SATO SHO-JI CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥142.37B
• Operating Income: ¥3.23B
• Net Income: ¥2.83B
• EPS: ¥139.38

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

Sato Shoji Co., Ltd. (consolidated, JGAAP) delivered modest topline growth in FY2026 Q2 with revenue of ¥142.4bn (+1.8% YoY), while demonstrating strong operating leverage as operating income rose 16.3% YoY to ¥3.23bn. Gross profit reached ¥10.60bn, implying a gross margin of 7.4%, and operating margin improved to 2.27%, reflecting disciplined SG&A control and/or a better sales mix. Ordinary income of ¥3.52bn exceeded operating income by ¥0.29bn, indicating positive non-operating contributions that more than offset interest expense of ¥0.16bn. Net income was ¥2.93bn (+3.7% YoY), translating to a net margin of 2.06% and EPS of ¥139.38. DuPont analysis shows ROE of 4.07%, driven by a 2.06% net margin, asset turnover of 0.829x, and financial leverage of 2.39x. Balance sheet strength appears solid: equity of ¥71.94bn against total assets of ¥171.80bn implies an equity ratio around 41.9% (the “0%” equity ratio field is an unreported item). Liquidity is adequate with a current ratio of 136% and a quick ratio of 104%, supported by ¥33.34bn in working capital. However, operating cash flow was negative at -¥1.50bn, suggesting a working capital build (likely in receivables and/or inventories at ¥29.45bn) in the period. Financing cash flow was a net inflow of ¥4.64bn, consistent with increased borrowings or other financing to support working capital. EBITDA was ¥3.74bn, and interest coverage is comfortable at roughly 20.6x on an EBIT basis (about 23.8x on EBITDA). The implied effective tax rate is approximately 28% when comparing income tax (¥1.14bn) to pre-tax earnings, even though the “effective tax rate” metric displayed as 0% reflects non-disclosure in that field. Dividend information (DPS, payout, FCF coverage) was not disclosed this quarter, limiting assessment of distribution policy. Overall, the company is executing on margin improvement and operating leverage while temporarily absorbing cash into working capital, a common pattern for trading-oriented businesses. The capital structure is moderate, with liabilities of ¥102.69bn versus equity of ¥71.94bn (D/E 1.43x). The key watchpoints are the normalization of operating cash flow, inventory and receivables turnover, and the sustainability of margin gains in the face of commodity-price and demand volatility. Data gaps (cash/cash equivalents, investing CF, DPS, equity ratio field) constrain full triangulation, but the available figures support a view of stable profitability and manageable leverage.

Profitability Analysis

ROE_decomposition: ROE 4.07% = Net margin 2.06% × Asset turnover 0.829 × Financial leverage 2.39. The higher operating income growth versus sales (+16.3% vs +1.8%) indicates margin expansion driving ROE rather than asset intensity or leverage shifts. margin_quality: Gross margin at 7.4% and operating margin at 2.27% suggest improved spread and SG&A discipline. Ordinary income exceeds operating income by ¥0.29bn, indicating net positive non-operating items offsetting ¥0.16bn interest expense. Net margin of 2.06% is modest but stable for a metals/industrial trading model. operating_leverage: Operating income grew 16.3% YoY on 1.8% revenue growth, evidencing positive operating leverage. D&A of ¥0.51bn (EBITDA ¥3.74bn) suggests limited fixed cost burden, so leverage likely stems from better gross spread and controlled overhead.

Growth Assessment

revenue_sustainability: Revenue grew 1.8% YoY to ¥142.37bn, consistent with a trading-oriented model where sales reflect underlying steel/metal price levels and volume demand. Without segment detail, sustainability depends on industrial demand (construction, machinery, auto) and commodity price trends. profit_quality: Operating income up 16.3% indicates improved efficiency/mix. Ordinary income’s positive delta over operating income implies ancillary contributions (e.g., FX, financial income, affiliates). The implied tax rate (~28%) appears normalized, supporting quality of earnings. outlook: If gross spreads remain resilient and SG&A stays contained, operating leverage can persist. However, the negative OCF suggests working capital intensity; growth may require continued funding until inventory/receivable cycles normalize.

Financial Health

liquidity: Current ratio 136.1% and quick ratio 104.2% indicate sound near-term liquidity. Working capital is ¥33.34bn (CA ¥125.60bn minus CL ¥92.26bn). solvency: Total liabilities ¥102.69bn vs equity ¥71.94bn implies D/E of 1.43x and an equity ratio of ~41.9% (calculated from the balance sheet). Interest coverage is strong at ~20.6x (EBIT/interest), providing cushion against rate increases. capital_structure: Leverage is moderate for a trading company reliant on short-term funding. The positive financing CF (¥4.64bn) points to external funding (likely short-term borrowings) to support working capital.

Cash Flow Quality

earnings_quality: Net income of ¥2.93bn contrasts with OCF of -¥1.50bn (OCF/NI = -0.51), implying earnings not yet converted to cash due to timing and working capital. Depreciation (¥0.51bn) supports non-cash add-backs, but WC movements dominated. FCF_analysis: Investing CF was not disclosed (shown as 0), so free cash flow cannot be reliably calculated. On a directional basis, negative OCF suggests FCF likely pressured in the period absent asset sales or low capex. working_capital: Inventories stand at ¥29.45bn; with CA of ¥125.60bn and CL of ¥92.26bn, the period likely saw increases in receivables and/or inventory. Monitoring inventory turnover and DSO will be key to assessing cash conversion.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio were not disclosed this quarter (zeros indicate non-disclosure). Based on earnings alone (¥2.93bn for the period), capacity exists, but cash conversion is currently weak. FCF_coverage: Free cash flow was not disclosed; given negative OCF, near-term dividend coverage from internal cash was likely tight in the half unless offset by working capital reversal later in the year. policy_outlook: Without DPS guidance, we cannot infer policy changes. Future updates should clarify the dividend stance alongside cash flow normalization.

Risk Assessment

Business Risks:

• Commodity price volatility (steel and metals) impacting both revenue and gross spread
• End-market demand fluctuations in construction, machinery, and automotive sectors
• Supply chain and logistics disruptions affecting delivery and inventory levels
• Foreign exchange movements influencing ordinary income and import costs
• Competitive pricing pressure in metal trading and processing

Financial Risks:

• Working capital intensity leading to negative operating cash flow in growth phases
• Reliance on short-term financing to fund receivables/inventory
• Interest rate risk affecting borrowing costs
• Inventory valuation risk if metal prices decline
• Customer concentration and credit risk in receivables collection

Key Concerns:

• Negative OCF (-¥1.50bn) versus positive earnings indicating cash conversion risk
• Sustaining gross margin at 7.4% amid commodity price swings
• Maintaining interest coverage if rates rise or ordinary income declines
• Visibility on capex and investing cash flows (undisclosed)
• Absence of DPS disclosure, limiting dividend outlook clarity

Investment Implications

Key Takeaways:

• Topline grew modestly (+1.8% YoY) while operating profit rose sharply (+16.3%), evidencing operating leverage
• Net margin at 2.06% and ROE at 4.07% reflect stable, if modest, profitability for a trading model
• Liquidity is adequate (current ratio 136%, quick ratio 104%) with working capital of ¥33.34bn
• Interest coverage is strong (~20.6x EBIT), and leverage is moderate (D/E 1.43x; equity ratio ~41.9%)
• Operating cash flow turned negative (-¥1.50bn), likely due to working capital build, funded by ¥4.64bn financing inflow
• Non-operating gains supported ordinary income above operating income, cushioning interest costs
• Dividend information not disclosed; cash generation will be key for future distributions

Metrics to Watch:

• Operating cash flow recovery and cash conversion cycle (DSO, DIO)
• Gross margin and operating margin sustainability
• Ordinary income components versus interest expense
• Leverage and short-term borrowings trajectory
• Capex and investing cash flows (to assess FCF)
• Inventory levels and turnover relative to price trends

Relative Positioning: Within Japan’s metals and industrial trading peers, the company shows typical low single-digit margins, improving operating leverage, and moderate balance-sheet risk; current differentiator is tighter cost control and strong interest coverage, offset by weaker cash conversion this half.

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