Shirai Electronics Industrial Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.68B
• Operating Income: ¥1.07B
• Net Income: ¥704M
• EPS: ¥47.22

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: A resilient but softer FY2026 Q2, with revenue and profit down year over year and slight margin compression, yet liquidity and leverage remain manageable. Revenue was 136.78, down 4.4% YoY, while operating income declined 9.4% to 10.71 and ordinary income fell a sharper 22.8% to 9.73, reflecting higher non-operating costs. Net income was 7.06, down 25.5% YoY, with an effective tax rate of 26.9%. Gross margin was 19.5% (gross profit 26.70), and operating margin was 7.8% (10.71/136.78). Based on the YoY declines, operating margin compressed roughly 44 bps from ~8.3% to 7.8%. EBITDA was 14.88, translating to an EBITDA margin of 10.9%. Non-operating expenses (1.23) exceeded non-operating income (0.24), with interest expense at 0.39, contributing to the larger drop in ordinary income versus operating income. Cash flow quality was acceptable but not stellar: operating cash flow of 6.44 equated to 0.91x of net income, indicating modest cash conversion pressure. Total comprehensive income was 2.39, materially below net income, implying sizable OCI losses (likely FX or securities valuation) that reduced equity accretion this quarter. Balance sheet remains sound: current ratio is 134.8% (above 1.0 but below the 1.5 comfort benchmark), and reported D/E is 0.94x with an implied equity ratio near 52%. Short-term loans of 16.92 are well covered by current assets of 105.31, mitigating near-term refinancing risk. ROE was 7.2% via DuPont (net margin 5.2% × asset turnover 0.722 × financial leverage 1.94x), around management ROIC of 7.0%, suggesting returns near the lower end of an acceptable range. Capital discipline looks prudent: CapEx was 1.84, and share repurchases of 0.93 were executed even amid softer earnings. The calculated payout ratio of 64.2% is on the higher side of sustainability; with modest OCF, shareholder returns should remain measured. Forward-looking, management needs to stabilize gross margin and rein in non-operating drags to protect ordinary income, while sustaining ROIC at or above 7% amid a softer demand backdrop. Overall, the quarter signals near-term headwinds but preserves financial flexibility to navigate the cycle.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.2% = Net Profit Margin 5.2% × Asset Turnover 0.722 × Financial Leverage 1.94x. The most notable pressure came from net margin: ordinary income fell 22.8% YoY versus operating income down 9.4%, reflecting a heavier non-operating burden (non-operating expenses of 1.23 vs income of 0.24, and interest expense 0.39), which compressed after-tax profitability. Asset turnover at 0.722 (Revenue 136.78 / Assets 189.47) is reasonable for an electronics/PCB manufacturer and indicates stable asset utilization despite lower sales. Financial leverage at 1.94x (Assets/Equity) is moderate, supporting ROE without excessive balance-sheet risk. Business drivers: margin compression likely stems from weaker demand/pricing and a less favorable cost mix (material and energy costs) combined with higher financing and other non-operating costs. Sustainability: margin pressure may persist near term if end-market demand (industrial/auto electronics) remains soft or if input costs stay elevated; non-operating drags are partly cyclical (FX/valuation) and may normalize, offering some upside to ordinary income. Operating leverage appears slightly negative this quarter as SG&A (15.98) remained sticky relative to the revenue decline (−4.4%), and ordinary income fell more than operating income due to non-operating factors. Watch for SG&A growth outpacing revenue in coming quarters; at present, expense control looks reasonable but not enough to offset top-line softness.

Growth Assessment

Revenue declined 4.4% YoY to 136.78, indicating a cyclical soft patch likely tied to industrial/automotive electronics demand and inventory adjustments. Operating income fell 9.4% to 10.71, outpacing the revenue decline, signaling some deleveraging of fixed costs and/or pricing pressure. Ordinary income weakened by 22.8% to 9.73 due to higher non-operating costs, magnifying the earnings drop. Net income decreased 25.5% to 7.06, also affected by a normalized tax rate (26.9%) and non-operating losses. Gross margin stands at 19.5%; holding this level is key for recovery, as further input cost pressure would quickly erode profitability. EBITDA margin at 10.9% provides a cushion but remains sensitive to utilization rates. With ROIC at 7.0%, returns are at the management target threshold; sustaining above 7% will require either volume recovery or incremental mix/efficiency gains. Outlook: near-term growth hinges on demand recovery in key end markets and tighter control of non-operating items (FX, valuation). A stabilization in commodity inputs and better mix could modestly lift gross and operating margins. Without a top-line rebound, earnings growth will be challenged; thus, revenue sustainability depends on order trends, backlog, and book-to-bill over the next two quarters.

Financial Health

Liquidity is adequate: current ratio 134.8% (>1.0) and quick ratio 134.8% suggest sufficient near-term coverage, though slightly below the >1.5x comfort benchmark. No explicit warning on current ratio since it is above 1.0. Working capital is 27.17, with current assets (105.31) comfortably exceeding current liabilities (78.14). Maturity profile: short-term loans of 16.92 are backed by cash (10.65) and accounts receivable (45.64), indicating low near-term refinancing risk. Solvency: total liabilities are 91.56 versus total equity 97.91, implying an equity ratio of ~51.7%; reported D/E is 0.94x, indicating conservative to moderate leverage for the sector. Long-term loans are 7.17, keeping structural leverage low. Interest coverage is strong at 27.46x, leaving ample headroom against rate or earnings volatility. Off-balance sheet obligations are not disclosed; no specific guarantees or commitments are reported in the provided data.

Cash Flow Quality

OCF was 6.44 against net income of 7.06, producing an OCF/NI ratio of 0.91x—slightly below the >1.0 benchmark but not alarming; this points to modest working capital headwinds or accruals. With disclosed CapEx of 1.84, implied free cash flow (OCF − CapEx) is approximately 4.60, indicating the business generated cash after investments this quarter. Financing CF was −2.41, reflecting outflows from share repurchases (0.93) and potentially debt service; dividends were unreported. Earnings quality flags: OCF/NI < 1.0 warrants monitoring, but strong interest coverage and positive implied FCF mitigate concern. Working capital: accounts receivable stand at 45.64; inventories were unreported, limiting our ability to assess inventory turns or potential build-ups. No overt signs of working capital manipulation are evident from the limited data.

Dividend Sustainability

The calculated payout ratio is 64.2%, marginally above the <60% benchmark for comfort, suggesting limited headroom if earnings softness persists. With implied FCF of ~4.60 and unreported dividend payments, we cannot definitively assess cash coverage; however, the positive FCF and moderate leverage argue for basic sustainability if payouts remain disciplined. Share repurchases of 0.93 were executed, indicating ongoing shareholder returns even amid profit pressure. Policy outlook: given earnings volatility and OCF/NI < 1.0, management may prioritize maintaining dividends while flexing buybacks based on cash generation. Any further deterioration in margins or a rise in CapEx would pressure coverage.

Risk Assessment

Business Risks:

• End-market demand softness in industrial/automotive electronics leading to volume and price pressure
• Input cost volatility (copper laminates, energy) compressing gross margin
• Customer concentration risk typical for PCB suppliers (data not disclosed but industry-common)
• Execution risk on cost control as sales decline, impacting operating leverage

Financial Risks:

• OCF/NI at 0.91x indicates moderate cash conversion risk if earnings weaken further
• Non-operating expense volatility (FX, valuation losses) depressing ordinary income
• Short-term debt reliance (16.92) requires ongoing access to working capital lines
• OCI losses reduced comprehensive income to 2.39, creating potential equity volatility

Key Concerns:

• Ordinary income down 22.8% YoY vs operating income down 9.4% signals external financial headwinds
• Operating margin compressed by ~44 bps, highlighting pricing/mix and fixed-cost absorption issues
• Payout ratio at 64.2% leaves less buffer if profits decline further
• Limited disclosure on inventories and dividend cash outflows restricts full risk evaluation

Investment Implications

Key Takeaways:

• Core profitability softened with revenue −4.4% and operating income −9.4% YoY; margin compressed modestly
• Ordinary income fell more sharply (−22.8%) due to higher non-operating costs
• Cash generation is acceptable (OCF/NI 0.91x; implied FCF positive) but should improve to comfortably fund shareholder returns
• Balance sheet is solid with ~52% equity ratio and strong interest coverage (27.46x)
• ROE 7.2% and ROIC 7.0% sit at the threshold of acceptable returns; improvements hinge on margin recovery

Metrics to Watch:

• Order intake, backlog, and book-to-bill for signs of demand recovery
• Gross and operating margin trajectory versus input cost trends
• Ordinary income drivers: FX impacts, non-operating gains/losses, and interest costs
• Working capital movements, especially receivables collection and any inventory build (when disclosed)
• CapEx discipline and FCF versus dividends and buybacks
• OCF/NI ratio staying at or above 1.0

Relative Positioning: Within Japan electronics/PCB peers, the company shows moderate profitability and solid balance sheet strength, but is currently experiencing cyclical top-line and margin pressure; maintaining ROIC ~7% is acceptable but leaves limited cushion versus capital costs until demand and margin conditions improve.

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