Shindengen Electric Manufacturing Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥54.25B
• Operating Income: ¥2.32B
• Net Income: ¥2.43B
• EPS: ¥235.50

Income Statement

Balance Sheet

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 recovery quarter with strong operating leverage; revenue grew mid-single digits while operating income surged, lifting profitability back to the mid‑single digits. Revenue rose 7.3% YoY to 542.47, driven by better mix and cost control that lifted gross profit to 90.23 and gross margin to 16.6%. Operating income jumped 532.3% YoY to 23.18, translating to an operating margin of 4.3% (23.18/542.47). Ordinary income reached 24.65 with a positive non‑operating balance (income 6.73 vs expenses 5.26); pre‑tax profit was 28.20 and net income 24.30, implying a net margin of 4.5%. Using last year’s implied operating income (~3.67 from +532.3% YoY) and revenue (~505.7 from +7.3%), operating margin expanded from roughly 0.7% to 4.3%, a swing of approximately +350 bps. SG&A was 67.04, or 12.4% of sales, indicating improved operating efficiency versus the prior year’s very low margin base. Interest coverage is strong at 10.3x (23.18/2.25), reducing near‑term solvency concerns despite meaningful borrowings. The effective tax rate was a low 13.8%, supporting bottom‑line outperformance. Non‑operating income is meaningful (dividends 3.22 and interest income 1.41 within total 6.73), and pretax benefited from additional special factors (pre‑tax exceeded ordinary by 3.55), suggesting some one‑time tailwinds. ROE printed 3.6% via 4.5% net margin × 0.369 asset turnover × 2.20x leverage; however, ROIC at 2.4% remains well below typical 7–8% targets, signaling capital efficiency challenges. Liquidity is robust with a current ratio of 284% and cash of 335.42, offsetting short‑term loans of 128.46. Balance sheet leverage (reported D/E 1.20x) is moderate but warrants monitoring against still‑low structural profitability. Earnings quality cannot be validated due to unreported cash flows; OCF/NI and FCF coverage are not calculable. Dividend affordability looks reasonable with a calculated payout ratio of 27.7%, but sustainability should be cross‑checked with cash generation once disclosed. Forward‑looking, the sharp operating margin rebound is encouraging, but sustaining improvements will require continued mix/pricing and cost discipline, tangible OCF support, and ROIC uplift toward the cost of capital.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (4.5%) × Asset Turnover (0.369) × Financial Leverage (2.20x) = ROE 3.6%. The largest change YoY is the net margin, given operating income rose +532.3% on +7.3% revenue, implying substantial margin recovery versus a depressed base. Business drivers: gross margin at 16.6% and SG&A at 12.4% of sales produced a 4.3% operating margin; non‑operating items (notably dividend and interest income) also supported ordinary profit, while a low effective tax rate further lifted net margin. Sustainability: part cyclical/operational (cost control, mix) and part potentially one‑time (pre‑tax exceeding ordinary by 3.55 suggests special gains); hence, not all of the net margin uplift may recur. Asset turnover at 0.369 is modest for a capital‑intensive power electronics manufacturer; no evidence this improved materially this quarter. Leverage at 2.20x (Assets/Equity) provided a neutral‑to‑modest ROE boost without approaching risk thresholds. Watch points: SG&A rose but stayed at 12.4% of sales; no sign of SG&A outpacing revenue this quarter, but if growth slows, operating leverage could reverse. Overall, margin recovery is the main ROE driver; sustainability rests on recurring operating gains rather than non‑operating and special items.

Growth Assessment

Revenue grew 7.3% YoY to 542.47, indicating recovering demand and/or improved pricing/mix. Operating income rose 532.3% YoY to 23.18, demonstrating strong operating leverage from gross margin gains and controlled SG&A. Net income reached 24.30, supported by a low tax rate and positive non‑operating contributions (dividends 3.22; interest income 1.41). Operating margin expanded from roughly 0.7% to 4.3% (~+350 bps), a key positive inflection. However, non‑operating and special items (pre‑tax > ordinary by 3.55) contributed materially, suggesting some one‑time elements. With ROIC at 2.4%, structural profitability remains below target; further mix/pricing gains, utilization, and cost-downs are needed. Near-term outlook hinges on sustaining gross margin improvements and stabilizing demand in core end-markets (auto/industrial power electronics). Absent cash flow data, revenue quality (orders vs shipments) and working capital intensity are unknown; monitor inventory and receivables to validate growth quality.

Financial Health

Liquidity is strong: current ratio 283.9% (936.17/329.79), quick ratio 247.7% (reported), and cash 335.42 provide ample coverage of short-term obligations, including short-term loans of 128.46 and accounts payable of 135.77. No warning triggers: Current Ratio well above 1.0; D/E reported at 1.20x, below the 2.0 red flag threshold. Total liabilities are 801.19 vs equity 668.89; financial leverage (assets/equity) is 2.20x. Maturity structure: long-term loans of 362.60 are supported by noncurrent assets of 533.91, limiting near-term refinancing pressure, though rate sensitivity exists. Interest coverage is strong at 10.3x. Off-balance sheet obligations: none reported in the provided data. Overall solvency is adequate with a liquidity buffer, but leverage should be aligned with improving ROIC to avoid value dilution.

Cash Flow Quality

Operating cash flow is unreported; OCF/Net Income and FCF cannot be assessed, constituting a key limitation for earnings quality analysis. Without OCF, we cannot confirm whether margin gains translated into cash (e.g., reductions in inventories or improved receivables collection). The working capital position is sizable (working capital 606.38), which can absorb shocks but may also mask cash needs if inventories are elevated. Dividend and capex affordability cannot be validated due to missing FCF; however, the large cash balance (335.42) provides near-term coverage. No clear signs of working capital manipulation can be inferred given missing cash flow and turnover details.

Dividend Sustainability

The calculated payout ratio is 27.7%, which appears conservative relative to net income and typical benchmarks (<60%). DPS and total dividends paid are unreported, and FCF coverage is not calculable. Near-term sustainability is supported by the strong cash position (335.42) and low payout ratio, but true sustainability requires confirmation that OCF is consistently positive after capex. Policy outlook cannot be inferred from the data; monitor guidance, OCF/NI, and capex plans before concluding on medium-term dividend capacity.

Risk Assessment

Business Risks:

• Cyclical demand in automotive/industrial power electronics affecting volumes and utilization
• Pricing pressure and input cost volatility (e.g., silicon wafers, metals) impacting margins
• FX exposure (USD/JPY, EUR/JPY) influencing exports and component sourcing costs
• Customer concentration risk with large OEM/Tier1 dependence
• Potential inventory obsolescence amid rapid technology cycles in power devices

Financial Risks:

• ROIC at 2.4% is below typical targets, risking value dilution if not improved
• Reliance on non-operating income (dividends, interest) to support ordinary profit
• Interest rate risk on 491.06 of loans (128.46 short-term, 362.60 long-term)
• Low effective tax rate (13.8%) may normalize upward, pressuring net income
• Cash flow visibility is limited due to unreported OCF/FCF

Key Concerns:

• Sustainability of the sharp margin rebound given part of pre-tax profit appears one-time (pre-tax > ordinary by 3.55)
• Asset turnover at 0.369 and D/E 1.20x imply efficiency must improve to lift ROE beyond mid-single digits
• Potential working capital intensity; absent OCF, true cash conversion is unknown
• Equity market sensitivity to continued delivery on margin expansion versus a low prior-year base

Investment Implications

Key Takeaways:

• Top-line grew 7.3% YoY while operating profit surged +532%, driving operating margin to 4.3%
• Net margin at 4.5% and ROE 3.6% improved, but ROIC remains low at 2.4%
• Non-operating and special items provided a meaningful profit tailwind this quarter
• Liquidity is strong with a 284% current ratio and 335.42 in cash; interest coverage is 10.3x
• Earnings quality and dividend coverage need OCF/FCF confirmation

Metrics to Watch:

• OCF/Net Income and FCF (once disclosed) to validate earnings quality
• Gross margin trend and SG&A ratio to sustain operating margin >4%
• Inventory and receivables days to monitor cash conversion
• ROIC trajectory toward >5% and ideally 7–8%
• Interest expense trend and debt mix (fixed vs floating)
• Any recurrence of special gains affecting pre-tax vs ordinary profit

Relative Positioning: Within Japanese power electronics/industrial component peers, Shindengen shows a welcome profitability rebound and strong liquidity but still lags on capital efficiency (ROIC 2.4%). Leverage is moderate and manageable, and margins have recovered from a depressed base; sustaining improvements and converting them into cash will determine whether returns converge toward peer levels.

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