Sangetsu Corporation FY2026 FY Earnings Report

Financial Highlights

• Net Sales: ¥206.44B
• Operating Income: ¥19.41B
• Net Income: ¥12.08B
• EPS: ¥249.08

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

Sangetsu delivered a solid FY2026 with revenue up 3.0% to ¥2,064.4bn and operating income up 7.0% to ¥194.1bn, marking a clear improvement in operating efficiency. Ordinary income rose 8.5% to ¥201.5bn, while profit attributable to owners increased 16.7% to ¥146.4bn, supported by better margins and modest non-operating gains. Gross profit reached ¥647.3bn, and the gross margin held at 31.4%. Operating margin expanded to 9.4% from 9.1% a year ago, a 30bp improvement on disciplined SG&A management relative to sales. Net margin (to owners) improved to 7.1%, up roughly 83bp from 6.3% last year, translating operating leverage into bottom-line growth. EBITDA was ¥237.3bn with an 11.5% margin, underscoring healthy earnings power for a distributor-integrator model. Cash generation was resilient: OCF of ¥143.2bn equated to 0.98x net income, broadly aligning earnings and cash. Free cash flow was ¥96.9bn after capex of ¥34.1bn, providing coverage for dividends. The balance sheet remains strong with a current ratio of 262%, net cash comfort from ¥354.1bn in cash and low short-term borrowings, and Debt/EBITDA at 0.52x. Segment-wise, the Interior business drove profits with ¥193.3bn operating income at an 11.8% margin, while Overseas nearly broke even with a small loss and strong revenue growth (+17.6%). Extraordinary items were modest on a net basis (income ¥8.29bn vs loss ¥1.81bn), with no distortion to core trends. Non-operating income was small relative to sales (0.6%), and interest burden remained light with interest coverage at 67.6x. Working capital movements were a headwind, notably a decline in payables, but were offset by stable receivables and inventories. Long-term loans increased to ¥120.0bn while short-term loans were reduced, extending maturities without elevating leverage risk. Looking ahead, company guidance embeds revenue growth to ¥2,130.0bn and a modest operating income step-down to ¥190.0bn, suggesting prudence on costs and overseas normalization. Overall, FY2026 showed sound margin progression, robust solvency, and adequate cash coverage for shareholder returns, with targeted focus needed on cash conversion and overseas profitability.

Profitability Analysis

ROE of 12.0% decomposes into 7.1% net profit margin × 1.093 asset turnover × 1.55x financial leverage. The key YoY driver was net profit margin expansion: operating margin increased by ~30bp to 9.4% and net margin (to owners) rose ~83bp to 7.1%, outpacing the small change in leverage and stable asset turnover. The business backdrop was favorable mix and SG&A discipline within the Interior segment (11.8% margin), and non-operating items modestly supportive (interest burden EBT/EBIT 1.072). This margin-led ROE improvement is likely sustainable near term given pricing and cost control, while the outsized YoY lift in owners’ net profit also reflects lower FX losses and higher dividends/interest income that may not recur at the same pace. SG&A grew 2.5% versus revenue growth of 3.0%, a positive operating leverage indicator.

Growth Assessment

Top line grew 3.0% to ¥2,064.4bn, with Interior nearly flat (+0.1%) and growth led by Overseas (+17.6%) and Exterior (+10.6%). Operating income rose 7.0% to ¥194.1bn on a 30bp margin expansion to 9.4%, converting incremental sales into profit more efficiently. Owners’ net income surged 16.7% to ¥146.4bn, benefiting from improved operating performance and small net non-operating and extraordinary gains. EBITDA advanced to ¥237.3bn (11.5% margin), supporting investment capacity. Guidance points to revenue growth to ¥2,130.0bn and operating income of ¥190.0bn, implying cautious margin assumptions; this reflects normalization of non-operating tailwinds and conservative cost outlook for Overseas. Segment momentum is balanced: Interior remains the earnings engine, Overseas is scaling with improving losses, and Exterior is recovering from a low base. With CapEx/Depreciation at 0.79x, growth investment appears disciplined and oriented toward efficiency rather than capacity expansion.

Financial Health

Liquidity is very strong with a current ratio of 262% and quick ratio of 220%. Interest-bearing debt is ¥123.7bn, but leverage is conservative: Debt/EBITDA at 0.52x, interest coverage at 67.6x, and Debt/Capital at 9.2%. The D/E ratio of 0.55x is well below cautionary levels. Maturity profile improved: short-term loans fell to ¥3.65bn while long-term loans rose to ¥120.0bn, reducing refinancing risk; cash and deposits of ¥354.1bn cover short-term loans by 97x. Working capital is ample with ¥730.1bn of working capital and receivables/inventories aligned to the sales base. Investment securities increased to ¥107.4bn, providing additional financial flexibility. Lease obligations are manageable (current ¥5.55bn; non-current ¥16.11bn). No off-balance sheet obligations were indicated.

Notable B/S Changes

Long-term Loans: +¥100.0bn (+500%) to ¥120.0bn - terming out debt reduces refinancing risk while maintaining low leverage. Short-term Loans: -¥8.55bn (-96%) to ¥0.37bn - de-risked near-term liquidity, improving maturity profile. Goodwill: +¥0.77bn (+39.9%) to ¥2.37bn - incremental M&A; goodwill remains a small share of equity (1.9%), low impairment risk. Investment Securities: +¥2.71bn (+31.0%) to ¥10.74bn - higher financial asset buffer and potential dividend income. Accounts Payable: -¥0.27bn to ¥17.88bn - contributes to OCF drag; monitor for normalization. Cash and Deposits: +¥1.69bn to ¥35.41bn - preserved liquidity despite higher dividends and debt terming.

Cash Flow Quality

OCF was ¥143.2bn vs owners’ net income of ¥146.4bn (OCF/NI = 0.98x), indicating high-quality earnings with minor working capital drag. Free cash flow was ¥96.9bn after ¥34.1bn capex, covering dividends. Cash conversion (OCF/EBITDA) of 0.60x was weighed down by a ¥51.3bn decrease in trade payables; receivables and inventories were stable to mildly favorable. Accruals ratio of 0.2% corroborates low accruals risk. CapEx/Depreciation at 0.79x suggests investment below depreciation, appropriate for a cash-focused year but worth monitoring for medium-term asset refresh. There are no overt signs of working capital manipulation; movements align with procurement and payment timing.

Dividend Sustainability

Total DPS was ¥155, implying a payout ratio of 62.7% versus EPS of ¥249.08. Free cash flow cover was 1.06x, indicating dividends are funded organically with some buffer. With Debt/EBITDA at 0.52x and strong liquidity, the balance sheet can support stable dividends. The company guides DPS of ¥77.5 for the next period’s interim, consistent with a steady policy. Sustainability is supported by robust OCF; however, maintaining FCF coverage will depend on stabilizing cash conversion and Overseas profitability.

Risk Assessment

Business risks include Revenue concentration in Interior (79.5% of sales) exposes earnings to domestic renovation/construction cycles., Overseas segment margin remains negative (-0.1%), posing execution and integration risk despite strong growth., Input cost and procurement timing risk affecting gross margin in interior materials., Demand sensitivity to non-residential capex and housing starts in Japan., FX volatility impacting Overseas translation and transaction balances..

Financial risks include LOW_CASH_CONVERSION: OCF/EBITDA at 0.60x due to a significant decline in trade payables, pressuring cash conversion., Interest rate risk on increased long-term borrowings (¥120.0bn), albeit mitigated by high coverage and low leverage., Pension-related obligations (net defined benefit liability ¥51.25bn) requiring ongoing funding discipline..

Key concerns include Sustaining operating margin at ~9.4% amid mix shifts and cost inflation., Underinvestment risk signaled by CapEx/Depreciation of 0.79x if prolonged., Overseas profitability turnaround timing given near-breakeven earnings., Dividend cover moderately above 1x FCF; any working capital reversal could tighten coverage..

Investment Implications

Key takeaways include Margin-led earnings beat: operating margin +30bp YoY to 9.4% drove 7% OP growth on 3% sales., Cash generation strong but cash conversion soft at 0.60x OCF/EBITDA due to payables normalization., Balance sheet conservative: Debt/EBITDA 0.52x, interest coverage 67.6x, current ratio 262%., Interior remains the core profit engine (¥193.3bn OP, 11.8% margin); Overseas scaling with losses narrowing toward breakeven., Dividend policy appears sustainable with 62.7% payout and 1.06x FCF cover..

Metrics to watch include OCF/EBITDA and payables trends (cash conversion recovery)., Overseas segment margin and path to sustained profitability., SG&A growth versus revenue to preserve operating leverage., CapEx/Depreciation and project pipeline supporting medium-term growth., Inventory days and receivables turnover to manage working capital..

Regarding relative positioning, Within Japan’s interior materials and finishing markets, Sangetsu exhibits mid-to-high single-digit operating margins with superior balance sheet strength versus peers, but trails best-in-class cash conversion; overseas recovery is the swing factor for incremental returns.