99B | ¥1.05B | +184.6% |
| ROE | 2.2% | 0.8% | - |
Executive Summary
In Q1 of the fiscal year ending March 2027, Sanyo Denki achieved substantial increases in both revenue and earnings, driven by revenue growth across all segments, an improved gross margin, and a lower SG&A ratio. Revenue was ¥32.24B (¥24.15B in the previous year, YoY +33.5%), Operating Income was ¥4.21B (¥1.77B, YoY +138.1%), Profit Before Tax was ¥4.43B (¥1.51B, YoY +194.3%), and Net Income attributable to owners of the parent was ¥2.99B (¥1.05B, YoY +184.6%). The earnings growth rate substantially exceeded the revenue growth rate, indicating that structural profitability improvements were the core feature of the current period’s performance.
Factors Affecting Performance
【Revenue】All three segments recorded double-digit revenue growth, reflecting a company-wide recovery in demand and normalization of shipments. The Motion Company was the largest segment, with revenue of ¥12.73B (YoY +46.3%) and a 39.5% composition ratio, followed by the San Ace Company with ¥11.64B (up 19.6%, composition ratio 36.1%) and the Electronics Company with ¥6.32B (up 43.0%, composition ratio 19.6%). In terms of growth rates, Motion and Electronics recorded relatively strong growth, resulting in broad-based revenue expansion.
【Profit and Loss】The gross margin improved to 29.4% from 26.4% in the previous year, an improvement of +3.0pt, while the SG&A ratio declined to 16.4% from 19.3%, a reduction of -2.9pt. As both factors improved simultaneously, the Operating Income margin expanded to 13.1% from 7.3%, an increase of +5.8pt. Profit Before Tax was further supported by financial income of ¥0.28B exceeding financial expenses of ¥0.06B, reaching ¥4.43B (YoY +194.3%). Net Income was ¥2.99B (YoY +184.6%), and the Net Income margin reached 9.3% versus 4.3% in the previous year, resulting in higher revenue and earnings.
Segment Analysis
The San Ace Company (cooling fans) recorded revenue of ¥11.64B (YoY +19.6%) and Operating Income of ¥2.74B (up 77.0%), with a margin of 23.6%, the highest profitability company-wide and the core contributor to earnings growth. The Motion Company (servo motors, etc.) was the largest segment by revenue, at ¥12.73B (up 46.3%), but its Operating Income was ¥0.77B (up 84.2%) and its margin was relatively low at 6.0%. The Electronics Company (power supply equipment, etc.) recorded revenue of ¥6.32B (up 43.0%) and Operating Income of ¥0.62B (up 347.6%), representing outstanding growth and a significant improvement from the low profitability level in the previous year. Profitability gaps among the segments are substantial, and the high-margin composition of San Ace and the earnings improvement potential of Electronics will determine the trajectory of the company-wide margin going forward.
Key Financial Indicators
【Profitability】The Operating Income margin improved to 13.1% from 7.3%, an increase of +5.8pt, while the Net Income margin also expanded to 9.3% from 4.3%. Profitability improved through both a gross margin of 29.4% (26.4% in the previous year) and an SG&A ratio of 16.4% (19.3% in the previous year). 【Cash Flow Quality】Operating Cash Flow (OCF) was limited to ¥0.99B, representing a low 0.33x relative to Net Income of ¥2.99B, indicating a divergence between earnings and cash generation. 【Investment Efficiency】ROE was 2.2% (quarterly result, before annualization), and reliance on financial leverage was low because interest-bearing debt was limited to ¥3.28B. 【Financial Soundness】The Equity Ratio was 75.9%, slightly down from 76.9% in the previous year but remaining at a high level. With cash and cash equivalents of ¥25.28B versus interest-bearing debt of ¥3.28B, the company is effectively in a net cash position.
Cash Flow Analysis
Operating Cash Flow was ¥0.99B, down -72.9% from ¥3.65B in the previous year. The primary factors were increases in trade receivables of -¥2.63B and inventories of -¥3.13B, partially offset by an increase in trade payables of +¥2.52B. Investing Cash Flow was -¥1.48B, of which capital expenditures accounted for -¥0.72B. Financing Cash Flow was -¥3.31B, with dividend payments of -¥2.49B representing the largest cash outflow. As a result, Free Cash Flow (Operating Cash Flow + Investing Cash Flow) was -¥0.49B, and part of financing activities, including dividends, was funded through a drawdown of cash on hand. Cash and cash equivalents decreased by -¥3.44B (-12.0%) from ¥28.72B at the beginning of the period to ¥25.28B, indicating that the accumulation of working capital accompanying revenue growth constrained cash generation.
Quality of Earnings
Temporary items on the income statement were immaterial, comprising other income of ¥0.04B and other expenses of ¥0.00B. Accordingly, the increase in Operating Income can be considered recurring and attributable to core margin improvement. Non-operating income and expenses comprised financial income of ¥0.28B exceeding financial expenses of ¥0.06B, making only a limited contribution equivalent to 0.9% of revenue. Meanwhile, comprehensive income for the quarter was ¥8.06B, substantially exceeding Net Income of ¥2.99B. The difference arose from other comprehensive income of ¥5.06B, comprising +¥3.10B from financial assets measured at fair value, +¥1.01B from remeasurements of defined benefit plans, and +¥0.95B from foreign currency translation adjustments for foreign operations. These items are primarily valuation- and foreign exchange-related and should be distinguished from recurring earnings power on a P&L basis. In addition, OCF at 0.33x Net Income indicates delayed cash conversion of accruals due to increases in trade receivables and inventories, making this a monitoring point in assessing earnings quality.
Earnings Forecast and Guidance
Against the full-year forecasts of revenue of ¥128.85B, Operating Income of ¥16.29B, and Net Income of ¥12.00B, Q1 progress rates were 25.0% for revenue, 25.8% for Operating Income, and 24.9% for Net Income. These figures were broadly consistent with simple equal quarterly progress of 25%, with Operating Income slightly ahead of schedule, indicating that the effects of gross margin improvement and SG&A efficiency are also reflected relative to the plan. There were no revisions to the earnings or dividend forecasts during the quarter, and management maintained its current plan.
Shareholder Returns
The full-year dividend forecast is ¥80 per share, based on the post-split basis following the 3-for-1 stock split in October 2025. The resulting Payout Ratio against forecast EPS of ¥338.12 is approximately 23.7%. Dividend payments during Q1 were ¥2.49B (¥1.07B in the previous year), corresponding to the year-end dividend for the previous fiscal year. No share repurchases were conducted during the quarter (¥0.97B were conducted in the previous year), leaving dividends as the primary form of shareholder returns. Given cash on hand of ¥25.28B and an Equity Ratio of 75.9%, the level of cash and deposits available as a source of dividends is substantial. However, Q1 Free Cash Flow was negative, and working capital trends will be relevant to the underlying funding capacity for future shareholder returns.
Risk Factors
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Increase in working capital and delayed cash conversion: Operating Cash Flow was ¥0.99B, only 0.33x Net Income of ¥2.99B. Inventories of ¥3.13B and trade receivables of ¥2.63B each weighed on cash flow, partially offset by an increase in trade payables of ¥2.52B.
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Rising inventory levels: Inventories increased by +¥3.49B (+8.8%) to ¥43.35B from ¥39.86B at the end of the previous fiscal year, accounting for 24.6% of total assets. While this may reflect strategic inventory accumulation during a period of revenue growth, monitoring is necessary from the perspective of potential valuation losses and obsolescence risk if demand fluctuates.
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Impact of foreign exchange fluctuations: Foreign currency translation adjustments for foreign operations of +¥0.95B were recorded in other comprehensive income, while foreign exchange translation effects of +¥0.36B arose in OCF. Given the company’s meaningful overseas business exposure, fluctuations in foreign exchange rates may affect performance and shareholders’ equity.
Industry Benchmark (Reference; Compiled by the Company)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income margin | 13.1% | 8.8% (4.4%–14.3%) | +4.2pt |
| Net Income margin | 9.3% | 7.3% (3.3%–10.6%) | +2.0pt |
Both the company’s Operating Income margin and Net Income margin exceed the industry median, placing its profitability at a relatively high level within the industry.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue growth rate (year on year) | 33.5% | 6.6% (-0.3%–14.8%) | +26.9pt |
The revenue growth rate substantially exceeds the industry median, representing an outstanding pace of revenue growth within the industry.
※Source: Compiled by the company
Key Earnings Highlights
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Structural profitability improvement: The gross margin improved by +3.0pt and the SG&A ratio improved by -2.9pt, resulting in an expansion of the Operating Income margin from 7.3% to 13.1%. A key characteristic is that margins were lifted by both pricing/product mix and the cost structure, rather than by a temporary effect associated solely with revenue growth.
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Delayed cash conversion: Operating Cash Flow was ¥0.99B, only 0.33x Net Income of ¥2.99B, and Free Cash Flow was -¥0.49B. The accumulation of inventories and trade receivables accompanying revenue growth was the cause, and progress in inventory management and receivables collection will be the focus in resolving the divergence between earnings and cash.
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Consistency of guidance progress: Progress rates for revenue, Operating Income, and Net Income were all around 25%, broadly consistent with equal quarterly progress. There were no revisions to the earnings or dividend forecasts during the quarter, and the initial-year plan remains unchanged.
Theoretical Share Price (Reference Value)
This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.
| Scenario | Theoretical Share Price |
|---|---|
| bear | ¥3,687 |
| base | ¥3,764 |
| bull | ¥3,862 |
| Calculation Assumption | Value |
|---|---|
| Book value per share (BPS) | ¥3,758 |
| Adjusted forecast EPS | ¥365.1 |
| Cost of equity r | 9.65% (10-year Japanese government bond 2.65% + equity risk premium 6.00% + size premium 1.00%) |
| Residual income persistence coefficient ω / explicit forecast period | 0.62 / 5 years |
| Assumed Payout Ratio | 23.7% |
| Forecast EPS confidence adjustment | ×1.080 (based on the historical guidance achievement rate of comparable companies in the same industry) |
| implied PBR / PER | 1.00x / 10.3x |
Sensitivity: ¥3,658–¥3,875 at cost of equity ±1%, and ¥3,764–¥3,764 at ω±0.1.
Note:
- Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).
(Calculation model: residual income model / interest rate reference month: 2026-06 / This value does not forecast or guarantee the future share price)
This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.
---End of Report---
AI Financial Analysis
Executive Summary
FY2027 Q1 was a strong operational start, with revenue growth translating into substantially faster operating and net-profit growth. Revenue increased 33.5% YoY to ¥32.24bn. Operating income rose 138.1% YoY to ¥4.21bn. Net income increased 184.6% YoY to ¥2.99bn. The operating margin expanded by 574bp YoY to 13.1% from 7.3%. Gross margin improved by 298bp to 29.4%, indicating a more favorable product mix, pricing, and/or manufacturing-cost absorption. SG&A rose 13.5% YoY, materially below revenue growth, reducing the SG&A-to-sales ratio by 289bp to 16.4% and demonstrating strong operating leverage. The Sun Ace cooling-fan business remained the largest profit contributor, while Electronics moved from a loss to a profit and Motion posted the fastest major revenue growth. Finance income of ¥0.28bn exceeded finance costs of ¥0.06bn, supporting pre-tax income rather than diluting it. The effective tax rate was 32.4%, leaving a tax burden ratio of 0.676. Annualized ROE was 9.0%, supported primarily by the 9.3% net margin, 0.733x asset turnover, and conservative 1.32x financial leverage. Cash conversion was the principal offset to the strong earnings result, as operating cash flow was only ¥0.99bn, or 0.33x net income. Inventory and receivables increased by ¥3.13bn and ¥2.63bn, respectively, absorbing cash despite a ¥2.52bn increase in payables. Free cash flow was negative ¥0.49bn after ¥0.72bn of capital expenditure. The balance sheet remains robust, with a 75.9% equity ratio, 2.4% debt-to-capital ratio, and net cash of approximately ¥21.0bn after deducting ¥3.28bn of interest-bearing debt from cash. Q1 progress versus the full-year forecast was broadly on schedule: revenue reached 25.0%, operating income 25.8%, and net income 25.0% of guidance. The key forward issue is whether the strong margin performance can be maintained while inventory and receivable growth normalize into operating cash generation.
Profitability Analysis
Annualized DuPont ROE is 9.0%, comprising a 9.3% net profit margin, 0.733x asset turnover, and 1.32x financial leverage. The principal driver of profitability was margin expansion rather than leverage: the operating margin rose to 13.1% from 7.3% in the prior-year Q1, while the capital structure remained highly conservative. Gross margin increased to 29.4% from 26.4%, a 298bp improvement, and SG&A grew only 13.5% versus 33.5% revenue growth. This produced meaningful operating leverage, with operating income increasing 138.1% versus revenue growth of 33.5%. The Sun Ace Company was the core business by segment operating-income contribution, generating ¥2.74bn, or 63.9% of aggregate segment profit before eliminations, at a 23.6% margin. Electronics recorded ¥6.32bn of revenue, up 43.0% YoY, and segment profit of ¥0.62bn versus a ¥0.25bn loss a year earlier; its margin improved to 9.8% from negative 5.7%. Motion revenue rose 46.3% to ¥12.73bn and profit increased 84.2% to ¥0.77bn, although its 6.0% margin remained below Sun Ace and Electronics. Other revenue increased 19.2% to ¥1.55bn and segment profit rose 75.6% to ¥0.16bn, with margin improving to 10.2%. The 5-factor decomposition shows a tax burden of 0.676 and an interest burden of 1.053; the latter reflects net finance income and confirms that debt service is not constraining earnings. Margin sustainability will depend on continued demand and utilization in cooling, power-electronics, and motion-control products, because Q1 operating profit growth materially exceeds the full-year operating-income growth forecast of 49.6%.
Growth Assessment
Revenue growth was broad-based across the four reported segments, led by Motion at 46.3% YoY and Electronics at 43.0% YoY. Sun Ace revenue increased 19.6% to ¥11.64bn, retaining a leading role in both scale and segment profitability. The turnaround in Electronics is especially important to earnings quality because the segment shifted from a ¥0.25bn loss to a ¥0.62bn profit. The company forecasts FY2027 revenue of ¥128.85bn, operating income of ¥16.29bn, and net income of ¥12.00bn. Q1 revenue represented 25.0% of annual guidance, while operating-income progress of 25.8% was only 0.8 percentage points ahead of the standard 25% Q1 run rate. Net-income progress was exactly 25.0%, consistent with the standard seasonal benchmark. Accordingly, the reported forecast is not dependent on an unusually large second-half acceleration based on Q1 progress. However, Q1 operating-income growth of 138.1% is well above the 49.6% full-year forecast growth rate, implying management expects either tougher comparatives, moderation in mix and utilization, or normalizing costs through the rest of the year. Higher inventories and receivables alongside sales growth indicate that revenue conversion into cash should be monitored as closely as reported revenue growth.
Financial Health
Financial health is strong. Current assets of ¥110.94bn compared with current liabilities of ¥30.24bn imply a current ratio of 3.67x, comfortably above the 1.0x warning threshold. The quick ratio is approximately 2.17x, based on cash, trade receivables, and current other financial assets relative to current liabilities. Working capital calculated as current assets less current liabilities was ¥80.70bn. Interest-bearing debt was only ¥3.28bn, consisting of ¥2.41bn of short-term loans and ¥0.87bn of long-term loans, versus cash and equivalents of ¥25.28bn. This equates to net cash of approximately ¥21.99bn and a debt-to-equity ratio of 0.025x when based on reported borrowings, while the reported broader D/E metric is 0.32x. Debt-to-capital of 2.4% and an equity ratio of 75.9% confirm low balance-sheet leverage. Short-term loans represent 73.4% of borrowings, which creates a refinancing concentration in form, but the risk is mitigated by cash equal to approximately 10.5x short-term loans, substantial liquid financial assets, and low absolute debt. The quality alert showing cash-to-short-term-debt of 0.00x is not supported by the reported balances; cash of ¥25.28bn materially exceeds ¥2.41bn of short-term loans. Lease liabilities total ¥2.03bn and should be considered alongside borrowings, but remain modest relative to equity and liquidity. Noncurrent other financial assets increased by ¥4.43bn, or 28.0%, from fiscal year-end to ¥20.29bn, while deferred tax liabilities increased ¥1.77bn, or 26.7%, to ¥8.40bn.
Notable B/S Changes
Total assets: +¥9.54bn (+5.7%) from FY2026 year-end to ¥175.90bn - growth was driven by current operating assets and financial assets. Other financial assets (noncurrent): +¥4.43bn (+28.0%) to ¥20.29bn - a significant increase in the investment/financial-asset balance that contributed to higher asset values. Deferred tax liabilities: +¥1.77bn (+26.7%) to ¥8.40bn - consistent with higher unrealized valuation-related balances and requires monitoring alongside OCI movements. Inventories: +¥3.49bn (+8.8%) to ¥43.35bn - inventory accumulation supports revenue growth but is the principal source of Q1 operating cash-flow pressure. Trade receivables: +¥2.08bn (+6.5%) to ¥34.13bn - receivables increased alongside sales and contributed to weak Q1 cash conversion. Total equity: +¥5.59bn (+4.4%) to ¥133.45bn - Q1 comprehensive income of ¥8.06bn, partly offset by ¥2.49bn of dividends, strengthened the already high equity base.
Cash Flow Quality
Cash-flow quality is the main financial concern in Q1. Operating cash flow was ¥0.99bn versus net income of ¥2.99bn, resulting in an OCF-to-net-income ratio of 0.33x, below the 0.8x quality threshold. The root cause was working-capital absorption rather than weak reported profitability: inventories increased by ¥3.13bn and receivables increased by ¥2.63bn. Payables increased by ¥2.52bn and partly offset the outflow, but net operating working-capital movements still reduced cash flow by approximately ¥3.24bn. Cash taxes paid were ¥1.91bn, also weighing on conversion. The accruals ratio of 1.1% remains low, which is favorable and indicates that the OCF shortfall is not, on its own, evidence of unusually high accounting accruals. Annualized receivable days were 97 days, exceeding the 60-day warning threshold; this likely reflects a long collection cycle for industrial equipment and project-related sales, but it remains a material working-capital risk given the Q1 receivable increase. Annualized inventory days were 174 days, above both the 90-day warning level and the stricter 60-day manufacturing-efficiency reference point. The annualized cash conversion cycle was 180 days, also above the 120-day warning threshold, despite annualized payable days of approximately 91 days. These alerts point to significant cash tied up in production and customer collections; the impact is a lower near-term cash yield and greater exposure should demand or order timing weaken. Capital expenditure was ¥0.72bn, and free cash flow was negative ¥0.49bn. Including intangible-asset purchases, cash investment in operating assets was ¥0.96bn. Cash flow should improve if the inventory build supports subsequent deliveries and receivables are collected on normal contractual terms; otherwise, persistent working-capital expansion would weaken earnings quality.
Dividend Sustainability
The FY2027 forecast dividend is ¥170 per share against forecast EPS of ¥338.12, implying a forecast dividend payout ratio of 50.3%. This is within the sub-60% sustainability benchmark on an earnings basis. Q1 dividends paid were ¥2.49bn, equivalent to 83.2% of Q1 net income, reflecting the timing of shareholder distributions rather than a quarterly run-rate policy. Q1 free cash flow was negative ¥0.49bn, so dividends were not covered by internally generated free cash flow during the quarter. However, the company has ¥25.28bn of cash, minimal borrowings, net cash of approximately ¥21.99bn, and a strong 75.9% equity ratio, providing substantial balance-sheet capacity. The key determinant of cash dividend coverage over the full year is conversion of the inventory and receivables build into operating cash flow. No share repurchases were recorded in the current quarter, so the relevant shareholder-return measure is the dividend payout ratio rather than a total return ratio. The announced FY2027 annual dividend of ¥510 before adjusting for the prior stock split is consistent with ¥170 on the post-split basis used in the forecast data.
Risk Assessment
Business risks include Working-capital intensity is the highest operational risk: annualized DSO of 97 days, DIO of 174 days, and a 180-day cash conversion cycle leave substantial capital exposed to delivery schedules and customer collection timing., Inventory increased ¥3.13bn during Q1. For an electronics and motion-control manufacturer, prolonged inventory days can increase risks of demand mismatch, component obsolescence, and adverse product mix if industrial automation demand slows., The Q1 margin step-up is substantial, with operating margin reaching 13.1% from 7.3%. Sustaining this result depends on continued product mix, factory utilization, and pricing discipline across cooling fans, power systems, and motion products., Electronics returned to profitability, but its 9.8% segment margin remains below Sun Ace's 23.6%; maintaining the turnaround is important to consolidated profit growth., Manufacturing operations remain exposed to component availability, raw-material and energy-cost volatility, customer capital-expenditure cycles, quality issues, and foreign-exchange translation effects on overseas operations..
Financial risks include OCF-to-net-income of 0.33x is below the 0.8x alert threshold. The immediate impact is negative free cash flow despite strong net income., Short-term debt accounts for 73.4% of borrowings, above the 40% alert threshold. This refinancing concentration is low impact at present because cash covers short-term loans by approximately 10.5x., Dividend payments of ¥2.49bn exceeded Q1 operating cash flow and Q1 free cash flow was negative, increasing reliance on existing cash until working capital reverses., Other comprehensive income of ¥5.06bn, including ¥3.10bn of equity-investment fair-value gains and ¥0.95bn of foreign-currency translation gains, increased equity but is not a substitute for operating cash generation..
Key concerns include Priority 1: Monitor whether inventory and receivable balances normalize in subsequent quarters; continued growth would indicate that accounting earnings are not converting into cash., Priority 2: Track segment margins, particularly whether Sun Ace maintains its high margin and whether the Electronics turnaround remains profitable., Priority 3: Compare quarterly operating-profit progress with the FY2027 forecast, as the 138.1% Q1 increase is far above the 49.6% full-year growth outlook., Priority 4: Monitor cash distributions relative to full-year free cash flow, notwithstanding the company's strong net-cash balance sheet..
Investment Implications
Key takeaways include Q1 delivered broad-based growth, operating leverage, and a 574bp expansion in operating margin to 13.1%., Sun Ace is the core profit engine, while Electronics' shift to profitability and Motion's 46.3% revenue growth broadened the earnings base., Forecast progress is broadly normal for Q1, at 25.0% for revenue, 25.8% for operating income, and 25.0% for net income., The balance sheet is a major support, with 75.9% equity ratio, 2.4% debt-to-capital, and approximately ¥22.0bn of net cash., The central analytical trade-off is strong reported earnings versus weak Q1 cash conversion caused by inventory and receivables growth..
Metrics to watch include Operating cash flow and OCF-to-net-income conversion, particularly recovery from 0.33x toward or above 0.8x., Inventories, annualized DIO, and inventory composition as indicators of demand alignment and obsolescence exposure., Trade receivables and annualized DSO, currently 97 days., Cash conversion cycle, currently 180 days annualized., Sun Ace, Electronics, and Motion segment revenue growth and segment margins., Full-year operating-income guidance progress relative to the 25%, 50%, and 75% quarterly benchmarks., Dividend cash coverage relative to full-year free cash flow..
Regarding relative positioning, The company combines an above-average Q1 operating margin of 13.1% with exceptionally conservative leverage and net cash, placing it in a financially resilient position for an industrial electronics manufacturer. Its relative weakness is working-capital efficiency: the 97-day DSO, 174-day DIO, and 180-day annualized cash conversion cycle are materially above standard manufacturing benchmarks and currently suppress cash conversion.