SEED CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥17.14B
• Operating Income: ¥1.13B
• Net Income: ¥558M
• 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

Seed Co., Ltd. (TSE: 7743) delivered solid profitability expansion in FY2026 Q2 under JGAAP, with revenue of ¥17.144bn (+1.9% YoY) and a sharper improvement in earnings. Operating income rose 29.4% YoY to ¥1.132bn, lifting the operating margin to approximately 6.6%, indicating favorable operating leverage and/or mix and cost control benefits. Net income increased 51.6% YoY to ¥0.831bn, pushing the reported net margin to 4.85%, aided by stronger operating profit and stable non-operating items. Gross profit margin was 42.6%, a healthy level for the contact lens/eye care category and consistent with disciplined pricing and manufacturing efficiency. EBITDA reached ¥2.738bn, with a 16.0% margin, underscoring improved cash earnings capacity versus the prior year. Interest coverage is a comfortable 7.5x (operating income/interest expense), despite a still-meaningful interest expense of ¥150m, reflecting manageable financial risk at present. On a DuPont basis, ROE is calculated at 4.43% with net margin 4.85%, asset turnover 0.328x, and financial leverage 2.79x; the low turnover and moderate leverage are constraining overall return. Liquidity is adequate with a current ratio of 114% and quick ratio of 83.2%, though the latter highlights reliance on inventories (¥5.589bn) to support working capital. Balance sheet figures imply an equity ratio around 35.9% (¥18.778bn equity/¥52.321bn assets), even though the reported equity ratio field shows 0% (unreported), pointing to a moderately capitalized structure. Operating cash flow was strong at ¥1.751bn, equating to 2.11x net income, a positive indicator of earnings quality and disciplined working capital. Investing cash flow and cash balances are shown as zero, which we treat as unreported rather than true zeros; as such, we cannot compute free cash flow reliably for the period. Dividend data indicate no interim payout (DPS ¥0, payout ratio 0%), and without capex disclosure, we cannot assess free cash flow coverage of dividends. Overall, Seed is exhibiting margin expansion and solid cash conversion against modest top-line growth, with adequate liquidity and manageable leverage. Profit growth appears to be driven by both gross margin resilience and opex efficiency, implying positive operating leverage. However, low asset turnover and moderate leverage cap ROE in the mid-single digits, leaving room for structural improvement in capital efficiency. Key data gaps include investing cash flows, cash and equivalents, share count, and a disclosed equity ratio; this limits precision on FCF, interest-bearing debt breakdown, and per-share balance sheet metrics. Despite these limitations, the available non-zero data paint a picture of improving profitability, acceptable solvency, and healthy operating cash generation.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 4.85% x Asset turnover 0.328 x Financial leverage 2.79 = ROE 4.43% (as reported/calculated). The primary constraint on ROE is low asset turnover (capital intensity and/or underutilized assets), while leverage is moderate and margin is improving. Gross margin of 42.6% indicates solid product economics and pricing/mix discipline. Operating margin is ~6.6% (¥1.132bn/¥17.144bn), up meaningfully YoY, evidencing operating leverage from cost control and scale, as operating income grew much faster than sales. EBITDA margin at 16.0% reflects resilient cash profit after absorbing ¥1.606bn of D&A; margin expansion versus revenue growth suggests efficiency gains. Interest expense of ¥150m is well covered (7.5x), so non-operating costs are not materially diluting profitability. The net margin of 4.85% rose more than operating margin, indicating limited drag from non-operating items and taxes in the period. Reported effective tax rate is listed as 0.0% in the summary metrics, but income tax expense of ¥205m versus ordinary income (¥1.124bn) implies a positive tax burden; we treat the 0.0% figure as an unreported artifact rather than actual. Overall margin quality is good with a favorable mix of gross and operating leverage, though returns remain capped by asset intensity.

Growth Assessment

Revenue growth was modest at +1.9% YoY to ¥17.144bn, suggesting stable demand but limited volume or pricing uplift in the period. Profit growth outpaced sales: operating income +29.4% and net income +51.6% YoY, pointing to cost efficiency, improved mix, and operating leverage as the key drivers. The margin expansion (OPM ~6.6%, EBITDA margin 16.0%) appears sustainable near term if input costs and pricing remain stable and SG&A discipline continues. Given the low asset turnover (0.328x), incremental growth could disproportionately benefit margins if fixed costs are largely covered, but capital efficiency remains a structural headwind to ROE. Ordinary income of ¥1.124bn close to operating income suggests limited reliance on one-off or financial gains, supporting profit quality. The OCF/NI of 2.11x corroborates that earnings are backed by cash generation and not driven by accruals. Without investing CF and capex disclosure, we cannot confirm whether growth is being underpinned by ongoing capital investments or by maintenance capex levels. Outlook qualitatively hinges on sustaining gross margin, controlling SG&A, and efficient inventory management; with moderate top-line growth, further profit gains will likely depend on mix/pricing and cost productivity rather than volume alone.

Financial Health

Liquidity is adequate: current ratio 114% and quick ratio 83.2% indicate coverage of short-term liabilities, though inventories are a key component of current assets (inventories ¥5.589bn). Working capital stands at ¥2.538bn, providing a modest buffer. Capital structure is balanced to moderately leveraged: total liabilities ¥33.376bn vs. equity ¥18.778bn implies a liabilities-to-assets ratio of ~63.8% and an implied equity ratio near ~35.9% (the reported 0% equity ratio is unreported and not indicative). Debt-to-equity is 1.78x, reflecting meaningful but manageable leverage. Interest expense of ¥150m is well covered by operating income (7.5x), suggesting solvency risk is contained. Asset base totals ¥52.321bn; combined with low asset turnover, management attention to asset utilization could enhance returns without additional leverage. No granular breakdown of interest-bearing debt, cash, or maturities is provided (cash and equivalents show 0 as unreported), limiting depth on refinancing and liquidity runway analysis.

Cash Flow Quality

Operating cash flow of ¥1.751bn vs. net income of ¥0.831bn yields OCF/NI of 2.11x, indicating strong cash conversion and likely favorable working capital movements and/or non-cash charges (D&A ¥1.606bn). EBITDA of ¥2.738bn supports the quality of earnings, with cash generation aligned to operating profitability. Free cash flow is shown as 0 due to unreported investing cash flows; therefore, FCF cannot be reliably assessed this quarter. Working capital appears generally well managed given the solid OCF, but inventories are sizable (¥5.589bn), so inventory turns and obsolescence risk warrant monitoring. Absent capex detail, we cannot separate maintenance versus growth investment, which constrains assessment of sustainable cash generation after investment needs.

Dividend Sustainability

Reported DPS is ¥0.00 with a payout ratio of 0.0%, implying no interim distribution. Given the lack of investing cash flow data, FCF coverage (reported 0.00x) is not meaningful; we cannot evaluate dividend cover by FCF. On earnings coverage alone, EPS is ¥27.46, and profitability improved YoY, suggesting capacity for distributions if policy allows, but this is speculative without board guidance. Balance sheet leverage (D/E 1.78x) and adequate interest coverage suggest flexibility, yet capital allocation priorities (growth capex, debt reduction) are unknown. Overall, dividend sustainability and policy outlook cannot be determined from the provided data; current stance appears conservative with no payout.

Risk Assessment

Business Risks:

• Sluggish volume growth in domestic contact lens market leading to low top-line growth
• Pricing pressure from competitors and private labels compressing gross margin
• Input cost volatility (polymers, packaging) impacting COGS and margins
• Inventory obsolescence risk due to product life cycles and demand variability
• Regulatory and quality assurance risks (product recalls, medical device compliance)
• Channel mix shifts (e-commerce vs. traditional retail) affecting margins and marketing costs
• FX exposure on imported materials or overseas operations impacting costs and profits
• Dependence on successful new product launches and technology differentiation

Financial Risks:

• Moderate leverage (D/E 1.78x) increases sensitivity to earnings downturns
• Interest rate and refinancing risk tied to debt servicing (interest expense ¥150m)
• Low asset turnover (0.328x) constraining ROE and increasing capital efficiency risk
• Working capital concentration in inventories, which may tie up cash in downturns
• Limited visibility on cash and investing flows due to unreported items, complicating FCF assessment

Key Concerns:

• Sustainability of margin expansion with only modest revenue growth (+1.9% YoY)
• Data gaps on capex and cash balances preventing clear FCF and liquidity runway analysis
• ROE at 4.43% remains modest despite improved profitability, reflecting structural efficiency constraints

Investment Implications

Key Takeaways:

• Material profit expansion despite modest sales growth indicates effective cost control and operating leverage
• Healthy gross margin (42.6%) and EBITDA margin (16.0%) underscore solid unit economics
• Interest coverage is comfortable at 7.5x, mitigating near-term solvency concerns
• OCF/NI of 2.11x signals good earnings quality and disciplined working capital
• ROE at 4.43% is constrained by low asset turnover; capital efficiency improvement is a key lever
• Liquidity is adequate (current ratio 114%, quick ratio 83.2%), but inventories are elevated
• Incomplete disclosure on investing CF and cash constrains FCF and cash runway visibility
• No interim dividend; capital allocation priorities remain unclear from the data

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio
• Gross margin stability vs. input costs and pricing/mix
• Inventory days and overall working capital turns
• Asset turnover and capital intensity (capacity utilization, asset sales or redeployment)
• Capex levels and investing cash flows to gauge sustainable FCF
• Interest-bearing debt, average interest rate, and maturity profile
• OCF/NI ratio as an indicator of continuing earnings quality
• EPS progression relative to ROE and potential buyback/dividend policies

Relative Positioning: Within Japanese eye care/contact lens peers, Seed shows improving margins and solid cash conversion but operates with lower ROE and lower asset turnover than best-in-class players; leverage is moderate, and visibility on FCF is weaker due to disclosure gaps this quarter.

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