Shinsho Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥292.75B
• Operating Income: ¥5.27B
• Net Income: ¥4.61B
• 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

Shinko Shoji Co., Ltd. (8075) reported FY2026 Q2 consolidated results under JGAAP showing top-line softness and margin compression, but with positive operating cash generation. Revenue declined 4.5% YoY to ¥292.8bn, reflecting a weaker pricing environment and/or softer shipment volumes in the metals trading domain. Gross profit was ¥20.6bn, implying a 7.0% gross margin, and operating income fell 24.9% YoY to ¥5.27bn, indicating pressure on spreads and/or increased selling and administrative costs. Net income declined 10.8% YoY to ¥4.07bn, with EPS of ¥154.20 for the period, suggesting some support from non-operating items (ordinary income exceeded operating income). DuPont metrics point to a calculated ROE of 4.27% driven by a slim 1.39% net margin, relatively high asset turnover of 0.802, and meaningful financial leverage of 3.83. EBITDA was ¥6.09bn (2.1% margin), underscoring the structurally thin margins typical of metals trading models. Interest coverage of 5.4x (based on operating income to interest expense) remains adequate, but the absolute interest burden of ¥0.97bn is non-trivial given the low operating margin. Liquidity appears sound with a current ratio of 124% and positive working capital of ¥65.3bn, although the quick ratio at 96.5% indicates reliance on inventory conversion. Balance sheet leverage is elevated (debt-to-equity 3.08x), consistent with working capital–intensive trading operations and the stated financial leverage of 3.83. Operating cash flow of ¥4.55bn exceeded net income (OCF/NI = 1.12), a positive earnings quality signal for the half-year. However, multiple items are unreported (investing cash flow, cash balance, equity ratio, share counts, and dividend details show as zero placeholders), limiting full diagnostic certainty. The reported “effective tax rate” of 0.0% is not consistent with the disclosed income tax expense; actual effective tax likely approximates the mid-30s percent range based on available figures. Inventory remains a pivotal balance sheet component at ¥74.8bn; inventory valuation and turnover will be key to near-term performance as steel prices and spreads fluctuate. Overall, the results reflect a mid-cycle trading environment with modest profitability, disciplined expense control, adequate coverage, and manageable liquidity, but with heightened sensitivity to steel price volatility and funding conditions. Outlook hinges on demand trends in downstream sectors (auto, construction, machinery), inventory normalization, and interest rate dynamics.

Profitability Analysis

ROE decomposition (DuPont): net profit margin 1.39% × asset turnover 0.802 × financial leverage 3.83 = c.4.27% ROE. The ROE profile is leverage-assisted; the core return generation is constrained by thin margins typical of trading houses. Gross margin of 7.0% compares to an operating margin of ~1.80% (¥5.27bn/¥292.75bn), indicating a sizable operating cost load relative to gross profit; maintaining SG&A discipline is critical. EBITDA margin of 2.1% provides limited buffer against volatility in gross spreads and interest costs, highlighting low operating leverage headroom; negative mix or price moves can quickly compress earnings. YoY, operating income fell 24.9% on a 4.5% revenue decline, implying adverse operating leverage and narrower trading spreads. Ordinary income (¥5.78bn) exceeded operating income, suggesting non-operating gains/financial items partially offset operating pressure, though interest expense (¥0.97bn) remains a headwind. Interest coverage at 5.4x is acceptable but has limited cushion should operating income weaken further. Overall profitability quality is modest, with returns hinging on efficient turnover and tight risk management rather than margin expansion.

Growth Assessment

Top-line contracted 4.5% YoY to ¥292.8bn, consistent with a softer steel price environment and/or volume moderation in key end markets. Operating income declined 24.9% YoY to ¥5.27bn, implying compression in trading spreads and/or higher operating costs. Net income decreased 10.8% YoY to ¥4.07bn, cushioned by non-operating items as ordinary income outpaced operating income. The core revenue engine remains cyclical and price-sensitive; sustainability depends on downstream demand (automotive, construction, machinery) and inventory turnover. Profit quality is mixed: OCF/NI at 1.12 indicates earnings are backed by cash, but margin thinness and exposure to financing costs add fragility. Near-term outlook will depend on steel price stabilization, inventory valuation impacts, and the trajectory of interest rates. If steel spreads normalize and volumes recover modestly, operating income can improve even on flat revenues; conversely, further price declines would drive negative operating leverage. Management focus on working capital discipline is likely to be the primary lever for sustaining earnings in the absence of strong demand growth.

Financial Health

Liquidity: current ratio 124% and quick ratio 96.5% indicate adequate short-term coverage, though reliance on inventory conversion is notable (inventories ¥74.8bn). Working capital stands at ¥65.3bn, providing a buffer. Cash and equivalents are unreported (displayed as zero), so immediate liquidity headroom cannot be precisely assessed. Solvency: total liabilities ¥293.9bn vs. equity ¥95.4bn implies debt-to-equity of 3.08x and financial leverage of 3.83, both elevated for a trading model but within norms for inventory/receivables-financed businesses. Interest expense of ¥0.97bn is manageable given current operating income (coverage 5.4x), but sensitivity to rate and spread movements is material. Equity ratio is shown as 0.0% but is unreported; based on totals, book equity is ~26.1% of assets, providing a useful benchmark despite the disclosure gap.

Cash Flow Quality

Operating cash flow of ¥4.55bn exceeds net income of ¥4.07bn (OCF/NI = 1.12), indicating reasonable earnings convertibility for the half-year. The positive spread suggests either disciplined working capital management or non-cash expense contributions (e.g., depreciation ¥0.82bn). Investing cash flow is unreported (shown as zero), so free cash flow cannot be reliably calculated; the displayed FCF of zero should be treated as a placeholder. Financing cash flow was -¥0.95bn, implying net debt reduction and/or dividend/other financing outflows; precise composition is unclear without cash detail. Cash and equivalents are also unreported, limiting assessment of immediate liquidity reserves. Working capital remains the key swing factor for OCF in a trading business; sustained improvements in receivable collections and inventory turnover would bolster cash flow resilience.

Dividend Sustainability

Annual DPS is shown as 0.00 and payout ratio 0.0%, but these are likely placeholders due to unreported items; the company’s dividend status for the period cannot be inferred from this dataset. EPS for the half-year is ¥154.20; absent confirmed dividends and investing cash flow, FCF coverage cannot be assessed. With OCF positive and leverage elevated, a prudent policy would typically balance shareholder returns with working capital needs; however, policy specifics are not disclosed here. Visibility on dividend sustainability is therefore limited. Key determinants will be full-year earnings trajectory, working capital intensity, and funding costs.

Risk Assessment

Business Risks:

• Exposure to steel price volatility affecting trading spreads and inventory valuation
• Cyclical demand in automotive, construction, and machinery end markets
• Inventory obsolescence/valuation risk given ¥74.8bn inventories
• Supply chain disruptions impacting procurement and delivery timing
• Foreign exchange fluctuations on import/export transactions
• Counterparty credit risk in receivables-driven sales

Financial Risks:

• Elevated leverage (debt-to-equity 3.08x; financial leverage 3.83) increasing earnings volatility
• Interest rate risk given ¥0.97bn interest expense and thin margins
• Refinancing/rollover risk for short-term funding tied to working capital
• Potential negative operating leverage if spreads compress further
• Liquidity sensitivity given quick ratio below 100% and unreported cash balance

Key Concerns:

• Margin compression with operating income down 24.9% YoY despite modest revenue decline
• Dependence on inventory conversion to support liquidity
• Data gaps (cash, investing cash flow, equity ratio, shares, and dividends) limiting full assessment

Investment Implications

Key Takeaways:

• Revenue -4.5% YoY with notable margin compression; operating margin ~1.8%
• ROE ~4.3% supported by high asset turnover and leverage rather than margin strength
• Interest coverage 5.4x is adequate but could tighten if operating income weakens
• Liquidity acceptable (current ratio 124%) but quick ratio 96.5% signals reliance on inventory
• OCF/NI at 1.12 indicates reasonable earnings quality; FCF not assessable due to missing investing CF
• Leverage elevated (D/E 3.08x), consistent with working-capital-intensive model

Metrics to Watch:

• Gross and operating margins (spread trends)
• Inventory turnover days and valuation gains/losses
• OCF/NI and working capital changes
• Interest coverage and effective borrowing costs
• Asset turnover and receivables collection period
• Equity ratio and net debt metrics when cash is disclosed
• Dividend announcements and payout guidance (once reported)

Relative Positioning: As a metal-focused trading company, profitability is structurally thinner and leverage higher than diversified general trading houses; performance is comparatively more sensitive to steel price cycles and working capital dynamics, making cash conversion and risk control more critical for stability.

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
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