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

Financial Highlights

• Net Sales: ¥11.63B
• Operating Income: ¥68M
• Net Income: ¥126M
• EPS: ¥-2.24

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

SANSHA ELECTRIC MFG. CO., LTD. (6882) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥11.626bn, essentially flat year on year (+0.0% YoY). Gross profit was ¥2.758bn, implying a gross margin of 23.7%, which is decent for power electronics/components but downshifts into thin operating profitability. Operating income dropped to ¥68m (-67.4% YoY), compressing operating margin to roughly 0.6%, indicating cost pressure and/or unfavorable mix. Ordinary income was ¥70m, suggesting minimal non-operating impact, while net income turned to a small loss of ¥29m (net margin -0.25%). EPS was -¥2.24, though outstanding shares were not disclosed in the XBRL extract, limiting per-share cross-checks. The DuPont bridge shows a calculated ROE of -0.12% (net margin -0.25%, asset turnover 0.350x, financial leverage 1.38x), highlighting margin as the primary drag with modest asset efficiency and conservative leverage. Despite the accounting loss, operating cash flow was strong at ¥1.616bn, implying material non-cash charges and/or working capital release; the OCF/Net Income ratio is -55.72x due to the negative denominator and robust cash generation. Liquidity is solid with current ratio 286.5% and quick ratio 242.8%, underpinned by ¥24.9bn in current assets versus ¥8.7bn in current liabilities and working capital of ¥16.209bn. The balance sheet appears healthy with total assets of ¥33.214bn, liabilities of ¥9.230bn, and equity of ¥23.994bn; while the reported equity ratio field is 0.0% (undisclosed), the implied equity ratio is approximately 72% based on available figures. Interest expense is modest at ¥8m, and operating interest coverage is 8.5x, signaling low financial risk. EBITDA was ¥510m (4.4% margin), and depreciation and amortization totaled ¥442m, indicating a capital-intensive base and a gap between EBITDA and EBIT consistent with aging assets or recent capacity investments. Revenue stability alongside sharp operating profit contraction suggests adverse pricing, cost inflation (materials/energy), or a deliberate investment in SG&A/R&D amid flat volumes. Investing cash flow was not disclosed (0 placeholder), and cash and equivalents were also not disclosed in the XBRL extract; consequently, free cash flow cannot be reliably computed, although OCF strength is encouraging. No dividend was recorded (DPS ¥0), consistent with the quarter’s net loss and a cautious stance on capital returns. Overall, the company retains strong liquidity and low leverage but faces near-term profitability headwinds; the key question is whether margin compression is transitory or structural. Data limitations (notably cash, CapEx, and share count) constrain precision in cash and per-share analytics; conclusions emphasize trends visible in disclosed non-zero items.

Profitability Analysis

ROE decomposition indicates margin is the primary weak link: Net profit margin -0.25% × Asset turnover 0.350x × Financial leverage 1.38x = ROE -0.12%. Operating margin compressed to roughly 0.6% (¥68m/¥11.626bn), down sharply YoY, despite a still-acceptable gross margin of 23.7%, pointing to elevated operating expenses and/or pricing pressure. EBITDA margin of 4.4% versus EBIT margin ~0.6% shows heavy D&A burden (¥442m), consistent with capital intensity and limiting reported operating profit. Ordinary income was close to operating income, suggesting limited support from non-operating gains or FX. Interest expense is small (¥8m), and operating interest coverage of 8.5x indicates profitability issues are operational rather than financing-related. The gap from gross to operating margin implies limited operating leverage at current revenue levels; fixed costs may be under-absorbed with flat sales. If volumes improve or mix shifts toward higher-margin products, incremental operating leverage could be meaningful given the low current EBIT base. Conversely, persistent cost inflation or pricing concessions would keep margins depressed.

Growth Assessment

Revenue was flat YoY at ¥11.626bn, signaling stable demand but no growth momentum in the period. The sharp decline in operating income (-67.4% YoY) despite stable sales suggests unfavorable mix, cost inflation (materials/energy/logistics), or increased SG&A/R&D investment. Gross margin at 23.7% provides a cushion but is insufficient to offset overhead if utilization is suboptimal. Profit quality is weak at the earnings level (net loss), yet cash conversion is strong (OCF ¥1.616bn), indicating earnings are depressed by non-cash items and working capital normalization. Sustainability of revenue appears moderate given flat performance; outlook hinges on cyclical demand for power electronics/industrial equipment and normalization of input costs. If pricing discipline and cost pass-through improve, margins could recover even without strong top-line growth. Conversely, a slowdown in capital goods or semiconductor-related demand would pose downside to both revenue and utilization. No guidance was provided here; near-term growth will likely track end-market capex cycles and energy/power-related investments.

Financial Health

Liquidity is strong: current ratio 286.5% and quick ratio 242.8% reflect ample current assets (¥24.9bn) versus current liabilities (¥8.691bn), with working capital of ¥16.209bn. Solvency appears robust: total liabilities are ¥9.230bn against equity of ¥23.994bn, implying debt-to-equity of 0.38x and an implied equity ratio ~72% (despite the reported 0.0% placeholder). Interest burden is low (¥8m), and operating interest coverage is a comfortable 8.5x. The capital structure is conservative with significant equity buffer, providing resilience through earnings volatility. Absence of disclosed cash and cash equivalents limits precise assessment of net cash position; nonetheless, low leverage reduces refinancing risk.

Cash Flow Quality

Earnings quality is mixed: reported net income was -¥29m, yet operating cash flow was a strong ¥1.616bn, yielding an OCF/NI ratio of -55.72x due to the negative denominator. The positive OCF is supported by substantial non-cash charges (D&A ¥442m) and likely working capital inflows; inventory stood at ¥3.801bn, but period-over-period movements were not disclosed. Free cash flow cannot be reliably calculated because investing cash flow is undisclosed in the XBRL (0 placeholder); actual CapEx could be material given D&A of ¥442m. Absent investing cash flow details, we infer that underlying cash generation is better than accounting earnings suggest in this quarter, but sustainability depends on normalized working capital and maintenance/growth CapEx requirements. Monitoring the trajectory of receivables, payables, and inventory turnover will be crucial to validate cash conversion durability.

Dividend Sustainability

The company paid no dividend in the period (DPS ¥0; payout ratio 0%), consistent with a small net loss and margin compression. Without disclosed CapEx or FCF, free cash flow coverage of dividends cannot be assessed (reported 0x is a placeholder). Given strong liquidity, low leverage, and positive OCF, the capacity to resume dividends over time exists, but policy will depend on restoring stable profitability and demonstrating consistent FCF after CapEx. Near-term, a conservative stance on shareholder returns appears prudent until operating margins recover and earnings turn solidly positive.

Risk Assessment

Business Risks:

• End-market cyclicality in industrial equipment, power electronics, and semiconductor-related demand
• Input cost volatility (materials, components, energy) pressuring gross and operating margins
• Pricing pressure and competitive intensity in power electronics/components
• Product mix shifts reducing average margins and under-absorption of fixed costs
• Supply chain disruptions affecting lead times and inventory management

Financial Risks:

• Potential working capital swings despite currently strong OCF
• CapEx requirements not disclosed; risk of higher-than-expected cash outflows to maintain/upgrade capacity
• Earnings sensitivity to utilization given high D&A and fixed-cost base
• Limited visibility on cash balance due to undisclosed cash and equivalents

Key Concerns:

• Sharp YoY decline in operating profit despite flat sales
• Net loss in the quarter and very thin operating margin (~0.6%)
• Lack of disclosed CapEx and cash balances constraining FCF and liquidity precision
• Need for margin recovery to sustain future capital returns

Investment Implications

Key Takeaways:

• Revenue flat YoY at ¥11.626bn; demand stable but no growth momentum
• Operating income fell to ¥68m (-67.4% YoY), with operating margin ~0.6%
• Net loss of ¥29m; ROE -0.12% driven by negative margin
• Strong OCF of ¥1.616bn contrasts with reported loss, aided by non-cash and working capital factors
• Balance sheet conservative: implied equity ratio ~72%, D/E 0.38x, interest burden low
• Profitability recovery depends on cost pass-through, mix improvement, and utilization
• CapEx undisclosed; true FCF unknown despite solid OCF

Metrics to Watch:

• Operating margin and EBITDA margin trajectory
• Gross-to-operating margin gap (overhead absorption and opex control)
• Working capital turns (inventory, receivables, payables) and OCF sustainability
• CapEx disclosures and resulting FCF
• Order backlog and book-to-bill (if disclosed) for demand visibility
• ASP/pricing trends and materials cost indices
• Leverage and interest coverage under different earnings scenarios

Relative Positioning: Financially conservative with strong liquidity and low leverage versus many small-to-mid cap industrial electronics peers, but currently weaker operating profitability and earnings momentum; recovery in margins and clearer FCF disclosure are necessary to close the gap.

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