SUNWELS Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.41B
• Operating Income: ¥-993M
• Net Income: ¥-1.52B
• EPS: ¥-46.77

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: Weak quarter with persistent losses despite modest topline growth and positive operating cash flow; leverage and below-the-line volatility remain key concerns. Revenue grew 2.4% YoY to 134.07, while gross profit reached 30.25, implying a 22.6% gross margin. Operating income improved 36.5% YoY but remained negative at -9.93, translating to an operating margin of about -7.4%. Ordinary income was -14.41 (up 30.0% YoY but still in loss), highlighting continued pressure from non-operating items, including interest expense of 3.83. Notably, profit before tax was reported at 8.53 while net income was -15.17 (loss widened 27.7% YoY), implying substantial undisclosed extraordinary or below-the-line items after tax of roughly -23.7. EBITDA was -3.86, indicating limited operating cash earnings to cover interest (interest coverage -2.59x). ROE printed at -21.4% driven by a -11.3% net margin, low asset turnover (0.294x), and high financial leverage (6.41x). ROIC was -6.4%, well below the 7–8% management benchmark commonly referenced in Japan for capital efficiency. Operating cash flow was positive at 10.66 versus net loss of -15.17, resulting in an OCF/NI ratio of -0.70x (flag for earnings quality under our threshold). Liquidity appears adequate (current ratio 177.9%, cash 56.37 vs short-term loans 6.60), but solvency risk is elevated given D/E of 4.28x and negative EBITDA. Capex was sizable at -31.52, likely tied to expansion/openings, suggesting negative proxy FCF (OCF - Capex ≈ -20.86) and reliance on financing inflows (Financing CF 56.38). Retained earnings are slightly negative (-0.74), and capital structure shows heavy reliance on capital surplus and debt. EPS shows a data anomaly (basic -46.77 JPY vs diluted 7.76 JPY), reinforcing disclosure gaps below the operating line. Forward-looking, stabilization hinges on improving unit economics (occupancy/rates vs staffing costs), tempering capex pace, and lowering financing burden; absent a near-term inflection in operating margin and ROIC, equity dilution or refinancing risk may rise.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-11.3%) × 0.294 × 6.41 ≈ -21.4%. Biggest driver of change is the net profit margin, as operating losses and material below-the-line items (non-operating expenses 4.21, interest 3.83, and undisclosed extraordinary items approximated at -23.7 after tax) overwhelm modest gross profit. Asset turnover at 0.294x is low for a service operator with a growing fixed-asset base, reflecting capacity build-out ahead of full utilization. Financial leverage at 6.41x amplifies the effect of the negative margin on ROE. Business reason: rising labor and opening costs (SG&A 17.88 against GP 30.25), negative EBITDA, and higher interest burden pressured margin; probable extraordinary charges/valuation losses swung NI deeper negative despite a reported positive pre-tax figure. Sustainability: gross margin at 22.6% is likely structurally constrained by wage inflation and reimbursement/pricing dynamics; margin recovery depends on occupancy and cost discipline. The below-the-line drag looks partly one-off (extraordinary items) but interest costs are recurring. Concerning trends: SG&A (absolute) remains high relative to gross profit; revenue grew 2.4% but operating income is still deeply negative, indicating negative operating leverage.

Growth Assessment

Revenue growth was modest at +2.4% YoY to 134.07, suggesting limited price/mix or volume expansion relative to cost inflation. Operating income improved YoY (loss narrowed by 36.5%), but the company has yet to achieve break-even, and ordinary income also remained negative despite a 30.0% YoY improvement. Net income deteriorated by 27.7% YoY to -15.17, implying elevated below-the-line volatility. Gross margin at 22.6% provides room for leverage with higher utilization but is vulnerable to labor cost pressure. EBITDA at -3.86 indicates insufficient operating cash earnings to self-fund growth or debt service. Outlook hinges on ramping recently invested capacity, improving occupancy, and tightening SG&A to convert GP to operating profit. With capex of -31.52 and Financing CF of 56.38, growth is currently debt-funded; sustainability depends on turning EBITDA positive and reducing interest drag. Near-term, expect continued volatility in quarterly profits if additional openings or extraordinary items recur.

Financial Health

Liquidity: healthy near term with current ratio 177.9% and quick ratio 177.6%; cash and deposits at 56.37 comfortably exceed short-term loans of 6.60. Solvency: leverage is high with D/E at 4.28x (warning threshold >2.0), and long-term loans at 55.80 plus substantial noncurrent liabilities of 247.74 indicate structural dependence on debt. Interest coverage is negative (-2.59x), signaling weak debt service capacity from operations. Maturity mismatch: current assets (99.67) exceed current liabilities (56.02), limiting short-term rollover risk; however, persistent losses and negative EBITDA increase medium-term refinancing risk. Equity base is thin at 71.05 with retained earnings negative (-0.74), leaving limited buffer against shocks. No off-balance sheet obligations were disclosed in the provided data; absence of disclosure does not rule them out.

Cash Flow Quality

OCF of 10.66 versus net income of -15.17 yields an OCF/NI ratio of -0.70 (<0.8 threshold), flagged as an earnings quality concern. The positive OCF despite a net loss suggests favorable working capital movements and/or non-cash charges (D&A 6.07), but sustainability is uncertain given negative EBITDA. Capex of -31.52 implies a proxy FCF of approximately -20.86 (OCF - Capex), indicating external funding reliance for growth and potentially for operations. Financing CF of 56.38 supports liquidity but increases leverage and interest burden. No clear signs of working capital manipulation are evident from the limited data; receivables (40.68) are large relative to payables (1.69), which is typical for care/service models but could pressure OCF if collections slow.

Dividend Sustainability

Dividends were unreported; payout ratios are not calculable from the provided data. Given negative net income (-15.17), negative EBITDA, and proxy FCF likely negative (~-20.86), capacity to fund dividends from internal cash generation appears weak. With high leverage (D/E 4.28x) and ongoing capex needs, prudent policy would prioritize balance sheet stabilization over distributions; any dividend would likely depend on external financing or equity capital, which is not sustainable. Policy outlook cannot be inferred due to lack of disclosure.

Risk Assessment

Business Risks:

• Operating loss persistence and negative EBITDA indicating weak unit economics
• Labor cost inflation and staffing shortages pressuring gross and operating margins
• Execution risk on new facility ramp-up and occupancy utilization
• Potential extraordinary losses/valuation charges causing earnings volatility

Financial Risks:

• High leverage (D/E 4.28x) with negative interest coverage (-2.59x)
• Refinancing risk due to reliance on financing CF (56.38) amid negative proxy FCF
• Thin equity buffer (equity 71.05; retained earnings -0.74) increasing covenant/dilution risk
• Sensitivity to interest rates given debt-funded growth and recurring interest expense (3.83)

Key Concerns:

• Inconsistent below-the-line reporting (PBT 8.53 vs NI -15.17) implying undisclosed large extraordinary items
• Earnings quality flagged by OCF/NI -0.70 and negative ROIC (-6.4%)
• Capex intensity (-31.52) without demonstrated return, depressing ROIC and FCF
• Data anomalies (EPS basic negative vs diluted positive) complicate comparability

Investment Implications

Key Takeaways:

• Modest revenue growth (+2.4%) but continued operating losses (OP margin ~-7.4%)
• ROE -21.4% and ROIC -6.4% reflect poor capital efficiency amplified by high leverage
• Positive OCF (10.66) contrasts with negative EBITDA and net loss, not sufficient to fund capex
• Leverage is elevated (D/E 4.28x) with negative interest coverage, raising solvency concerns
• Large undisclosed extraordinary items drove NI to -15.17 despite reported positive PBT

Metrics to Watch:

• EBITDA trajectory and operating margin inflection
• Occupancy/utilization and staff cost ratio (SG&A to sales)
• OCF conversion and receivables collection trends
• Capex cadence vs project returns (ROIC by cohort/opening)
• Net debt and interest coverage; refinancing timelines and rates

Relative Positioning: Within domestic care/service operators, the company appears more leveraged with weaker profitability and ROIC than peers targeting steady positive EBITDA; liquidity is adequate short term, but earnings and capital efficiency lag, making the equity more sensitive to execution and financing conditions.

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