Sun Messe Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.19B
• Operating Income: ¥85M
• Net Income: ¥112M
• EPS: ¥8.22

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

For FY2026 Q2 (cumulative), Sanmesse Co., Ltd. delivered modest top-line growth with improving operating leverage and strong cash conversion, albeit on thin margins and with a meaningful contribution from non-operating gains. Revenue reached ¥8,185 million (+1.8% YoY), while operating income was ¥85 million (+40.2% YoY), highlighting cost discipline against a low growth backdrop. Ordinary income of ¥200 million exceeded operating income by ¥115 million, indicating sizable non-operating gains relative to core operations. Net income was ¥127 million (+17.9% YoY), translating to an EPS of ¥8.22. Gross profit was ¥1,730 million, equating to a gross margin of 21.1%, while the operating margin stood at 1.0% and the ordinary margin at 2.4%. DuPont metrics show a net profit margin of 1.55%, asset turnover of 0.396x, and financial leverage of 1.58x, yielding an ROE of 0.97%, consistent with the reported figure. Liquidity appears solid with a current ratio of 150.6% and quick ratio of 148.5%, backed by working capital of ¥2,516 million. The balance sheet is conservative: total assets are ¥20,688 million and total equity ¥13,055 million; this implies an equity ratio of about 63.1% (derived), even though the reported equity ratio field is unreported. Operating cash flow was strong at ¥692 million, equating to an OCF/net income multiple of 5.45x, supported by non-cash charges (D&A of ¥329 million) and likely favorable working capital movements. Interest expense is minimal at ¥5.4 million, and interest coverage is robust at 15.6x. Investing cash flow and cash & equivalents were not disclosed (shown as zero), limiting visibility on capex intensity and cash buffers. Dividend fields (DPS and payout) and free cash flow were also not disclosed, constraining dividend sustainability analysis. Despite thin operating margins, the YoY spread between revenue and operating income points to positive operating leverage. Overall, the company demonstrates improving profitability momentum, healthy liquidity, and strong cash generation from operations, with room to enhance core margins and reduce reliance on non-operating items. Data gaps (notably cash balance, investing cash flows, and dividend details) temper the completeness of the assessment and are key items to monitor in subsequent disclosures.

Profitability Analysis

ROE_decomposition: ROE 0.97% = Net margin 1.55% × Asset turnover 0.396 × Financial leverage 1.58 (DuPont). The low ROE is primarily constrained by thin net margins and modest asset turnover, with only moderate leverage. margin_quality: Gross margin is 21.1% (¥1,730m GP on ¥8,185m revenue). Operating margin is 1.0% (¥85m OI), indicating significant SG&A overhead relative to scale. Ordinary margin improves to 2.4% due to non-operating gains, and net margin is 1.55%. Approximate effective tax rate, using net income plus income tax as a proxy for pretax income, is ~31.7% (¥58.9m/¥185.9m), suggesting a normalized tax burden; the reported 0.0% effective tax rate is an unreported field, not an actual zero. operating_leverage: Revenue grew +1.8% YoY while operating income rose +40.2% YoY, implying strong incremental margins and better cost absorption. This indicates positive operating leverage; however, the absolute operating margin remains low, so the sensitivity to volume/mix is still high.

Growth Assessment

revenue_sustainability: Top-line growth of +1.8% YoY is modest; sustainability hinges on volume resilience and pricing in core end markets. The low asset turnover (0.396x) suggests a capacity buffer or slower asset cycling, implying growth may be more mix- or utilization-driven than capacity-constrained. profit_quality: Ordinary income exceeding operating income by ¥115m implies meaningful non-operating contributions (e.g., investment income, subsidies, or FX). Core profit quality is improving but still thin at the operating level. Cash conversion is strong, aided by D&A (¥329m) and likely working capital tailwinds, supporting earnings quality. outlook: Near-term profit trajectory can improve if cost controls persist and incremental gross profit continues to flow through. Sustained margin expansion will require SG&A efficiency and/or improved product mix. Reliance on non-operating gains introduces volatility; stabilizing core operating margin above 2% would materially enhance ROE.

Financial Health

liquidity: Current ratio 150.6% and quick ratio 148.5% point to healthy short-term liquidity. Working capital is ¥2,516m. Inventories are relatively small at ¥102m versus current assets ¥7,489m, suggesting limited inventory risk and a receivables/cash-heavy current asset structure. solvency: Derived equity ratio ≈ 63.1% (¥13,055m equity/¥20,688m assets), indicating a conservative balance sheet. Debt-to-equity is 0.60x (provided), and interest coverage is 15.6x, reflecting low financial risk and ample interest servicing ability. capital_structure: Total liabilities of ¥7,773m against equity of ¥13,055m indicate modest leverage. Ordinary income benefits from non-operating items while interest costs are low (¥5.4m), suggesting limited reliance on debt for earnings.

Cash Flow Quality

earnings_quality: OCF/NI is 5.45x, indicating strong cash realization versus accounting earnings, driven by D&A (¥329m) and likely working capital release. This supports the quality of earnings for the period. FCF_analysis: Investing cash flow (capex) is not disclosed (shown as zero), so free cash flow cannot be reliably computed despite solid OCF. If maintenance capex approximates D&A (~¥329m), implied FCF would still be positive, but this is an assumption pending actual capex data. working_capital: Working capital is healthy at ¥2,516m. The small inventory balance versus current assets suggests limited inventory drag; cash conversion likely benefited from receivables collection or payables timing, but exact drivers are unclear without detailed CF breakdown.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio are not disclosed (zeros denote unreported fields). With EPS at ¥8.22 and strong OCF relative to net income, capacity for distributions exists in principle, but actual policy cannot be inferred. FCF_coverage: Free cash flow is not disclosed due to missing investing CF; therefore, coverage of any potential dividends cannot be assessed quantitatively at this time. policy_outlook: Given the conservative balance sheet and improving operating leverage, the company has flexibility; however, without stated dividend guidance or historical payout data in this dataset, the outlook on policy remains indeterminate.

Risk Assessment

Business Risks:

• Thin operating margin (1.0%) leaves limited buffer against input cost inflation or volume softness.
• Dependence on non-operating gains to lift ordinary income above operating income introduces volatility.
• Modest revenue growth (+1.8% YoY) may not be sufficient to drive scale benefits quickly.
• Potential customer concentration or cyclical end-market exposure (not disclosed) could amplify earnings variability.
• Pricing power and mix risk if competition intensifies in core product lines.

Financial Risks:

• Limited visibility on cash and investing cash flows (capex) due to undisclosed figures.
• Potential working capital swings could affect cash generation despite strong OCF this period.
• Interest rate risk is currently low given minimal interest expense, but refinancing terms are not disclosed.
• Dividend obligations, if any, cannot be evaluated for coverage without FCF data.

Key Concerns:

• Sustainability of margin expansion beyond non-operating contributions.
• Data gaps: cash balance, investing CF (capex), and dividend details.
• Execution on SG&A efficiency to lift operating margin above 2% sustainably.

Investment Implications

Key Takeaways:

• Revenue grew modestly (+1.8% YoY) while operating income surged (+40.2% YoY), signaling positive operating leverage.
• Core margins are thin (operating margin 1.0%), but gross margin at 21.1% provides a base for improvement.
• Ordinary income exceeds operating income by ¥115m, indicating non-operating uplift.
• Strong cash conversion (OCF/NI 5.45x) supports earnings quality.
• Balance sheet strength (derived equity ratio ~63%) and high interest coverage (15.6x) reduce solvency risk.
• Data limitations (cash, capex, dividends) are material for full valuation and payout analysis.

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio.
• Capex and investing cash flows to gauge true FCF and reinvestment needs.
• Composition of non-operating income and its persistence.
• Working capital days (AR, AP, inventory) and OCF conversion.
• Revenue growth versus gross margin to assess pricing/mix dynamics.
• ROE progression via DuPont components (margin, turnover, leverage).

Relative Positioning: Based on the available data, the company appears conservatively capitalized with improving operating leverage but operates at thinner margins and lower asset turnover than high-ROE peers; strong OCF is a relative positive, while reliance on non-operating gains and undisclosed capex/cash metrics are relative negatives.

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