Sangetsu Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥98.89B
• Operating Income: ¥8.19B
• Net Income: ¥6.27B
• EPS: ¥107.40

Income Statement

Balance Sheet

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

FY2026 Q2 was a solid beat on profitability, with topline growth translating into outsized earnings gains. Revenue rose 5.3% YoY to 988.9, while operating income increased 10.9% YoY to 81.9, demonstrating positive operating leverage. Gross profit reached 306.2 for a gross margin of 31.0%, and operating margin improved to 8.3%. Ordinary income climbed to 85.3 (+12.1% YoY), aided by net non-operating income of 3.4 (income 6.2 minus expenses 2.8). Profit before tax was 89.5, implying 4.3 in net extraordinary gains. Net income surged 26.4% YoY to 63.1, with an effective tax rate of 30.0%. Operating margin expanded by approximately 42 bps YoY (from ~7.86% to ~8.28%), and net margin expanded by roughly 106 bps YoY (from ~5.32% to ~6.38%). Interest coverage is very strong at 58.1x, reflecting low financial risk and healthy earnings power. Liquidity remains robust with a current ratio of 254.5% and quick ratio of 209.2%; working capital stands at 687.7. Leverage is conservative with a D/E of 0.57x and asset-to-equity leverage of 1.57x. ROE is 5.4% via DuPont (6.4% net margin × 0.542 asset turnover × 1.57 leverage), indicating moderate returns primarily driven by margin improvement rather than leverage. Reported ROIC at 5.9% is below the 7–8% typical target range, suggesting further efficiency gains are needed. Cash flow disclosure is limited this quarter (OCF/FCF unreported), so earnings quality cannot be fully validated against cash generation. The reported payout ratio of 140.7% appears elevated but is likely distorted by period mismatches (half-year EPS vs annual DPS) and cannot be assessed for sustainability without OCF/FCF data. Looking forward, continued SG&A discipline and stable gross margins should support margins, but the step-up from extraordinary items and non-operating contributions may not repeat, tempering run-rate expectations.

Profitability Analysis

ROE decomposition: Net Profit Margin (6.4%) × Asset Turnover (0.542) × Financial Leverage (1.57x) = ROE 5.4%. The largest change contributor this quarter appears to be margin expansion, evidenced by operating income growth (+10.9%) outpacing revenue (+5.3%) and net margin rising ~106 bps YoY. Business drivers likely include pricing discipline, product mix improvement, and SG&A cost control, as the SG&A ratio is 22.7% of sales and operating margin lifted ~42 bps. Asset turnover remains modest at 0.542, consistent with a distributor/interior materials player carrying substantial working capital; no sign of leverage-driven ROE gains given conservative capital structure. Sustainability: margin gains from mix/pricing and SG&A efficiency can persist if demand holds and input costs remain stable; however, the boost from extraordinary items (gap between ordinary income and PBT of 4.3) is non-recurring. Watch for any reversal in non-operating items (net +3.4) which supported ordinary income. No evidence of SG&A growth exceeding revenue this period; operating leverage is positive, but confirmation requires YoY SG&A disclosure, which is unreported.

Growth Assessment

Revenue grew 5.3% YoY to 988.9, indicating steady demand in core interior materials channels. Operating income rose 10.9% to 81.9, demonstrating favorable operating leverage. Gross margin is 31.0%, suggesting stable pricing/mix; cost of sales at 682.7 equates to a 69.0% COGS ratio. Ordinary income increased 12.1% to 85.3, helped by net non-operating income of 3.4; PBT further benefited from 4.3 of extraordinary gains. Net income grew 26.4% to 63.1, outpacing operating profit due to the above non-recurring supports and a normalized 30% tax rate. Efficiency metrics show asset turnover at 0.542; incremental revenue growth without commensurate asset growth will be key to improve ROIC (5.9% currently). Outlook hinges on construction/renovation demand, input cost stability (resins, logistics), and SG&A discipline; absent clear tailwinds, assume more modest earnings growth once extraordinary items normalize.

Financial Health

Liquidity is strong: current ratio 254.5% and quick ratio 209.2%, with cash (333.9) plus receivables (305.4) comfortably exceeding current liabilities (445.0). No warning on Current Ratio (<1.0) or D/E (>2.0); D/E is 0.57x and leverage is conservative. Maturity mismatch risk is low: short-term loans are 20.7 while liquid assets (cash + AR) are 639.3, and inventories are 202.0. Total liabilities are 664.0 versus total equity of 1,161.2, underscoring balance sheet strength. Long-term loans stand at 120.0, manageable relative to EBITDA proxy (not disclosed) and strong interest coverage (58.1x). No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow, free cash flow, and capex are unreported this quarter; thus OCF/Net Income and FCF conversion cannot be assessed. As a working-capital-intensive distributor, earnings quality is typically sensitive to receivables and inventory swings; however, without cash flow detail, we cannot confirm cash realization of profits. No signs of working capital manipulation can be inferred from the available snapshot; changes vs prior periods are not provided. Dividend and capex coverage from FCF are not calculable due to disclosure gaps.

Dividend Sustainability

The calculated payout ratio of 140.7% appears high, but likely reflects a mismatch between annual DPS and half-year EPS; without annualized EPS and actual cash flow data, sustainability cannot be judged from this figure alone. FCF coverage is unreported; therefore, we cannot verify whether dividends are covered after capex and working capital needs. Balance sheet capacity (net cash-like position when including large cash, low ST debt) provides some buffer, but long-term sustainability should be tied to OCF consistency and ROIC improvement toward 7–8%. Policy commentary is not provided; investors should watch for full-year guidance on DPS, buybacks, and payout policy alignment with earnings trajectory.

Risk Assessment

Business Risks:

• End-market cyclicality in residential and non-residential renovation and construction demand
• Raw material and logistics cost volatility impacting gross margin
• Product mix shifts and pricing competition in interior materials
• Execution risk in SG&A efficiency and distribution footprint optimization

Financial Risks:

• Potential reliance on non-operating and extraordinary gains that may not recur
• Working capital intensity (receivables/inventory) could pressure OCF in a slowdown
• FX exposure on imported materials if hedging is insufficient

Key Concerns:

• ROIC at 5.9% below typical 7–8% targets, indicating room for capital efficiency improvement
• Lack of OCF/FCF disclosure limits validation of earnings quality
• Reported payout ratio suggests potential strain, though likely distorted by period mismatch

Investment Implications

Key Takeaways:

• Solid H1 execution: revenue +5.3% YoY, operating income +10.9% YoY, net income +26.4% YoY
• Operating margin expanded ~42 bps to 8.3%; net margin up ~106 bps to 6.4%
• Strong balance sheet and liquidity, interest coverage 58.1x, D/E 0.57x
• ROE 5.4% driven by margin gains; leverage contribution limited, asset turnover modest
• ROIC at 5.9% underscores need for further efficiency and mix upgrades
• Earnings quality and dividend coverage cannot be confirmed without OCF/FCF

Metrics to Watch:

• OCF/Net Income and FCF conversion in Q3–Q4
• SG&A growth vs revenue and SG&A-to-sales ratio trajectory
• Gross margin resilience amid input cost and FX movements
• Working capital days (AR and inventory turnover)
• Extraordinary and non-operating items normalization
• ROIC progress toward 7–8%

Relative Positioning: Within Japanese interior materials/distribution peers, Sangetsu exhibits above-average balance sheet strength and improving operating efficiency, but returns (ROE/ROIC) remain mid-pack due to modest asset turnover and still-developing margin gains.

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