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

Financial Highlights

• Net Sales: ¥13.68B
• Operating Income: ¥1.07B
• Net Income: ¥940M
• 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

Shirai Electronics Industry Co., Ltd. (TSE:6658) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥13.68bn, down 4.4% YoY, indicating softer demand or pricing pressure in its PCB/electronics-related end markets. Gross profit was ¥2.87bn, implying a gross margin of 21.0%, consistent with a value-added but still cost-sensitive manufacturing profile. Operating income fell 9.4% YoY to ¥1.07bn, with an operating margin of 7.8%, showing negative operating leverage as a modest revenue decline translated into a disproportionate profit decline. Ordinary income of ¥0.97bn was below operating income, reflecting net non-operating expenses, including interest expense of ¥68m. Net income declined 25.5% YoY to ¥706m, a larger contraction than operating income, driven by non-operating drag and a normalized tax burden. The net margin printed at 5.16%, down YoY, underscoring margin compression at the bottom line. The DuPont framework yields ROE of 7.21% (net margin 5.16% × asset turnover 0.722 × financial leverage 1.94), a mid-single-digit return supported more by leverage than by asset efficiency. Asset turnover of 0.72x is moderate for a manufacturer with a relatively heavy fixed asset base, while financial leverage of ~1.94x is prudent, enabling acceptable ROE. Liquidity appears sound with a current ratio of 135% and working capital of ¥2.7bn; however, the quick ratio equals the current ratio because inventories were not disclosed, likely overstating immediate liquidity. Operating cash flow of ¥700m tracks net income closely (OCF/NI ~0.99), suggesting reasonable earnings quality for the half, though investing cash flows were unreported, limiting FCF analysis. Interest coverage is strong at ~15.8x EBIT, indicating manageable financing costs. Balance sheet solvency looks robust: total liabilities of ¥9.40bn vs equity of ¥9.79bn (D/E ~0.96x), and an equity ratio inferred at ~51.7% despite the provided 0.0% placeholder. Dividend data were not disclosed (DPS and payout indicated as 0, which should be treated as “not reported”), so distribution policy and sustainability cannot be assessed from this dataset. Overall, the company demonstrates resilient operating profitability and strong coverage metrics but faces cyclical headwinds that have pressured sales and net income, with limited visibility on capex and cash balances due to unreported items.

Profitability Analysis

ROE decomposition: ROE 7.21% = Net margin 5.16% × Asset turnover 0.722 × Leverage 1.94. Operating margin stands at ~7.8% (¥1,071m/¥13,678m), down YoY consistent with the 9.4% decline in operating income versus a 4.4% decline in sales. Gross margin is 21.0%, suggesting reasonable value-add but also exposure to materials and energy cost fluctuations. EBITDA of ¥1,546m implies an EBITDA margin of 11.3%, giving a buffer for depreciation and interest; D&A of ¥475m indicates meaningful capital intensity. Ordinary margin is ~7.1% and below operating margin due to non-operating costs (notably ¥68m interest and likely other minor losses), weighing on bottom-line conversion. Net margin of 5.16% indicates further compression from taxes. Operating leverage was negative this period: a 4.4% sales decline led to a 9.4% drop in operating income, implying an operating leverage factor slightly above 2x, consistent with a fixed-cost manufacturing base. Margin quality: the spread between gross and operating margin (~13.2 percentage points) reflects SG&A and R&D burden; stability here will be key if volumes remain soft. Interest burden is low relative to EBIT (coverage ~15.8x), so financing does not materially constrain profitability. Overall profitability remains solid but sensitive to top-line swings and non-operating items.

Growth Assessment

Revenue declined 4.4% YoY to ¥13.68bn, signaling softer orders or pricing pressure in core end markets. Operating income fell 9.4% YoY to ¥1.07bn, indicating negative operating leverage as fixed costs were not fully absorbed at lower volumes. Net income contracted 25.5% YoY to ¥706m, a sharper drop than operating profit due to non-operating expenses and a normalizing tax burden. Profit quality: OCF of ¥700m is ~99% of net income, suggesting earnings are backed by cash generation this half. However, sustainability is unclear without insight into working capital drivers (inventories not disclosed) and capex (investing CF not reported). The revenue decline appears cyclical rather than structural based on the magnitude and profile, but confirmation requires backlog, book-to-bill, and customer mix data. Outlook hinges on recovery in electronics/industrial demand, input cost stabilization (copper-clad laminates, energy), and FX impacts on export competitiveness and materials. Margin resilience will be tested if pricing remains tight; cost control and product mix upgrades (higher layer counts, specialty boards) are levers. Without guidance or order metrics, we assume a cautious near-term trajectory with potential stabilization if demand normalizes. Non-operating headwinds (interest and other items) should be manageable given strong coverage.

Financial Health

Liquidity: current assets ¥10.44bn vs current liabilities ¥7.74bn yields a current ratio of ~135% and working capital of ~¥2.70bn. Quick ratio is shown equal to current ratio because inventories were not disclosed; true quick liquidity is likely lower than stated. Cash and equivalents were not reported, limiting immediate liquidity assessment. Solvency: total liabilities ¥9.40bn vs equity ¥9.79bn implies D/E ~0.96x and an inferred equity ratio around 51.7% (equity/total assets), despite the 0.0% placeholder. Interest coverage is robust at ~15.8x, indicating low refinancing risk under current earnings. Asset base totals ¥18.95bn, supporting operations but contributing to modest asset turnover (0.72x). Overall, the balance sheet appears conservatively financed for the cycle, with adequate short-term liquidity and solid solvency.

Cash Flow Quality

Earnings quality appears reasonable: OCF of ¥700m is ~0.99x net income of ¥706m, indicating low accrual intensity for the period. The lack of disclosed investing cash flows and cash balance constrains assessment of capital allocation and free cash flow. Reported FCF of 0 should be treated as not computable rather than zero, as capex and investment outflows are unreported. Working capital dynamics cannot be fully assessed because inventories were not disclosed; nonetheless, the close alignment of OCF and NI hints that receivables/payables movements were not materially adverse this half. Depreciation of ¥475m versus EBITDA of ¥1,546m implies healthy cash earnings capacity. Non-operating cash uses include interest of ¥68m and financing cash outflows of ¥939m, likely debt repayment; dividend payments are not evident from disclosures. Overall, cash conversion is solid, but visibility into sustaining capex and cash reserves is limited.

Dividend Sustainability

Dividend data (DPS and payout ratio) are not disclosed in the dataset and appear as zero placeholders; therefore, we cannot infer current distributions or policy. From capacity perspective, mid-single-digit ROE (7.2%) and OCF ≈ NI suggest the ability to fund ordinary dividends if desired, contingent on capex needs and working capital. Financing CF of -¥939m suggests balance sheet de-leveraging rather than distributions. Without investing CF and cash balances, FCF coverage of dividends cannot be assessed; the reported FCF of 0 should not be interpreted as actual zero. Policy outlook thus remains unclear; any dividend resumption or increase would depend on demand recovery, capex profile, and maintaining interest coverage and liquidity buffers.

Risk Assessment

Business Risks:

• Cyclical demand in electronics/industrial end markets impacting PCB volumes and pricing
• Input cost volatility (copper-clad laminates, chemicals, energy) affecting gross margin
• Customer concentration risk typical in EMS/PCB supply chains
• FX fluctuations influencing export competitiveness and material costs
• Technological shifts (higher-layer, HDI, specialty substrates) requiring ongoing capex and process upgrades
• Supply chain disruptions and lead-time variability affecting deliveries and working capital
• Geopolitical and China-related exposure if production or customers are concentrated regionally

Financial Risks:

• Visibility on liquidity constrained by undisclosed cash and inventories
• Potential working capital swings if demand weakens further
• Capex intensity could pressure free cash flow in downcycles
• Interest rate increases could raise financing costs (though current coverage is strong)
• Currency volatility impacting translated earnings and balance sheet

Key Concerns:

• Net income down 25.5% YoY despite modest revenue decline
• Negative operating leverage with operating income down 9.4% on a 4.4% sales decline
• Non-operating drag (ordinary income below operating income) weighing on bottom line
• Limited disclosure on cash, inventories, and investing cash flows obscures FCF and liquidity assessment

Investment Implications

Key Takeaways:

• Top line down 4.4% YoY with operating income down 9.4%, evidencing negative operating leverage
• ROE of 7.21% driven by moderate leverage and modest asset turnover; margins remain the key swing factor
• Gross margin at 21.0% and operating margin at 7.8% indicate resilient but pressured profitability
• OCF closely tracks net income (0.99x), suggesting reasonable earnings quality
• Balance sheet appears solid (inferred equity ratio ~52%, D/E ~0.96x) with strong interest coverage (~15.8x)
• Data gaps on cash, inventories, and investing CF limit FCF and liquidity visibility

Metrics to Watch:

• Order trends and book-to-bill ratio
• Inventory days and receivables/payables turnover (when disclosed)
• Capex plans and investing cash flows
• Gross margin trajectory versus input costs (copper-clad, energy) and product mix
• Operating leverage sensitivity to revenue changes
• FX exposure and sensitivity analysis
• Ordinary income components (non-operating gains/losses) and interest expense trend

Relative Positioning: Relative to TSE electronics manufacturing peers, Shirai shows mid-pack profitability (ROE ~7%, EBITDA margin ~11%), conservative leverage, and solid coverage. Asset turnover is modest, consistent with a capital-intensive profile. The principal differential is data visibility, where missing cash, inventory, and capex disclosures hinder FCF benchmarking versus 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