SENKO Group Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥436.89B
• Operating Income: ¥16.20B
• Net Income: ¥9.28B
• EPS: ¥50.99

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

Q2 FY2026 was mixed for Senco Group Holdings: resilient cash generation but softer profitability and elevated leverage. Revenue reached 4,368.93, with operating income of 161.99 (-3.8% YoY) and ordinary income of 153.89 (-5.7% YoY). Net income declined to 87.21 (-16.9% YoY), reflecting a weaker bottom line despite stable top-line scale. Operating margin stands at 3.7% (161.99/4,368.93), and EBITDA margin at 7.4% (EBITDA 321.34), indicating modest operating efficiency. Net margin is 2.0%, pressured by a high effective tax rate of 40.8% and interest expense of 20.09 amid a leveraged balance sheet. Operating cash flow was strong at 276.45, translating to an OCF/NI of 3.17x, a clear positive for earnings quality. However, capex of 288.46 outpaced OCF, implying a slightly negative proxy FCF of about -12.0, suggesting self-funding is tight during this investment phase. Liquidity is adequate with a current ratio of 150.9% and quick ratio of 137.2%, supported by cash of 1,026.94 against short-term loans of 420.69. Leverage is high with D/E at 2.18x and Debt/EBITDA at 7.65x, raising sensitivity to rates and refinancing. ROE is a modest 3.6%, driven by thin net margins and heavy asset intensity (asset turnover 0.564) requiring leverage (3.18x) to sustain returns. ROIC of 2.5% is below a typical logistics-sector hurdle (7–8%), indicating limited value creation absent margin or turnover improvement. Non-operating income (16.96) provided some support, but non-operating expenses (25.05) and interest burden offset the benefit. EPS (basic) is 50.99 yen; the calculated payout ratio of 92.7% looks aggressive against current cash coverage. Due to missing YoY revenue and gross profit data, margin basis-point changes cannot be reliably quantified this quarter. Forward-looking, improvement hinges on better operating leverage, successful pass-through of costs (fuel/labor), and disciplined capex to lift ROIC above the cost of capital while deleveraging.

Profitability Analysis

ROE (3.6%) = Net Profit Margin (2.0%) × Asset Turnover (0.564) × Financial Leverage (3.18x). The weakest link is the net profit margin at 2.0%, while asset turnover is moderate for an asset-heavy logistics platform and leverage is elevated. The largest change versus last year’s profit dynamics appears at the bottom line (net income -16.9% YoY vs operating income -3.8%), implying margin compression below operating level, likely from higher tax burden (effective tax rate 40.8%) and interest costs (20.09). Business drivers include labor cost inflation, fuel cost pass-through friction, and depreciation drag (159.35), which depresses ordinary profit even when EBITDA holds up. These effects are partly structural (wage inflation, depreciation from ongoing investments) and partly cyclical (fuel, macro volume mix). Sustainability: depreciation headwinds persist near-term; tax rate may normalize but not guaranteed; interest burden stays elevated with current leverage. Watch for SG&A discipline: although detailed SG&A breakdown is unreported, aggregate SG&A is 511.52; if SG&A outpaces revenue growth (data missing), operating leverage will remain weak. Overall, margin quality is fair at EBITDA level but thin at the net level, with financing and tax headwinds the key drags.

Growth Assessment

Top-line scale is solid at 4,368.93, but YoY revenue growth is unreported, limiting growth diagnostics. Operating income fell 3.8% YoY, and ordinary income fell 5.7% YoY, indicating operating deleverage and higher below-the-line drag. Net income fell 16.9% YoY, suggesting worsening bottom-line conversion, largely due to higher tax rate and interest expense. EBITDA of 321.34 (7.4% margin) shows stable operating cash earnings, but depreciation is heavy (159.35), reflecting prior capex/M&A and pressuring EBIT. Non-operating income (dividends 1.29; interest income 1.87) is modest and does not materially change the trajectory. With ROIC at 2.5%, incremental growth must be more selective to avoid diluting returns; emphasis on higher-ROIC projects and pricing initiatives is necessary. Outlook depends on freight demand, 3PL contract repricing, labor productivity, and continued consolidation benefits; absent gross margin data, revenue sustainability is uncertain but cash conversion suggests operations remain resilient.

Financial Health

Liquidity is adequate: current ratio 150.9% and quick ratio 137.2% exceed benchmarks. No warning for current ratio (<1.0) is triggered. Working capital of 882.55 provides a buffer. Short-term loans are 420.69 against cash of 1,026.94 and current assets of 2,615.88, indicating limited near-term maturity mismatch risk. Solvency is the pressure point: D/E is 2.18x (warning above 2.0), and Debt/EBITDA is 7.65x (near the high leverage threshold). Interest coverage at 8.06x is acceptable but could compress if rates rise or earnings soften. Long-term loans (2,036.93) dominate the debt stack, aligning with asset-heavy investments but increasing duration risk if returns do not improve. Goodwill (241.22) and intangible assets (419.88) imply M&A execution risk if impairments occur in a downturn. Off-balance sheet obligations are not disclosed; no guarantees or large leases are reported in the data provided, but logistics typically has lease exposures that may not be fully visible here.

Cash Flow Quality

Earnings quality is strong this half: OCF/Net Income at 3.17x indicates robust cash conversion and limited accrual risk. Proxy free cash flow is approximately -12.0 (OCF 276.45 minus capex 288.46), implying the company is roughly funding investments from internal cash but slightly reliant on financing to bridge the gap. Financing cash inflow of 375.97 suggests net borrowing covered capex and modest buybacks (-4.06). Working capital detail is limited (receivables/payables unreported), but the high OCF vs NI suggests no obvious working capital manipulation; still, absent line-item disclosure, we cannot rule out timing benefits. Sustainability hinges on moderating capex or lifting EBITDA; at current run-rate, self-funding is tight but within reach.

Dividend Sustainability

The calculated payout ratio is 92.7%, which is high versus a <60% sustainability benchmark. Dividend cash outflow is unreported, and FCF coverage is not directly calculable from disclosures; however, proxy FCF is slightly negative this half, implying dividends would be covered only with balance sheet support if maintained at this payout. With D/E at 2.18x and an investment cycle under way (capex 288.46), management may need to balance shareholder returns with deleveraging and ROIC improvement. Unless earnings rebound or capex moderates, a lower payout ratio would be more consistent with internal funding and leverage reduction policies. Policy outlook depends on full-year guidance (not provided) and cash flow in H2, when seasonality can improve cash generation.

Risk Assessment

Business Risks:

• Cost inflation and pass-through risk for fuel and labor, compressing margins if repricing lags
• Volume sensitivity to industrial production and e-commerce demand fluctuations
• Execution risk in M&A/integration given goodwill 241.22 and large intangibles 419.88
• Operational bottlenecks from labor constraints and 2024 overtime regulation impacts in Japan logistics
• Depreciation drag from elevated asset base reducing EBIT during soft cycles

Financial Risks:

• High leverage: D/E 2.18x and Debt/EBITDA 7.65x increase interest-rate and refinancing risk
• Thin net margin (2.0%) leaves limited buffer against shocks
• Potential tax rate volatility (effective rate 40.8%) impacting bottom line
• FCF tightness during capex cycle, increasing dependence on external financing

Key Concerns:

• ROIC at 2.5% well below 7–8% target range, indicating limited value creation
• Interest burden (20.09) and non-operating expenses (25.05) erode ordinary profit
• Payout ratio at 92.7% appears inconsistent with leverage profile and negative proxy FCF
• Data gaps (revenue YoY, gross profit, working capital details) constrain full diagnosis of margin trajectory

Investment Implications

Key Takeaways:

• Operating performance is steady at EBITDA level, but net income fell 16.9% YoY amid tax and financing headwinds
• Cash conversion is strong (OCF/NI 3.17x), yet capex absorbed OCF, yielding slightly negative proxy FCF
• Leverage is elevated (D/E 2.18x; Debt/EBITDA 7.65x), necessitating disciplined capital allocation
• ROIC at 2.5% underscores the need for higher-return projects and margin improvement
• Dividend payout (92.7%) looks aggressive relative to cash coverage in an investment-heavy phase

Metrics to Watch:

• Operating margin and EBITDA margin progression, including cost pass-through effectiveness
• ROIC versus WACC by segment (if disclosed) and capex returns
• Net debt/EBITDA and interest coverage amid rate environment
• Effective tax rate normalization
• Working capital turns (AR/AP/inventory) once disclosed
• OCF versus NI trend and FCF after capex

Relative Positioning: Against domestic logistics peers, Senco exhibits moderate operating margins but weaker ROIC and higher leverage, offset by solid cash conversion; improving pricing power and capex discipline are key to converging toward best-in-class profiles.

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