SANKO SANGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.90B
• Operating Income: ¥64M
• Net Income: ¥80M
• EPS: ¥0.91

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

For FY2026 Q2 (JGAAP, consolidated), Sanko Sangyo (7922) delivered solid top-line growth but extremely thin bottom-line profitability and weak cash conversion. Revenue increased 9.4% YoY to ¥4,900m, while operating income rose 141.2% to ¥64m, indicating improved operating leverage from a low base. Gross profit of ¥976m implies a gross margin of 19.9%, broadly consistent with a low-margin manufacturing/processing profile. Ordinary income was ¥77m, but net income collapsed 91.2% YoY to ¥7m, driving a net margin of just 0.14%. DuPont metrics underscore this squeeze: asset turnover of 0.407x and modest financial leverage of 1.38x cannot offset the near-zero net margin, resulting in ROE of 0.08%. Despite the weak net result, interest coverage is comfortable at 13.1x (EBIT/interest), reflecting light financial burden. Liquidity appears strong with a current ratio of 244.7% and quick ratio of 221.9%, supported by sizeable working capital of ¥3,905m. Total assets are ¥12,033m and total equity is ¥8,698m, implying low leverage (debt-to-equity 0.35x). Operating cash flow was negative at -¥20m despite positive EBIT, indicating working capital outflows; investing cash flow is shown as zero (likely undisclosed rather than truly zero), and financing cash flow was an outflow of ¥24m, suggesting debt service or other financing uses. No cash and equivalents figure is disclosed (shown as zero in the feed), and the equity ratio is shown as 0.0% (undisclosed), both limiting balance sheet precision. Dividend per share and payout ratio are reported as zero for the period. Overall, the quarter shows improving operating profitability but a very weak bottom line, likely influenced by non-operating or extraordinary items and/or tax effects, and subpar cash conversion tied to working capital. The financial position is liquid and conservatively levered, offering resilience, but sustained improvement in net margin and operating cash flow remains necessary for quality earnings progression. Data limitations (zeros indicate non-disclosure) temper confidence in some inferences, especially around cash balances, equity ratio, investing cash flows, and share-related metrics.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 0.14% (¥7m / ¥4,900m)
• asset_turnover: 0.407x
• financial_leverage: 1.38x (Assets ¥12,033m / Equity ¥8,698m)
• calculated_ROE: 0.08%
• commentary: ROE is constrained almost entirely by the extremely low net margin. Asset turnover is moderate and leverage is modest; neither can lift ROE meaningfully without margin expansion. margin_quality:
• gross_margin: 19.9% (¥976m)
• operating_margin: 1.31% (¥64m)
• ordinary_margin: 1.57% (¥77m)
• net_margin: 0.14% (¥7m)
• EBITDA_margin: 3.6% (¥176.6m)
• insight: Gross margin is acceptable for a basic processing/industrial supplier, but significant erosion occurs between gross and operating levels, indicating a high SG&A burden and limited pricing power. The gap between ordinary income and net income suggests non-operating/extraordinary losses and/or tax effects depressed the bottom line. operating_leverage: Revenue grew 9.4% YoY while operating income rose 141.2%, implying strong positive operating leverage from a low prior-year base. Operating margin improved to ~1.31% from roughly ~0.6% a year ago (back-solved), reflecting better fixed-cost absorption and/or cost control. Sustainability will depend on maintaining volume and protecting gross spread.

Growth Assessment

revenue_sustainability: Top-line growth of 9.4% indicates healthy demand and/or successful price/mix actions. With inventories at ¥617m and a high quick ratio, the company appears positioned to meet near-term demand; however, without order/backlog data, durability of growth through H2 is uncertain. profit_quality: Operating profit improved materially, but the net result deteriorated sharply to ¥7m, implying either non-operating losses, extraordinary items, or tax effects offsetting operating gains. EBITDA of ¥176.6m vs. D&A of ¥112.6m shows limited headroom after non-cash costs, consistent with low margin structure. outlook: If gross margin holds near ~20% and SG&A discipline persists, operating income can continue to recover. Key swing factors are raw material cost trends, pricing power, and any normalization of non-operating/extraordinary items. We expect H2 to show better net margins if one-offs abate, but visibility is constrained by disclosure gaps.

Financial Health

liquidity:

• current_ratio: 244.7% (CA ¥6,603m / CL ¥2,698m)
• quick_ratio: 221.9%
• working_capital: ¥3,905m
• commentary: Ample liquidity and sizable working capital buffer reduce short-term refinancing risk. Cash balance is undisclosed, so immediate cash coverage cannot be precisely assessed. solvency:
• debt_to_equity: 0.35x (interest-bearing debt proxy; total liabilities ¥3,071m)
• interest_coverage: 13.1x (EBIT ¥64m / Interest ¥4.9m)
• equity_base: Equity ¥8,698m; equity ratio not disclosed (reported as 0.0%).
• commentary: Leverage is modest and interest burden is low, supporting solvency even with thin profitability. The large equity base provides downside protection. capital_structure: Conservative, equity-heavy balance sheet with limited financial leverage. Financing cash outflows (¥24m) likely relate to debt service or lease/other financing payments rather than dividends.

Cash Flow Quality

earnings_quality: OCF/Net income is -2.86x, signaling weak cash conversion this period. Given positive EBIT, the negative OCF likely stems from working capital build (e.g., higher receivables and/or inventory) and tax/other cash outflows. free_cash_flow: FCF appears near zero due to undisclosed investing CF (shown as 0). True FCF cannot be reliably determined without capex data. working_capital: With CA ¥6,603m and inventories ¥617m, quick assets are ~¥5,986m. The negative OCF suggests increased trade working capital alongside revenue growth; monitoring days sales outstanding and inventory turns is essential.

Dividend Sustainability

payout_ratio_assessment: Payout ratio is reported at 0.0% and DPS is 0.00 for the period. Given net income of only ¥7m and negative OCF, a conservative or suspended interim dividend stance appears prudent. FCF_coverage: Reported FCF coverage 0.00x reflects undisclosed investing CF and negative OCF; thus, dividend coverage cannot be meaningfully assessed this quarter. policy_outlook: Assuming a capital preservation stance amid low profitability and cash conversion challenges, dividends are likely to remain cautious until sustained improvement in OCF and net margins is demonstrated.

Risk Assessment

Business Risks:

• Input cost volatility for paper, resin, and other raw materials compressing gross margins
• Demand cyclicality in end-markets (industrial, consumer goods, and packaging)
• Pricing power constraints in competitive, commoditized product lines
• Operational leverage risk if volumes soften, reversing recent margin gains
• Supply chain and logistics disruptions affecting lead times and costs

Financial Risks:

• Weak cash conversion (OCF/NI -2.86x) driven by working capital outflows
• Exposure to non-operating or extraordinary items that can swing net income
• Potential refinancing or covenant risk if profitability remains thin (mitigated by low leverage)
• Limited disclosure on cash balances and investing cash flows complicates liquidity assessment

Key Concerns:

• Sustainability of operating margin improvement amidst cost inflation
• Persistence of items depressing net income relative to ordinary income
• Restoring positive operating cash flow through better receivables and inventory management

Investment Implications

Key Takeaways:

• Top-line growth of 9.4% coupled with strong YoY operating income expansion indicates improving core operations from a low base.
• Net margin at 0.14% and ROE at 0.08% remain sub-scale; bottom line is weighed by non-operating/extraordinary or tax effects.
• Liquidity is strong (current ratio 2.45x, quick ratio 2.22x) and leverage modest (D/E 0.35x), supporting resilience.
• Cash conversion is weak (OCF -¥20m), likely due to working capital build; sustained improvement in OCF is critical.
• Dividend stance is conservative (DPS 0), appropriate until earnings quality and cash flow strengthen.

Metrics to Watch:

• Gross and operating margins (target: sustained >20% gross and >2% operating margin)
• OCF/Net income and working capital turns (DSO, DIO)
• Non-operating/extraordinary gains and losses and effective tax rate normalization
• Interest coverage and net debt trends
• Capex and investing cash flows (to assess true FCF)

Relative Positioning: Within Japan’s basic materials/packaging and industrial processing peer set, Sanko Sangyo exhibits stronger liquidity and lower leverage than many small-cap peers but operates with thinner margins and weaker cash conversion this quarter; sustained operating margin recovery and normalization of below-the-line items are needed to close the profitability gap.

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