SG HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥782.58B
• Operating Income: ¥38.55B
• Net Income: ¥23.48B
• EPS: ¥38.44

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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 mixed FY2026 Q2 with resilient cash generation but soft profitability and tight liquidity. Revenue reached 7,825.82, while operating income was 385.46, down 1.5% YoY, and ordinary income was 381.20, down 1.6% YoY. Net income declined more sharply by 8.8% to 232.42, implying a contraction in bottom-line profitability. Operating margin stands at 4.9% (385.46/7,825.82), ordinary margin at 4.9%, and net margin at 3.0%. EBITDA totaled 612.19, with an EBITDA margin of 7.8%, indicating solid, albeit pressured, operating cash earnings. Non-operating items were a modest net drag (22.91 income vs 27.17 expense), and interest expense was 24.32, partly offset by 5.42 of interest income and 3.31 of dividends. The effective tax rate was elevated at 38.0%, exacerbating the decline in net income versus operating income. DuPont shows ROE at 4.4%, driven by a 3.0% net margin, 0.667x asset turnover, and 2.21x leverage—pointing to low capital efficiency. ROIC is 3.2%, well below a typical logistics cost of capital, signaling value-creation challenges. Cash flow quality was strong: operating cash flow of 460.35 was 1.98x net income, and FCF before buybacks (OCF minus capex) was approximately 228.12, evidencing high earnings convertibility. Liquidity, however, is a concern with a current ratio of 0.90 and negative working capital of -396.82; short-term loans are sizable at 1,828.79. Capital allocation skewed to shareholder returns via buybacks (629.06), seemingly debt-funded given financing CF of 782.04 and modest FCF. Balance sheet leverage is moderate (D/E 1.21x; Debt/EBITDA 5.08x), but the reliance on short-term debt raises refinancing risk. Given missing YoY revenue data, margin expansion/compression in basis points cannot be precisely calculated; the current operating margin is 4.9%. Forward-looking, profitability recovery hinges on parcel mix, unit pricing discipline, and labor productivity offsetting wage and fuel pressures; tight liquidity and sub-WACC ROIC suggest a cautious stance on incremental capital deployment.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.4% = Net Profit Margin 3.0% × Asset Turnover 0.667 × Financial Leverage 2.21x. The weak link is profitability (3.0% net margin), with asset turnover at a reasonable 0.667 for a network-heavy logistics operator and leverage moderate at 2.21x. The largest negative change driver this quarter appears to be margin pressure (operating income -1.5% YoY, net income -8.8% YoY) and a high 38% tax rate, not leverage. Business reasons likely include wage inflation, transportation and energy costs, and competitive pricing dynamics. Non-operating results were a minor headwind (net -4.26), but not the primary driver. Sustainability: margin headwinds could persist without successful price revisions and productivity gains; leverage seems stable, and asset turnover is unlikely to be a major swing factor near term. Watch for SG&A discipline—reported SG&A was 456.48; without revenue YoY, we cannot confirm, but if SG&A growth exceeds revenue growth, operating leverage will be negative.

Growth Assessment

Revenue scale is solid at 7,825.82, but YoY growth is unreported, limiting top-line trend visibility. Operating income slipped 1.5% and ordinary income 1.6% YoY, indicating mild deterioration in core profitability. Net income fell 8.8%, reflecting higher tax burden and slight non-operating drag. EBITDA margin at 7.8% shows the cost base remains heavy; margin recovery will depend on pricing power and labor efficiency. Non-operating income (22.91) is supportive but not a meaningful growth driver. With ROIC at 3.2%, current investment returns are below typical cost of capital; growth that is not accompanied by pricing/mix improvement may dilute value. Outlook hinges on parcel volume resilience in e-commerce, contract renegotiations to pass through cost inflation, and network optimization. Near-term, expect cautious growth with emphasis on profitability over volume. Missing segment data and revenue YoY limit precision in assessing sustainability.

Financial Health

Liquidity is tight: current ratio 0.90 and quick ratio 0.90 trigger a warning; working capital is negative at -396.82. Current liabilities (4,170.78) exceed current assets (3,773.96), and short-term loans are high at 1,828.79, creating maturity mismatch risk. Cash and deposits total 961.60, offering limited immediate coverage of short-term borrowings without rollover. Solvency is acceptable: D/E is 1.21x and equity ratio (calculated) is ~45.3% (5,319.68/11,734.29). Total interest-bearing debt approximates 3,110.44 (short + long-term), implying Debt/EBITDA of 5.08x—elevated but within typical logistics bounds; interest coverage is strong at 15.85x. Intangibles are sizable (goodwill 1,724.75; other intangibles 2,103.28), introducing impairment risk should profitability weaken. No off-balance sheet obligations are disclosed in the data provided. Overall, refinancing and short-term liquidity management are key near-term focus areas.

Cash Flow Quality

OCF/Net Income is 1.98x, signaling high-quality earnings with strong cash conversion. Operating CF of 460.35 comfortably covers capex of 232.23, yielding an estimated FCF (pre-M&A) of ~228.12. Financing CF was an outflow driver due to share repurchases of 629.06, substantially exceeding FCF and likely funded by incremental debt (financing CF +782.04). With investing CF unreported, full FCF cannot be finalized, but available data point to adequate organic cash generation and aggressive capital returns. No clear signs of working-capital manipulation are evident from the aggregate numbers; however, negative working capital and reliance on short-term funding bear monitoring for timing effects. Earnings quality assessment: strong.

Dividend Sustainability

The calculated payout ratio is 143.3%, indicating distributions in excess of earnings; actual DPS and total dividends paid are unreported, and the figure may reflect combined dividends and buybacks or period-specific assumptions. On cash metrics, estimated FCF (~228.12) could support ordinary dividends but not the scale of buybacks (629.06). Without investing CF and DPS details, FCF coverage of dividends cannot be precisely assessed. Given sub-WACC ROIC (3.2%) and tight liquidity (current ratio 0.90), sustaining outsized shareholder returns likely requires continued debt financing or earnings recovery, both of which entail risk. Policy outlook: expect management to prioritize balance-sheet flexibility if profitability does not improve.

Risk Assessment

Business Risks:

• Parcel volume and mix sensitivity to e-commerce and B2B demand
• Wage inflation and driver shortages raising unit delivery costs
• Fuel and energy cost volatility impacting transportation costs
• Competitive pricing pressure from major peers (Yamato, Japan Post)
• Elevated effective tax rate (38%) dampening net profit

Financial Risks:

• Low liquidity (current ratio 0.90) and negative working capital
• High reliance on short-term loans (1,828.79) creating refinancing risk
• Debt/EBITDA of 5.08x increases sensitivity to profit downturns
• Large goodwill and intangibles (3,828.03 total) raise impairment risk
• Potential interest rate risk if borrowings are floating-rate

Key Concerns:

• ROIC at 3.2% below cost of capital, suggesting value-creation shortfall
• Net income down 8.8% YoY versus milder operating income decline
• Share buybacks (629.06) exceeding FCF, likely debt-funded
• Non-operating net expense and high tax rate weighing on bottom line
• Data gaps (revenue YoY, segment detail) obscure margin drivers

Investment Implications

Key Takeaways:

• Core profitability softened: operating income -1.5% YoY; net income -8.8% YoY
• Operating margin at 4.9% and EBITDA margin at 7.8% reflect pressured cost base
• Cash generation strong (OCF/NI 1.98x), but liquidity tight (current ratio 0.90)
• Leverage moderate (D/E 1.21x) but Debt/EBITDA elevated at 5.08x; short-term debt heavy
• ROE 4.4% and ROIC 3.2% indicate low capital efficiency
• Aggressive buybacks outpaced FCF, implying dependence on financing

Metrics to Watch:

• Unit price realization and parcel mix (B2C vs B2B)
• Labor productivity, subcontracting ratio, and wage inflation
• Fuel surcharge pass-through effectiveness
• OCF-to-NI ratio and working capital movements
• Short-term debt rollover and average borrowing costs
• ROIC progression vs cost of capital
• Effective tax rate normalization
• Capex discipline and network efficiency KPIs

Relative Positioning: Within Japan’s parcel/logistics sector, SG Holdings maintains healthy operating cash generation and strong interest coverage, but faces tighter liquidity and lower capital efficiency versus best-in-class peers; margin resilience will hinge on pricing power and cost controls amid intense competition.

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