SAN HOLDINGS,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥18.23B
• Operating Income: ¥1.55B
• Net Income: ¥890M
• EPS: ¥43.44

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 mixed FY2026 Q2 print with steady operating income but softer bottom line and weak cash conversion. Revenue reached 182.33, supporting operating income of 15.46 (+0.8% YoY), while ordinary income declined to 14.80 (-5.3% YoY) and net income fell to 8.90 (-5.6% YoY). Operating margin stands at 8.5% (15.46/182.33), ordinary margin at 8.1% (14.80/182.33), and net margin at 4.9% (8.90/182.33). The non-operating line was a net drag of 0.67 (0.51 income – 1.18 expense), equating to roughly 37 bps of revenue headwind. Interest expense of 0.89 implies a ~49 bps burden on revenue, partly explaining the gap between operating and ordinary profit. The effective tax rate was elevated at 38.3%, intensifying pressure on net income despite stable operations. Due to absent YoY revenue, precise basis-point margin changes are not computable; however, the slight operating income growth versus net income decline indicates margin mix deterioration below the operating line. EBITDA was 25.48, yielding a 14.0% EBITDA margin, indicating healthy cost absorption at the operating level. Liquidity remains solid with a current ratio of 166.5% and quick ratio of 163.8%. Leverage is moderate (D/E 0.58x) and interest coverage is strong at 17.37x, limiting immediate solvency risk. Cash flow quality is the key concern: operating cash flow was only 1.66 against net income of 8.90 (OCF/NI 0.19x), and implied FCF after capex is negative. Capital efficiency is weak: ROE is 2.4% and ROIC is 2.3%, both below service-sector norms. The balance sheet carries sizable goodwill (109.10) and intangibles (124.81), creating potential impairment sensitivity if growth underwhelms. With a high calculated payout ratio of 95.6% and negative implied FCF, dividend sustainability depends on cash on hand (cash and deposits 84.21) and future cash conversion improving. Forward-looking, stabilizing non-operating costs, better working-capital discipline, and improved cash conversion are needed to lift ROE/ROIC and secure distributions. The quarter demonstrates operational resilience but highlights structural efficiency and cash conversion challenges that must be addressed to support long-term shareholder returns.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.4% = Net profit margin 4.9% × Asset turnover 0.306 × Financial leverage 1.58x. The constraining components are low asset turnover (0.306) and modest net margin (4.9%). Versus prior year, we lack full component history, but ordinary income declined 5.3% YoY and net income declined 5.6% YoY despite +0.8% YoY operating income, implying deterioration in the non-operating and tax components of net margin as the primary change. Business drivers likely include higher interest expense relative to non-operating income and a higher effective tax rate (38.3%). Asset turnover is structurally low given a heavy fixed/intangible asset base (goodwill/intangibles total 233.9 against total assets 595.1), consistent with a network of facilities and acquired brands that monetize over time. Sustainability: the non-operating drag could be reduced if financing costs fall or if non-operating income normalizes, but the low asset turnover appears structural unless asset intensity is optimized or revenue growth accelerates. Watch for signs of negative operating leverage: SG&A is 17.74 (~9.7% of revenue); without YoY revenue disclosure we cannot confirm if SG&A growth outpaced sales, but the gap between operating and net income suggests pressure below the operating line rather than SG&A. Overall, near-term ROE improvement hinges more on margin mix (reducing non-operating/tax drag) and better cash conversion than on leverage, which is already moderate.

Growth Assessment

Top-line sustainability is unclear due to missing YoY revenue, but operating income growth (+0.8% YoY) indicates stable core operations. The divergence between operating income (+0.8%) and ordinary/net income (-5.3%/-5.6%) points to non-operating costs and tax as growth headwinds. EBITDA margin at 14.0% suggests resilient service-level profitability. However, ROIC at 2.3% is below the 5% warning threshold, signaling subpar return on invested capital, likely due to high intangible asset base and modest throughput. Without disclosed segment data, we assume funeral-service demand is supported by demographics, but average selling price pressure from simpler funeral formats remains a structural headwind. Near-term outlook depends on utilization of facilities, pricing discipline, and financing cost control. We see upside if working capital normalizes and non-operating burdens ease; downside risks include pricing pressure and potential impairment if earnings underperform. Overall growth quality is moderate at the operating level but diluted by financing/tax effects and weak capital efficiency.

Financial Health

Liquidity is healthy: current ratio 166.5% and quick ratio 163.8% comfortably exceed benchmarks; no warning for Current Ratio < 1.0. Working capital is 43.83, with cash and deposits of 84.21 providing ample buffer. Solvency is acceptable: D/E 0.58x and interest coverage 17.37x indicate conservative leverage and strong ability to service interest. Debt structure: short-term loans 5.00 versus current assets 109.78 reduces maturity mismatch risk; long-term loans 123.48 align with a largely noncurrent asset base (485.34). No explicit off-balance sheet obligations are disclosed; lease and contingent liabilities are not reported here, representing a data gap. Asset quality risk exists due to significant goodwill (109.10) and intangibles (124.81) relative to equity (377.63), implying potential impairment sensitivity if cash flows weaken.

Cash Flow Quality

Earnings quality is weak this quarter: OCF/Net Income is 0.19x (<0.8 threshold), signaling poor cash conversion. Implied free cash flow is negative at approximately -15.60 (OCF 1.66 minus capex 17.26), suggesting internal cash generation did not cover reinvestment needs. Financing cash flow of -23.81 indicates outflows (debt repayment and/or shareholder returns), funded effectively by existing cash. Without detailed working-capital drivers (AR/AP/inventory), we cannot identify specific manipulation or temporary timing effects; however, the divergence points to either working-capital build or lower cash realization of earnings. Sustainability: continued negative implied FCF would constrain dividends and deleveraging unless capex moderates or OCF improves. Monitoring quarter-to-quarter OCF normalization will be key.

Dividend Sustainability

The calculated payout ratio is high at 95.6%, implying most earnings are being distributed. With implied FCF negative (-15.60), dividend coverage from internal cash generation appears weak in this period. The company has cash reserves (84.21) that can bridge near-term funding gaps, but sustained high payouts alongside negative FCF are not durable. DPS is unreported, so we cannot verify exact per-share distributions, nor do we have total dividends paid in cash this period. Policy outlook: maintaining a near-100% payout would likely require improved OCF, reduced capex, or incremental leverage; a more balanced payout linked to FCF would enhance resilience. Key watch items: OCF recovery, capex trajectory, and any stated dividend policy revisions.

Risk Assessment

Business Risks:

• Pricing pressure from shift to smaller, lower-cost funeral formats reducing average revenue per service
• Demand volatility by region affecting facility utilization rates
• Integration and execution risk related to M&A given large goodwill and intangible balances
• Labor cost inflation and staffing constraints in service operations

Financial Risks:

• Weak cash conversion (OCF/NI 0.19x) creating funding pressure for capex and dividends
• Potential impairment risk due to high goodwill (109.10) and intangibles (124.81)
• Non-operating expense burden and high effective tax rate (38.3%) depressing net income
• Negative implied free cash flow necessitating reliance on cash balance or financing

Key Concerns:

• ROIC at 2.3% and ROE at 2.4% indicate low capital efficiency
• Ordinary income decline (-5.3% YoY) despite flat-to-up operating income suggests below-the-line headwinds
• Dividend sustainability risks given high payout ratio (95.6%) and negative implied FCF
• Data gaps on revenue YoY, gross profit, and working-capital details limit visibility

Investment Implications

Key Takeaways:

• Core operations stable (OI +0.8% YoY) but net profit declined due to non-operating and tax headwinds
• Cash conversion is the primary weak point (OCF/NI 0.19x), driving negative implied FCF
• Balance sheet is liquid and moderately levered, providing near-term flexibility
• Capital efficiency is low (ROIC 2.3%, ROE 2.4%), requiring either margin uplift or asset intensity reduction
• High payout ratio is vulnerable unless OCF improves or capex moderates

Metrics to Watch:

• OCF/Net income and working-capital turns (AR/AP days, if disclosed)
• Capex run-rate versus maintenance needs and new-site returns
• Non-operating income/expense and effective tax rate trajectory
• Goodwill impairment testing outcomes and segment profitability (if disclosed)
• Utilization rates and average revenue per funeral (pricing/mix)

Relative Positioning: Within domestic funeral service peers, the company shows solid liquidity and manageable leverage but lags on capital efficiency (ROIC/ROE) and current cash conversion; sustaining dividends at a high payout will likely require operational cash flow normalization.

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