Sanoyas Holdings (7022) FY2026 Q3 Earnings Report

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Executive Summary

In addition to higher revenue, improved gross margin and restrained growth in selling, general and administrative expenses combined to drive a significant year-on-year recovery in operating income. Revenue was ¥189.7B (+18.9% YoY), operating income was ¥7.3B (18.2 times the ¥0.4B recorded in the previous year), ordinary income was ¥7.8B (+556.6%), and net income was ¥7.5B (+344.3%). The gross margin improved by 2.4pt to 27.0% from 24.6% in the same period of the previous year, while SG&A expense growth of 12.6% remained below revenue growth of 18.9%, resulting in operating leverage. However, the operating margin of 3.9% remains low, and a full-scale recovery in earnings power has not yet been achieved.

Factors Affecting Financial Results

【Revenue】Revenue increased 18.9% YoY to ¥189.7B. Cost of sales growth of 15.4% was below revenue growth, and the gross margin rose 2.4pt from 24.6% to 27.0%.

【Profit and Loss】Operating income expanded from ¥0.4B to ¥7.3B, and the operating margin improved by approximately 3.6pt from 0.2% to 3.9%. SG&A expenses were ¥43.8B (+12.6% YoY), remaining below the pace of revenue growth and indicating progress in fixed-cost absorption. Ordinary income was ¥7.8B (+556.6%), with dividend income of ¥1.8B accounting for a substantial portion of non-operating income of ¥2.4B. Extraordinary gains and losses resulted in a net loss of ¥0.2B, with limited one-time factors. Net income was ¥7.5B (+344.3%), while the low effective tax rate of 1.4% also boosted net income. In conclusion, the company achieved increases in both revenue and profit.

Key Financial Metrics

【Profitability】The operating margin improved to 3.9% from 0.2% in the same period of the previous year, but remains low in absolute terms. The net profit margin rose to 4.0% from approximately 1.1% in the same period of the previous year. The gross margin improved by 2.4pt to 27.0%.【Cash Flow Quality】The gap between ordinary income and net income remained limited at 3.7%, with no significant uplift from extraordinary gains and losses. However, dividend income accounted for 22.6% of ordinary income, requiring separate evaluation from the profitability of the core business.【Investment Efficiency】Annualized ROE was 8.9%, decomposed into a net profit margin of 4.0%, total asset turnover of 0.75 times, and financial leverage of 3.00 times, indicating relatively high reliance on leverage.【Financial Soundness】The equity ratio declined to 33.3% from 36.6% in the same period of the previous year. The current ratio was 118.0%, the D/E ratio was 2.00 times, and interest coverage was 6.09 times. Although sufficient capacity to service interest payments has been secured, the degree of debt utilization has increased.

Cash Flow Analysis

As no cash flow statement has been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits increased by ¥10.1B to ¥30.2B from ¥20.2B in the same period of the previous year, suggesting an accumulation of funds accompanying business expansion and earnings improvement. Meanwhile, goodwill increased sharply by ¥18.5B YoY to ¥23.5B, and intangible fixed assets rose by ¥18.6B YoY to ¥29.2B. Long-term borrowings also expanded by ¥22.0B YoY to ¥59.1B, strongly suggesting that financing and investment associated with M&A and business acquisitions progressed. Construction in progress increased by ¥4.2B to ¥6.2B, indicating progress in capital investment. Overall, the company appears to be in a phase characterized by expanded investment activity using borrowings, in addition to funds generated through operating activities.

Earnings Quality

Non-operating income of ¥2.4B represented only 1.3% of revenue, below the general warning level of 5%. However, dividend income of ¥1.8B accounted for 22.6% of ordinary income of ¥7.8B, indicating a certain degree of reliance on investment income. Extraordinary income of ¥0.2B, including a gain on the sale of investment securities of ¥0.1B, and extraordinary losses of ¥0.3B resulted in a net loss of ¥0.2B, with a limited impact on net income. The gap between ordinary income and net income was small at 3.7%, and no significant uplift from large one-time factors was identified. The effective tax rate was low at 1.4%, and the unusually low tax burden for the current period, including the impact of deferred taxes, boosted net income. This should be taken into account when assessing the earnings level during a future normalization of the tax burden. Comprehensive income was ¥12.2B, exceeding net income of ¥7.5B by ¥4.7B. This was primarily attributable to an increase in valuation differences on securities, indicating that asset valuation factors separate from business earnings boosted comprehensive income.

Earnings Forecast and Guidance

Cumulative Q3 progress rates against the full-year company forecasts were 70.3% for revenue, 91.4% for operating income, 97.5% for ordinary income, and 107.3% for net income. Compared with the standard progress rate of 75%, revenue was slightly below standard, while profit-related indicators were significantly above it. To achieve the full-year plan, Q4 would need to generate revenue of ¥80.3B, while the assumptions imply operating income of ¥0.7B and net income of minus ¥0.5B. This suggests either lower Q4 profitability or conservative plan-setting. The high profit progress rates against the full-year forecasts can be interpreted from both perspectives: the company’s forecasts may have been somewhat conservative at the beginning of the fiscal year, or the company may be anticipating seasonal increases in expenses during Q4.

Shareholder Returns

The Q2 dividend was ¥0 per share, and no interim dividend was paid. As no forecast for the year-end dividend has been disclosed, the full-year payout ratio has not been determined at this time. Treasury stock was ¥1.0B, down from ¥1.3B in the same period of the previous year; however, no acquisition results for the current period have been explicitly disclosed, and the Total Return Ratio will not be calculated. Given net income of ¥7.5B and cash and deposits of ¥30.2B, the company has sufficient funds to potentially pay a year-end dividend.

Risk Factors

1. Absolute profitability level: The operating margin improved to 3.9% from the previous year but remains below the industry median of 8.6%. The sustainability of gross margin improvement and SG&A control will be key areas of focus going forward.

2. Increase in financial leverage: The D/E ratio was 2.00 times, the Debt/Capital ratio was 43.9%, and long-term borrowings increased 59.2% YoY to ¥59.1B. Along with the accumulation of ¥23.5B in goodwill, changes in the capital structure need to be monitored.

3. High level of work in process: Work in process was ¥22.3B, accounting for 52.6% of total manufacturing inventories. Management of production delays and project profitability could affect future inventory valuations.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability is below the industry median, and profit margins remain relatively low within the industry.

Growth and Capital Efficiency

The revenue growth rate is significantly above the industry median, placing the company in a strong position within the industry in terms of growth.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Revenue increased 18.9% YoY, while operating income recovered to ¥7.3B. The operating margin improved by approximately 3.6pt through a 2.4pt improvement in gross margin and SG&A control. Compared with the industry, growth remains favorable, while profit margins continue to be below the median.

2. As indicated by the increases in goodwill to ¥23.5B and long-term borrowings to ¥59.1B, investment involving business acquisitions and debt financing have progressed. Going forward, key points in the financial results will include both the earnings contribution from acquired assets and the level of leverage.

3. While profit progress rates against the full-year forecasts were high at 97.5% for ordinary income and 107.3% for net income, revenue progress was only 70.3%. The company’s forecasts assume lower Q4 profitability, and whether the full-year plan will be revised is an item to monitor going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥295–¥312 for a ±1% change in the cost of equity, and ¥303–¥304 for a ±0.1 change in ω.

Notes:

• Because net income progress against the full-year forecast (107%) exceeds the standard rate (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to outperform forecasts. The adjustment may be excessive for businesses with strong seasonality).
• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a time difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with professionals as necessary.

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