SEIKA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥51.84B
• Operating Income: ¥3.26B
• Net Income: ¥5.08B
• EPS: ¥86.71

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

Seika Corporation (Ticker: 8061) delivered solid top-line growth in FY2026 Q2 with revenue of ¥51.835bn, up 16.4% YoY, indicating healthy demand and/or strong execution on projects and trading activities. Gross profit was ¥12.105bn, implying a gross margin of 23.4%, consistent with a value-added trading/engineering profile. Operating income rose 11.7% YoY to ¥3.264bn, reflecting decent operating leverage despite cost inflation and a likely competitive pricing environment. Ordinary income reached ¥3.760bn, above operating income, suggesting positive non-operating contributions (e.g., equity-method gains, FX, or investment income). Net income was ¥3.122bn, down 37.9% YoY, pointing to one-offs or tax/extraordinary effects obscuring the otherwise improved operating trend. EPS came in at ¥86.71. EBITDA was ¥3.583bn (EBITDA margin 6.9%), with depreciation of ¥319m, consistent with an asset-light trading model. On the balance sheet, total assets were ¥121.888bn and equity ¥49.56bn; the implied equity ratio is approximately 40.7% (equity/total assets), supporting a conservative solvency profile. The firm’s financial leverage (assets/equity) is 2.46x, in line with the DuPont inputs provided. Liquidity appears sound with a current ratio of 137.2% and a quick ratio of 122.4%, supported by ¥105.833bn of current assets, including inventories of ¥11.47bn. Operating cash flow was ¥2.677bn; the OCF/Net income ratio of 0.86 suggests moderate working capital absorption during the period. Interest expense is negligible at ¥3m, resulting in an extremely high interest coverage ratio of 1,088x, highlighting minimal financial risk from borrowing costs. The calculated ROE is 6.30% (Net margin 6.02% × Asset turnover 0.425 × Leverage 2.46), a mid-single-digit return that could improve if margins and asset turns trend higher. Working capital remains a key swing factor given the trading nature of the business, as evidenced by the gap between earnings and operating cash flow. Several reported zeros (e.g., equity ratio, investing cash flow, cash balance, DPS) are unreported items rather than true zeros, limiting completeness of the cash and shareholder return analysis. Overall, fundamentals show improving operations and robust liquidity/solvency, with headline net profit distorted by non-operating/tax factors; cash conversion was adequate but below earnings due to working capital.

Profitability Analysis

ROE_decomposition: Net margin 6.02% × Asset turnover 0.425 × Financial leverage 2.46 = ROE 6.30% (matches reported). The ROE is primarily constrained by modest operating margins and moderate asset turns typical of trading/engineering businesses. margin_quality: Gross margin at 23.4% and operating margin at roughly 6.3% (¥3.264bn/¥51.835bn) indicate healthy value-add on sales and cost control. Ordinary income exceeding operating income implies supportive non-operating gains; however, the YoY decline in net income (-37.9%) suggests tax/extraordinary impacts or prior-year one-offs. Effective tax rate is not disclosed; the presence of ¥1.968bn in taxes versus net income indicates material tax/extraordinary effects. operating_leverage: Operating income growth (+11.7% YoY) trailed revenue growth (+16.4% YoY), implying limited positive operating leverage this period, possibly due to elevated SG&A or mix. EBITDA margin of 6.9% vs operating margin around 6.3% indicates a light D&A load, consistent with an asset-light model.

Growth Assessment

revenue_sustainability: Double-digit revenue growth (+16.4% YoY) suggests robust demand across end-markets and/or strong order execution. Sustainability will depend on backlog conversion, new orders, and macro/FX conditions affecting capital goods demand. profit_quality: Operating income growth was positive, but net income fell due to non-operating/tax effects. Ordinary income exceeding operating income indicates reliance on non-operating items this quarter; core earnings quality is acceptable but should be evaluated relative to recurring non-operating components. outlook: Assuming stable order intake, continued execution, and normalization of non-operating/tax items, earnings could track revenue growth with modest margin expansion. Key sensitivities include customer capex cycles, project timing, FX, and commodity/pricing dynamics.

Financial Health

liquidity: Current assets ¥105.833bn vs current liabilities ¥77.119bn yields a current ratio of 137.2% and quick ratio of 122.4%, indicating solid near-term liquidity. Working capital of ¥28.714bn provides a buffer for project/trading cycles. solvency: Total equity ¥49.56bn versus total assets ¥121.888bn implies an equity ratio of ~40.7% and financial leverage of 2.46x (assets/equity), a conservative capital structure. Interest expense is only ¥3m with coverage of 1,088x, highlighting low interest burden. capital_structure: Debt-to-equity is 1.65x per provided metric (likely includes all liabilities); given the strong equity base and high liquidity, balance sheet risk appears manageable. The negative financing cash flow (-¥1.535bn) suggests repayments and/or shareholder returns, but details are undisclosed.

Cash Flow Quality

earnings_quality: OCF/Net income is 0.86, indicating reasonable but not full cash conversion, likely due to working capital build tied to revenue growth and inventory/receivables. EBITDA of ¥3.583bn vs OCF of ¥2.677bn implies OCF/EBITDA ~0.75. FCF_analysis: Investing cash flow is undisclosed (reported as 0), preventing a reliable free cash flow estimate this period. Given the asset-light profile (D&A ¥319m), maintenance capex is likely modest, but FCF cannot be determined from the provided data. working_capital: Inventories at ¥11.47bn and sizable current assets indicate meaningful working capital deployed. The gap between net income and OCF suggests increases in receivables or inventory; monitoring days sales outstanding and inventory turns is important.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are not disclosed (zeros represent unreported). With EPS at ¥86.71 and positive OCF, the capacity to fund dividends appears supported in principle, but the actual payout level is unknown. FCF_coverage: FCF is not computable due to missing investing cash flow; therefore, dividend coverage by FCF cannot be assessed quantitatively this quarter. policy_outlook: Given the strong balance sheet and low interest burden, the company has room for shareholder returns; actual policy and stability depend on management guidance, earnings visibility, and working capital demands.

Risk Assessment

Business Risks:

• Exposure to capital investment cycles in industrial end-markets affecting order intake and revenues
• Project execution and timing risk impacting revenue recognition and margins
• Supplier and customer concentration typical of specialized trading/engineering businesses
• FX volatility affecting import/export pricing and non-operating items
• Commodity and input cost fluctuations pressuring gross margins
• Competitive pricing in equipment trading compressing operating margins

Financial Risks:

• Working capital volatility impacting cash conversion and OCF stability
• Potential reliance on non-operating gains to support ordinary income
• Tax rate volatility or one-off tax adjustments driving net income swings
• Refinancing and credit availability risks in stressed markets (though current interest burden is minimal)

Key Concerns:

• Net income decline (-37.9% YoY) despite stronger operating profits, indicating non-operating/tax-driven volatility
• OCF below net income (0.86x) amid growth, highlighting working capital sensitivity
• Limited visibility on investing cash flows and dividend payouts due to undisclosed items

Investment Implications

Key Takeaways:

• Robust revenue growth (+16.4% YoY) with improving operating income (+11.7% YoY)
• Ordinary income above operating income suggests beneficial non-operating contributions
• Net income decline driven by non-operating/tax effects; core operations appear healthier than headline net
• Sound liquidity (current ratio 137%) and conservative solvency (implied equity ratio ~41%)
• Strong interest coverage (1,088x) underscores low financial risk
• Cash conversion moderated by working capital; OCF/NI at 0.86
• Data gaps (investing CF, DPS, cash balance) limit FCF and payout analysis

Metrics to Watch:

• Order backlog and new orders/book-to-bill
• Gross margin and SG&A ratio trends
• Ordinary income drivers (FX, equity-method gains/losses, other non-operating items)
• Working capital days (DSO, DIO, DPO) and OCF/Net income
• Capex and investing cash flows to assess FCF
• Effective tax rate normalization and extraordinary items
• Debt metrics and funding mix (short-term vs long-term)

Relative Positioning: Within Japanese specialized trading/engineering peers, the company exhibits solid top-line momentum, conservative leverage, and high interest coverage, with returns (ROE ~6.3%) that are respectable but have room for improvement through better cash conversion and margin/asset-turn enhancements.

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