SEED CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥17.14B
• Operating Income: ¥1.13B
• Net Income: ¥835M
• EPS: ¥27.46

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Solid FY2026 Q2 with clear margin improvement and strong cash conversion, albeit on modest top-line growth and with leverage/short-term funding reliance to monitor. Revenue grew 1.9% YoY to 171.4, while operating income rose 29.4% to 11.3 and net income climbed 51.6% to 8.31, evidencing strong operating leverage. Operating margin improved to 6.6% (11.32/171.44), versus an estimated 5.2% in the prior-year period, implying roughly +140 bps expansion. Net margin rose to 4.8% from an estimated 3.3% a year ago, an expansion of roughly +160 bps. Gross margin stood at a healthy 45.0%, and the SG&A ratio was 38.4%, indicating better cost discipline relative to revenue growth. Ordinary income advanced 47.1% YoY to 11.24 despite nearly offsetting non-operating income/expenses (2.17 vs 2.25), suggesting core operations drove the improvement. Earnings quality is strong: operating cash flow of 17.61 is 2.12x net income, comfortably covering capex of 4.96 and implying positive estimated FCF. Interest coverage is solid at 5.9x, mitigating near-term refinancing concerns. Liquidity is mixed: current ratio is adequate at 1.09x but the quick ratio of 0.75x signals reliance on inventory; short-term loans are sizable (123.5), creating some maturity-mismatch risk. Leverage is elevated but not extreme with D/E at 1.79x; ROE is modest at 4.4% and ROIC at 2.5% flags underwhelming capital efficiency. Reported EPS is 27.46 yen; book value per share is roughly 620 yen (calc), implying adequate capital buffer. Dividend affordability appears reasonable given a 54.6% payout ratio and strong OCF, though actual DPS was unreported. Forward-looking, the company needs to lift ROIC above its 2.5% level through sustained margin gains and prudent capital allocation. Watch inventory turns, working capital discipline, and funding mix to ensure the quality of earnings remains high. Overall, the quarter demonstrates improved profitability and cash conversion, but structural capital efficiency and balance sheet optimization remain key medium-term tasks.

Profitability Analysis

ROE decomposition points to profitability-led improvement on modest asset turnover and notable leverage. ROE (4.4%) = Net profit margin (4.8%) × Asset turnover (0.328) × Financial leverage (2.79x). The principal change YoY is the net profit margin, which improved alongside operating income growth far outpacing revenue (+29.4% vs +1.9%). Business drivers likely include better gross margin stability (45.0%) and tighter SG&A control (38.4% of sales), plus a favorable tax/other line that boosted net profit. Asset turnover of 0.328 remains subdued for a consumer/medical device maker, reflecting a capital-intensive and inventory-reliant model; leverage (2.79x) is doing much of the work for ROE. The margin improvement looks sustainable if mix/pricing and cost discipline hold, but it is vulnerable to demand normalization and FX/raw-material swings. Watch for any reversal in SG&A efficiency; if SG&A growth exceeds revenue growth in coming quarters, margin gains could fade. With ROIC at 2.5% (below the 5% warning threshold), profitability still lags the cost of capital; further structural initiatives (capacity utilization, SKU rationalization, procurement, and automation) are needed to lift returns.

Growth Assessment

Top-line growth of 1.9% YoY is modest, suggesting that profit outperformance was chiefly cost/mix driven rather than volume-led. Operating income growth (+29.4%) and net income growth (+51.6%) significantly outpaced revenue, underscoring operating leverage and improved earnings mix. Ordinary income growth (+47.1%) was strong even with near-netted non-operating items, highlighting core profit expansion. Gross margin at 45.0% remains a strength; sustaining this will depend on product mix (daily disposables vs conventional lenses), pricing discipline, and FX on imports. The SG&A ratio of 38.4% indicates improved overhead absorption; preserving this efficiency as volumes fluctuate is key. With ROE at 4.4% and ROIC at 2.5%, capital efficiency remains a constraint on medium-term value creation despite the quarterly profit beat. Outlook hinges on maintaining margin discipline, improving asset turns (inventory management), and optimizing funding costs. Near-term growth quality is good due to strong cash conversion, but durability will depend on demand elasticity, regulatory dynamics in eye-care markets, and input cost trends.

Financial Health

Liquidity is adequate but not robust: current ratio is 1.09x (above 1.0 but below the 1.5 comfort benchmark) and the quick ratio is 0.75x, indicating reliance on inventory to meet short-term obligations. Short-term loans of 123.5 dominate the liability structure relative to cash (59.1) and receivables (47.5), introducing maturity-mismatch and refinancing risk if credit conditions tighten. Working capital is positive at 16.8, yet inventory (65.5) is sizable versus payables (8.5), implying cash is tied up in stock. Leverage is elevated: D/E is 1.79x (above the 1.5 reference but below the 2.0 warning threshold); total liabilities are 335.4 against equity of 187.8. Interest coverage at 5.9x is solid, reducing near-term solvency concerns despite leverage. Noncurrent liabilities (144.1) and long-term loans (60.0) are manageable, but the heavy reliance on short-term funding should be gradually rebalanced. No off-balance sheet obligations were reported in the provided data.

Cash Flow Quality

OCF of 17.61 is 2.12x net income (8.31), indicating high earnings quality with cash conversion supported by operating improvements. With reported capex of 4.96, estimated FCF is roughly 12.65 (OCF − capex), which would comfortably cover likely dividend needs; note that investing CF and dividends paid were unreported, so this FCF is an approximation. No clear signs of working capital manipulation are apparent from the limited disclosures, but inventory remains high versus payables, warranting monitoring of inventory turns and obsolescence risk. Financing CF was −21.09, suggesting net debt repayment or dividend outflow; combined with positive OCF, the company appears to be deleveraging or distributing cash. Overall, cash flow quality is strong this quarter, with headroom for both investment and shareholder returns if sustained.

Dividend Sustainability

The reported payout ratio is 54.6%, within the <60% benchmark for sustainability. DPS and total dividends were unreported; however, applying the payout ratio to net income implies estimated dividends of ~4.5, which appears covered by the estimated FCF of ~12.7 (coverage ~2.8x). Balance sheet leverage is elevated, so management may balance dividends with deleveraging in the near term. Given strong OCF and moderate capex needs, the dividend looks sustainable if current margins hold; downside risks would stem from margin compression or a need to rebuild liquidity if short-term funding tightens. Policy outlook is likely to prioritize steady dividends while pursuing incremental investment in capacity and product development.

Risk Assessment

Business Risks:

• Demand and pricing risk in contact lens and eye-care markets amid competition and private-label pressure
• Inventory obsolescence risk given product shelf-life and high inventory balance
• Regulatory and quality/compliance risk (medical device standards, recalls)
• Raw material and logistics cost volatility impacting gross margin
• FX risk on imported materials and overseas sales

Financial Risks:

• Maturity mismatch due to high short-term loans (123.5) versus a modest quick ratio (0.75x)
• Elevated leverage (D/E 1.79x) constrains flexibility if earnings soften
• Interest rate risk on potentially floating-rate borrowings
• ROIC at 2.5% below threshold, indicating capital efficiency pressure

Key Concerns:

• Sustaining margin gains with only modest revenue growth
• Working capital intensity (inventory vs payables) tying up cash
• Dependence on stable credit markets to roll short-term funding

Investment Implications

Key Takeaways:

• Earnings beat on margin expansion: operating +29% YoY on +2% sales
• Operating margin improved to ~6.6%, net margin to ~4.8%
• Strong cash conversion: OCF/NI 2.1x; estimated FCF positive post-capex
• Liquidity mixed: current 1.09x, quick 0.75x; short-term loans high
• Capital efficiency weak: ROE 4.4%, ROIC 2.5% below warning threshold

Metrics to Watch:

• Operating and net margin trajectory (bps change QoQ/YoY)
• Inventory turnover and days on hand; receivables collection
• Funding mix (short-term vs long-term) and interest coverage
• Capex discipline vs growth initiatives; ROIC uplift
• FX impacts on COGS and pricing

Relative Positioning: Versus domestic eye-care peers, profitability improved meaningfully this quarter with healthy gross margins and operating leverage, but lower ROIC and higher reliance on short-term debt suggest a less efficient capital structure and greater liquidity sensitivity than best-in-class peers.

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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