SUNCORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.70B
• Operating Income: ¥-144M
• Net Income: ¥402M
• EPS: ¥199.85

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

For FY2026 Q2 (consolidated, JGAAP), サン電子株式会社 reported revenue of ¥4,701 million, declining 18.9% YoY, indicating a challenging demand environment and/or reduced project shipments. Gross profit was ¥1,495 million, for a gross margin of 31.8%, which is reasonable but below levels typically needed to cover operating overhead given the reported operating loss. Operating income was a loss of ¥144 million (operating margin -3.1%), essentially flat YoY, suggesting limited operating improvement despite cost actions. Ordinary income, however, surged to ¥2,186 million (ordinary margin ~46.5%), indicating substantial non-operating gains (e.g., investment-related income, FX gains, or equity-method contributions). Net income was ¥4,442 million, with an exceptionally high net margin of 94.5% and EPS of ¥199.85, driven by non-operating and/or extraordinary factors rather than core operations. The effective tax line was negative (income tax -¥320 million), further boosting bottom-line results and reinforcing that reported profits reflect non-recurring or non-cash items. EBITDA was slightly negative at -¥26 million (EBITDA margin -0.6%), underscoring weak operating earnings after adjusting for ¥118 million of D&A. Cash conversion was poor: operating cash flow was -¥1,155 million, implying OCF/Net income of -0.26, which is inconsistent with the strong reported net income and points to low earnings quality this period. Free cash flow is not derivable due to unreported investing cash flows (reported as zero, which we treat as undisclosed), but OCF negativity suggests FCF was likely weak absent material divestment inflows. The balance sheet appears very strong with total assets of ¥52,933 million and total equity of ¥46,892 million; this implies a high equity ratio (c. 88–89%) despite the reported equity ratio figure being shown as 0.0% (treated as unreported). Liquidity is ample with a current ratio of 319.3% and working capital of ¥11,493 million, indicating strong short-term solvency. Leverage remains low with a debt-to-equity ratio of 0.12x and modest interest expense of ¥9.5 million, limiting financial risk; interest coverage is negative on an EBIT basis due to the operating loss. Financing cash flow was positive at ¥918 million, likely reflecting borrowings or other financing sources; cash and equivalents is shown as zero (treated as undisclosed). DuPont analysis yields a calculated ROE of 9.47% (net margin 94.49%, asset turnover 0.089x, financial leverage 1.13x), which is not representative of core profitability and is instead inflated by non-operating items. Overall, the quarter shows resilient balance sheet strength and liquidity, but weak core operating performance, reliance on non-operating/extraordinary income for profitability, and poor cash conversion. Data limitations (notably items shown as zero such as cash, inventories, equity ratio, investing CF, DPS, and share counts) constrain precision; analysis prioritizes non-zero disclosed metrics.

Profitability Analysis

ROE decomposition indicates high reported profitability driven by non-operating items rather than operations. DuPont: net profit margin 94.49% x asset turnover 0.089 x financial leverage 1.13 = ROE 9.47%. Operating margin was -3.1% (operating loss of ¥144m on ¥4,701m sales), highlighting weak core profitability. Gross margin of 31.8% (¥1,495m GP) suggests some pricing power or mix, but operating expenses more than consumed gross profit. EBITDA was -¥26m; with D&A at ¥118m, this implies limited operating leverage benefits at current revenue levels. Ordinary income of ¥2,186m (ordinary margin ~46.5%) far exceeds operating income, implying large non-operating gains (e.g., investment securities valuation/realization, FX, or equity-method income). Interest expense is modest at ¥9.5m, but EBIT-based interest coverage is negative due to operating loss; ordinary-income-based coverage would be ample, again underscoring reliance on non-operating contributions. Effective tax was negative (tax benefit of ¥320m), which further elevates net income and net margin; this is unlikely to be recurring at similar magnitude. Overall margin quality is low: operating earnings are negative, while bottom-line strength is non-operational. Operating leverage remains unfavorable given revenue decline of 18.9% YoY and only flat YoY change in operating loss; fixed cost absorption appears challenging.

Growth Assessment

Revenue declined 18.9% YoY to ¥4,701m, signaling top-line pressure likely from weaker demand, slower project timing, or customer-specific factors. Gross profit of ¥1,495m fell with revenue; gross margin at 31.8% suggests mix and pricing held up better than volume, but not enough to offset fixed costs. Operating income remained a loss of ¥144m (+0.0% YoY), indicating no operational turnaround despite cost actions. Ordinary and net income growth was driven by non-operating and extraordinary items (ordinary income ¥2,186m, net income ¥4,442m), not by core business momentum; this diminishes sustainability of bottom-line growth. EBITDA at -¥26m confirms weak underlying earnings power. Given negative OCF (-¥1,155m), working capital dynamics or cash realization lagged, further questioning the durability of reported profits. Near-term outlook hinges on stabilizing revenue and restoring operating margin to positive territory; without that, earnings normalization (as non-operating gains fade) could pressure EPS. Profit quality is low this period due to the mix of earnings. Key to sustainability will be reacceleration of sales, cost rationalization, and visibility on the nature/recurrence of non-operating gains.

Financial Health

Liquidity is strong: current assets ¥16,733m vs current liabilities ¥5,240m yields a current ratio of 319.3% and working capital of ¥11,493m. Quick ratio equals current ratio due to inventories being reported as zero (treated as undisclosed), so true quick liquidity is likely slightly lower but still robust. Solvency is solid: total liabilities ¥5,519m vs equity ¥46,892m implies low leverage (debt-to-equity 0.12x). The reported equity ratio of 0.0% is clearly an undisclosed field; based on totals, the implied equity ratio is approximately 88.6%, reflecting a conservative capital structure. Interest expense is low at ¥9.5m, limiting financial risk. Despite negative operating income, the balance sheet provides a cushion to absorb near-term volatility. Financing CF of ¥918m indicates access to funding, though the purpose (debt vs other) is not disclosed. Cash and equivalents are shown as zero (treated as undisclosed), so point-in-time liquidity cannot be precisely assessed; nonetheless, the strong current assets base suggests an ample cash/near-cash position.

Cash Flow Quality

Operating cash flow was -¥1,155m against net income of ¥4,442m, producing an OCF/NI ratio of -0.26, signaling very weak earnings quality this period. The divergence likely stems from non-operating/non-cash gains elevating net income and/or significant working capital outflows (e.g., receivables build or payables reduction). EBITDA was -¥26m, reinforcing that core cash earnings before working capital were roughly breakeven-to-negative. Free cash flow cannot be computed accurately because investing cash flow is shown as zero (treated as undisclosed); absent asset sales inflows, negative OCF would imply weak FCF. Working capital details are incomplete (inventories shown as zero, treated as undisclosed), but the scale of OCF outflow suggests meaningful working capital usage. Tax cash effects were favorable (income tax -¥320m), which aided net income but not operating cash generation materially. Overall, cash flow quality is low: bottom-line strength is not converting to cash, and sustainability depends on improving operating cash generation and normalizing working capital.

Dividend Sustainability

Dividend data (annual DPS 0.00, payout ratio 0.0%, FCF coverage 0.00x) are treated as undisclosed rather than actual zero. Given negative OCF and uncertain FCF, coverage of any dividend would rely on balance sheet strength or non-operating inflows rather than internally generated cash. With operating income negative and EBITDA slightly negative, sustainable payout capacity from operations appears limited until core profitability and OCF improve. The strong equity base and low leverage provide theoretical capacity, but policy prudence would typically favor retention during an operating downturn. Outlook on dividends therefore hinges on normalization of operating margin and cash conversion, and on whether non-operating gains are recurring and cash-based.

Risk Assessment

Business Risks:

• Top-line contraction (-18.9% YoY) indicating potential demand softness or project timing risk
• Dependence on non-operating gains to achieve profitability (ordinary income ¥2,186m vs operating loss)
• Margin pressure with operating margin at -3.1% and EBITDA negative
• Execution risk in cost control and operating turnaround amid lower volumes
• Potential volatility in non-operating items (investment/FX/equity-method gains) affecting earnings visibility
• Working capital risk given negative OCF and incomplete disclosure of inventories/receivables

Financial Risks:

• Negative operating cash flow (-¥1,155m) and weak OCF/NI conversion (-0.26)
• Interest coverage negative on EBIT basis, leaving earnings sensitive to further operating weakness
• Data gaps on cash balances and investing cash flows create uncertainty about near-term liquidity buffers
• Potential reversion of tax benefits (income tax -¥320m) impacting future net income
• Possible need for external funding if OCF weakness persists despite currently low leverage

Key Concerns:

• Quality and recurrence of non-operating gains that drove ordinary and net income
• Path to restoring positive operating income and EBITDA
• Normalization of working capital and return to positive operating cash flow
• Revenue trajectory following an 18.9% YoY decline
• Clarity on cash balance and capital allocation (capex, investments, financing inflows)

Investment Implications

Key Takeaways:

• Core operations are loss-making (operating margin -3.1%) despite a decent gross margin (31.8%).
• Reported profitability (net margin 94.5%, ROE 9.47%) is driven by non-operating items and tax benefits.
• Cash conversion is weak with OCF at -¥1,155m and OCF/NI at -0.26.
• Balance sheet is strong with low leverage (D/E 0.12x) and high implied equity ratio (~89%).
• Revenue decline of 18.9% YoY raises questions about demand sustainability and mix.
• EBITDA slightly negative (-¥26m) highlights limited operating leverage at current scale.

Metrics to Watch:

• Revenue growth and order intake/backlog to gauge top-line recovery
• Operating margin and EBITDA trajectory to assess core earnings improvement
• Operating cash flow and working capital movements (receivables, payables, inventories)
• Composition of non-operating income (recurring vs one-off; cash vs non-cash)
• Capex and investing cash flows to determine FCF outlook
• Tax normalization effects on net income

Relative Positioning: Financially conservative balance sheet with ample liquidity and low leverage, but currently weaker operating profitability and cash conversion relative to peers that sustain positive EBITDA and OCF; reported ROE and margins are temporarily inflated by non-operating factors.

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