SHOFU INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥19.09B
• Operating Income: ¥2.81B
• Net Income: ¥2.37B
• 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

Shofu Inc. (TSE:7979) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥19.10bn (+1.1% YoY) and operating income of ¥2.81bn (-7.5% YoY), indicating modest top-line growth but margin compression at the operating level. Gross profit reached ¥11.34bn, translating to a robust gross margin of 59.4%, underscoring strong product economics in its portfolio. Operating margin settled at 14.7%, down YoY, suggesting higher SG&A or cost inflation offsetting gross margin resilience. Ordinary income of ¥2.96bn exceeded operating income, pointing to positive non-operating contributions with negligible interest expense (¥4m) and extremely high interest coverage (~703x). Net income rose 9.8% YoY to ¥2.60bn, pushing net margin to 13.6%, a healthy level for the sector. DuPont analysis indicates ROE of 5.82%, driven by a 13.6% net margin, 0.368x asset turnover, and modest leverage of 1.16x (Assets/Equity). The balance sheet is very strong: equity is ¥44.59bn against assets of ¥51.82bn, implying an equity ratio of roughly 86% (calculated) despite the reported 0.0% figure being undisclosed. Liquidity is ample with current assets of ¥27.52bn vs current liabilities of ¥5.22bn, yielding a current ratio of 527% and quick ratio of 370%, and working capital of ¥22.30bn. Inventory balances stand at ¥8.20bn; inventory management will be a focus given slower revenue growth. The company’s liability load is light (total liabilities ¥7.26bn; D/E on a liabilities-to-equity basis ~0.16x), providing substantial financial flexibility. Cash flow statements, depreciation and amortization, and EBITDA are undisclosed (shown as 0), limiting cash conversion and capital intensity assessment. Similarly, dividends and share counts are not provided (DPS, payout, shares listed as 0), so per-share and capital return analysis is constrained beyond the provided EPS of ¥73.02. Overall, Shofu demonstrates high gross profitability, conservative leverage, and strong liquidity, but exhibits negative operating leverage in the half as operating income declined despite higher sales. Near-term focus revolves around SG&A control, pricing discipline to defend margins, and inventory normalization to protect cash conversion once cash flow data are available. Given the limited disclosures on cash flows and dividends, conclusions on free cash flow strength and dividend capacity rely on balance sheet strength and earnings quality rather than direct cash metrics.

Profitability Analysis

ROE is 5.82% per DuPont, decomposed into a 13.6% net margin, 0.368x asset turnover, and 1.16x financial leverage (Assets/Equity). Gross margin of 59.4% is strong, consistent with differentiated products and pricing power. Operating margin of 14.7% fell YoY as operating income declined 7.5% despite sales growth of 1.1%, indicating negative operating leverage and/or elevated SG&A (e.g., sales distribution, R&D, or wage inflation). Ordinary income (¥2.96bn) above operating income (¥2.81bn) suggests positive non-operating items; interest burden is de minimis (¥4m). Net margin at 13.6% is solid, aided by non-operating items and low financing costs. EBITDA and D&A are undisclosed, so we cannot quantify cash EBITDA or assess amortization intensity; operating income serves as best available proxy for core earnings. The high interest coverage (~703x) reflects both strong core profitability and low financial leverage. Profit mix resilience is good at the gross level; the key issue is SG&A trajectory relative to sales growth. Absent cash flow data, accrual quality cannot be triangulated via OCF/NI. Overall profitability is healthy but with near-term margin pressure at the operating line.

Growth Assessment

Revenue grew 1.1% YoY to ¥19.10bn, indicating stable but modest demand. Operating income declined 7.5% YoY to ¥2.81bn, signaling negative operating leverage and cost pressure in the half. Net income rose 9.8% to ¥2.60bn, benefiting from non-operating contributions and minimal interest expense. Given limited disclosure on segment/geography, sustainability of the revenue trajectory cannot be dissected by end-market. Inventory of ¥8.20bn against slow top-line growth warrants monitoring for potential normalization risks. With gross margin at 59.4%, pricing power appears intact; the main risk to profit growth is SG&A growth outpacing sales. Outlook hinges on cost control, pricing discipline, and volume stabilization; absent macro/segment detail, we assume mid-single-digit growth is achievable but sensitive to demand elasticity and FX effects. EPS of ¥73.02 confirms per-share profitability, but lack of share count disclosure limits growth per share analysis. Without cash flow data, we cannot validate earnings growth quality via cash conversion metrics; future disclosures will be crucial.

Financial Health

Total assets are ¥51.82bn with equity of ¥44.59bn, implying a calculated equity ratio of ~86% and financial leverage (Assets/Equity) of 1.16x, indicating a very conservative capital structure. Total liabilities are ¥7.26bn, yielding an implied liabilities-to-equity ratio of ~0.16x. Current assets of ¥27.52bn vs current liabilities of ¥5.22bn produce a current ratio of 5.27x and quick ratio of 3.70x, demonstrating strong short-term liquidity. Working capital stands at ¥22.30bn, providing ample cushion for operations and inventory needs. Interest expense is ¥4m, and interest coverage is ~703x on operating income, reflecting negligible refinancing risk. Absence of cash & equivalents disclosure prevents verification of the cash buffer, though overall liquidity appears robust from current assets. Solvency risk is low given high equity capitalization and low leverage. No debt maturity profile is provided; however, the low liabilities base reduces refinancing sensitivity. Overall financial health is strong.

Cash Flow Quality

Operating, investing, and financing cash flows are undisclosed (shown as 0), so OCF/NI, free cash flow, and capex cannot be evaluated. Depreciation & amortization is also undisclosed, limiting assessment of non-cash earnings and capital intensity. With a net margin of 13.6% and strong gross margin, earnings quality appears sound at the accrual level, but the lack of OCF data prevents validation of cash conversion. Working capital: inventories are ¥8.20bn; without receivables/payables detail and OCF we cannot gauge working capital drag. Free cash flow cannot be computed; thus, maintenance vs. growth capex split is unknown. Conclusion: earnings quality looks favorable from margins and low interest burden, but cash flow quality remains unverified pending disclosure.

Dividend Sustainability

Dividend data (DPS, payout ratio, and FCF coverage) are undisclosed. EPS is ¥73.02 for the half, indicating earnings capacity, but without OCF and capex we cannot assess free cash flow coverage. The balance sheet’s low leverage (liabilities/equity ~0.16x) and high liquidity (current ratio ~5.27x) imply capacity to sustain reasonable shareholder returns if targeted. Policy outlook cannot be inferred absent stated dividend policy or track record in the provided data. Payout ratio analysis based on earnings alone is insufficient; FCF coverage remains unknown. For now, dividend sustainability appears supported by balance sheet strength, but confirmation requires cash flow and policy disclosure.

Risk Assessment

Business Risks:

• Negative operating leverage as operating income fell 7.5% YoY on 1.1% revenue growth
• Potential inventory build (¥8.20bn) amid modest sales growth
• Pricing and cost inflation risks impacting SG&A and operating margin
• Demand cyclicality in dental/medical and industrial segments (end-market sensitivity)
• FX volatility affecting export revenues and input costs
• Product mix shifts potentially impacting gross margin sustainability

Financial Risks:

• Limited visibility on cash flows (OCF/FCF undisclosed)
• Unknown capex intensity and depreciation profile (D&A not disclosed)
• Dividend obligations/policy unclear due to undisclosed DPS and payout
• Working capital dynamics unverified without receivables/payables detail

Key Concerns:

• Operating margin pressure despite strong gross margin
• Lack of cash flow disclosure preventing assessment of cash conversion
• Inventory management amid slow top-line growth

Investment Implications

Key Takeaways:

• Solid gross margin (59.4%) and strong net margin (13.6%) highlight core profitability
• Operating income decline (-7.5% YoY) indicates negative operating leverage in the half
• Very strong balance sheet with calculated equity ratio ~86% and liabilities/equity ~0.16x
• Liquidity is ample (current ratio 5.27x; quick ratio 3.70x) with ¥22.30bn working capital
• Interest burden negligible (¥4m) with ~703x coverage
• Cash flow, D&A, EBITDA, and dividend data are undisclosed, limiting FCF and payout analysis
• ROE of 5.82% driven by healthy margins but tempered by low asset turnover (0.368x)

Metrics to Watch:

• Operating margin trajectory and SG&A as a percentage of sales
• Inventory turnover and working capital days
• OCF and FCF once disclosed; capex-to-sales and OCF/NI conversion
• Pricing, mix, and gross margin sustainability
• FX impacts on revenue and costs
• EPS progression and any dividend policy disclosures

Relative Positioning: The company appears financially conservative with superior liquidity and low leverage compared to many TSE peers, featuring strong gross profitability but currently softer operating leverage; limited cash flow disclosure constrains relative FCF-based comparisons.

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