Sanken Electric Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥41.01B
• Operating Income: ¥-916M
• Net Income: ¥46.28B
• EPS: ¥-65.18

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Sanken Electric (67070) reported FY2026 Q2 consolidated results under JGAAP showing a sharp top-line contraction and a swing to operating losses despite still-solid gross profitability. Revenue was ¥41.0bn, down 43.7% YoY, indicating a significant cyclical or mix-driven slowdown. Gross profit was ¥16.38bn, implying a gross margin of 39.9% based on the provided margin metric, which appears resilient relative to the magnitude of the revenue decline. Operating income was a loss of ¥0.92bn, with EBITDA positive at ¥6.46bn, highlighting heavy depreciation and amortization of ¥7.38bn and elevated fixed costs. Ordinary income was a loss of ¥0.84bn, and net income was a loss of ¥1.40bn, with EPS of -¥65.18. Interest expense of ¥1.48bn weighed on earnings; EBIT-based interest coverage was -0.6x, underscoring near-term earnings strain. The DuPont bridge shows a net margin of -3.41%, asset turnover of 0.176x, and financial leverage of 1.88x, resulting in ROE of -1.13%. Liquidity is strong with a current ratio of 2.52x and working capital of ¥82.6bn, suggesting ample near-term coverage of obligations despite the operating loss. The balance sheet remains solid with total equity of ¥123.8bn versus total assets of ¥233.0bn, and a debt-to-equity ratio of 0.90x that is manageable for a cyclical semiconductor/power electronics name. Operating cash flow was -¥1.52bn; the OCF/net income ratio of 1.09 indicates losses are cushioned by non-cash charges, but working capital likely absorbed cash. Financing cash outflows were sizable at -¥28.49bn, suggesting deleveraging or other financing actions; investing cash flows were not disclosed. No dividend was paid (DPS ¥0), consistent with negative earnings and OCF. The calculated metrics provided are internally consistent (e.g., margins and DuPont), though the reported cost of sales appears incongruent with the gross profit and revenue; analysis relies on the non-zero metrics given. Overall, results reflect demand softness and under-absorption effects, offset by decent gross margin and robust liquidity. Near-term priorities likely include inventory and capacity discipline, cost control, and protection of cash. Data limitations exist (several items marked as zero indicate non-disclosure), so conclusions focus on disclosed non-zero values and provided calculated metrics.

Profitability Analysis

ROE of -1.13% decomposes into a net margin of -3.41%, asset turnover of 0.176x, and financial leverage of 1.88x, indicating that losses are driven mainly by margin compression rather than excessive leverage or asset intensity. Gross margin of 39.9% is comparatively strong given the revenue decline, suggesting pricing, mix (higher value power devices), or cost pass-throughs helped limit gross profit erosion. The gap from gross profit (¥16.38bn) to operating loss (¥0.92bn) reflects high operating expenses and sizable D&A (¥7.38bn), implying significant fixed cost and depreciation burden; operating leverage turned negative with volume contraction. EBITDA of ¥6.46bn (15.8% margin) shows the core cash earnings capacity remains intact before depreciation, yet not sufficient to cover interest and fixed costs at the current revenue run-rate. Interest expense of ¥1.48bn versus negative EBIT results in -0.6x interest coverage, highlighting vulnerability if earnings do not improve. Ordinary loss of ¥0.84bn was close to operating loss, implying non-operating items were not a large offset. Effective tax metrics look distorted (tax expense reported despite net loss), likely due to JGAAP timing, valuation allowances, or regional mix; the provided effective tax rate metric shows 0.0%. Overall, profitability is constrained by volume deleverage and fixed-cost absorption rather than an eroded unit-level margin.

Growth Assessment

Revenue fell 43.7% YoY to ¥41.0bn, indicating a pronounced cyclical downswing likely tied to inventory corrections and softer demand in end-markets for power semiconductors and power supply components. The resilience of the 39.9% gross margin suggests product mix and pricing discipline; however, scale inefficiencies pushed operating income negative. EBITDA margin of 15.8% indicates the underlying franchise retains earning power subject to volume normalization. Given asset turnover of 0.176x and negative operating leverage, any recovery in volumes should have a disproportionately positive effect on operating income. Profit quality is mixed: EBITDA positive and OCF/NI at 1.09 supports earnings quality, but negative OCF evidences working capital drag in the period. Without disclosed backlog or bookings, revenue sustainability is uncertain; watch sequential trends in revenue and inventories for signs of demand stabilization. Outlook hinges on normalization in industrial/consumer electronics cycles and potential recovery in automotive/industrial power demand; near-term guidance is not provided here. With financing outflows and cost control, management appears focused on balance sheet resilience while waiting for a demand upturn.

Financial Health

Liquidity is strong: current assets of ¥136.96bn vs current liabilities of ¥54.36bn yield a current ratio of 2.52x and quick ratio of 2.30x, providing a sizable buffer. Working capital stands at ¥82.59bn, supporting operations during a downturn. Total assets are ¥233.03bn and equity ¥123.76bn; financial leverage (assets/equity) is 1.88x, consistent with a moderate capital structure for the sector. Debt-to-equity is 0.90x, indicating meaningful but manageable leverage. Interest expense of ¥1.48bn is significant relative to current EBIT; hence, solvency is comfortable on a balance sheet basis but pressured on an income basis until earnings recover. The large financing cash outflow of -¥28.49bn points to debt reduction or other financing actions, which should lower future interest burden if debt was repaid, though cash balances are undisclosed here. Equity ratio is not disclosed in the dataset; however, equity of ¥123.76bn against assets of ¥233.03bn implies an equity ratio near 53%, supportive of solvency.

Cash Flow Quality

Operating cash flow was -¥1.52bn versus net income of -¥1.40bn, yielding OCF/NI of 1.09, which suggests that non-cash charges (notably ¥7.38bn D&A) partly offset losses and that the cash shortfall likely reflects working capital movements. EBITDA of ¥6.46bn contrasts with negative OCF, reinforcing that inventory and/or receivables likely consumed cash in the half. Investing cash flow is undisclosed (shown as 0), so free cash flow cannot be reliably computed; the provided FCF figure of 0 should be treated as non-disclosed rather than true zero. Financing cash flows were -¥28.49bn, indicating debt repayment or other outflows; this deleveraging may improve future interest coverage but tightens near-term liquidity if not offset by cash on hand (cash is undisclosed). Overall earnings quality appears reasonable given D&A alignment and EBITDA generation, but cash conversion is currently weak due to volume downturn and working capital absorption. Monitoring inventory (¥11.91bn), receivables, and payables will be key to assessing normalization of cash conversion.

Dividend Sustainability

DPS is ¥0.00 with a payout ratio of 0.0%, in line with negative earnings and negative OCF in the period. With EBIT negative and interest coverage at -0.6x, reinstating dividends near term would be challenging without a clear earnings and cash recovery. FCF coverage is shown as 0.00x due to non-disclosed investing cash flows; therefore, true FCF coverage cannot be determined from this dataset. Balance sheet strength (equity ~¥123.8bn and current ratio 2.52x) provides optionality for future distributions once profitability and OCF normalize. Near-term policy is likely to prioritize liquidity, deleveraging, and investment in core technologies over cash returns, pending demand recovery.

Risk Assessment

Business Risks:

• Cyclical demand and inventory correction in power semiconductors and power supply markets
• Negative operating leverage from volume declines, leading to under-absorption of fixed costs
• Pricing pressure and product mix shifts affecting gross margin sustainability
• Customer concentration and exposure to industrial/consumer electronics cycles
• Supply chain and lead-time volatility impacting deliveries and working capital
• Foreign exchange fluctuations (JPY) affecting revenue and costs
• Technology transition and capex needs (e.g., advanced power devices) requiring sustained investment

Financial Risks:

• Negative EBIT with interest expense of ¥1.48bn resulting in -0.6x interest coverage
• Working capital absorption driving negative OCF despite positive EBITDA
• Potential covenant pressure if losses persist (not disclosed but a consideration with 0.90x D/E)
• Uncertainty around cash balances and investing cash flows due to non-disclosure
• Exposure to refinancing conditions should additional liquidity be required

Key Concerns:

• Revenue down 43.7% YoY to ¥41.0bn, indicating a severe downturn
• Operating loss of ¥0.92bn despite a 39.9% gross margin, reflecting high fixed costs
• Large financing outflows of -¥28.49bn amid negative OCF
• Interest coverage at -0.6x until earnings recover
• Data limitations on cash, capex, and equity ratio complicate full assessment

Investment Implications

Key Takeaways:

• Top-line contracted sharply (-43.7% YoY) with operating loss, but gross margin remained robust at 39.9%
• EBITDA margin of 15.8% shows underlying earnings capacity before depreciation
• Liquidity is strong (current ratio 2.52x; working capital ¥82.6bn), supporting resilience
• Leverage moderate (D/E 0.90x; financial leverage 1.88x), but income-based coverage is weak
• OCF negative at -¥1.52bn; cash conversion hindered by working capital
• Financing CF outflow of -¥28.49bn suggests deleveraging, potentially easing future interest burden
• Dividend suspended (DPS ¥0), consistent with earnings and cash stance

Metrics to Watch:

• Sequential revenue growth and order/book-to-bill trends
• Gross margin stability and product mix (power device vs. legacy products)
• Operating expense run-rate and D&A versus revenue (fixed cost absorption)
• Inventory levels (¥11.91bn) and working capital turns
• EBITDA and operating cash flow trajectory
• Interest coverage and net debt/EBITDA (once cash and debt details are disclosed)
• Capex intensity (investing CF once reported) and its alignment with growth

Relative Positioning: Within Japan’s power semiconductor and power electronics landscape, Sanken appears smaller and more exposed to cyclical industrial/consumer end-markets than some larger peers, with margins currently pressured by volume deleverage but supported by a relatively strong gross margin profile and solid balance sheet.

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
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