Shinwa Holdings Co., Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.23B
• Operating Income: ¥41M
• Net Income: ¥77M
• 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

Shinwa Holdings (71180) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥3,226m, up 5.4% YoY, indicating modest top-line growth. Despite solid gross profit of ¥1,885m (gross margin 58.4%), operating income fell sharply to ¥41m (-61.0% YoY), highlighting significant margin compression at the operating level. Ordinary income of ¥51m exceeded operating income, implying non-operating gains offset part of cost pressures and interest expense. Net income declined 60.5% YoY to ¥30m, translating to a slim net margin of 0.93% and EPS of ¥22.17. The DuPont breakdown shows ROE of 4.27% driven by modest asset turnover (1.525x), thin profitability (0.93% net margin), and higher financial leverage (3.01x assets/equity). Liquidity appears adequate with a current ratio of 165.6% and quick ratio of 147.6%, supported by working capital of ¥592m. Leverage is elevated with a debt-to-equity ratio of 2.07x (using total liabilities/equity), although interest coverage remains comfortable at 14.9x on EBIT, reflecting low absolute interest costs. Operating cash flow was strong at ¥160m and covered net income 5.33x, suggesting favorable cash conversion this period, likely aided by working capital dynamics. EBITDA was ¥81m (2.5% margin), which is modest relative to revenue and underscores limited operating buffer. The reported effective tax rate metric shows 0.0%, but taxes paid/expensed were ¥35.7m; we treat the 0.0% as an unreported metric rather than an actual rate. Equity ratio is shown as 0.0% (unreported), so balance sheet solvency should be assessed using the provided total equity and liabilities. Cash and equivalents, investing cash flows, and free cash flow are shown as zero due to non-disclosure; they should not be interpreted as actual zeros. Dividend per share is reported as ¥0 with a 0% payout ratio, consistent with earnings preservation in a low-margin, deleveraging context. Overall, the quarter reflects resilient revenue but significant cost pressure at the operating level, acceptable liquidity, elevated leverage, and solid cash generation from operations. The sustainability of cash flow and the normalization of operating margins will be key to improving ROE and informing any future dividend policy. Data limitations around cash and investing activities constrain a full cash flow and capital allocation assessment.

Profitability Analysis

ROE of 4.27% is explained by a net margin of 0.93%, asset turnover of 1.525x, and financial leverage of 3.01x. Operating margin is 1.27% (¥41m/¥3,226m), significantly compressed YoY, suggesting higher SG&A or lower pricing power despite a strong 58.4% gross margin. Ordinary margin (1.58%) exceeds operating margin, implying non-operating gains or financial income more than offset the ¥2.76m interest cost. EBITDA margin is 2.5%, leaving a thin cushion for fixed cost absorption; operating leverage appears negative this period as small revenue growth coincided with a large drop in operating income. Interest coverage is strong at 14.9x EBIT, indicating manageable finance costs despite higher leverage. The margin structure (high gross, low operating) indicates elevated overhead or strategic investments in growth/overheads pressuring near-term profitability. Given the low net margin and leverage-driven ROE, improving operating efficiency is the most direct route to better returns.

Growth Assessment

Revenue grew 5.4% YoY to ¥3,226m, signaling steady demand or modest volume/pricing gains. However, the sharp decline in operating income (-61.0% YoY) indicates that growth is currently low-quality from a profit conversion perspective. The gross margin at 58.4% remains robust, suggesting product/service-level unit economics are healthy, but cost-to-serve or SG&A escalations are eroding operating profit. Ordinary income outpacing operating income suggests some reliance on non-operating items, which may not be durable. EPS of ¥22.17 is consistent with the subdued net profit base. With asset turnover at 1.525x, capacity utilization appears reasonable, but incremental growth must translate into better operating margins to be value-accretive. Outlook hinges on cost normalization, pricing discipline, and scale efficiencies; without these, revenue gains may not lift earnings meaningfully. Sustainability of growth will also depend on maintaining working capital discipline that underpinned strong OCF this period. Absent capex disclosure, we cannot assess capacity expansion or growth investments; this is a key limitation. Near-term profit recovery will likely be driven more by cost control than by top-line acceleration.

Financial Health

Liquidity is healthy with a current ratio of 165.6% and a quick ratio of 147.6%, supported by ¥592m in working capital. Inventories are modest at ¥162m relative to current assets, limiting inventory risk. Total liabilities of ¥1,455m against equity of ¥702m produce a debt-to-equity (liabilities/equity) of 2.07x, indicating elevated leverage. Financial leverage of 3.01x (assets/equity) aligns with this picture. Despite leverage, interest expense is low (¥2.76m) and interest coverage is strong at 14.9x EBIT, suggesting near-term solvency comfort. Equity ratio is shown as 0.0% but should be treated as unreported; using balance sheet figures, equity represents roughly 33% of assets (¥702m/¥2,116m). The capital structure thus leans more toward liabilities, and deleveraging would improve resilience. Cash and equivalents are shown as zero (unreported), so we cannot opine on immediate cash buffers.

Cash Flow Quality

Operating cash flow of ¥159.963m is 5.33x net income, indicating strong cash conversion, likely from favorable working capital movements and non-cash charges (¥39.869m depreciation). EBITDA of ¥80.869m provides a reasonable proxy for cash earnings, but the gap between OCF and net income suggests temporary cash tailwinds that may not fully recur. Investing cash flow is shown as ¥0 (unreported), preventing assessment of maintenance vs. growth capex. Consequently, the reported free cash flow of ¥0 in the metrics is not economically meaningful and reflects non-disclosure rather than true zero FCF. Financing cash flow of -¥132.636m suggests net outflows (debt repayment, lease liabilities, or dividends/treasury) but the absence of detail limits interpretation. Working capital management appears supportive this period given the strong OCF relative to earnings; monitoring receivables and payables turns will be key to assessing sustainability.

Dividend Sustainability

DPS is reported at ¥0.00 with a 0% payout ratio, consistent with balance sheet reinforcement amid thin margins and elevated leverage. With net income of ¥30m and strong OCF, coverage of a modest dividend could be possible in principle; however, absent investing cash flow data and cash balance disclosure, prudence favors retention. FCF coverage is shown as 0.00x due to non-disclosure of investing cash flows; this should not be interpreted as a true lack of coverage. Given operating margin pressure and a leverage ratio of 2.07x (liabilities/equity), prioritizing reinvestment and deleveraging likely remains the policy focus. Any future dividend initiation or increase would depend on sustained operating margin recovery, stable OCF after working capital normalization, and clearer visibility on capex requirements.

Risk Assessment

Business Risks:

• Operating margin compression despite revenue growth, indicating cost control and pricing risk
• Dependence on non-operating items to lift ordinary income above operating income
• Potential volatility in working capital that could reverse OCF tailwinds
• Limited disclosure on capex and investment needs, creating uncertainty on growth and maintenance spending
• Execution risk in restoring operating leverage amid a high fixed-cost base implied by low EBITDA margin

Financial Risks:

• Elevated leverage (liabilities/equity 2.07x) reducing balance sheet flexibility
• Sensitivity to any increase in interest costs despite current high coverage
• Equity ratio not disclosed, limiting external assessment of solvency metrics
• Dividend initiation capacity constrained by thin net margins and unknown capex

Key Concerns:

• Sustained decline in operating income (-61% YoY) versus only modest revenue growth
• Thin EBITDA margin (2.5%) leaving limited cushion against shocks
• Data gaps on cash balance and investing cash flows obscuring true FCF
• Reliance on working capital improvements to support OCF, which may not persist

Investment Implications

Key Takeaways:

• Revenue momentum is positive, but profit conversion is weak as operating margin fell to 1.27%.
• ROE of 4.27% is leverage-assisted; improving operating margins is essential for higher returns.
• Liquidity is adequate; leverage is elevated but interest burden is currently manageable.
• OCF strength (5.33x net income) suggests good cash conversion this period, but durability is uncertain.
• Dividend remains at zero; capital allocation appears focused on stability and potential deleveraging.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio trajectory
• EBITDA margin and interest coverage
• Receivables, payables, and inventory turns to gauge working capital sustainability
• Capex and investing cash flow disclosures to assess true FCF
• Net debt and leverage (liabilities/equity) to track balance sheet de-risking

Relative Positioning: Within small-cap Japan peers, the company shows average top-line growth, above-average gross margin, below-average operating margin, acceptable liquidity, and higher-than-average leverage; the path to improved positioning depends on cost discipline and clearer FCF visibility.

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