| Metric | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue | ¥801.8B | ¥1216.2B | -34.1% |
| Operating Income | ¥-47.3B | ¥-37.9B | -24.8% |
| Ordinary Income | ¥-88.4B | ¥-142.8B | +38.1% |
| Net Income | ¥-105.6B | ¥793.5B | -113.3% |
| ROE | -8.8% | 53.6% | - |
For the fiscal year ended March 2026, Sanken Electric recorded Revenue of ¥801.8B (YoY -¥414.4B, -34.1%), an Operating Loss of ¥47.3B (YoY -¥9.4B, loss widened), an Ordinary Loss of ¥88.4B (YoY +¥54.4B, loss narrowed 38.1%), and a Net Loss of ¥105.6B (YoY -¥899.1B, -113.3%), resulting in a large decline in revenue and a deficit. Revenue fell by over 30% due to weakening semiconductor demand and lower utilization rates, and operating results were negative for the second consecutive year with a wider loss. Although ordinary profit improved YoY, an equity-method loss of ¥21.2B and foreign exchange loss of ¥12.4B weighed on results, producing an ¥88.4B loss. Net income swung to a ¥105.6B loss from a ¥793.5B profit in the prior year; however, the prior year included a large one-off gain (equity valuation change gain ¥98.3B), so deterioration of the underlying operating base should be assessed at the ordinary income level.
[Revenue] In the single-segment Semiconductor Devices business, Revenue declined significantly to ¥801.8B (-34.1%). Gross profit was ¥75.0B (gross margin 9.4%), down ¥169.9B YoY, with the gross margin deteriorating 11.1pt from 20.5% in the prior year. The deterioration was mainly driven by falling selling prices and an adverse product mix due to weak semiconductor market conditions, together with under-absorption of fixed manufacturing costs from lower utilization. Inventories rose to ¥151.3B (YoY +¥32.2B), up 27%, with work-in-process especially high at ¥264.6B, and inventory stagnation further depressing utilization and efficiency.
[Profitability] SG&A was ¥122.3B (SG&A ratio 15.3%), down ¥164.0B YoY, improving the SG&A ratio by 8.3pt from 23.6% the prior year. Despite progress in fixed-cost reductions, the drop in gross profit was too large, resulting in an Operating Loss of ¥47.3B (Operating margin -5.9%), worse than the prior year loss of ¥37.9B. Non-operating items saw interest income ¥11.3B exceed interest expense ¥8.5B, but an equity-method investment loss ¥21.2B and foreign exchange loss ¥12.4B pressured earnings, producing non-operating losses of ¥-41.1B. Ordinary loss was ¥88.4B, improving ¥54.4B from ¥-142.8B the prior year largely due to a larger equity-method loss of ¥36.7B in the prior year. Extraordinary items consisted of extraordinary gains ¥36.2B (including fixed asset sale gains ¥11.4B and business transfer gains ¥74.3B) and extraordinary losses ¥36.3B (business restructuring costs ¥400.1B) which mostly offset each other, yielding a limited net impact. The prior year included extraordinary gains of ¥107.3B (including equity valuation change gains ¥98.3B), so excluding one-offs the deterioration this term is concentrated at the operating and non-operating stages. A pre-tax loss of ¥88.5B was recorded with income taxes ¥9.4B, resulting in a Net Loss of ¥105.6B. In conclusion, this was a severe result of declining revenue and profits with widening operating losses; demand decline, utilization drops, and inventory stagnation jointly pressured profitability.
[Profitability] Operating margin was -5.9% and Net margin -13.2%, marking two consecutive years of losses and ROE deteriorated sharply to -8.8%, indicating poor capital returns. Gross margin at 9.4% declined 11.1pt from 20.5% the prior year, directly hit by adverse semiconductor market conditions and lower utilization. SG&A ratio improved to 15.3% (down 8.3pt from 23.6%) reflecting cost cuts, but it was insufficient to offset gross margin contraction. EBITDA was ¥6.35B (EBITDA margin 0.8%), extremely low, representing operating loss ¥47.3B plus depreciation ¥53.6B, indicating failure to self-generate sustainable investment funds.
[Cash Quality] Operating Cash Flow (OCF) was ¥-89.0B, close to the Net Loss of ¥-98.0B, with OCF/Net Income at 0.91x, slightly below 1x and showing no extreme accrual build-up. However, OCF deficits indicate lack of cash generation; Cash Conversion (OCF/EBITDA) was -14.0x, extremely weak, and inventory and working capital deterioration impaired cash quality.
[Investment Efficiency] Total Asset Turnover was 0.335x (down from an equivalent of 0.469x prior year), showing poorer asset efficiency. Inventory Days (DIO) were 239 days, Receivables Days (DSO) 76 days, Payables Days (DPO) 23 days, yielding a Cash Conversion Cycle (CCC) of 292 days, which has lengthened. Work-in-process remains high at ¥264.6B (inventory ratio 55.7%), and inventory stagnation is pressuring utilization and asset efficiency. Construction in progress was ¥170.4B (fixed assets ratio 32.6%), indicating ongoing new capital expenditure, but ramp delays are worsening depreciation efficiency.
[Financial Soundness] Equity Ratio was 50.1% (down 6.8pt from 56.9% prior year), a moderate level, but Net Assets fell to ¥1,199.7B (YoY -¥279.6B) due to net losses and share buybacks. Debt-to-Equity multiple is 1.00x and Debt/Capital ratio 31.3%, keeping capital structure within a healthy range, but short-term debt ratio is high at 52% (short-term interest-bearing debt ¥525.6B / total interest-bearing debt ¥751.3B), increasing refinancing sensitivity. Short-term borrowings rose substantially to ¥282.4B (from ¥99.7B prior year, +¥182.7B), suggesting borrowing was used to cover operating losses, share buybacks, and inventory increases. Cash and deposits ¥348.4B exceed short-term borrowings, but continued OCF deficits could expose maturity mismatch risk. Interest coverage on an EBIT basis was -5.56x, and EBITDA/interest 0.75x, both extremely low, making the company vulnerable to rising interest rates. Debt/EBITDA was 86x, indicating high leverage; early recovery of operating cash generation is critical to financial stability.
OCF was ¥-89.0B (YoY improvement +8.3%)—negative for the second consecutive year and close to the Net Loss of ¥-98.0B. The main drivers of OCF deficit were operating loss ¥47.3B and inventory increase -¥34.4B (notably WIP stagnation), an increase in trade receivables +¥46.8B, and a decrease in trade payables -¥36.1B, indicating working capital deterioration that strained cash. Adding depreciation ¥53.6B, the subtotal OCF before working capital changes was ¥-60.6B, indicating operating losses were the primary issue. Investing Cash Flow was ¥-102.8B, including capital expenditures ¥-47.1B (0.88x of depreciation ¥53.6B) and net effects including gains on sale of securities. CapEx was below depreciation which eased replacement pressure, but construction in progress at ¥170.4B remains high and new asset ramp delays are tying up cash. Free Cash Flow was ¥-191.8B (OCF ¥-89.0B + Investing CF ¥-102.8B), a substantial outflow that highlights lack of internal fund generation. Financing Cash Flow was ¥-70.4B: share buybacks ¥-234.7B were executed while long-term borrowings raised +¥250.7B, long-term debt repayments -¥212.2B, and short-term borrowings increased +¥181.9B to support liquidity. No dividends were paid (payout ratio 0%), and the ¥234.7B share buyback during a period of net loss and negative Free Cash Flow raises questions on financial flexibility. Cash and cash equivalents decreased ¥-259.0B during the period to an ending balance of ¥348.4B (YoY -¥165.7B), reducing liquidity buffers. Working capital efficiency worsened with DSO 76 days, DIO 239 days, and CCC 292 days; WIP at 55.7% of inventories is the main cause of cash tie-up and inventory correction and utilization rate improvement are urgent.
This term's results were driven by recurring operating losses and non-operating losses; extraordinary gains ¥36.2B (including business transfer gains ¥74.3B and fixed asset sale gains ¥11.4B) and extraordinary losses ¥36.3B (business restructuring costs ¥400.1B) largely offset, leaving limited net impact. The prior year included extraordinary gains ¥107.3B (including equity valuation change gains ¥98.3B), so excluding one-offs the deterioration is concentrated at operating and non-operating levels. Non-operating loss was ¥-41.1B (as a percentage of Revenue -5.1%), mainly comprising equity-method investment losses ¥21.2B, foreign exchange losses ¥12.4B, and interest expense ¥8.5B, far exceeding non-operating income ¥14.3B (including interest income ¥11.3B). Foreign exchange losses and equity-method results are highly volatile and undermine stability of ordinary income. OCF was 0.91x of Net Loss, showing no extreme accrual accumulation, but OCF/EBITDA at -14.0x is very weak and inventory and working capital deterioration damage cash quality. The gap between Ordinary Loss ¥-88.4B and Net Loss ¥-105.6B is approximately ¥17.2B, primarily due to income taxes ¥9.4B and small net effects of extraordinary items, indicating ordinary results largely flow through to net results. Quality of earnings has deteriorated at the operating level; inventory correction, utilization improvement, and stabilization of FX and equity-method results are key to restoring earnings quality.
The company’s plan for the fiscal year ending March 2027 projects Revenue ¥865.0B (YoY +7.9%), Operating Income ¥14.0B (Operating margin 1.6%), Ordinary Income ¥1.0B, Net Income attributable to owners of parent ¥10.0B, and EPS ¥48.26. To turn from this term’s actuals (Revenue ¥801.8B, Operating Loss ¥47.3B, Ordinary Loss ¥88.4B, Net Loss ¥105.6B) to profit requires an Operating margin improvement of about 7.5pt (-5.9% → +1.6%), which is a high execution demand. Revenue progress stands at 92.7% of the annual plan and is broadly on track, but operating income lags far behind the full-year plan; significant gross margin recovery (from current 9.4% back into double digits) and progress in fixed-cost absorption are prerequisites. Normalization of working capital (compressing inventory DIO 239 days and shortening CCC 292 days) to improve utilization and cash generation will determine achievement probability. Backlog data is not disclosed, so quarterly monitoring of inventory turns, order trends, and utilization rates is necessary. Stabilization of FX and equity-method results is also key to achieving ordinary income targets.
No dividend was paid this term (Payout Ratio 0%); no dividend was paid in the prior year either. Free Cash Flow was ¥-191.8B, so dividends cannot be internally funded. Meanwhile, share buybacks of ¥234.7B were executed, acquiring approximately 4.5% of outstanding shares. Executing large share buybacks during a term with Net Loss ¥-105.6B and negative Free Cash Flow raises concerns about financial flexibility. The buybacks were financed by increases in short-term borrowings (+¥182.7B), contributing to refinancing risk and increased interest burden. Dividend policy for the next term is undecided; resumption of shareholder returns will depend on a return to operating profitability, inventory correction, and improved working capital to restore Free Cash Flow.
Demand slowdown and gross margin decline risk: With gross margin at 9.4% (down 11.1pt from 20.5%) and operating loss ¥47.3B, profitability has deteriorated sharply. Weak semiconductor market conditions and lower utilization are the main causes; delayed demand recovery could prolong losses and erode capital. Inventory stagnation (DIO 239 days, WIP ratio 55.7%) hinders utilization improvements, and delayed inventory correction would further delay gross margin recovery.
Short-term debt refinancing risk: Short-term interest-bearing debt is ¥525.6B (including short-term borrowings ¥282.4B, bonds maturing within one year ¥50.0B, commercial paper ¥10.0B, long-term borrowings due within one year ¥146.3B, etc.) with a short-term debt ratio of 52%, increasing refinancing sensitivity. With OCF ¥-89.0B and lacking self-funding capacity, rising interest rates or credit tightening could raise refinancing costs and constrain liquidity. Cash and deposits ¥348.4B exceed short-term borrowings but continued operating deficits could expose maturity mismatch risk.
FX and equity-method volatility risk: Non-operating losses were ¥55.4B (6.9% of Revenue), mainly foreign exchange loss ¥12.4B and equity-method investment loss ¥21.2B. Exchange rate swings and performance of equity-method affiliates can cause large swings in ordinary income, and with operating losses, volatility in non-operating items impairs predictability of ordinary income. Delays in FX hedging effectiveness or affiliate restructuring would delay improvement in ordinary income.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | -5.9% | 7.8% (4.6%–12.3%) | -13.6pt |
| Net Margin | -13.2% | 5.2% (2.3%–8.2%) | -18.4pt |
Operating margin is 13.6pt below the manufacturing median of 7.8%, and net margin is 18.4pt below the median, placing the company in the lowest quintile and showing significantly lagging profitability within the industry.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -34.1% | 3.7% (-0.4%–9.3%) | -37.8pt |
Revenue growth at -34.1% is 37.8pt below the median 3.7%, a substantial revenue decline that is notable even relative to manufacturing peers.
※Source: Company compilation
Recovery scenario from operating losses and inventory stagnation is the monitoring focus: Operating loss ¥47.3B and operating margin -5.9% mark two consecutive years of operating deficits, with inventory DIO 239 days and WIP ratio 55.7% hindering utilization and profitability. The company’s plan assumes a 7.5pt operating margin improvement to return to profit, but this requires gross margin recovery into double digits and working capital normalization; quarterly monitoring of inventory turns, order trends, and utilization rates will determine achievement probability. Activation of new equipment in construction in progress ¥170.4B (fixed assets ratio 32.6%) and progress on cost absorption are also important observation points.
Deterioration in financial capacity due to short-term debt structure and operating CF deficits: Short-term interest-bearing debt ¥525.6B (short-term debt ratio 52%) and an increase in short-term borrowings of ¥182.7B have increased refinancing sensitivity. With OCF ¥-89.0B and Free Cash Flow ¥-191.8B, self-funded repayment capability is lacking, and interest rate rises or refinancing environment deterioration could constrain liquidity. Cash and deposits ¥348.4B exceed short-term borrowings, but achieving operating cash flow positivity and Free Cash Flow turnaround is a prerequisite for financial stability, making the speed of inventory correction and working capital improvement key to mitigating financial risk.
This report is an earnings analysis document automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company based on public financial statements. Investment decisions are your own responsibility; consult a professional advisor as needed.