SANKO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.59B
• Operating Income: ¥251M
• Net Income: ¥187M
• EPS: ¥21.11

Income Statement

Balance Sheet

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: Mixed quarter—solid top-line growth but declining profitability and heavy reliance on non-operating items, with capital efficiency below benchmark. Revenue rose 5.7% YoY to 85.91, but operating income fell 5.9% to 2.51 and net income declined 18.7% to 1.87. Gross profit was 10.00, implying a gross margin of 11.6%, and operating margin was 2.9%. Ordinary income decreased 11.7% to 2.88 despite a net positive non-operating contribution. Operating margin compressed by roughly 37 bps YoY (from about 3.29% to 2.92%). Ordinary margin compressed by roughly 66 bps (from about 4.01% to 3.35%). Net margin compressed by roughly 65 bps (from about 2.83% to 2.18%). Earnings quality shows dependence on non-operating items: non-operating income (0.53) and expenses (0.15) netted to +0.38, lifting ordinary income by ~13% versus operating income. A notable item is the reported investment securities gain (1.02) that exceeds the total non-operating income (0.53), suggesting classification or disclosure mapping differences in the XBRL; we rely on the subtotal that reconciles to ordinary income. Liquidity is strong (current ratio 276.8%, working capital 93.25), and solvency appears conservative with total liabilities to equity of 0.40x and interest coverage of 113x. However, capital efficiency is weak: ROE 1.2% and ROIC 1.5% are well below management-quality benchmarks and the cost of capital. The effective tax rate of 34.9% also weighed on net results. Dividend payout is calculated at 96.3%, high relative to slowing profit momentum and unknown free cash flow, implying potential sustainability risk if cash generation is not robust. With OCF not disclosed, we cannot validate earnings-to-cash conversion; this is a key forward-looking uncertainty. Overall, the quarter underscores resilient sales but deteriorating margins and increased reliance on financial gains, pointing to a need for cost control and core margin recovery. Near-term focus should be on stabilizing gross margin, improving operating leverage, and clarifying the sustainability of non-operating contributions. Forward-looking, the low ROIC points to the necessity of portfolio discipline and tighter capital allocation to lift returns. Absent evidence of operating margin repair or stronger cash conversion, the high payout ratio could face pressure.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 2.2% × 0.389 × 1.40 ≈ 1.2% (matches reported). The component most clearly deteriorating is the margin: operating margin fell from ~3.29% to 2.92% (-37 bps), and net margin from ~2.83% to 2.18% (-65 bps). Business drivers likely include a softer gross spread (gross margin only 11.6%) and limited SG&A absorption despite revenue growth, resulting in negative operating leverage. Non-operating items partly masked core weakness: net non-operating contribution added ~0.38 to ordinary income (~13% uplift vs operating income), which is unlikely to be a stable recurring driver. Sustainability: margin pressure is typically cyclical and addressable via pricing, mix, and cost initiatives, but gains on investment securities and financial income are volatile and not a reliable profit base. Flags: profit growth lagged revenue growth; SG&A detail is unreported, but the decline in operating income despite sales growth implies SG&A growth and/or gross margin compression outpaced revenue expansion.

Growth Assessment

Top line grew 5.7% YoY to 85.91, indicating demand resilience. However, profits contracted: operating income -5.9%, ordinary income -11.7%, and net income -18.7%, implying negative operating leverage. Operating margin compressed ~37 bps; ordinary and net margins compressed ~66 bps and ~65 bps respectively. Non-operating income (0.53) and low interest expense (0.02) supported ordinary income, but dependence on investment-related gains weakens growth quality. With ROIC at 1.5%, incremental growth appears value-dilutive unless margins improve or capital intensity falls. Outlook hinges on gross margin recovery and cost control; absent these, further revenue growth may not translate into earnings growth. Given the effective tax rate of 34.9%, even modest margin gains will be partially offset by taxes, emphasizing the need for operating margin expansion. Segment or product-level drivers are not disclosed; sustainability of revenue growth cannot be verified without backlog/order data. Net-net, growth quality is cautious: sales up but core profitability down, with a material assist from non-operating items.

Financial Health

Liquidity is strong: current assets 145.99 vs current liabilities 52.75 yield a current ratio of 276.8% (well above the >150% benchmark). Quick ratio equals reported current ratio given missing inventory data; cash of 45.75 and receivables of 44.92 comfortably cover payables of 19.79—low maturity mismatch risk. Solvency is conservative: total liabilities 63.09 vs equity 157.55 imply a total liabilities-to-equity ratio of 0.40x; equity ratio is approximately 71.4% (157.55/220.64). Interest coverage is very strong at 113.47x, reflecting minimal interest burden (0.02). No explicit interest-bearing debt breakdown is disclosed; therefore, the D/E figure reflects total liabilities, not strictly net debt metrics. No off-balance sheet commitments are reported in the provided data. No warnings: Current Ratio is well above 1.0 and D/E is well below 2.0.

Cash Flow Quality

Operating, investing, and financing cash flows are not disclosed; OCF/Net Income and free cash flow cannot be calculated. This limits validation of earnings quality and the sustainability of dividends and capex. Potential red flags to monitor, given the P/L mix: a relatively high non-operating contribution (net +0.38) to ordinary income can inflate earnings without cash backing. Working capital specifics (inventory levels, receivables turns) are unreported, preventing assessment of potential revenue cut-offs or receivables buildup. With strong liquidity buffers (cash 45.75), near-term cash stress is unlikely, but longer-term cash generation remains unverified.

Dividend Sustainability

The calculated payout ratio is 96.3%, which is high versus the <60% benchmark and net income decline (-18.7% YoY). With OCF and FCF unreported, coverage cannot be confirmed; thus, payout sustainability is uncertain. Balance sheet strength (equity ratio ~71%) provides a cushion, but continued high payout amid low ROIC (1.5%) and compressing margins could constrain reinvestment or necessitate payout adjustments if cash flows lag earnings. Policy visibility is limited due to missing DPS and dividend cash data; clarity on target payout or DOE policy would help assess outlook.

Risk Assessment

Business Risks:

• Margin compression risk: gross and operating margin under pressure despite sales growth
• Execution risk in cost control and pricing needed to restore operating leverage
• Dependence on non-operating items (investment securities gains, interest income) to support ordinary income
• Potential demand cyclicality in industrial/electronic components end-markets (autos, machinery, electronics)

Financial Risks:

• Dividend sustainability risk given 96.3% payout and unknown OCF/FCF
• Valuation risk on investment securities; gains may reverse in adverse markets
• Tax rate headwind (effective tax rate 34.9%) dampening net profitability

Key Concerns:

• ROIC at 1.5% is below 5% warning threshold, indicating weak capital efficiency
• Net margin fell ~65 bps YoY; operating income declined despite higher sales
• Non-operating income disclosures show internal inconsistency (breakdown > subtotal), creating uncertainty on quality and repeatability
• Cash flow statements unreported, limiting assessment of earnings-to-cash conversion and FCF coverage of dividends

Investment Implications

Key Takeaways:

• Revenue growth (+5.7% YoY) not translating into profit growth; margins compressed across levels
• Ordinary income relies in part on non-operating items (net +0.38), reducing earnings quality
• Balance sheet is robust (equity ratio ~71%, current ratio ~277%), mitigating near-term financial stress
• Capital efficiency weak (ROE 1.2%, ROIC 1.5%), signaling need for margin and asset-turn improvements
• High payout ratio (~96%) looks stretched without confirmed cash flow support

Metrics to Watch:

• Gross and operating margin trajectory (bps change QoQ/YoY)
• Operating cash flow and free cash flow once disclosed
• Composition of non-operating income (especially investment securities gains) and volatility
• Working capital metrics (receivables and inventories turnover) to gauge cash conversion
• Capex and ROIC by project/segment, and any capital allocation updates
• Dividend policy guidance (target payout/DOE) and cash coverage

Relative Positioning: Financially conservative balance sheet but lagging profitability and capital efficiency versus typical industrial peers; quality of earnings is mixed due to notable non-operating contributions.

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