SANRIN CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.05B
• Operating Income: ¥-270M
• Net Income: ¥-12M
• EPS: ¥-1.60

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: FY2026 Q2 was mixed—top-line grew modestly and operating loss narrowed slightly, but ordinary income plunged YoY and a high tax charge flipped profit to a slight net loss despite strong operating cash flow. Revenue rose 2.6% YoY to 120.54, while gross profit reached 28.93 with a gross margin of 24.0%. Operating income was a loss of -2.70, implying an operating margin of approximately -2.24%. Based on the disclosed +2.6% revenue growth and +7.3% YoY change in operating income (on a negative base), we estimate last year’s operating margin was around -2.49%, indicating an operating margin improvement of roughly 25 bps. Ordinary income dropped 87.6% YoY to 0.40, implying a prior-year ordinary income of roughly 3.23, driven by a sharp normalization of non-operating gains. Non-operating income of 3.54 (notably dividend income of 1.24) offset the operating loss, but non-operating expenses of 0.43 and an unusually high effective tax rate of about 130% led to net income of -0.19. EBITDA was 0.99, yielding a thin 0.8% EBITDA margin, underscoring weak underlying operating profitability. Earnings quality signals are mixed: OCF was a solid 13.33 (well above net loss), and D&A was 3.69, suggesting cash earnings strength; however, the OCF/NI ratio screens as a red flag purely due to the negative denominator, not deteriorating cash conversion. Liquidity and solvency are strong, with a current ratio of 231.2%, quick ratio of 201.6%, and D/E of 0.36x; cash and deposits of 67.92 exceed short-term loans of 26.05, reducing near-term refinancing risk. ROE calculated via DuPont is approximately -0.1% (net margin -0.2%, asset turnover 0.419x, leverage 1.36x), reflecting a near break-even bottom line and conservative leverage. ROIC is estimated at -0.8%, below the 5% warning threshold, indicating capital efficiency challenges in the current environment. Free cash flow is likely positive this half (OCF 13.33 less capex 3.52 ≈ 9.81), supporting balance sheet resilience and potential dividend maintenance capacity, albeit dividends were not disclosed. Forward-looking, the key swing factors are normalization of the tax burden, stabilization of non-operating income (dividends), and achieving breakeven at the operating level through SG&A discipline. Any improvement in temperature-driven energy demand and cost pass-through could quickly lift operating margins. Conversely, a weaker non-operating contribution or persistently high tax rate would keep reported net profit fragile. Overall, the quarter shows resilient cash generation and balance sheet strength, but operating profitability and reliance on non-operating items remain core issues.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin × Asset Turnover × Financial Leverage = (-0.2%) × 0.419 × 1.36 ≈ -0.1%. The largest driver of weak ROE is the negative net margin, caused by a small operating loss (-2.70), reliance on non-operating income (3.54) to reach positive ordinary income, and a very high effective tax rate (~130%) that turned a small pretax profit (0.40) into a net loss (-0.19). Asset turnover at 0.419x is modest, consistent with an asset-heavy energy distribution/service model; leverage at 1.36x is conservative and not a ROE lever currently. Business explanation: SG&A of 31.64 exceeded gross profit of 28.93, leaving an operating loss despite revenue growth; non-operating dividends partially filled the gap. Sustainability: a narrowing operating loss suggests underlying improvement, but the dependence on non-operating income and the abnormal tax rate are not reliable drivers of sustained ROE. Concerning trends: SG&A growth appears to be outpacing gross profit growth in the period (gross profit insufficient to cover SG&A), and ordinary income is down 87.6% YoY due to normalized non-operating gains, indicating reduced buffer to offset operating underperformance.

Growth Assessment

Revenue growth of 2.6% YoY to 120.54 is modest and likely volume/price-mix driven in energy-related businesses; sustainability depends on weather, cost pass-through, and customer retention. Operating income improved slightly versus last year’s loss (implied), but the business remains below breakeven at the operating level. Ordinary income fell 87.6% YoY to 0.40, highlighting heavy reliance on volatile non-operating components; in the current half, dividends of 1.24 were a key contributor. Net income of -0.19 was pressured by a high effective tax rate (~130%), which is likely non-recurring; normalization could restore small positive net profit if operating losses narrow further. EBITDA margin at 0.8% indicates limited operating leverage; any SG&A efficiency or gross margin improvement would have an outsized effect on profit trajectory. Outlook hinges on achieving operating breakeven via SG&A control and stable gross spreads, while maintaining non-operating income at least at the current run-rate.

Financial Health

Liquidity is strong: current ratio 231.2% and quick ratio 201.6% exceed healthy thresholds, and there is no warning for Current Ratio < 1.0. Solvency is conservative with D/E at 0.36x and total liabilities of 76.60 against equity of 211.21. Maturity profile is comfortable: cash and deposits (67.92) exceed short-term loans (26.05), and current assets (124.04) comfortably cover current liabilities (53.65), indicating low maturity mismatch risk. Long-term loans are modest at 2.62; interest-bearing debt details are unreported, but disclosed loans imply low leverage. No off-balance sheet obligations are reported in the data provided. Interest coverage calculated from operating income is negative (-20.77x) due to operating loss, but cash liquidity mitigates near-term debt service risk.

Cash Flow Quality

OCF was 13.33 versus net income of -0.19, yielding an OCF/NI ratio that screens as a quality flag (<0.8) due to the negative denominator; economically, cash generation is solid relative to accounting earnings. D&A of 3.69 supports cash earnings, and working capital likely released cash (exact components not disclosed). Capex was 3.52, implying estimated FCF ≈ 9.81 for the half, sufficient to cover maintenance needs and potential dividends if reinstated/continued. With cash (67.92) exceeding short-term debt (26.05), liquidity is ample. No clear signs of aggressive working capital manipulation are evident from the limited line items; however, the large positive OCF alongside a net loss warrants monitoring of receivables/inventory swings as detailed breakdowns are not provided.

Dividend Sustainability

Dividend details (DPS, total paid) are unreported; the calculated payout ratio is not meaningful due to negative earnings. Balance sheet capacity is strong with retained earnings of 158.18 and low leverage, and H1 FCF is estimated at ~9.81, suggesting capacity to fund ordinary dividends if the company maintains a stable policy. Sustainability depends on continued positive OCF and modest capex; operating losses should narrow for long-run alignment of dividends with earnings. Policy outlook cannot be inferred from the data; we assume a conservative stance until core profitability improves.

Risk Assessment

Business Risks:

• Operating loss persistence: SG&A exceeding gross profit keeps operating income negative.
• Demand/weather sensitivity in energy-related sales (e.g., LPG, heating fuel) impacting volume and margins.
• Cost pass-through risk amid input price volatility affecting gross spreads.
• Customer concentration/local economic exposure typical of regional distributors.
• Execution risk in SG&A rationalization to achieve operating breakeven.

Financial Risks:

• High reliance on non-operating income (dividends 1.24) to offset operating losses; volatility in investment income.
• Abnormally high effective tax rate (~130%) depressing net profit; potential volatility in reported earnings.
• Negative operating income results in weak interest coverage by EBIT; though mitigated by strong cash position.
• Valuation risk on investment securities (69.42) that could impact comprehensive income and equity.

Key Concerns:

• Ordinary income down 87.6% YoY; reduced buffer from non-operating gains.
• ROIC at -0.8%, well below the 5% warning threshold, signaling poor capital efficiency.
• Earnings quality flag (mechanical) due to negative NI; requires monitoring of working capital drivers.
• Sustained EBITDA margin of 0.8% suggests limited operating resilience to shocks.

Investment Implications

Key Takeaways:

• Revenue grew 2.6% YoY, but operating loss persists at -2.70; operating margin improved by an estimated ~25 bps to -2.24%.
• Ordinary income collapsed to 0.40 (-87.6% YoY) as non-operating gains normalized; net income slightly negative at -0.19 due to a high tax burden.
• Cash generation is strong (OCF 13.33); estimated FCF ~9.81 after capex, supporting balance sheet strength.
• Liquidity and leverage are conservative (CR 231%, D/E 0.36x); cash exceeds short-term loans.
• Low ROE (~-0.1%) and ROIC (-0.8%) highlight the need for operating turnaround and better capital efficiency.

Metrics to Watch:

• Operating margin trajectory and SG&A as a percentage of sales.
• Non-operating income (especially dividend income) sustainability and volatility.
• Effective tax rate normalization versus statutory rates.
• Working capital trends: receivables (26.82) and inventories (15.90) relative to sales.
• ROIC recovery toward >5% and stabilization of EBITDA margin above 3-4%.

Relative Positioning: Versus small-cap regional energy distributors, Sanrin exhibits a stronger liquidity profile and low leverage but weaker operating profitability, with heavier reliance on non-operating income to sustain ordinary profit.

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