SUZUYO SHINWART CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.38B
• Operating Income: ¥413M
• Net Income: ¥286M
• EPS: ¥100.80

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 steady but mixed FY2026 Q2 with top-line growth and stable operating execution, offset by margin compression and a softer bottom line. Revenue rose 6.5% YoY to 93.78, supported by resilient demand, while operating income increased 2.6% YoY to 4.13. Ordinary income improved 3.5% YoY to 4.50, aided by net non-operating gains of 0.37 (0.53 income vs 0.16 expense), including 0.13 in dividend income. Net income declined 5.2% YoY to 2.86, reflecting a higher effective tax rate of 37% and slight operating margin pressure. Gross profit was 23.22 with a gross margin of 24.8%, indicating reasonable cost discipline amid revenue growth. Operating margin came in at 4.4%, down about 18 bps YoY (from ~4.58% to ~4.40%) as SG&A growth roughly kept pace with gross profit. Net margin compressed by roughly 38 bps YoY (from ~3.43% to ~3.05%), driven primarily by tax rate and modest operating deleverage. Cash generation was solid: operating cash flow of 3.63 exceeded net income (OCF/NI = 1.27x), and after 0.85 of capex, implied FCF was approximately 2.78. Liquidity remains healthy with a current ratio of 143% and cash/deposits of 17.91 against short-term loans of 4.00. Leverage is moderate-to-elevated for this profile at a D/E of 1.62x, but interest coverage is robust at 34x and ROIC is a respectable 7.4%. Dividend payout appears high at a calculated 94.4%, implying limited retention capacity if sustained. Non-operating income accounted for roughly 18.5% of operating income, a non-trivial, though not dominant, contributor. Equity ratio (calculated) is about 38% (owners’ equity 45.42 / total assets 119.03), providing reasonable solvency. Earnings quality is acceptable with positive working capital contribution implied, though limited segment/disclosure granularity constrains deeper insight. Looking ahead, sustaining revenue growth while stabilizing margins and normalizing the tax rate will be key to lifting ROE above the current 6.3% toward higher-teens targets.

Profitability Analysis

ROE decomposition: 6.3% ROE = 3.0% Net Profit Margin × 0.788 Asset Turnover × 2.62x Financial Leverage. The margin component is the primary drag this quarter, with net margin compressing roughly 38 bps YoY as the operating margin slipped ~18 bps and the effective tax rate ran high at 37%. Asset turnover at 0.788 is decent for a service-heavy model and broadly consistent with an asset-light structure; no major change is evident from disclosed data. Leverage at 2.62x supports ROE, but at a D/E of 1.62x the balance sheet is already moderately geared for this business mix, leaving limited room to lever further without raising risk. Business drivers: SG&A held at 19.08 against gross profit of 23.22, suggesting cost growth roughly matched gross profit gains, limiting operating leverage; higher tax burden further compressed net margin. Sustainability: modest non-operating tailwinds (dividends/other income) appear recurring but not guaranteed; absent tax normalization or better cost control, margin recovery may be gradual. Watch for concerning trends such as SG&A growth exceeding revenue growth; while we lack a full YoY SG&A breakdown, the slight OM compression hints at tighter cost/inflation pressure.

Growth Assessment

Revenue grew 6.5% YoY to 93.78, a healthy pace consistent with steady demand in core businesses. Operating income growth of 2.6% lagged sales, indicating limited operating leverage due to SG&A absorption and/or project mix. Ordinary income rose 3.5%, helped by non-operating gains (net +0.37), but net income fell 5.2% as taxes weighed. Profit quality is acceptable: EBITDA was 6.96 (7.4% margin), providing ample interest coverage and indicating underlying operating cash generation capacity. Outlook hinges on maintaining backlog conversion and improving mix toward higher-margin services to recover the ~18 bps OM compression. ROIC of 7.4% is around management targets commonly seen in similar service firms (7–8%); incremental improvement would require either pricing/mix gains or tighter SG&A. Near-term catalysts include cost normalization, potential tax rate easing, and disciplined capex to support digital/IT offerings without pressuring FCF.

Financial Health

Liquidity is sound: current ratio 143.3% and quick ratio 143.3%, with cash 17.91 and receivables 22.64 comfortably exceeding short-term loans of 4.00 and accounts payable of 8.36. No warning on current ratio (<1.0) applies. Solvency: D/E at 1.62x is slightly above the conservative benchmark (1.5x), warranting monitoring though interest coverage is strong at 34x. Calculated equity ratio is ~38.2% (45.42/119.03), adequate for a services-oriented balance sheet. Maturity profile: current liabilities 38.84 vs current assets 55.65 suggests low near-term refinancing risk; noncurrent liabilities (34.76) exceed reported long-term loans (3.70), implying other long-term obligations (e.g., lease liabilities or provisions). Off-balance sheet commitments are not disclosed in the provided data, so contingent liabilities cannot be assessed.

Cash Flow Quality

OCF of 3.63 exceeds net income of 2.86 (1.27x), indicating decent earnings-to-cash conversion and no apparent accrual build-up. With capex of 0.85, implied FCF is about 2.78, which appears sufficient to cover typical dividend outlays if the calculated payout is accurate, though headroom is slim. Working capital details by line item are limited; however, cash plus receivables comfortably cover short-term obligations, reducing the likelihood of working capital strain. No clear signs of working capital manipulation are evident from available metrics, but lack of YoY AR/AP trajectory constrains deeper analysis.

Dividend Sustainability

The calculated payout ratio is 94.4%, indicating that most earnings are being distributed. Based on implied FCF of ~2.78, dividend coverage looks roughly 1.0x, offering little buffer for volatility in earnings or capex. If management targets stable or rising DPS, sustaining this payout would require either incremental OCF growth or tighter capex. Given moderate leverage (D/E 1.62x), increasing debt to fund dividends would not be prudent. Without reported DPS and total dividend cash outflow in this period, we treat the payout estimate cautiously, but the overall message is that the dividend policy appears near the upper bound of sustainability.

Risk Assessment

Business Risks:

• Margin pressure from wage inflation and tight labor market, limiting operating leverage
• Project mix and pricing risk affecting gross margin and utilization
• Dependence on non-operating income (18.5% of operating income) to support ordinary profit
• Execution risk in digital/IT investments impacting ROIC and returns

Financial Risks:

• Moderate leverage with D/E at 1.62x, above conservative benchmark
• High effective tax rate (37%) depressing net margin and cash available for distribution
• Potential refinancing or covenant risk if earnings weaken, despite strong interest coverage
• Limited dividend headroom with payout near ~94%

Key Concerns:

• Net margin compression (~38 bps YoY) despite revenue growth
• SG&A absorption limiting operating margin (OM down ~18 bps YoY)
• Unreported details on investing cash flows and dividend cash payments reduce visibility
• Noncurrent liabilities materially exceed long-term loans, implying other long-term obligations (e.g., leases) that require monitoring

Investment Implications

Key Takeaways:

• Solid top-line growth (+6.5%) with modest operating income growth (+2.6%) and net income decline (-5.2%) due to margin/tax pressures
• Earnings quality is acceptable (OCF/NI 1.27x) and liquidity is healthy (current ratio 143%)
• Leverage is somewhat elevated for the profile (D/E 1.62x) but manageable given 34x interest coverage
• ROIC at 7.4% is around target levels; further gains hinge on margin improvement
• Dividend policy appears tight with a ~94% payout, likely capping balance sheet flexibility

Metrics to Watch:

• Operating margin trajectory and SG&A growth vs revenue
• Effective tax rate normalization
• OCF/NI ratio and FCF after capex
• Debt-to-equity trend and equity ratio
• Non-operating income stability (dividends/other) and its contribution to ordinary profit

Relative Positioning: Within domestic IT/services peers, the company shows steady growth, adequate ROIC, and strong coverage ratios, but with slightly higher leverage and a tight dividend payout. Execution on cost control and mix improvements will determine whether ROE can move meaningfully above the current 6.3%.

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