SHOFU INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥19.09B
• Operating Income: ¥2.81B
• Net Income: ¥2.60B
• EPS: ¥73.02

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 mixed—resilient top-line and higher net profit, but underlying operating performance softened and margins compressed. Revenue grew 1.1% YoY to 190.95, while operating income fell 7.5% YoY to 28.13, implying operating margin of 14.7%. Gross profit reached 115.34 with a gross margin of 60.4%, indicating solid product economics despite cost pressures. SG&A totaled 87.21, equating to 45.7% of sales, a high level that constrained operating leverage. Ordinary income declined only 1.5% YoY to 29.62, helped by net non-operating gains of 1.49. Profit before tax climbed to 36.74, implying approximately 7.12 of extraordinary/one-time gains above ordinary income. Net income rose 9.8% YoY to 25.97, aided by those below-OP contributions and a 29.3% effective tax rate. Operating margin compressed by an estimated 138 bps YoY (from ~16.1% to ~14.7%), while gross margin data lacks a YoY comparator. ROE stands at 5.8%, driven by a 13.6% net margin, modest asset turnover of 0.368, and low financial leverage of 1.16x. Liquidity is exceptionally strong: current ratio 552% and cash/deposits of 102.26 underpin very low refinancing risk. Leverage is conservative with D/E around 0.16x and interest expense negligible (interest coverage ~938x). Earnings quality is difficult to assess because operating cash flow is unreported; moreover, the step-up from ordinary income to pretax suggests one-offs contributed materially to bottom-line growth. The calculated payout ratio of 92.3% looks elevated relative to earnings durability benchmarks, raising questions about dividend headroom absent clear FCF data. Inventory at 96.73 is sizable versus half-year sales, which warrants monitoring for working capital efficiency. Forward-looking, sustaining net profit growth likely requires re-accelerating operating profit via SG&A discipline and stable gross margins, as one-time gains are unlikely to repeat.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.8% = Net Profit Margin 13.6% × Asset Turnover 0.368 × Financial Leverage 1.16x. The largest driver of change this quarter is margin dynamics: operating margin fell to 14.7% (28.13/190.95) and appears to have compressed by ~138 bps YoY, while leverage remained low and stable. Asset turnover at 0.368 reflects a capital-light but inventory- and investment-securities-carrying model; turnover likely changed marginally given modest revenue growth and a sizable asset base. Business reason: SG&A intensity at 45.7% of sales constrained operating leverage despite a healthy gross margin, and ordinary income was supported by non-operating gains. Sustainability: gross margin appears stable, but the lift from extraordinary/one-off items (PBT exceeding ordinary income by ~7.12) is unlikely to recur, making current net margin above the sustainable run-rate if OP does not recover. Concerning trends: SG&A growth likely exceeded revenue growth (given OP decline vs +1.1% sales), signaling cost pressure; non-operating/extraordinary items had an outsized role in bridging OP to NP, which may not persist.

Growth Assessment

Top-line growth of 1.1% YoY to 190.95 suggests steady demand but no strong acceleration. Operating income fell 7.5% YoY to 28.13, indicating negative operating leverage due to elevated SG&A. Ordinary income declined only 1.5% YoY, cushioned by non-operating gains (net +1.49), while PBT benefited from ~7.12 in items above ordinary income. Net income increased 9.8% YoY to 25.97, supported by those below-OP factors and a normalized tax rate of 29.3%. Revenue sustainability appears reasonable given the stable gross margin of 60.4%, but profit growth quality is weaker as it leaned on non-core items. Outlook hinges on restoring OP margin via SG&A control and maintaining gross margin; absent that, net growth may slow if one-offs fade. Mix or FX tailwinds (not disclosed) could affect gross margin trajectory, and inventory levels suggest scope for working capital optimization rather than revenue-driven expansion.

Financial Health

Liquidity is robust: current assets of 289.98 vs current liabilities of 52.49 yield a current ratio of 552.4% and quick ratio of 368.2%, far above benchmarks. No warning on current ratio (<1.0) or D/E (>2.0); the company is well within healthy ranges. Solvency is strong with total liabilities of 72.35 against equity of 445.88 (D/E ~0.16x). Interest burden is minimal (interest expense 0.03) and coverage is exceptionally high (~938x). Maturity mismatch risk is low: cash (102.26), receivables (41.05), and inventories (96.73) comfortably exceed current liabilities (52.49). Off-balance sheet obligations are not disclosed; no information on leases or guarantees. Investment securities (85.46) add balance-sheet flexibility but also market valuation exposure.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and FCF cannot be assessed—this is the primary data limitation. Given the net income increase driven by non-operating/extraordinary items, earnings-to-cash conversion risk is elevated until OCF is disclosed. Inventory of 96.73 is sizable relative to half-year sales; without prior-period data we cannot confirm a build, but working capital could be a cash drag if turns slow. With CapEx and dividends unreported, FCF coverage of shareholder returns cannot be verified. No clear signs of working capital manipulation can be identified from single-period data.

Dividend Sustainability

The calculated payout ratio of 92.3% appears high versus the <60% benchmark for sustainability, implying limited buffer if operating earnings remain under pressure. Dividend per share and total dividend paid are unreported, and OCF/FCF data are unavailable, preventing coverage analysis. Given strong cash and low leverage, near-term payment capacity is supported by the balance sheet, but medium-term sustainability depends on improving operating cash generation and reducing reliance on one-offs. Policy outlook cannot be inferred from disclosures; monitor guidance and capital allocation statements at the next results briefing.

Risk Assessment

Business Risks:

• Operating margin compression (~138 bps YoY) due to high SG&A intensity (45.7% of sales).
• Dependence on non-operating and extraordinary items to bridge OP to net profit in the quarter.
• Inventory magnitude (96.73) vs half-year sales raises potential obsolescence or slower turns risk.
• Input cost inflation or FX-driven COGS volatility that could pressure the 60.4% gross margin.
• Regulatory and quality risks inherent to medical/dental materials and devices.

Financial Risks:

• High calculated payout ratio (92.3%) with unreported OCF/FCF, creating coverage uncertainty.
• Market valuation risk on investment securities (85.46) affecting comprehensive income and capital.
• Earnings visibility risk from non-core gains; potential reversion of PBT toward ordinary income levels.

Key Concerns:

• Underlying operating profit decline (-7.5% YoY) despite revenue growth (+1.1%).
• One-time gains (~7.12 above ordinary income) inflated pretax and net income growth.
• Lack of cash flow disclosure limits assessment of earnings quality and dividend safety.

Investment Implications

Key Takeaways:

• Top-line steady but operating leverage negative; OP margin at 14.7% with YoY compression.
• Net profit growth (+9.8% YoY) was non-core supported; sustainability is uncertain.
• ROE at 5.8% is modest given low leverage; improving asset turnover and OP margin are key.
• Balance sheet is fortress-like: current ratio 552% and D/E ~0.16x with ample cash.
• Payout ratio appears high at 92.3%; FCF support is unverified due to missing OCF/CapEx data.

Metrics to Watch:

• Operating margin trajectory and SG&A as a percentage of sales.
• Operating cash flow and OCF/Net Income ratio once disclosed.
• Inventory days and receivables collection to gauge working capital efficiency.
• Magnitude and nature of non-operating and extraordinary gains/losses.
• Gross margin resilience amid FX and input cost movements.
• Dividend guidance vs cash generation and CapEx plans.

Relative Positioning: Relative to Japanese med-tech/dental peers, Shofu shows superior balance-sheet strength and liquidity but mid-tier profitability (ROE 5.8%) with recent operating margin pressure; sustaining net growth will require OP recovery rather than reliance on below-OP gains.

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