SANSHIN ELECTRONICS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥87.78B
• Operating Income: ¥3.27B
• Net Income: ¥2.52B
• EPS: ¥206.55

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 strong top-line and operating performance in FY2026 Q2 with clear margin expansion, but earnings quality is weak due to negative operating cash flow and sub-target capital efficiency (ROIC). Revenue rose 16.8% YoY to 877.8, demonstrating solid demand momentum. Operating income increased 46.8% YoY to 32.7, outpacing sales growth and indicating positive operating leverage. Ordinary income climbed 51.8% YoY to 29.2 despite higher non-operating expenses than income. Net income surged 86.2% YoY to 25.3, benefiting from improved operating margins and stable tax rate (effective tax 32.5%). Operating margin improved to 3.73% versus an estimated 2.97% in the prior year (about +76 bps). Net margin improved to 2.88% from an estimated 1.80% (about +108 bps). Gross profit margin stands at 10.2%, consistent with a distribution-centric business model. Interest coverage is strong at 13.45x, indicating comfortable ability to service interest even with rising short-term debt. Liquidity appears sound with current ratio at 176.6% and ample working capital of 335.1. However, operating cash flow was -0.76 despite positive earnings, implying a material divergence (OCF/NI = -0.03x), likely driven by working capital build in receivables and/or inventories (inventories not disclosed). Short-term loans of 223.8 fund part of the working capital, increasing sensitivity to funding costs and rollover risk, though current assets provide coverage. ROE is 6.0% via NPM 2.9% × AT 1.006 × leverage 2.06x, but ROIC at 3.8% remains below a 5% warning threshold, suggesting returns on invested capital are not yet covering a typical cost of capital. Dividend payout ratio is calculated at a high 87%, which, coupled with negative OCF and capex needs, raises sustainability questions if cash conversion does not normalize. Forward-looking, sustaining the margin gains will depend on disciplined SG&A, stable gross margin in an electronics component cycle, and improving cash conversion from accounts receivable. Key watchpoints include receivable collection, any inventory normalization, funding mix between short- and long-term debt, and end-market demand in semiconductors/industrial electronics.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.0% = Net Profit Margin 2.9% × Asset Turnover 1.006 × Financial Leverage 2.06x. The largest positive change appears to be in net profit margin, inferred from operating income growth (+46.8% YoY) significantly outpacing revenue growth (+16.8% YoY), while non-operating items were a net drag (non-op income 1.53 vs non-op expenses 5.03). Operating margin improved to 3.73% from an estimated 2.97% (~+76 bps), and net margin to 2.88% from 1.80% (+108 bps), reflecting operating leverage and cost discipline in SG&A (56.8) relative to gross profit expansion. Asset turnover (1.006) looks stable for an electronics distributor; without prior-period assets, we assume minimal change. Financial leverage at 2.06x is moderate; short-term loans increased reliance on debt funding for working capital but did not drive ROE materially versus margin gains. Business drivers: stronger component demand and scale benefits likely widened operating margin, while interest expense (2.43) and other non-operating expenses muted ordinary income growth. Sustainability: margin gains can persist if mix and pricing hold and SG&A remains controlled; however, distributor gross margins (10.2%) are structurally thin and vulnerable to component price cycles and FX, so the recent expansion may partially normalize. Watch for concerning trends: non-operating expenses (notably interest) rising with short-term borrowings, and the risk that SG&A growth re-accelerates faster than gross profit if sales growth slows.

Growth Assessment

Top-line growth of 16.8% YoY to 877.8 indicates robust demand across core categories. Operating income growth of 46.8% and net income growth of 86.2% show healthy operating leverage and cost control, though some tailwind may be cyclical. Margin gains are supported by improved operating efficiency; ordinary income growth slightly below operating income growth reflects higher net non-operating costs. Revenue sustainability depends on electronics/semiconductor demand cycles and fulfillment capacity; without backlog data, visibility is limited. Profit quality is mixed: accounting profitability improved, but cash conversion deteriorated (OCF negative). Outlook: if receivables collection normalizes and component supply-demand remains balanced, operating margins could remain in the mid-3% range; downside risk arises if component pricing tightens or demand slows, compressing gross margins and leverage benefits.

Financial Health

Liquidity: Current ratio 176.6% and quick ratio 176.6% (no inventories disclosed) indicate strong short-term liquidity. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 1.06x, within conservative bounds for distributors. Solvency: Interest coverage is robust at 13.45x. Capital structure: Total liabilities 449.4 vs equity 423.6; leverage is moderate. Maturity mismatch: Short-term loans 223.8 are sizable versus cash 71.4, but receivables 443.9 and current assets 772.7 provide coverage; rollover risk exists if credit conditions tighten. Off-balance sheet: None disclosed in the provided data. Equity base is solid with retained earnings 297.8 supporting resilience.

Cash Flow Quality

OCF/Net Income is -0.03x, flagging low earnings quality this period. Despite NI of 25.3, OCF was -0.76, likely due to working capital build (notably accounts receivable; inventories unreported). Free cash flow is not fully reported; using available data, OCF -0.76 minus capex -0.97 implies an approximate FCF of -1.73, indicating internal cash did not cover investment and potential dividends this period. Sustainability: if the OCF shortfall is timing-related and collections normalize, cash conversion should recover; repeated negative OCF would pressure funding needs and dividends. No explicit signs of working capital manipulation are evident, but the combination of rapid sales growth and negative OCF suggests back-half collection risk and potential quarter-end shipment concentration.

Dividend Sustainability

The calculated payout ratio is high at 87%, implying limited buffer against earnings volatility. With approximate FCF negative this period, dividend coverage from free cash flow appears weak near-term unless working capital unwinds in H2. Balance sheet liquidity is adequate and could support dividends temporarily, but sustained high payouts against sub-5% ROIC and volatile cash conversion would be challenging. Policy outlook is unclear due to unreported DPS; if management targets stable dividends, maintaining current levels likely requires improved OCF and/or lower capex and disciplined working capital.

Risk Assessment

Business Risks:

• Semiconductor/electronics component cycle risk impacting volume and pricing
• Gross margin pressure in a competitive distribution market (GPM 10.2%)
• Customer concentration or order volatility (not disclosed but common in distribution)
• Supply chain and lead-time variability affecting revenue recognition and WC

Financial Risks:

• Negative OCF vs NI (OCF/NI -0.03x) indicating cash conversion risk
• Dependence on short-term borrowings (223.8) for working capital amid rising rates
• ROIC at 3.8% below 5% warning threshold, signaling capital efficiency risk
• Potential rollover risk if credit conditions tighten (short-term maturity profile)

Key Concerns:

• Earnings quality flagged due to negative operating cash flow
• High payout ratio (87%) despite negative FCF, risking dividend sustainability
• Non-operating expense burden (interest expense 2.43) could rise with debt
• Data gaps (inventories, investing CF) limit visibility into working capital and capex plans

Investment Implications

Key Takeaways:

• Strong YoY growth with clear operating and net margin expansion
• Liquidity and interest coverage are solid, but funding relies on short-term debt
• Earnings quality is weak this quarter due to negative OCF
• ROIC at 3.8% indicates sub-par capital efficiency vs typical cost of capital
• Dividend sustainability looks stretched at an 87% payout without OCF recovery

Metrics to Watch:

• OCF/Net income and cash conversion cycle (DSO, inventory days once disclosed)
• Operating and net margin trajectory (target >3.5% and >2.5% respectively)
• ROIC progression toward >5% first, then 7–8% medium term
• Short-term debt level vs cash and receivables; interest expense trend
• SG&A growth vs gross profit growth to preserve operating leverage

Relative Positioning: Within electronics distributors, the company currently shows above-peer growth and solid operating leverage but trails on capital efficiency (ROIC) and cash conversion, placing it as a growth-positive yet cash-flow-sensitive name requiring improvement in working capital management.

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