Shinsho Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥292.75B
• Operating Income: ¥5.27B
• Net Income: ¥4.13B
• EPS: ¥154.20

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

Verdict: A soft FY2026 Q2 with margin compression and elevated leverage, partially cushioned by dividend-driven non-operating income and solid operating cash flow. Revenue declined 4.5% YoY to 2,927.5, while operating income fell a steeper 24.9% YoY to 52.7, and net income decreased 10.8% YoY to 40.7. Gross profit was 187.6 with a gross margin of 6.4%. Operating margin settled at 1.80%, down from an estimated 2.29% in the prior year, indicating approximately 49 bps of compression. Net margin was 1.39%, down roughly 10 bps YoY from ~1.49%, as non-operating supports helped narrow the decline at the bottom line. Ordinary income declined a mild 5.3% YoY to 57.8, aided by net non-operating gains of about 5.1 (21.9 income minus 16.8 expenses), with dividends (15.7) and interest income (1.5) offsetting interest expense (8.0). EBITDA was 59.9, implying an EBITDA margin of 2.0% and interest coverage around 6.6x, above the minimum comfort threshold but pressured versus leverage. Operating cash flow was 50.0, exceeding net income (OCF/NI 1.23x), indicating acceptable earnings quality this quarter. Balance sheet shows total assets of 3,650.9 and equity of 953.7 (equity ratio ~26%), with high D/E of 2.83x and Debt/EBITDA at 9.2x highlighting leverage risk. Liquidity is mixed: current ratio 125.5% is adequate but quick ratio at 97.4% sits just below the comfort line, reflecting inventory dependence. ROE printed at 4.3% via DuPont (NPM 1.4% × AT 0.802 × Leverage 3.83x), well below trading company peers and dragged by weak margins. ROIC at 2.6% is below the 5% warning threshold, underscoring capital efficiency challenges. Non-operating income ratio of 53.7% signals a meaningful reliance on investment income to support earnings. Forward-looking, softer steel/trading spreads and higher funding costs could cap margin recovery, while dividend income may normalize; improving ROIC and deleveraging are key to a more resilient profile.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin ~1.39% (40.73/2,927.51), Asset Turnover ~0.802 (Revenue/Assets), Financial Leverage ~3.83x (Assets/Equity), yielding ROE ≈ 1.39% × 0.802 × 3.83 ≈ 4.3%. Change driver: The largest shift appears in Net Profit Margin, given revenue fell 4.5% YoY while operating income fell 24.9% YoY, implying operating margin compression from ~2.29% to 1.80% (~49 bps). Business reason: Trading spreads and/or lower contribution from high-margin segments likely compressed gross-to-operating conversion; SG&A (134.9) consumed 71.9% of gross profit, leaving limited operating buffer. Sustainability: Margin pressure is cyclical but may persist near term due to steel price normalization and higher funding costs; reliance on dividend income adds volatility. Concerning trends: SG&A as a share of gross profit is high (approx 72%), and non-operating income reliance is elevated (non-operating income 21.9 vs operating income 52.7, ratio ~41%; and non-operating income ratio reported at 53.7%). Operating leverage worked negatively this quarter (OI decline > revenue decline).

Growth Assessment

Top line fell 4.5% YoY to 2,927.5, consistent with softer volumes/prices in steel trading. Operating income decreased 24.9% YoY to 52.7 as operating margin narrowed to 1.80%. Ordinary income was more resilient (-5.3% YoY) due to higher dividend and interest income offsetting interest expense. Net income declined 10.8% YoY to 40.7, with the net margin at 1.39%. Growth quality skewed toward non-operating contributions (dividends 15.7) rather than core operating expansion. Near-term outlook: revenue likely tracks commodity price/volume conditions; margin recovery hinges on mix improvements and cost discipline. Structural improvement requires ROIC uplift from 2.6% through pruning low-return assets and better pricing/working capital efficiency. Watch for normalization of dividend income, as its decline could expose earnings fragility.

Financial Health

Liquidity: Current ratio 125.5% (adequate), Quick ratio 97.4% (slightly below 1.0—monitor). Working capital stood at 638.2, with cash 197.2, receivables 1,790.8, and inventories 704.3 against current liabilities 2,501.6. Solvency: D/E 2.83x (warning: >2.0); estimated equity ratio ~26.1% (953.7/3,650.9). Interest-bearing debt of ~551.8 (short-term 425.8, long-term 126.0). Interest coverage ~6.6x is acceptable, but Debt/EBITDA at 9.2x is high risk. Maturity mismatch: Short-term loans (425.8) exceed cash (197.2), but overall current assets cover current liabilities; refinancing risk exists if credit conditions tighten. Off-balance-sheet: Not disclosed; no data provided on guarantees or commitments.

Cash Flow Quality

Earnings quality: OCF/NI at 1.23x indicates acceptable conversion this quarter. Estimated FCF ≈ 47.1 (OCF 50.0 minus capex 2.91), suggesting capacity to fund maintenance capex and part of shareholder returns/deleveraging. Sustainability: Positive OCF despite lower profits suggests working capital support was not a major drag; however, reliance on dividends in income is not cash-generative from operations. Working capital: Receivables (1,790.8) and inventories (704.3) are sizable; with quick ratio below 1.0, inventory drawdowns and receivables collection will be important. No clear signs of manipulation from single-period data; trend data not provided.

Dividend Sustainability

Policy data not disclosed. The calculated payout ratio is reported at 195.8%, which, if accurate, is unsustainably high relative to net income; however, DPS and total dividends are unreported, so this figure may reflect interim timing or methodology differences. Estimated FCF of ~47.1 exceeds quarterly net income (40.7), but absent actual dividend cash outflow data, FCF coverage cannot be confirmed. With high leverage (D/E 2.83x) and ROIC at 2.6%, prioritizing deleveraging over outsized distributions would be prudent; expect management to align distributions with normalized earnings and cash generation rather than non-operating gains.

Risk Assessment

Business Risks:

• Commodity price volatility impacting steel spreads and volumes
• Customer demand cyclicality in manufacturing/automotive/construction end-markets
• Dependence on dividend income from investments, which can normalize downward
• Potential tightening of gross-to-operating conversion given elevated SG&A

Financial Risks:

• High leverage: D/E 2.83x and Debt/EBITDA 9.2x
• Quick ratio below 1.0, indicating reliance on inventory for liquidity
• Short-term borrowing (425.8) exceeds cash (197.2), heightening refinancing risk
• Interest rate risk affecting funding costs and interest coverage

Key Concerns:

• ROIC at 2.6% (<5% warning) indicates subpar capital efficiency
• Non-operating income ratio 53.7% suggests earnings reliance beyond core operations
• Operating margin compressed ~49 bps YoY to 1.80%
• Potential downside if dividend income from investments fades

Investment Implications

Key Takeaways:

• Core profitability weakened as operating margin compressed ~49 bps YoY
• Earnings were cushioned by dividend income; quality skew toward non-operating items
• Leverage is elevated (D/E 2.83x; Debt/EBITDA 9.2x), constraining flexibility
• Cash conversion was acceptable (OCF/NI 1.23x) with positive estimated FCF
• ROE at 4.3% and ROIC at 2.6% highlight below-par returns versus sogo shosha benchmarks

Metrics to Watch:

• Operating margin trajectory and SG&A discipline
• Dividend and equity-method income trends (composition and sustainability)
• Net debt and Debt/EBITDA path; interest coverage
• Working capital intensity (receivable days, inventory turns) and quick ratio
• ROIC progress toward >5% near-term and >7% medium-term

Relative Positioning: Within trading-oriented peers, profitability and ROIC are weak and leverage is high; earnings resilience relies more on investment income than on core trading spreads, leaving the company more exposed to commodity and funding cycles than diversified sogo shosha with stronger ROIC.

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