Sanoh Industrial Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥78.52B
• Operating Income: ¥3.36B
• Net Income: ¥3.37B
• EPS: ¥83.18

Income Statement

Balance Sheet

Cash Flow Statement

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 profit rebound on tighter cost control despite a modest revenue decline, but cash flow quality and capital efficiency remain weak. Revenue fell 3.2% YoY to 785.22, yet operating income rose 41.0% YoY to 33.61 and net income surged 158.3% YoY to 29.79. Gross profit was 131.56 with a gross margin of 16.8%, indicating better input cost management or improved mix. Operating margin improved to 4.3%, while EBITDA reached 66.78 (8.5% margin), supporting the profit recovery. Based on YoY growth rates, operating margin expanded by roughly 134 bps (from ~2.9% to ~4.3%), and net margin expanded by about 237 bps (from ~1.4% to ~3.8%). Ordinary margin improved ~45 bps (from ~2.7% to ~3.1%), even as non-operating expenses (12.51) outpaced non-operating income (3.28). The effective tax rate was 24.5%, broadly normal and not a swing factor. ROE printed 6.0%, driven by a stronger net margin (3.8%) with asset turnover of 0.633 and financial leverage of 2.50x. However, operating cash flow of 19.33 covered only 65% of net income, signaling weaker earnings-to-cash conversion this half. Free cash flow was negative when factoring capex of 47.91, implying reliance on financing (financing CF +15.64) to fund investments. The balance sheet shows adequate liquidity (current ratio 147%) but elevated leverage (D/E 1.50x and Debt/EBITDA 6.27x) and a heavy short-term loan load (229.24). ROIC is low at 3.4%, below a typical cost of capital benchmark and a clear capital efficiency challenge. Forward-looking, sustaining margin gains while normalizing working capital to lift OCF is key. Management will likely need to balance capex with cash generation and monitor debt mix to reduce refinancing risk. Overall, earnings momentum improved, but cash flow discipline and ROIC uplift are required to translate profits into durable shareholder value.

Profitability Analysis

ROE decomposition: ROE 6.0% = Net Profit Margin 3.8% × Asset Turnover 0.633 × Financial Leverage 2.50x. The largest change YoY is the net profit margin, inferred from net income +158.3% on revenue -3.2%, implying a margin lift of roughly +237 bps to ~3.8%. Asset turnover likely dipped slightly with lower sales against a relatively stable asset base (0.633 currently), while leverage appears broadly steady at 2.50x. Business drivers for the margin expansion include improved cost of sales discipline (gross margin 16.8%), operating cost control (operating income +41% despite lower sales), and possibly lower depreciation burden in certain lines versus prior periods (DA 33.17 within EBITDA of 66.78). Non-operating headwinds (interest and other expenses totaling 12.51 vs 3.28 income) limited ordinary income growth to +13.1%, but did not offset operating gains. The sustainability of margin gains will depend on continued pass-through of material costs, stable volumes in auto end-markets, and maintaining SG&A efficiency; without reported SG&A detail, we cannot confirm structural cost cuts. Watch for any reversal if raw material prices or FX move unfavorably. Concerning trends to flag: revenue contraction while leverage remains high reduces operating leverage cushion; and non-operating expenses (including interest) remain a drag, capping ordinary income conversion.

Growth Assessment

Top-line declined 3.2% YoY to 785.22, indicating soft demand or adverse mix/pricing. Operating income grew 41.0% YoY to 33.61, evidencing successful cost management and/or better pricing discipline. Ordinary income rose 13.1% to 24.38 due to higher interest and other non-operating expenses, which diluted operating gains. Net income jumped 158.3% to 29.79, aided by stronger operating profit and a normal tax rate. EBITDA of 66.78 (8.5% margin) underscores improved operating efficiency. Near-term revenue sustainability is uncertain without order backlog or regional breakdown; given auto sector cyclicality, a flat-to-slightly improving trajectory hinges on OEM production schedules and supply normalization. Profit quality is mixed: accounting profits improved, but OCF lagged (0.65x of NI), suggesting working capital absorption. Outlook: if the company can stabilize volumes and preserve pricing, we expect margins to hold above prior-year levels; however, higher interest costs and negative FCF due to capex constrain net profit scalability.

Financial Health

Liquidity is adequate: current ratio 147.2% and quick ratio 147.2%, both above the 1.0 safety threshold (no warning), though slightly below the >150% comfort benchmark. No warning on leverage thresholds (D/E 1.50x is at the benchmark ceiling, but below the 2.0x warning level). Interest coverage is strong at 7.80x (EBIT/Interest), providing buffer against rate increases. Short-term loans are sizable at 229.24 versus cash 178.86 and accounts receivable 191.35; current assets of 720.83 comfortably cover current liabilities of 489.83, limiting near-term maturity mismatch risk, but refinancing discipline is important. Long-term loans of 189.78 bring total loans to 419.02, implying net debt around 240.16 after netting cash. Debt/EBITDA at 6.27x is elevated, indicating slower deleveraging capacity absent stronger cash flow. Equity stands at 495.92 with retained earnings of 340.59, giving some balance sheet resilience. No off-balance sheet obligations were disclosed in the data set; absence of disclosure does not confirm absence of such commitments.

Cash Flow Quality

OCF of 19.33 versus net income of 29.79 yields OCF/NI of 0.65 (flag: below 0.8), indicating weaker cash conversion, likely from working capital build (specific line items unreported). Free cash flow is negative when subtracting capex of 47.91, implying FCF around -28.58 for the period. Financing inflow of 15.64 suggests partial debt funding of capex and/or working capital. Sustainability: current dividend capacity from FCF is constrained this half; improvement would require either working capital release or lower capex in subsequent periods. Potential manipulation signs are not evident from disclosed items; however, the divergence between NI and OCF warrants monitoring of receivables collection and inventory levels (inventories unreported) in subsequent quarters.

Dividend Sustainability

The calculated payout ratio is 34.9%, within a generally sustainable range (<60%), but the basis for this calculation is not fully disclosed and dividend amounts were unreported. Given negative FCF this half and elevated leverage, dividends are currently supported by earnings rather than free cash flow. Coverage from cash is weaker due to OCF/NI of 0.65. With capex of 47.91, maintaining dividends without FCF recovery implies continued reliance on balance sheet flexibility. Policy outlook is unclear due to missing DPS disclosures; near-term sustainability hinges on restoring positive FCF and managing capex cadence.

Risk Assessment

Business Risks:

• End-market cyclicality in global auto production impacting volumes and pricing
• Raw material price volatility (resin, rubber, metals) affecting gross margin
• FX fluctuations (JPY/USD, JPY/CNY/EUR) influencing both cost and translation
• Customer concentration risk typical for auto parts suppliers (OEM dependency)
• Execution risk on capex with delayed payback amid negative FCF
• Potential China or emerging market exposure affecting demand and supply chain

Financial Risks:

• Elevated leverage (D/E 1.50x; Debt/EBITDA 6.27x) limiting flexibility
• High short-term debt (229.24) creating refinancing and interest rate risk
• Weak cash conversion (OCF/NI 0.65) and negative FCF this half
• Non-operating expense burden (interest and others) constraining ordinary income

Key Concerns:

• Capital efficiency: ROIC 3.4% below a typical 5% warning threshold
• Earnings quality gap with OCF trailing NI
• Sustainability of margin gains if materials or FX turn adverse
• Dependence on financing inflows to support capex while FCF is negative

Investment Implications

Key Takeaways:

• Profitability improved markedly despite lower sales, with operating and net margins expanding.
• Cash flow lagged profits; working capital and capex drove negative FCF.
• Balance sheet liquidity is acceptable, but leverage and short-term debt are high.
• ROE of 6% and ROIC of 3.4% point to subpar capital efficiency versus typical benchmarks.
• Interest coverage is healthy, but non-operating costs still dilute ordinary income.

Metrics to Watch:

• OCF/Net Income and working capital turns (AR days, inventory days when disclosed)
• Free cash flow and capex trajectory
• Operating margin sustainability and gross margin vs raw material trends
• Debt/EBITDA and short-term debt mix/rollovers
• FX impacts and interest expense run-rate

Relative Positioning: Relative to domestic auto-parts peers, the company shows improving margin execution but weaker capital efficiency (ROIC 3.4%) and higher leverage (Debt/EBITDA 6.27x). Maintaining cash discipline to convert earnings into FCF is the key differentiator needed to close the gap with stronger peers.

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