SEKI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.65B
• Operating Income: ¥-196M
• Net Income: ¥-94M
• EPS: ¥-22.73

Income Statement

Balance Sheet

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 a weak quarter operationally with an operating loss, partially cushioned by non-operating income, leaving the company in a small net loss but with a very strong balance sheet. Revenue declined 2.8% YoY to 56.46, and gross profit was 11.71, implying a gross margin of 20.7%. SG&A of 13.67 exceeded gross profit by about 1.96, directly driving the operating loss of -1.96. Non-operating income of 1.12, including 0.61 of dividend income and 0.05 of interest income, significantly offset the operating loss. Ordinary loss narrowed YoY to -0.97 (+31.4% YoY), and net loss was -0.94 (+0.5% YoY), indicating below-the-line items helped stabilize the bottom line. Operating margin was approximately -3.5% this quarter, while gross margin stood at 20.7%, highlighting weak operating leverage. Basis-point comparisons versus prior year are not reliably computable from the disclosed dataset; however, the shift from operating to non-operating earnings dependence is notable. Asset turnover was low at 0.301 and financial leverage modest at 1.17x, resulting in a calculated ROE of -0.6%. ROIC was -1.4%, below a 5% warning threshold, indicating capital is not currently earning its cost. Cash flow information is unreported, preventing assessment of earnings quality via OCF/NI or FCF coverage. Liquidity is a key strength: current ratio is 428%, quick ratio 417%, cash and deposits total 32.20, and investment securities are sizable at 53.73. The capital structure is conservative with total liabilities of 26.93 against equity of 160.34, and a D/E ratio of 0.17x. Interest expense is de minimis (0.01), but interest coverage is negative due to operating loss, triggering a mechanical alert without indicating near-term solvency stress given low leverage and strong cash. The core issue is structural: SG&A exceeds gross profit, so either revenue recovery or cost reduction is required to restore operating profitability. Forward-looking, stabilizing gross margin, improving asset efficiency, and reducing fixed costs are prerequisites for ROIC normalization and sustainable earnings. Non-operating dividend income provides a cushion but is not a substitute for core profit, and could be volatile with market conditions.

Profitability Analysis

ROE decomposition: ROE (-0.6%) = Net Profit Margin (-1.7%) × Asset Turnover (0.301) × Financial Leverage (1.17x). The primary drag is the negative net margin, driven by SG&A (13.67) exceeding gross profit (11.71), resulting in an operating margin of about -3.5%. Asset turnover at 0.301 is low, suggesting modest revenue generation from a relatively large asset base (notably investment securities of 53.73 and noncurrent assets of 121.30). Financial leverage is low at 1.17x, limiting ROE volatility (a conservative positive from a risk standpoint, but it also means ROE cannot be levered higher without core profit). The component most out of line is net margin; leverage and turnover appear structurally stable in the near term. Business reason: revenue softness (-2.8% YoY) and a cost base that is currently too high for the gross margin profile. The reliance on non-operating income (dividends 0.61) indicates investment income is supporting ordinary profit despite operating losses. Sustainability: cost structure issues are ongoing unless management executes on SG&A rationalization or mix/price improves; non-operating income is partly recurring but market-dependent. Concerning trends to flag: SG&A exceeding gross profit is structurally unsustainable; we lack SG&A YoY to confirm growth outpacing revenue, but the current level implies inadequate operating leverage.

Growth Assessment

Top-line declined 2.8% YoY to 56.46, indicating weak demand or pricing pressure. Gross margin at 20.7% suggests limited pricing power and/or unfavorable mix versus fixed overhead. Operating income was -1.96, with YoY commentary implying operating performance remains challenged despite some improvement at the ordinary and net levels. Profit composition skews toward non-operating income (1.12), of which dividend income (0.61) is meaningful relative to the operating loss; this composition is lower quality than recurring operating profit. With asset turnover at 0.301, capital intensity/asset idleness is hindering growth efficiency. Outlook hinges on restoring operating margin above zero via cost measures and revenue stabilization; without that, ROIC will likely remain sub-scale. No guidance or order backlog data were provided, limiting visibility on H2 recovery. Near-term growth catalysts would be cost-down, better mix, or price adjustments; headwinds include potential continued demand softness and SG&A stickiness.

Financial Health

Liquidity is very strong: current assets 65.98 vs current liabilities 15.42 yield a current ratio of 428% and quick ratio of 417%. Cash and deposits stand at 32.20, and investment securities of 53.73 further bolster financial flexibility. Solvency is solid: total liabilities 26.93 vs equity 160.34 imply D/E of 0.17x; long-term loans are only 1.35. Interest coverage is negative due to operating loss, but absolute interest burden is minimal (0.01), and cash coverage is ample. No warning on current ratio (<1.0) or excessive leverage (D/E > 2.0); both are comfortably within healthy ranges. Maturity mismatch risk appears low given large current asset surplus over current liabilities (working capital 50.56). No off-balance sheet obligations were disclosed in the provided data; absence of disclosure limits further assessment.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and FCF cannot be assessed; we cannot validate earnings quality via cash conversion. Given the operating loss, internal funding of dividends and capex (also unreported) would rely on cash on hand and investment securities unless OCF is positive due to working capital release (unknown). Working capital indicators show modest receivables (16.26) and very low inventories (1.74), offering no obvious signs of inventory build or channel stuffing; however, without cash flow data we cannot rule out timing effects. Sustainability of any shareholder returns in the near term will depend on either positive OCF or continued draw on cash/securities.

Dividend Sustainability

Dividend figures are unreported; a calculated payout ratio of -119.9% is not meaningful due to net loss. Balance sheet strength (cash 32.20 and investment securities 53.73; low debt) suggests capacity to maintain some level of dividend if policy prioritizes stability, but sustainability should be judged against OCF, which is unavailable. Without OCF and capex data, FCF coverage of dividends cannot be assessed; if operating losses persist, any cash returns would be funded from balance sheet rather than earnings, which is not sustainable long term. Policy outlook cannot be inferred from the provided data.

Risk Assessment

Business Risks:

• Structural operating loss as SG&A exceeds gross profit, requiring revenue recovery or cost cuts
• Dependence on non-operating income (notably dividend income of 0.61) to offset operating losses
• Low asset turnover (0.301) indicating inefficient use of assets and potential drag on growth
• Potential pricing pressure or mix shift implied by modest gross margin (20.7%)

Financial Risks:

• Negative interest coverage due to operating loss, though absolute interest burden is small
• ROIC at -1.4% (<5% warning), signaling value-destructive returns if sustained
• Visibility gap due to unreported cash flow data (OCF/FCF), raising uncertainty on cash generation
• Market risk on investment securities (53.73) that underpin non-operating income and liquidity

Key Concerns:

• Inability to restore operating profit could keep ROE negative (-0.6%)
• Revenue decline (-2.8% YoY) with fixed cost base heightens earnings volatility
• If dividend policy is maintained despite losses, it may erode cash absent positive OCF
• Potential external shocks (demand slowdown, input cost inflation) could compress margins further

Investment Implications

Key Takeaways:

• Core operations loss-making: operating margin ~ -3.5% with SG&A > gross profit
• Non-operating income (1.12) materially cushions losses; dividend income is significant (0.61)
• Balance sheet is a strong buffer: current ratio 428%, D/E 0.17x, cash and securities ~86
• Profitability metrics weak: ROE -0.6%, ROIC -1.4%, asset turnover 0.301
• Earnings visibility limited due to missing OCF/FCF and capex data

Metrics to Watch:

• Operating margin progression and SG&A-to-sales ratio
• Gross margin trends and pricing/mix changes
• OCF and FCF once disclosed; OCF/Net Income conversion
• Dividend income sustainability from investment securities
• ROIC and asset turnover improvement
• Order intake/backlog or book-to-bill, if disclosed

Relative Positioning: Versus domestic small-cap industrial/printing peers, the company exhibits superior liquidity and lower leverage but weaker core profitability and capital efficiency; near-term defensive profile stems from cash and securities, while offensive capacity is constrained by negative operating earnings.

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