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

Sunwells (92290) reported FY2026 Q2 standalone results under JGAAP with modest revenue growth but continued operating and net losses. Revenue was ¥13,407m (+2.4% YoY), while gross profit was ¥3,025m, implying a gross margin of 22.6%. Operating income was a loss of ¥993m, reflecting negative operating leverage and cost pressures that outpaced top-line growth. Ordinary income fell to a loss of ¥1,441m, pressured by finance costs of ¥383m, indicating a meaningful interest burden relative to operating scale. Net income was a loss of ¥1,517m, corresponding to a net margin of -11.3% and ROE of -21.35% via DuPont. Despite the loss, operating cash flow was positive at ¥1,066m, suggesting working-capital-driven cash inflows and non-cash charges (e.g., ¥607m depreciation) offsetting accounting losses. The reported equity ratio line is unfilled (0% in the source), but based on disclosed totals, equity-to-assets is approximately 15.6% (¥7,105m / ¥45,567m), indicating a leveraged balance sheet. Liquidity appears adequate near term with a current ratio of 1.78x and working capital of ¥4,365m, aided by financing inflows of ¥5,638m during the period. EBITDA was negative at ¥386m, and interest coverage was -2.6x, highlighting strained core earnings versus financing costs. The gap between positive OCF and negative net income points to earnings quality that relies on non-cash items and working capital movements, which may not be structurally repeatable. Dividend remains suspended (DPS ¥0), appropriately conserving cash in light of losses and leverage. Revenue growth remains modest relative to the cost base and interest burden, requiring either stronger occupancy/pricing or tighter cost control to restore profitability. Data limitations exist: cash and equivalents, investing cash flows, and share data were not disclosed in the feed (shown as zero), constraining precision on FCF, capex intensity, and per-share metrics. Overall, the company faces a transition period with negative margins and high leverage, but maintains near-term liquidity supported by recent financing.

Profitability Analysis

ROE_decomposition: ROE -21.35% = Net margin (-11.31%) × Asset turnover (0.294x) × Financial leverage (6.41x). The primary drag is the negative net margin, with low asset turnover typical of asset-heavy care facilities, and high leverage amplifying losses. margin_quality: Gross margin is 22.6% (¥3,025m/¥13,407m), indicating reasonable unit economics before fixed costs. Operating margin is -7.4% (¥-993m/¥13,407m), implying that SG&A, labor, and facility-related fixed costs outweigh current scale. Net margin of -11.3% reflects additional drag from ¥383m interest expense and taxes despite losses (likely non-income based taxes or non-deductible items). operating_leverage: EBITDA margin is -2.9% and operating margin -7.4%, signaling under-absorption of fixed costs. Given modest revenue growth (+2.4% YoY), the deterioration in operating income suggests negative operating leverage; incremental revenue is not yet sufficient to cover fixed cost growth (e.g., new facility openings, labor inflation). Interest coverage is -2.6x, underscoring that core earnings are insufficient to service interest without reliance on cash reserves or financing.

Growth Assessment

revenue_sustainability: Top-line growth of +2.4% YoY is modest for a capacity/price-driven care model. Sustainability will hinge on occupancy ramp at new sites, retention, and reimbursement/pricing dynamics. With asset turnover at 0.294x, additional scale is likely needed to lift returns. profit_quality: Despite net loss, OCF was positive (¥1,066m) due to depreciation (¥607m) and likely favorable working capital. However, EBITDA was negative (¥-386m), indicating core earnings remain weak; absent continued working-capital benefits, cash generation could be fragile. outlook: Near-term outlook depends on improving occupancy, controlling labor costs, and moderating expansion capex to limit incremental fixed costs. Given interest burden (¥383m) and negative EBITDA, break-even requires either meaningful pricing/volume uplift or structural cost actions. Any revisions to long-term care reimbursement rates and staffing availability will be key external drivers.

Financial Health

liquidity: Current ratio 1.78x, quick ratio 1.78x, and working capital ¥4,365m indicate sound near-term liquidity. Cash balance not disclosed (shown as 0), so absolute liquidity cannot be verified, but positive OCF and sizable financing inflow support liquidity. solvency: Total liabilities ¥30,377m vs equity ¥7,105m implies an equity-to-asset ratio of ~15.6% and debt-to-equity of 4.28x, reflecting high leverage. Negative interest coverage (-2.6x) highlights elevated solvency risk if earnings do not improve. capital_structure: Leverage is primarily from liabilities funding an asset-heavy model (total assets ¥45,567m). Financial leverage of 6.41x drives ROE sensitivity to margins. Continued access to financing (¥5,638m inflow this period) has supported operations, but increases financial risk if profitability lags.

Cash Flow Quality

earnings_quality: OCF/Net Income is -0.70 (¥1,066m / ¥-1,517m), indicating cash flow benefits from non-cash charges and working capital despite accounting losses. This is supportive in the short run but not a substitute for sustainable EBITDA. FCF_analysis: Investing CF was not disclosed (shown as 0). As a result, Free Cash Flow cannot be reliably assessed this period; asset-heavy operations typically require ongoing capex, so true FCF is likely below OCF. working_capital: Positive OCF implies favorable working-capital movements (e.g., payables, advances) alongside depreciation add-backs. Durability is uncertain; normalization of payables or receivables could reverse part of the benefit.

Dividend Sustainability

payout_ratio_assessment: Dividend per share is ¥0 with a payout ratio of 0%, consistent with negative earnings (EPS -¥46.77) and prudent cash preservation. FCF_coverage: FCF is not measurable due to undisclosed investing CF. Given negative EBITDA and high interest costs, coverage of any dividend would likely be weak; suspension appears appropriate. policy_outlook: Resumption would likely require a return to positive EBITDA and stable positive FCF after capex, alongside deleveraging to reduce interest burden.

Risk Assessment

Business Risks:

• Occupancy ramp and utilization risk at existing and new facilities
• Labor cost inflation and caregiver/staffing shortages impacting service levels and margins
• Regulatory and reimbursement rate risk in long-term care/elderly services
• Execution risk in new openings and integration, including ramp timelines
• Regional concentration and natural disaster exposure for facilities
• Reputation and quality-of-care risks affecting occupancy and pricing

Financial Risks:

• High leverage (D/E 4.28x) and low equity ratio (~15.6%)
• Negative interest coverage (-2.6x) with reliance on financing inflows
• Potential refinancing and interest rate risk on variable-rate borrowings
• Earnings shortfalls leading to covenant pressure (if applicable)
• Working capital reversal risk reducing OCF

Key Concerns:

• Sustained negative EBITDA and operating margin
• Interest burden (¥383m) consuming cash amid losses
• Limited visibility on capex and FCF due to undisclosed investing cash flows

Investment Implications

Key Takeaways:

• Modest revenue growth (+2.4% YoY) contrasted with continued operating loss (¥-993m)
• Gross margin 22.6% but negative operating margin (-7.4%) indicates fixed-cost pressure
• EBITDA negative (¥-386m) and interest coverage -2.6x signal earnings strain
• Positive OCF (¥1,066m) driven by non-cash items and working capital; sustainability uncertain
• High leverage (financial leverage 6.41x; D/E 4.28x) magnifies earnings volatility
• Liquidity adequate near term (current ratio 1.78x; WC ¥4,365m) aided by ¥5,638m financing inflow
• Dividend suspended; restoration contingent on EBITDA recovery and FCF visibility
• Equity-to-asset ratio ~15.6% (computed), suggesting limited buffer if losses persist

Metrics to Watch:

• EBITDA and EBITDA margin trajectory
• Occupancy rates and same-facility revenue growth
• Labor cost ratio and staffing levels
• Interest expense and average borrowing cost; interest coverage
• Capex and investing cash flows; resulting FCF
• Equity ratio and net debt/EBITDA (once EBITDA turns positive)
• Working-capital changes (receivables, payables, advances)
• Pipeline of new openings and ramp timelines

Relative Positioning: Within the elderly care/services space, Sunwells exhibits an asset-heavy balance sheet with below-break-even margins and higher leverage than is comfortable. Near-term liquidity compares reasonably due to recent financing, but profitability and cash generation lag peers that have achieved scale efficiencies and positive EBITDA.

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