SEIKOH GIKEN Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.13B
• Operating Income: ¥2.76B
• Net Income: ¥2.23B
• EPS: ¥250.03

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

Verdict: A very strong FY2026 Q2 with broad-based profit expansion and high ROIC, partially offset by weaker cash conversion. Revenue rose 33.9% YoY to 121.3, indicating robust demand and/or favorable pricing mix. Gross profit came in at 53.3 with a 44.0% gross margin, and operating income surged 167.6% YoY to 27.6, lifting operating margin to 22.7%. Ordinary income increased 172.8% YoY to 28.5, supported by modest non-operating gains of 1.16 (non-op ratio ~5.2%). Net income jumped 188.6% YoY to 22.3, with an effective tax rate of 22.0%, yielding an 18.4% net margin. EBITDA was 31.5 with a 26.0% margin, underscoring improved operating leverage. Margins clearly expanded materially YoY (gross, operating, net), though basis point quantification is not possible due to missing prior-period margins. DuPont indicates ROE of 7.5% driven by a high net margin (18.4%), low asset turnover (0.338x), and conservative leverage (1.20x). Balance sheet strength is exceptional: equity ratio is approximately 83.1% (equity 298.1 over assets 359.0), current ratio 536% and quick ratio 516%, supported by cash and deposits of 145.3. However, earnings quality is a watch item: OCF/NI is 0.51x, signaling cash conversion below best-practice thresholds and likely working capital absorption. Capex was controlled at 2.68, and financing CF was a small outflow of -3.08, consistent with a debt-light posture (interest-bearing debt unreported). ROIC is a strong 14.1%, comfortably above the 8% excellence benchmark, implying value-accretive growth. Dividend affordability appears solid with a calculated payout ratio of 27.2%, though actual DPS is unreported. The company’s low leverage provides resilience against macro and end-market volatility. Forward-looking, margin momentum and ROIC suggest continued earnings power if demand holds, but monitoring cash conversion, receivables, and order linearity is prudent. Currency and cyclical risks in precision/electronics end-markets remain relevant. Overall, a high-quality quarter on profitability and capital efficiency, with cash flow conversion the key caveat.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.5% = Net Profit Margin (18.4%) × Asset Turnover (0.338x) × Financial Leverage (1.20x). The dominant positive driver this quarter is the net margin, given outsized YoY profit growth versus revenue (+188.6% NI vs +33.9% revenue) and current operating margin of 22.7%. Asset turnover remains low at 0.338x, reflecting a cash-rich, under-levered balance sheet and possibly timing effects from working capital. Financial leverage is conservative at 1.20x, limiting ROE amplification but enhancing resilience. Business drivers: improved gross margin (44.0%) and operating leverage (SG&A relatively contained vs revenue) likely underpinned the margin gains; non-operating contributions were modest (1.16). Sustainability: margin strength appears supported by core operations (EBITDA margin 26.0% vs non-op ratio ~5.2%), but sustaining high-20s operating margins may depend on product mix, pricing, and utilization. Watch for normalization risk if demand slows. Concerning trends: OCF lagging NI (0.51x) suggests working capital pressure (likely higher receivables given AR 54.16), which, if persistent, could constrain cash returns. We cannot confirm whether SG&A growth exceeded revenue growth due to unreported prior SG&A detail; however, the surge in operating profit implies favorable operating leverage in the period.

Growth Assessment

Top-line growth of +33.9% YoY to 121.3 signals strong demand and/or ASP/mix benefits. Profit growth far outpaced sales: operating income +167.6%, ordinary income +172.8%, and NI +188.6%, evidencing significant margin expansion and cost discipline. Current margins (gross 44.0%, operating 22.7%, net 18.4%) indicate improved scale benefits and a richer sales mix. The contribution from non-operating income was limited (1.16), thus earnings quality is primarily operational. ROIC at 14.1% confirms that growth is value-accretive. Sustainability hinges on order backlog, end-market capex cycles (not disclosed), and the company’s ability to maintain pricing and utilization. With low leverage and ample liquidity, the firm is positioned to support growth investments. However, OCF underperformance vs NI raises a caution that rapid growth may be tying up cash in receivables; this could normalize as collections catch up, but needs monitoring. Near-term outlook: if demand trends persist, margin and earnings momentum can carry into subsequent quarters; FX and supply chain stability remain swing factors. Absence of R&D disclosure limits visibility on pipeline-driven growth durability.

Financial Health

Liquidity is very strong: current ratio 536.1% and quick ratio 515.7% comfortably exceed benchmarks. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 0.20x (conservative) and the equity ratio is ~83.1%. Cash and deposits of 145.28 exceed current liabilities (47.84) by ~97.4, minimizing short-term refinancing risk. Maturity mismatch risk appears low given the cash-rich position and relatively small accounts payable (16.17) versus current assets. Interest-bearing debt is unreported, but overall liabilities are modest (60.86) against equity (298.13). No off-balance sheet obligations are disclosed in the provided data. Capital structure is under-levered, providing buffer for cyclical downturns and optionality for strategic investments.

Cash Flow Quality

OCF/Net Income is 0.51x, below the 0.8 threshold, flagging weaker cash conversion. The shortfall likely stems from working capital absorption, particularly receivables growth (AR at 54.16 is sizable relative to revenue scale), and possibly tax timing (tax expense 6.30) or bonus payments; detailed drivers are unreported. Using capex as a proxy for investing needs, implied FCF before dividends is approximately 8.74 (OCF 11.42 minus capex 2.68). This would be sufficient to fund a dividend consistent with a 27.2% payout ratio on NI (implied cash dividend need ~6.06), leaving modest residual cash of ~2.68. Working capital manipulation signs are not evident from the limited snapshot, but the OCF lag warrants monitoring of DSO, inventory turns (inventories low at 9.77), and payables terms. Sustainability: if receivable collections normalize, cash conversion should improve; persistent OCF drag would constrain incremental shareholder returns.

Dividend Sustainability

The calculated payout ratio is 27.2%, comfortably below the 60% benchmark, indicating headroom. While DPS and total dividends paid are unreported, applying the payout to NI (22.29) implies dividends of roughly 6.06. Implied FCF of ~8.74 (OCF 11.42 minus capex 2.68) would cover this, suggesting adequate near-term coverage even with OCF below NI. Balance sheet strength (cash 145.28; low leverage) further supports dividend stability. Policy outlook is not disclosed; given high ROIC and strong margins, the company has capacity to balance reinvestment with returns. Key watchpoints: normalize OCF/NI toward >1.0 and maintain capex discipline to ensure ongoing FCF coverage.

Risk Assessment

Business Risks:

• End-market cyclicality in precision/electronics/semiconductor-related demand potentially impacting order intake and utilization
• Pricing pressure from competitors and customer concentration risk (typical in precision components/equipment)
• Supply chain and lead time volatility affecting deliveries and working capital
• FX fluctuations (JPY vs USD/EUR) influencing export margins and translation effects

Financial Risks:

• Earnings quality risk: OCF/NI at 0.51x indicates cash conversion lag and potential working capital stress
• Receivables concentration/collection risk given AR scale relative to revenue
• Potential reinvestment needs that could raise capex if growth accelerates, affecting FCF
• Limited disclosure of interest-bearing debt and SG&A detail may obscure leverage or cost trends

Key Concerns:

• Sustainability of elevated operating margins (22.7%) if mix or utilization normalizes
• Dependency on a strong demand environment; a slowdown would hit low asset turnover and ROE
• Data gaps (R&D, debt details, DPS) limit full assessment of long-term competitiveness and capital policy

Investment Implications

Key Takeaways:

• Earnings inflected strongly with NI +188.6% YoY and operating margin at 22.7%
• ROIC of 14.1% signals value-accretive growth
• Balance sheet is exceptionally strong (equity ratio ~83%, current ratio 536%)
• Cash conversion is the main blemish (OCF/NI 0.51x) amid growth
• Dividend capacity appears adequate with implied payout ~27% and FCF coverage likely positive

Metrics to Watch:

• OCF/NI trend and DSO (receivables collection)
• Order backlog and book-to-bill (not disclosed) as leading indicators
• Gross and operating margin trajectory by product/mix
• Capex intensity vs growth (capex/revenue, capex/OCF)
• FX sensitivity and hedging effectiveness

Relative Positioning: Compared to Japan precision/equipment peers, the company exhibits above-peer profitability (gross 44%, operating ~23%), superior ROIC (14%+), and a more conservative balance sheet, offset by weaker near-term cash conversion; overall positioned as a high-quality, under-levered grower contingent on sustained demand.

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