santec Holdings Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.78B
• Operating Income: ¥4.12B
• Net Income: ¥3.06B
• EPS: ¥260.03

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 solid half with disciplined profitability and strong cash conversion; modest top-line growth translated to double-digit net profit growth and healthy ROE. Revenue rose 6.5% YoY to 127.78, while operating income increased 6.6% YoY to 41.19, maintaining operating leverage. Net income outpaced revenue at +14.6% YoY to 30.58, supported by a favorable non-operating balance (interest income 1.46 vs. interest expense 0.09) and a normalized tax rate of 28.6%. Gross margin printed at a high 57.7%, and operating margin stood at 32.2%, evidencing strong pricing/mix and cost discipline. We estimate operating margin widened by roughly 4 bps YoY (from ~32.20% to ~32.24%) based on the reported revenue and operating income growth. Net margin expanded more meaningfully by about 169 bps YoY to 23.9%, driven by improved non-operating line and scale benefits. EBITDA reached 44.15 with a 34.6% margin, underscoring robust underlying earnings power. Cash flow quality is high: operating cash flow of 34.86 exceeds net income (OCF/NI 1.14x), indicating earnings backed by cash. Liquidity is exceptionally strong with a current ratio of 372.6% and quick ratio of 356.6%; cash and deposits of 128.78 cover current liabilities of 57.25 more than 2x. Leverage is conservative with D/E at 0.39x and interest coverage at 448.5x; net cash is at least 103.8 (cash 128.78 minus reported long-term loans 24.96), given short-term loans are unreported. ROE of 13.3% is primarily margin-driven, with modest asset turnover and low leverage. ROIC is reported at 23.3%, well above an 8% excellence threshold, implying value-accretive deployment of capital. Dividend payout ratio is high at 82.1%; on an indicative basis, proxy FCF (OCF − capex) of ~25.01 closely matches implied dividend outflow, suggesting coverage is just about 1.0x and therefore tight. Non-operating items helped ordinary income but were not the main driver (net non-operating ~1.30 accounts for ~3.1% of ordinary income). Forward-looking, margin resilience, strong cash, and ROIC provide support for continued reinvestment, but the elevated payout ratio could constrain flexibility if growth capex or M&A needs rise. Key watch items include demand trends in optical/communications markets, FX sensitivity, and any step-up in capex or inventory buildup in 2H.

Profitability Analysis

ROE (13.3%) = Net Profit Margin (23.9%) × Asset Turnover (0.400) × Financial Leverage (1.39x). The dominant contributor is the high net margin, while asset turnover is modest and leverage is low. The component that changed the most YoY appears to be the net margin (+~169 bps to 23.9%), outpacing a largely flat operating margin (+~4 bps), suggesting incremental benefit from non-operating items (notably interest income) and scale in SG&A. Business drivers include sustained gross margin at 57.7% (indicative of favorable mix/pricing and cost control) and a benign financing environment (interest income 1.46 vs. interest expense 0.09). Sustainability: gross margin strength appears operationally rooted and thus more durable; however, non-operating tailwinds (interest income) may normalize with cash redeployment or rate shifts. Operating discipline looks intact with SG&A ratio at ~25.5% of sales; lacking breakdown limits deeper diagnosis, but there is no sign of SG&A growth outpacing revenue at the consolidated level. Operating leverage is modestly positive given revenue (+6.5%) and operating income (+6.6%), keeping the operating margin roughly stable.

Growth Assessment

Revenue grew 6.5% YoY to 127.78 with operating income up 6.6% to 41.19 and net income up 14.6% to 30.58. Mix and pricing strength kept gross margin at 57.7%, and operating margin held at ~32.2%. Non-operating helped: net non-operating income of ~1.30 lifted ordinary income to 42.49 (+9.0% YoY). Interest income (1.46) meaningfully exceeded interest expense (0.09), reflecting a large net cash position. EBITDA margin of 34.6% confirms resilient core profitability. Sustainability hinges on underlying end-demand in optical/photonics and communications markets; the modest top-line growth paired with stable margins suggests a steady, not overheating, trajectory. With ROIC at 23.3%, reinvestment has been productive; incremental capex of 9.85 appears manageable. Outlook: if demand remains steady and FX does not turn adverse, margins should remain resilient; upside could come from operating scale, while downside risks include demand softness or pricing pressure.

Financial Health

Liquidity is very strong: current ratio 372.6% and quick ratio 356.6% (both well above benchmarks). No warning flags for Current Ratio < 1.0 or D/E > 2.0 (D/E is 0.39x). Maturity mismatch risk is low: current assets 213.32 comfortably exceed current liabilities 57.25; cash and deposits alone (128.78) exceed current liabilities. Long-term loans are 24.96; short-term loans and total interest-bearing debt are unreported, but the company is at least in a net cash position of ~103.8. Interest coverage is exceptionally strong at 448.5x, indicating minimal refinancing or interest-rate stress. Off-balance sheet obligations are not disclosed in the provided data; none identified.

Cash Flow Quality

OCF/Net Income is 1.14x (>1.0), signaling good earnings quality and limited accrual risk in this period. Working capital discipline appears sound given strong cash generation relative to profit and no signs of large inventory build (inventories 9.18 vs. accounts receivable 41.18 and accounts payable 8.78). Free cash flow cannot be fully calculated due to unreported investing CF, but a proxy FCF (OCF − capex) is approximately 25.01, suggesting healthy internal funding capacity. No apparent working capital manipulation flags from available data (e.g., receivables and payables are moderate relative to sales; OCF exceeds NI). Sustainability: as long as margins hold and capex remains around current levels, internal cash should fund both maintenance capex and shareholder returns.

Dividend Sustainability

Payout ratio is reported/calculated at 82.1%, above the <60% comfort benchmark, implying a relatively aggressive stance. With proxy FCF of ~25.01 and implied total dividends approximating ~2.51 (billion JPY; ~25.1 in 100M JPY) if the payout is applied to NI, coverage appears roughly 1.0x, leaving limited headroom for incremental capex or M&A without drawing on cash reserves. Given the strong net cash position, near-term dividend capacity is supported, but sustained high payouts could crowd out reinvestment or buffer if earnings soften. Policy outlook likely balances shareholder return with growth investment; monitoring actual DPS disclosure and cash dividend paid in the CF statement once available will be key.

Risk Assessment

Business Risks:

• End-market demand cyclicality in optical/photonics and communications infrastructure
• Pricing pressure and competitive intensity affecting gross margin sustainability
• FX volatility (USD/JPY and EUR/JPY) impacting both revenue and non-operating income
• Customer concentration risk typical in optical component markets
• Supply chain constraints for specialized components and lead-time variability

Financial Risks:

• Dividend payout ratio at 82.1% reduces financial flexibility if earnings or OCF weaken
• Interest income tailwind could fade if cash is deployed or rates decline
• Goodwill/intangible assets (goodwill 9.53; intangibles 12.50) carry impairment risk in a downturn
• Data gaps on short-term debt and full investing cash flows obscure precise leverage and FCF

Key Concerns:

• High payout ratio with proxy FCF coverage near 1.0x
• Modest top-line growth (+6.5%) limits operating leverage upside if cost inflation re-accelerates
• Dependence on high gross margin execution to sustain ROE given low asset turnover (0.400)

Investment Implications

Key Takeaways:

• Steady growth with strong margin retention: operating margin ~32.2%, net margin 23.9%
• Net income growth (+14.6% YoY) outpaced sales due to modest non-operating tailwinds and scale
• ROE 13.3% is margin-led; leverage low and asset turnover modest
• Cash generation solid (OCF/NI 1.14x); proxy FCF ~25.01 after capex 9.85
• Balance sheet robust with at least ~103.8 of net cash and interest coverage 448.5x
• ROIC 23.3% signals value-accretive capital deployment
• Dividend sustainability acceptable near term but tight given 82.1% payout

Metrics to Watch:

• Order trends and book-to-bill in optical/photonics end-markets
• Gross margin trajectory and SG&A ratio vs. sales
• OCF/NI and working capital turns (receivables and inventories)
• Capex plans and full investing cash flow disclosure (including M&A)
• FX impacts on revenue and non-operating income
• Actual DPS and cash dividends paid for coverage analysis
• ROIC by project/business if disclosed

Relative Positioning: Versus domestic photonics/components peers, santec exhibits superior margins and ROIC with a conservative balance sheet and net cash, positioning it defensively. The main relative watch-out is a high dividend payout that may limit optionality if growth investments or market softness emerge.

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