SHIZUKI ELECTRIC COMPANY INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.25B
• Operating Income: ¥1.12B
• Net Income: ¥257M
• EPS: ¥33.71

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

Shizuki Electric (TSE:6994) delivered a strong FY2026 Q2 consolidated result under JGAAP, highlighted by sharp profit expansion on modest topline growth. Revenue rose 3.2% year on year to ¥13.249 billion, while operating income nearly doubled (+98.9%) to ¥1.118 billion, indicating significant margin improvement and operating leverage. Gross profit reached ¥3.040 billion with a gross margin of 22.9%, and operating margin expanded to approximately 8.4%. Ordinary income exceeded operating income at ¥1.222 billion, implying modest net non-operating gains despite interest expense of only ¥24.8 million. Net income surged 268.8% to ¥851 million, with EPS of ¥33.71, reflecting both stronger core operations and limited financial drag. The DuPont profile shows a net margin of 6.42%, asset turnover of 0.341x, and financial leverage of 1.59x, generating a calculated and reported ROE of 3.48%. Liquidity appears robust with a current ratio of 292% and quick ratio of 281%, underpinned by current assets of ¥20.113 billion versus current liabilities of ¥6.883 billion. The company’s capital structure is conservative to moderate, with debt-to-equity at 0.60x and interest coverage at 45x, indicating low refinancing risk in the near term. Operating cash flow was strong at ¥2.835 billion, more than 3.3x net income, suggesting healthy conversion and favorable working-capital dynamics. Depreciation and amortization totaled ¥658 million, putting EBITDA at ¥1.776 billion (13.4% margin), which further supports the quality of earnings. The tax line reported is ¥188 million, which implies an effective tax rate near the mid-teens using ordinary income as a proxy for pre-tax profit, despite a presented metric of 0.0% (likely a data limitation). The balance sheet shows total assets of ¥38.851 billion and equity of ¥24.466 billion, aligning with the reported financial leverage factor. Dividend payments were not reported for the period (DPS and payout indicated as zero due to non-disclosure), and free cash flow is not determinable because investing cash flows were not disclosed. Several key items are unreported in XBRL (e.g., cash and equivalents, equity ratio, capex), so the analysis relies on the disclosed non-zero data points and standard interpretations. Overall, results indicate improved pricing/mix or cost containment and strong operating leverage, backed by solid liquidity and cash generation; however, sustainability and capital allocation visibility hinge on missing disclosures (capex, cash, and dividend policy details).

Profitability Analysis

ROE decomposition (DuPont): Net profit margin of 6.42% × asset turnover of 0.341 × financial leverage of 1.59 yields a calculated ROE of 3.48%, matching the reported figure. Margin quality improved markedly: operating income rose 98.9% on just 3.2% revenue growth, lifting operating margin to ~8.4% and indicating strong operating leverage from a relatively fixed cost base and/or improved price–cost spread. Gross margin printed at 22.9%, with EBITDA margin at 13.4%, and D&A of ¥658 million indicating ongoing asset intensity but also a cushion between EBIT and EBITDA. Ordinary income of ¥1.222 billion exceeds operating income by ~¥104 million, suggesting net non-operating positives (e.g., financial income or FX gains) more than offset the ¥24.8 million interest expense. Interest coverage is robust at ~45x using operating income, underscoring low financing drag on profitability. The effective tax expense of ¥188 million against ordinary income implies an effective tax rate of roughly 15%, though a 0.0% metric is shown in the dataset, which appears to be a reporting limitation rather than an actual rate. Overall, profitability expansion appears driven primarily by operating margin gains rather than asset utilization or leverage, consistent with a quality uplift in earnings.

Growth Assessment

Revenue growth was modest at +3.2% YoY to ¥13.249 billion, but profit growth was outsized: operating income +98.9% and net income +268.8%. This dispersion suggests a favorable mix shift, pricing improvement, cost-down efforts, and/or normalization of prior-year headwinds (e.g., input costs or one-off expenses). The rise in ordinary income above operating income indicates a small incremental contribution from non-operating factors, but the profit inflection is predominantly operational. Asset turnover remains relatively low at 0.341x, implying growth is not being driven by asset-light expansion but rather by improved margin capture. The strong OCF relative to net income (3.33x) supports the view that reported earnings quality improved alongside growth. Sustainability of this profit trajectory will depend on maintaining price–cost spread, demand conditions in end markets (industrial power equipment, energy infrastructure, and related components), and continued cost discipline. Near-term outlook is constructive given evidence of operating leverage, but we lack order/backlog, segment breakdown, or guidance to calibrate the forward growth rate. Without investing cash flow data, we cannot assess whether growth is being underpinned by adequate reinvestment (capex/R&D) or whether current profitability benefits from underinvestment. Overall, revenue growth appears steady, while profit growth reflects both structural efficiencies and favorable near-term conditions; durability will hinge on reinvestment and market normalization.

Financial Health

Liquidity appears strong: current assets of ¥20.113 billion versus current liabilities of ¥6.883 billion yield a current ratio of 292% and a quick ratio of 281%, supported by relatively small reported inventories of ¥750 million. Working capital stands at ¥13.230 billion, providing a solid buffer for operations and procurement cycles. Solvency is comfortable: debt-to-equity is 0.60x, with interest coverage of ~45x indicating ample capacity to service debt. Total assets of ¥38.851 billion and equity of ¥24.466 billion imply financial leverage of ~1.59x; the reported equity ratio is shown as 0.0% due to non-disclosure, but the asset/equity data supports a healthy equity cushion. Ordinary income well above interest expense indicates minimal financial strain. Absence of disclosed cash and equivalents limits visibility into immediate liquidity headroom, but the strength in working capital and OCF mitigates near-term concerns. Overall, the company maintains a conservative-to-moderate capital structure and robust short-term liquidity.

Cash Flow Quality

Operating cash flow of ¥2.835 billion is 3.33x net income (¥851 million), indicating strong cash conversion, likely aided by favorable working-capital movements or non-cash charges (D&A: ¥658 million). EBITDA of ¥1.776 billion versus OCF suggests additional cash benefits from working capital release beyond non-cash add-backs. Investing cash flow is unreported (shown as zero), preventing calculation of free cash flow and assessment of capex sufficiency relative to depreciation. Financing cash flow was a modest inflow of ¥146 million, implying limited reliance on external funding during the period. Working capital appears well managed given the low reported inventory relative to current assets and strong OCF; however, we lack details on receivables and payables to fully diagnose the drivers. Earnings quality reads positively given the alignment of rising profits with strong cash generation, but confirmation requires visibility on capex, cash balances, and any one-off cash items.

Dividend Sustainability

Dividend data are not disclosed for the period (DPS, payout, and FCF coverage shown as zero due to non-reporting), so we cannot assess actual distributions. Based on earnings alone, payout capacity exists given net income of ¥851 million and strong OCF; however, without capex and investing cash flows, free cash flow coverage cannot be established. Balance sheet strength (low leverage, robust liquidity) would generally support dividends, but policy intent, target payout ratio, and medium-term reinvestment needs are not disclosed. If management prioritizes reinvestment (e.g., capacity, product upgrading), distributions may remain conservative despite higher earnings. Conclusion: dividend sustainability cannot be determined from the provided data; visibility depends on capex, cash reserves, and stated policy.

Risk Assessment

Business Risks:

• Cyclical demand in industrial power equipment and energy infrastructure end markets impacting order intake.
• Raw material price volatility (e.g., aluminum, copper, films) affecting gross margins and price–cost spread.
• Product mix and pricing risks if competitive dynamics pressure margins after a strong expansion period.
• Supply chain constraints or lead-time volatility affecting delivery schedules and working capital.
• Customer concentration risk typical in industrial components (not disclosed but common), potentially amplifying order variability.
• Technological and qualification barriers in power electronics/components requiring ongoing R&D and capex.
• FX exposure on exports or imported materials (not quantified) that can affect ordinary income.

Financial Risks:

• Limited visibility on cash and equivalents due to non-disclosure, constraining near-term liquidity assessment.
• Unknown capex profile (investing CF not disclosed) creates uncertainty around free cash flow and reinvestment needs.
• Potential margin mean reversion if favorable working-capital or one-off items boosted OCF/earnings conversion.
• Moderate leverage (D/E 0.60x) could rise if growth capex or acquisitions are pursued without commensurate cash generation.

Key Concerns:

• Sustainability of the significant operating margin expansion on only modest revenue growth.
• Lack of investing cash flow detail, preventing free cash flow assessment and dividend capacity evaluation.
• Unreported cash position and equity ratio limiting full solvency and liquidity analysis.

Investment Implications

Key Takeaways:

• Strong profit inflection: operating income +98.9% YoY on revenue +3.2%, with operating margin ~8.4%.
• Healthy earnings quality: OCF ¥2.835 billion (3.33x net income) and EBITDA margin 13.4%.
• Solid balance sheet: current ratio 292%, D/E 0.60x, interest coverage ~45x.
• ROE at 3.48% driven mainly by margin gains; leverage and asset turnover play smaller roles.
• Non-operating items modestly positive (ordinary income > operating income by ~¥104 million).
• Data gaps (cash, capex, dividends) limit visibility on FCF and capital allocation.

Metrics to Watch:

• Operating margin and gross margin to gauge sustainability of price–cost spread.
• Order backlog/book-to-bill and end-market demand indicators for revenue visibility.
• Working-capital efficiency (receivable days, payable days, inventory turns) to sustain OCF.
• Capex versus depreciation to assess reinvestment and FCF durability.
• Net cash/debt and liquidity buffers once cash balances are disclosed.
• Dividend policy updates (target payout ratio, timing) and any share repurchases.

Relative Positioning: Within Japanese industrial component peers, the company currently exhibits stronger operating leverage and cash conversion in the period, underpinned by conservative leverage and robust liquidity; however, incomplete disclosure on cash and capex tempers visibility versus peers that provide fuller free cash flow and capital allocation detail.

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