SAWAFUJI ELECTRIC CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.95B
• Operating Income: ¥-526M
• Net Income: ¥55M
• 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

Sawafuji Electric Co., Ltd. (TSE: 6901) reported a weak FY2026 Q2 consolidated result under JGAAP, with revenue of ¥10.95bn (-5.5% YoY) and a swing to operating loss of ¥0.53bn (-90.7% YoY). Gross profit of ¥1.66bn implies a gross margin of 15.2%, but operating margin deteriorated to -4.8% as SG&A and fixed costs outpaced revenue, highlighting operating leverage on a declining sales base. Ordinary loss was ¥0.44bn and net loss ¥0.43bn (-82.7% YoY), equating to an EPS of -¥99.94 (shares not disclosed). The DuPont decomposition indicates a negative ROE of -3.45%, driven by a net margin of -3.94% and modest asset turnover of 0.436x; financial leverage of 2.01x amplified losses but remains moderate versus typical manufacturing peers. Liquidity appears adequate with a current ratio of 136% and quick ratio of 114%, supported by working capital of ¥3.48bn. Capital structure is balanced, with an implied equity ratio of roughly 49.8% based on the provided totals (although the reported equity ratio field is unpopulated) and a debt-to-equity ratio of 0.99x. Cash flow from operations was an outflow of ¥0.45bn; the OCF/Net Income ratio of 1.05 (both negative) suggests cash outflows slightly exceeded the accounting loss, pointing to working capital and/or non-cash tax effects. EBITDA was negative at ¥0.12bn, and interest coverage was -30.9x, underscoring near-term earnings pressure. Dividend distributions were halted (DPS ¥0), appropriate given losses and cash outflow, with payout and FCF coverage reported as 0 due to non-disclosure of investing cash flows. Inventories at ¥2.17bn represent a notable working capital component amid revenue softness; inventory management will be critical to protect cash. The decline in revenue and significant compression from gross to operating profit indicate margin pressure likely from input costs, product mix, or under-absorption of fixed costs. Tax expense of ¥0.10bn despite losses may reflect JGAAP items such as valuation allowances, non-deductible expenses, or foreign withholding taxes. With multiple cash-related items undisclosed (cash balance, investing CF), visibility on liquidity runway and capex needs is limited, though financing inflows of ¥0.47bn helped bridge the OCF shortfall. Overall, the half-year profile points to cyclical or execution-driven weakness, with sufficient balance sheet buffers in the near term but a need for revenue stabilization and cost control to restore profitability.

Profitability Analysis

ROE_decomposition: Net margin -3.94% x Asset turnover 0.436 x Financial leverage 2.01 ≈ ROE -3.45% (matches reported). Negative profitability is the sole driver of negative ROE; asset efficiency and leverage are moderate. margin_quality: Gross margin at 15.2% is thin for electrical equipment and insufficient to cover SG&A and fixed costs, resulting in operating margin of -4.8% and ordinary margin of -4.0%. EBITDA of -¥124m shows operating cash earnings pressure even before depreciation. The spread between gross and operating margins suggests elevated overheads and/or lower volumes leading to under-absorption. operating_leverage: Revenue fell 5.5% YoY, yet operating profit swung sharply to a ¥526m loss, indicating high operating leverage. Fixed costs are likely significant relative to gross profit, amplifying profit volatility on small revenue changes.

Growth Assessment

revenue_sustainability: Top line declined to ¥10.95bn (-5.5% YoY), signaling weaker demand, pricing pressure, or product mix shifts. Inventory at ¥2.17bn vs. softer sales suggests potential normalization risk if demand remains subdued. profit_quality: Ordinary and net losses despite positive gross profit reflect insufficient scale and cost structure rigidity. Interest expense is low at ¥17m, so the deterioration is operational rather than financial. Tax expense of ¥102m amidst losses reduces quality of earnings under JGAAP due to non-operating tax items. outlook: Near-term recovery hinges on volume stabilization and gross margin recovery. Cost containment and working capital discipline are required to prevent further cash burn. Given the half-year stage, 2H seasonality and order visibility will determine full-year trajectory.

Financial Health

liquidity: Current ratio 136.3% and quick ratio 113.7% indicate adequate short-term coverage. Working capital is ¥3,479m, offering a buffer against near-term volatility. Cash and equivalents are undisclosed, limiting precision on immediate liquidity. solvency: Total assets ¥25,112m, total equity ¥12,503m imply an equity ratio around 49.8% (reported field unpopulated). Debt-to-equity 0.99x denotes moderate leverage. Interest burden is low (¥17m), but negative EBIT yields weak coverage (-30.9x). capital_structure: Leverage measured by financial leverage of 2.01x and D/E 0.99x is not excessive. However, sustained operating losses would erode equity and tighten covenants if present.

Cash Flow Quality

earnings_quality: OCF of -¥451m vs. net income -¥431m (OCF/NI ≈ 1.05, both negative) indicates cash outflows slightly exceed the accounting loss, pointing to working capital drag and/or cash taxes. EBITDA negative corroborates weak cash earnings. FCF_analysis: Free cash flow is not determinable due to undisclosed investing cash flows (reported as 0). Financing inflows of ¥472m likely offset the OCF deficit in the period. working_capital: Inventories of ¥2,169m are material relative to revenue, and managing turns will be key to restoring cash conversion. Specific receivables and payables data are not disclosed, constraining detailed diagnosis.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0 and payout is 0% in the period, consistent with losses and preservation of cash. FCF_coverage: FCF coverage cannot be assessed because investing CF is undisclosed and FCF is reported as 0 by convention; based on negative OCF, organic coverage would be weak absent asset sales. policy_outlook: Given operating losses and cash outflows, maintaining suspension appears prudent until profitability and positive OCF resume.

Risk Assessment

Business Risks:

• Demand softness in core end-markets leading to volume shortfalls
• Thin gross margins vulnerable to input cost inflation and adverse mix
• High operating leverage causing outsized earnings swings on small revenue changes
• Inventory normalization risk if sales remain weak
• Potential customer concentration or export exposure (not disclosed)

Financial Risks:

• Negative EBITDA and EBIT causing interest coverage stress
• OCF outflows requiring ongoing external financing
• Tax cash outflows despite losses under JGAAP effects
• Equity erosion if losses persist, pressuring covenant and rating headroom
• Limited disclosure on cash balance and capex obscures liquidity runway

Key Concerns:

• Sustained operating losses (-¥526m) with declining revenue (-5.5% YoY)
• Negative OCF (-¥451m) and dependence on financing inflows (¥472m)
• Margin compression with gross margin only 15.2% vs. negative operating margin
• Undisclosed cash and investing CF, limiting visibility on FCF and capex needs

Investment Implications

Key Takeaways:

• ROE -3.45% driven by negative net margin; leverage is moderate and not the core issue
• Adequate liquidity (current ratio 136%, quick 114%) but cash burn in H1
• Operating leverage is high; cost structure misaligned with current demand
• Balance sheet support (implied equity ratio ~50%) provides some cushion

Metrics to Watch:

• Order backlog and 2H revenue trajectory
• Gross margin recovery versus SG&A run-rate
• OCF trend and changes in inventories/receivables
• Capex and investing CF disclosure to assess true FCF
• Interest coverage and any changes in borrowing levels

Relative Positioning: Relative to domestic electrical equipment/component peers, Sawafuji currently exhibits below-peer margins and negative EBITDA, with moderate leverage and acceptable liquidity; recovery depends on demand stabilization and cost discipline.

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