SANKYO FRONTIER CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥25.00B
• Operating Income: ¥3.06B
• Net Income: ¥2.37B
• EPS: ¥90.06

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

Sanki Frontier (96390) reported FY2026 Q2 consolidated results under JGAAP showing a topline contraction but resilient margins and strong cash conversion. Revenue was 25,002 million yen, down 10.5% YoY, indicating softer demand and/or project timing effects in its modular building sales and rental businesses. Gross profit was 11,062 million yen, implying a gross margin of 44.2%, which is robust for the sector and suggests pricing discipline and product mix resilience despite volume pressure. Operating income declined to 3,060 million yen (-22.2% YoY), translating to a 12.2% operating margin; the larger drop versus revenue indicates negative operating leverage as fixed costs weighed on profitability. Ordinary income was 3,252 million yen, and net income came in at 2,001 million yen (-15.7% YoY), yielding an 8.0% net margin. Depreciation and amortization were 3,005 million yen, supporting an EBITDA of 6,065 million yen and a solid 24.3% EBITDA margin. The DuPont framework indicates ROE of 4.02%, driven by an 8.0% net margin, 0.379x asset turnover, and modest leverage of 1.33x; this level of ROE is below typical cost of equity, implying value-creation pressure unless profitability or turnover improve. Liquidity remains comfortable with a current ratio of 130.6% and quick ratio of 116.9%, backed by 4,368 million yen of working capital. The balance sheet is conservative: total liabilities are 16,533 million yen against total equity of 49,730 million yen (total-liability-to-equity around 0.33x). Interest expense is minimal at 12 million yen, and interest coverage is exceptionally strong at roughly 255x, underscoring low financial risk. Operating cash flow was 5,569 million yen, roughly 2.78x net income, indicating high earnings quality and supportive working-capital dynamics this period. Free cash flow cannot be assessed due to unreported investing cash flows in the disclosure; as such, FCF and cash balance metrics are indeterminate from the provided data. The effective tax rate in the summary table is shown as 0.0%, which appears unreported; using income tax expense of 1,503 million yen and net income of 2,001 million yen suggests a tax burden that is meaningfully positive. Overall, the company demonstrates strong operating efficiency and cash conversion amid revenue softness, but earnings remain sensitive to volume given the operating leverage inherent in the model. The main task ahead is stabilizing revenue and improving asset turnover while preserving gross margin to lift ROE toward more attractive levels. Data constraints exist for equity ratio, cash and equivalents, investing cash flows, dividends, and share-related metrics, so conclusions focus on the reported, non-zero datapoints.

Profitability Analysis

ROE of 4.02% is explained by net margin of 8.0%, asset turnover of 0.379x, and financial leverage of 1.33x. The margin structure is solid at the gross level (44.2%), with operating margin of 12.2% and EBITDA margin of 24.3%, reflecting healthy unit economics and a sizable depreciation component typical of rental assets. Negative operating leverage is visible: revenue declined 10.5% YoY while operating profit fell 22.2% YoY, implying fixed costs did not flex down in line with volumes. Ordinary income slightly exceeded operating income, indicating non-operating gains offsetting small financing costs. Net margin at 8.0% remains respectable for the business model but is below prior-year profitability given the scale effect. Interest burden is de minimis (12 million yen), and interest coverage is ~255x, so financial expenses are not a drag on profitability. The key profitability swing factors are utilization rates of the rental fleet, sales mix between rental and sales, and project timing, all of which influence gross margin and absorption of fixed SG&A. To enhance ROE, management would need to drive higher turnover (order intake, utilization, inventory turns) and protect pricing to keep the gross margin in the mid-40% range. Tax expense is meaningful (1,503 million yen), so after-tax profitability is sensitive to tax credits and extraordinary items under JGAAP.

Growth Assessment

Revenue declined 10.5% YoY to 25,002 million yen, signaling a near-term slowdown likely tied to cyclical end-markets and timing of large projects or rental deployments. Operating income decreased 22.2% YoY to 3,060 million yen, indicating that the cost base is relatively fixed and volume deleverage is present. Despite the contraction, gross margin held at 44.2%, suggesting product mix and pricing are resilient, which supports the sustainability of unit economics when demand stabilizes. Ordinary income of 3,252 million yen and net income of 2,001 million yen (-15.7% YoY) show that below-the-line items were not the primary driver of the decline—core operations were. EBITDA of 6,065 million yen provides capacity to invest for growth when visibility improves. The asset turnover of 0.379x implies a relatively heavy asset base, consistent with rental assets; revenue growth will require higher utilization and incremental deployments. Near-term outlook hinges on order intake, backlog conversion, and rental utilization; if macro construction demand recovers and disaster-related or infrastructure projects pick up, revenue should stabilize. Given strong OCF relative to net income, the company appears positioned to fund maintenance capex and selected growth initiatives, though investing cash flow was not disclosed here. Overall, growth sustainability will depend on restoring volumes while maintaining pricing, with a watch on cyclical exposure and input-cost trends.

Financial Health

Liquidity is solid: current assets of 18,646 million yen against current liabilities of 14,278 million yen yield a current ratio of 130.6% and a quick ratio of 116.9% even after excluding 1,960 million yen of inventories. Working capital stands at 4,368 million yen, giving cushion against short-term volatility. The balance sheet is conservative with total liabilities of 16,533 million yen versus equity of 49,730 million yen (total-liability-to-equity around 0.33x), indicating low leverage and ample solvency headroom. Interest expense is minimal at 12 million yen, aligning with the low leverage profile, and interest coverage is ~255x based on operating income. Total assets are 65,940 million yen, and financial leverage (assets/equity) is 1.33x, which restrains ROE but enhances resilience. Equity ratio in the summary table is shown as 0.0% (unreported); based on totals, an indicative equity ratio would be high given the low liability base. No cash and equivalents figure was disclosed in this dataset, so absolute liquidity buffers cannot be quantified here, but structural metrics suggest a healthy position.

Cash Flow Quality

Operating cash flow of 5,569 million yen is 2.78x net income (2,001 million yen), indicating strong earnings quality and favorable working-capital movements and/or non-cash charges (notably 3,005 million yen of D&A). EBITDA of 6,065 million yen also corroborates strong cash generation from operations prior to working-capital effects. Free cash flow cannot be calculated because investing cash flow is unreported in the provided data; consequently, FCF coverage metrics are indeterminate. Financing cash flow was an outflow of 1,497 million yen, suggesting distributions to stakeholders and/or debt reduction, but specifics are not available. The high OCF/NI ratio suggests profits are well backed by cash, reducing the risk of accrual-based earnings inflation. Working capital appears managed prudently given quick ratio >100% and modest inventories (1,960 million yen) relative to current assets, though inventory days and receivable turns are not available.

Dividend Sustainability

Dividend per share, payout ratio, and free cash flow coverage are shown as zero in the summary, indicating those items were not disclosed here rather than true zeros. As such, dividend level and coverage cannot be directly assessed from this dataset. Capacity-wise, net income of 2,001 million yen and operating cash flow of 5,569 million yen imply room to fund dividends if the company chooses, subject to maintenance and growth capex needs (investing cash flows not provided). The balance sheet is conservative, which supports potential shareholder returns over time. Policy outlook cannot be inferred without disclosure of dividend policy, guidance, or capital allocation statements; any assessment should be revisited once DPS and capex/FCF data are available.

Risk Assessment

Business Risks:

• Cyclical demand in construction, civil engineering, and events affecting modular unit sales and rentals
• Utilization risk in the rental fleet leading to operating leverage on downturns
• Input cost volatility (e.g., steel and materials) impacting gross margins
• Project timing and seasonality influencing quarterly revenue recognition
• Competition and pricing pressure in prefabricated/modular markets
• Regulatory and safety standards changes for temporary structures
• Disaster-related demand volatility (spike-and-fade) complicating planning

Financial Risks:

• ROE at 4.02% below typical cost of equity, pressuring long-term value creation
• Potential capex intensity for fleet renewal/expansion affecting free cash flow (investing CF not disclosed)
• Working-capital swings tied to contract timing and inventory procurement
• Concentration risk if large projects or specific sectors dominate revenues

Key Concerns:

• Negative operating leverage as revenue fell 10.5% YoY while OP fell 22.2% YoY
• Asset turnover at 0.379x, limiting ROE despite decent margins
• Lack of visibility on investing cash flows and cash balance in the period
• Dividend and share metrics not disclosed, limiting capital return assessment

Investment Implications

Key Takeaways:

• Revenue decline of 10.5% YoY with resilient 44.2% gross margin underscores solid unit economics amid softer demand
• Operating income dropped 22.2% YoY, evidencing negative operating leverage
• Strong cash conversion: OCF 5,569 million yen equals 2.78x net income
• Balance sheet strength with total liabilities/equity around 0.33x and interest coverage ~255x
• ROE at 4.02% is constrained by low asset turnover and modest leverage
• FCF and dividend assessment are constrained by unreported investing CF and DPS

Metrics to Watch:

• Order intake/backlog and rental fleet utilization rates
• Gross margin trajectory and pricing versus material cost trends
• Asset turnover (revenue/total assets) and inventory turns
• Operating margin sensitivity to volume (operating leverage)
• OCF to net income ratio sustainability and capex intensity once disclosed
• Ordinary income versus operating income mix (non-operating items volatility)

Relative Positioning: Within Japan’s modular building and rental space market, the company exhibits strong gross margins and conservative leverage, positioning it defensively versus more leveraged peers; however, its current ROE trails peers with higher turnover or more aggressive capital structures, making recovery in volumes and utilization key to narrowing the gap.

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