SAWAFUJI ELECTRIC CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.95B
• Operating Income: ¥-526M
• Net Income: ¥-454M
• EPS: ¥-99.94

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: FY2026 Q2 was a weak quarter with revenue contraction and a swing to operating loss, resulting in negative ROE and ROIC. Revenue fell 5.5% YoY to 109.52, and gross profit was 11.20, yielding a thin gross margin of 10.2%. SG&A of 16.46 exceeded gross profit, driving operating income to -5.26 and an operating margin of -4.8%. Non-operating income of 1.50 (including 1.03 in dividend income) partially offset losses but was insufficient to lift ordinary income, which came in at -4.38. Net income was -4.31 (EPS -99.94 JPY), down 82.7% YoY, implying substantial deterioration in underlying profitability. Ordinary loss and net loss despite positive dividend income indicate core operations are under strain and being propped up by financial income. Margins compressed materially: operating margin at -4.8% and net margin at -3.9% likely reflect a multi-hundred-basis-point contraction versus last year (exact bps not calculable due to missing prior margins). EBITDA was -1.33, and interest coverage was -11.69x, flagging weak debt-servicing capacity from current earnings. Cash and deposits were 6.72 against short-term loans of 48.89, highlighting dependence on external funding, although liquidity ratios (current 131.7%, quick 111.5%) remain above the minimum threshold. Operating cash flow was -3.69, versus net loss of -4.31, producing an OCF/NI of 0.86x; while above the 0.8x risk threshold, negative OCF still signals pressure on cash generation. Balance sheet leverage is moderate with D/E at 1.01x and assets/equity leverage at 2.01x, but ROIC of -3.0% indicates capital inefficiency. Working capital intensity remains high with accounts receivable 44.99 and inventories 19.07 versus accounts payable 12.33, likely contributing to OCF weakness. Financing cash inflow of 9.42 suggests increased borrowings to fund losses and working capital. Dividend details were unreported; a calculated payout ratio of -32.1% is not meaningful given loss-making status, and dividend capacity appears constrained until FCF improves. Forward-looking, management likely needs to prioritize margin repair (pricing, mix, cost-down), working capital normalization, and capex discipline to restore ROIC above the cost of capital. Near-term earnings trajectory will be sensitive to SG&A containment, demand recovery in core products, and reliance on non-operating income (dividends) to cushion losses.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (-3.9%) × Asset Turnover (0.436) × Financial Leverage (2.01x) = ~-3.5% ROE (matches reported). The most impactful driver is the sharp deterioration in Net Profit Margin due to an operating loss (-4.8% operating margin) as SG&A (16.46) exceeded gross profit (11.20). Asset turnover of 0.436 is modest, reflecting a relatively heavy asset base (251.12) versus half-year revenue; turnover did not compensate for margin weakness. Financial leverage at 2.01x is not excessive, so it neither amplified returns nor offset the margin shortfall. Business context: likely volume softness (revenue -5.5% YoY) and gross margin compression, plus fixed-cost rigidity in SG&A, pushed the core into loss despite 1.50 in non-operating income (notably 1.03 in dividends). Sustainability: non-operating dividend income is recurring to a degree but volatile; depending on it to offset core losses is not sustainable. Concerning trends include: SG&A exceeding gross profit; EBITDA negative (-1.33); and interest expense (0.45) meaningful versus operating loss, which depresses ordinary income (-4.38). Overall, ROIC at -3.0% corroborates that returns on invested capital are below acceptable thresholds.

Growth Assessment

Top-line contracted 5.5% YoY to 109.52, indicating end-market softness or pricing/mix headwinds. Operating income fell to -5.26 (-90.7% YoY), and ordinary income to -4.38 (-71.5% YoY), implying operating deleverage. Given gross margin at 10.2% and SG&A at 15.0% of sales, revenue growth alone will not restore profitability without cost actions or margin improvement. Non-operating income (dividends 1.03) partially offsets losses, but reliance here introduces volatility risk and does not reflect operational health. With EBITDA negative and interest coverage deeply negative, near-term growth investment may be constrained by financing costs. Outlook depends on: 1) recovery in core product demand; 2) pricing pass-through/cost-down to lift gross margin; 3) SG&A discipline; and 4) working capital normalization to support cash generation. Near-term, base case is gradual stabilization rather than a sharp rebound, absent clear catalysts reported in the data.

Financial Health

Liquidity: Current ratio 131.7% (>1.0 but below the 1.5x healthy benchmark); quick ratio 111.5% (>1.0), indicating short-term liquidity is adequate but not robust. Solvency: D/E 1.01x (within typical comfort <1.5x), total liabilities 126.08 vs equity 125.03. Debt mix and maturity: short-term loans 48.89 versus cash 6.72 and current assets 123.96; reliance on short-term debt is high, creating refinancing risk if lenders tighten. No explicit off-balance sheet obligations were reported. Maturity mismatch: while current assets exceed current liabilities (working capital 29.85), the cash buffer is thin relative to short-term borrowings, making uninterrupted access to bank lines important. Interest burden: interest expense 0.45 with negative EBITDA leads to interest coverage -11.69x, a clear weakness.

Cash Flow Quality

OCF was -3.69 versus net loss -4.31, yielding OCF/NI of 0.86x (not flagged under the <0.8 criterion), but the absolute negative OCF still signals cash burn. Free cash flow is unreported; capex data is unavailable, limiting precision on FCF coverage. Working capital appears a drag: AR 44.99 and inventories 19.07 against AP 12.33 suggest cash tied up in receivables/inventory relative to payables. Financing cash flow +9.42 indicates increased borrowing to fund operations and/or working capital. No clear signs of aggressive working capital manipulation are observable from the snapshot, but elevated AR relative to sales warrants monitoring for collection risk and potential OCF pressure.

Dividend Sustainability

Dividend amounts are unreported, and the calculated payout ratio of -32.1% is not meaningful due to losses. With negative OCF and EBITDA, internal coverage of dividends is currently weak; any dividend would need to be funded by balance sheet or incremental debt, which is not sustainable if losses persist. Until core profitability and OCF improve, dividend capacity is constrained. Policy outlook cannot be inferred from the data; investors should watch for management guidance on shareholder returns and whether payout is tied to FCF or earnings normalization.

Risk Assessment

Business Risks:

• Demand weakness in core products leading to operating losses (revenue -5.5% YoY).
• Gross margin pressure (10.2%) insufficient to cover SG&A (15.0% of sales).
• Reliance on non-operating dividend income (1.03) to offset operating losses.
• Potential customer concentration risk typical of automotive/industrial supply chains (not disclosed).
• Supply chain and input cost volatility impacting cost of sales.

Financial Risks:

• Negative EBITDA and interest coverage (-11.69x) indicate weak debt-servicing capacity.
• High reliance on short-term loans (48.89) versus cash (6.72) increases refinancing risk.
• ROIC -3.0% signals capital inefficiency and potential value erosion if prolonged.
• Working capital intensity (AR 44.99, inventories 19.07) may continue to pressure OCF.
• Potential sensitivity to interest rate increases given leverage and short-term debt bias.

Key Concerns:

• Sustained operating losses (-5.26) and negative net margin (-3.9%).
• SG&A exceeding gross profit, necessitating cost actions or margin repair.
• Cash burn (OCF -3.69) funded by financing CF (+9.42), not sustainable long term.
• Thin cash buffer relative to short-term borrowings despite acceptable current ratio.
• Limited disclosure on capex, dividends, and segment performance reduces visibility.

Investment Implications

Key Takeaways:

• Core operations loss-making with operating margin -4.8%; non-operating dividends cushioning but not fixing fundamentals.
• ROE -3.5% and ROIC -3.0% reflect subpar returns; recovery requires margin expansion and better asset utilization.
• Liquidity acceptable but reliant on short-term funding; interest coverage deeply negative.
• Negative OCF alongside revenue decline indicates both demand and cash conversion challenges.
• Visibility on FCF and dividend policy is low due to unreported capex and payout details.

Metrics to Watch:

• Gross margin trajectory and SG&A-to-sales ratio.
• Order trends and revenue growth vs pricing/mix.
• OCF/Net income and working capital turns (DSO, DIO, DPO).
• EBITDA and interest coverage improvement.
• Short-term debt levels and available liquidity (cash and committed lines).
• ROIC progression toward >5% as a minimum hurdle.

Relative Positioning: Versus small-cap Japanese industrial/electrical peers, Sawafuji Electric currently exhibits weaker profitability (negative EBITDA and net margin), moderate leverage (D/E ~1.0x), and tighter cash coverage, implying a need for more aggressive margin and cost measures 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