Shinwa Holdings Co., Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.23B
• Operating Income: ¥41M
• Net Income: ¥30M
• EPS: ¥22.17

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

Verdict: A mixed FY2026 Q2—top-line grew modestly but profitability compressed sharply, leaving thin operating margins and elevated leverage. Revenue increased 5.4% YoY to 32.26, while operating income fell 61.0% to 0.41 and net income declined 60.5% to 0.30. Gross profit was 19.71, implying a healthy gross margin of 61.1%, but SG&A of 19.29 absorbed nearly all gross profit. Operating margin deteriorated to 1.3% (0.41/32.26), and ordinary income of 0.51 benefited from net non-operating gains of 0.09. Net margin stands at 0.9%, reflecting both weak operating leverage and a high effective tax rate of 40.7%. On a YoY basis, operating margin compressed by roughly 216 bps (estimated prior ~3.43% vs. current ~1.27%), and net margin compressed by about 155 bps (estimated prior ~2.48% vs. current ~0.93%). Earnings quality is acceptable with OCF of 0.33 exceeding net income (OCF/NI = 1.11x), but free cash flow was negative at approximately -0.18 after 0.51 in capex. Liquidity is adequate (current ratio 177.7%, quick ratio 160.2%) supported by cash and deposits of 9.27, but solvency is stretched with D/E at 2.01x. Interest coverage remains solid at 11.25x, mitigating near-term servicing risk despite leverage. ROE was calculated at 4.3%, held up primarily by high asset turnover (1.525x) and leverage (3.01x) rather than healthy margins. ROIC is shown at 7.0%, roughly at management-target benchmarks but vulnerable if margins remain compressed. The profit mix shows a notable contribution from non-operating items (net +0.09), which represented roughly 22% of operating income, indicating some reliance on below-the-line support. With a calculated payout ratio of 187.9% and negative FCF in the period, dividend sustainability is a concern absent earnings recovery or lower capex. Forward-looking, stabilizing SG&A intensity and restoring operating margin are critical to sustain ROE and ROIC while deleveraging. Monitoring tax rate normalization, working capital, and capex pacing will be key determinants of second-half cash generation.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.3% = Net Profit Margin (0.9%) × Asset Turnover (1.525x) × Financial Leverage (3.01x). The weakest link is net margin, which compressed sharply YoY; operating income fell 61% against a 5.4% revenue increase, pointing to margin as the dominant driver of ROE deterioration. Business driver: SG&A intensity is elevated—SG&A is 59.8% of sales and ~98% of gross profit—leaving little operating profit despite a strong gross margin. This likely reflects wage/overhead inflation, investments in growth capabilities, or timing-related costs. Sustainability: The current margin level appears cyclical or execution-driven rather than structural at the gross margin level; recovery hinges on SG&A discipline and pricing. Asset turnover at 1.525x remains a relative strength given the company’s small asset base, and leverage at 3.01x artificially props up ROE but raises risk. Concerning trend: Operating leverage has turned negative (SG&A growth likely outpacing revenue; while exact YoY SG&A growth is unreported, the fall in operating income implies SG&A pressure). Non-operating items provided a meaningful cushion, with net non-operating gains ~0.09 lifting ordinary income to 0.51; reliance on below-the-line support is not a durable profitability strategy.

Growth Assessment

Top-line growth was 5.4% YoY, but profit growth was negative with operating income -61.0% and net income -60.5%, evidencing weak operating leverage. Current margins—gross 61.1%, operating 1.3%, net 0.9%—suggest the growth is not translating into earnings, primarily due to SG&A absorption. Ordinary income benefitted from non-operating items (net +0.09), indicating some non-core support to earnings. Revenue sustainability appears decent given the modest growth, but profit quality is constrained by cost discipline and a high effective tax rate (40.7%). Outlook hinges on SG&A normalization and maintaining gross margin; without this, revenue growth may not convert to profit. Capex of 0.51 in the period may support future capability, but near-term it weighs on FCF. If management can recalibrate costs in H2, incremental revenue could yield better operating leverage; otherwise, ROE/ROIC targets risk slippage.

Financial Health

Liquidity is sound: current ratio 177.7% and quick ratio 160.2%, with cash and deposits of 9.27 covering current liabilities of 8.03. No warning on current ratio (<1.0) is needed. Solvency is stretched: D/E is 2.01x (warning threshold >2.0), requiring attention though interest coverage remains strong at 11.25x. Maturity mismatch risk appears manageable—short-term loans of 0.50 are modest relative to cash and current assets (14.27). Total liabilities of 14.14 vs. total assets of 21.16 yield equity of 7.02, leaving limited buffer if profitability stays weak. Noncurrent liabilities (6.11) dominate long-term structure, with long-term loans at 5.20. No off-balance sheet obligations are disclosed in the provided data. Overall, near-term liquidity is adequate, but deleveraging would improve resilience.

Cash Flow Quality

OCF of 0.33 exceeds net income of 0.30 (OCF/NI = 1.11x), indicating acceptable earnings quality for the period. Free cash flow is approximately -0.18 (OCF 0.33 minus capex 0.51), implying internal cash generation did not cover investment outlays. Financing cash flow was -0.22, suggesting net outflows (likely debt service or repayments); dividend cash flows are unreported. Working capital quality cannot be fully assessed due to lack of detail, but cash levels are high and AR/inventory are modest relative to sales; no overt signs of working capital manipulation are evident from the limited data. Sustained negative FCF would pressure the balance sheet if repeated; improvement depends on margin recovery or capex moderation.

Dividend Sustainability

The calculated payout ratio of 187.9% implies dividends (likely on an annualized basis) exceed current earnings power, which is unsustainable without a near-term earnings rebound or use of balance sheet cash. FCF in the period was negative (~-0.18), providing no coverage for dividends post-capex. With D/E at 2.01x, funding dividends through additional leverage would be imprudent. Policy outlook is uncertain given unreported DPS and total dividend, but prudence suggests either a lower payout or targeting improved profitability/OCF before increasing distributions. Monitoring H2 earnings and cash generation will be critical for payout calibration.

Risk Assessment

Business Risks:

• Operating margin compression due to elevated SG&A intensity (SG&A ~98% of gross profit).
• Execution risk in cost control; inability to convert revenue growth to profit.
• High effective tax rate (40.7%) eroding net margin.
• Dependence on non-operating gains to support ordinary income.

Financial Risks:

• High leverage: D/E at 2.01x (above comfort threshold).
• Negative free cash flow in the period; potential pressure if persistent.
• Interest rate risk on 5.70 of interest-bearing loans (short + long).
• Potential refinancing risk if profitability remains weak.

Key Concerns:

• Thin operating margin (1.3%) leaves limited buffer against shocks.
• Dividend sustainability questionable with >100% payout and negative FCF.
• Profit volatility if non-operating support fades.
• Small scale (sales 32.26) increases sensitivity to cost swings.

Investment Implications

Key Takeaways:

• Revenue growth (+5.4% YoY) did not translate into profit; operating income -61%.
• Operating margin compressed by ~216 bps YoY to ~1.3%; net margin by ~155 bps to ~0.9%.
• Earnings quality acceptable (OCF/NI 1.11x) but FCF negative (~-0.18) due to capex.
• Leverage elevated (D/E 2.01x) despite strong interest coverage (11.25x).
• ROE (4.3%) supported by asset turnover and leverage, not margins; ROIC at 7.0% is at target but fragile.
• Non-operating items provided a meaningful cushion to ordinary income.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio.
• OCF/NI and free cash flow.
• D/E ratio and net debt to EBITDA.
• Effective tax rate trajectory.
• Capex execution versus plan and return on invested capital (ROIC).
• Working capital turns (AR and inventory days).

Relative Positioning: Within small-cap peers, liquidity is adequate and interest coverage is solid, but profitability and leverage are weaker: margins are thin versus typical small-cap benchmarks, and D/E slightly exceeds comfort thresholds, making cost control and deleveraging priorities for improved positioning.

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
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