SAKURAI LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.55B
• Operating Income: ¥84M
• Net Income: ¥143M
• EPS: ¥42.56

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: Mixed quarter—solid top-line growth and strong cash generation, but profitability remains weak versus history due to a collapse in ordinary and net income from last year's one-offs. Revenue rose 10.0% YoY to 25.53, while operating income came in at 0.84, implying an operating margin of 3.3%. Gross profit was 3.58 with a gross margin of 14.0%, indicating limited pricing power and/or cost pass-through constraints. Non-operating income was sizable at 0.72 (50.5% of operating income), lifting ordinary income to 1.32. Net income was 1.42, down 87.7% YoY, implying last year had unusually large gains (likely one-time), not repeated this quarter. Ordinary income declined 87.6% YoY; the implied ordinary income margin compressed by roughly 4,070 bps YoY to 5.2%, underscoring normalization from prior extraordinary gains. EBITDA was 3.66, translating to a 14.3% EBITDA margin, consistent with the thin gross margin and modest operating leverage. ROE calculated at 2.9% remains subpar, constrained by low asset turnover (0.352x) and modest leverage (1.48x). ROIC of 1.6% is below a typical cost of capital, signaling poor capital efficiency and pressure on long-term value creation. Earnings quality was high: operating cash flow of 7.15 was 5.0x net income, indicating strong cash conversion and likely working capital release. Liquidity is healthy with a current ratio of 181.5% and cash of 15.25 comfortably covering short-term loans of 8.00. Leverage is conservative (D/E 0.48x) and interest coverage strong at 14.0x. Capex was 1.74, and financing outflows were 1.99 (including 0.33 of share repurchases), both readily covered by OCF. The calculated payout ratio is 42.3%, which appears sustainable against the quarter’s robust cash generation; DPS is unreported. Forward-looking, margin rebuilding and improving ROIC are the key tasks; reliance on non-operating items should be reduced to support more resilient earnings. Overall, fundamentals are stable on liquidity and cash flow, but profitability metrics and capital efficiency require improvement to lift returns.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 5.6% × Asset Turnover 0.352 × Financial Leverage 1.48x = ROE 2.9%. The largest drag is low asset turnover (0.352x), followed by modest net margin (5.6%), while leverage is conservative and not a driver. Net margin benefited from non-operating income (0.72) that represents ~55% of operating income, masking a thin operating margin of 3.3%. YoY, ordinary and net income collapsed (−87.6%/−87.7%), implying prior-year one-offs; hence the apparent margin compression is primarily due to normalization of extraordinary gains rather than a core business collapse. Gross margin at 14.0% is thin for manufacturing and constrains operating margin expansion unless mix or pricing improves. SG&A of 2.74 absorbed 77% of gross profit, limiting operating leverage; we cannot assess YoY SG&A growth versus revenue due to missing prior data. Sustainability: current profitability appears supported by recurring operations but augmented by non-operating items; without those, margins would be even tighter. Focus areas to improve ROE: raise asset turnover (better utilization, inventory/receivable turns) and expand operating margin via cost-down and pricing; leverage is already conservative and not the preferred tool given low ROIC.

Growth Assessment

Revenue growth of 10.0% YoY to 25.53 indicates underlying demand resilience. However, profit growth is not commensurate due to ordinary/net income normalization from last year’s elevated base. Operating income of 0.84 suggests limited operating leverage despite higher sales, consistent with the 14.0% gross margin. Non-operating income (0.72) remains a meaningful contributor to ordinary income, pointing to a profit mix that is partly non-core. EBITDA margin at 14.3% provides some buffer, but depreciation of 2.82 is heavy versus operating income, reflecting an asset-intensive model. Outlook: revenue growth appears sustainable near-term if demand holds, but margin recovery depends on input cost stability and pricing discipline. Risk to growth lies in potential slowdown of end-markets (e.g., industrial/auto-related) and any reversal in non-operating gains. Near-term priorities should be cost control, product mix upgrade, and disciplined capex to lift ROIC. With OCF strong, the company has room to invest in productivity improvements, but returns must clear the low current ROIC baseline.

Financial Health

Liquidity is solid: Current ratio 181.5% (no warning), Quick ratio 181.5%, and cash & deposits of 15.25 exceed short-term loans of 8.00, mitigating near-term refinancing risk. Solvency is conservative: D/E 0.48x and interest coverage 13.97x indicate ample capacity to service debt. No explicit maturity mismatch risk is apparent given cash coverage and current assets of 27.90 against current liabilities of 15.37. Long-term loans of 4.66 are modest relative to total equity of 49.12. Off-balance sheet obligations are unreported; no specific commitments disclosed in the provided data. Overall, balance sheet strength is a positive offset to weak returns.

Cash Flow Quality

OCF/Net Income is 5.04x, signaling high-quality earnings and strong cash conversion (likely aided by working capital inflows; exact drivers unknown due to missing inventory/AP/AR detail beyond AR 4.87). Indicative FCF appears positive using capex as a proxy: OCF 7.15 minus capex 1.74 implies approximately 5.41 in pre-financing free cash. Financing CF was -1.99 (including share repurchases of 0.33), comfortably covered by OCF. With Investing CF unreported, full FCF cannot be confirmed, but available data points to healthy internal funding capacity. No clear signs of working capital manipulation are evident; however, incomplete disclosure (inventories, detailed WC movements) limits forensic checks.

Dividend Sustainability

The calculated payout ratio is 42.3%, below the 60% threshold, suggesting room for continued distributions if earnings stabilize. DPS and total dividend paid are unreported, limiting precision. On an indicative basis, estimated FCF (OCF minus capex) of ~5.41 covers both buybacks (0.33) and a hypothetical dividend consistent with the payout ratio, implying adequate coverage. Balance sheet conservatism (D/E 0.48x) and strong interest coverage further support dividend capacity. Policy outlook likely prioritizes stable or modestly progressive returns, contingent on improving core operating margins and ROIC.

Risk Assessment

Business Risks:

• Low gross margin (14.0%) limits operating leverage and resilience to cost shocks.
• High reliance on non-operating income (0.72; ~55% of operating income) adds volatility to ordinary profit.
• ROIC at 1.6% (<5% threshold) signals structural capital efficiency issues.
• Potential exposure to cyclical end-markets (e.g., industrial/auto-related) could pressure volumes and pricing.
• Input cost volatility (steel, components, energy) could compress margins given limited pass-through.

Financial Risks:

• Asset turnover at 0.352x indicates heavy capital tie-up; downturns could depress returns further.
• Short-term loans of 8.00 introduce rollover risk, though currently mitigated by cash of 15.25.
• Ordinary and net income sensitivity to non-recurring items may impair predictability of cash flows if such items reverse.

Key Concerns:

• Extraordinary prior-year base (−87.7% YoY NI) suggests prior one-offs; lack of detail on their recurrence risks forecasting error.
• Unreported items (inventories, investing CF, DPS) constrain visibility into working capital dynamics and shareholder return policy.
• Sustained sub-WACC ROIC may cap valuation multiples absent a clear margin/turnaround plan.

Investment Implications

Key Takeaways:

• Revenue growth +10% YoY, but profitability normalized sharply from last year’s one-offs.
• Operating margin is thin at 3.3%; non-operating income remains a meaningful profit pillar.
• ROE 2.9% and ROIC 1.6% highlight weak returns on capital despite conservative leverage.
• Earnings quality is strong with OCF 7.15 (5.0x NI) and ample liquidity (current ratio 181.5%).
• Balance sheet strength and positive indicative FCF support ongoing shareholder returns, subject to earnings stabilization.

Metrics to Watch:

• Core operating margin (OPM) and gross margin trajectory (bps change QoQ/YoY).
• Composition of non-operating income and any one-off gains/losses.
• ROIC progress versus a 7–8% medium-term target; capex discipline and project IRRs.
• Asset turnover improvements via inventory and receivables turns (DSO/DIO), noting disclosure gaps.
• Order trends/backlog and end-market demand indicators.
• FX sensitivity and input-cost pass-through to maintain margins.

Relative Positioning: Versus domestic manufacturing peers, the company exhibits stronger liquidity and lower leverage but inferior profitability and capital efficiency (low ROE/ROIC, thin gross and operating margins). The cash flow profile is a relative strength near term, but sustained rerating would require clearer improvements in core margins and asset efficiency.

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