SAPPORO CLINICAL LABORATORY INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥10.24B
• Operating Income: ¥379M
• Net Income: ¥256M
• EPS: ¥80.40

Income Statement

Balance Sheet

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 solid but modest Q2 with improved profitability and strong balance sheet liquidity, yet capital efficiency remains weak. Revenue grew 2.4% YoY to 102.38, with operating income up 12.4% to 3.79 and net income up 12.8% to 2.50, indicating positive operating leverage. Operating margin improved to 3.7% from roughly 3.36% a year ago, an expansion of about 34 bps. Ordinary margin rose to 3.8% from ~3.41%, expanding by ~39 bps, supported by largely offsetting non-operating income and expenses. Net margin increased to 2.44% from ~2.21%, a ~23 bps expansion driven by stronger core earnings and contained financing costs. Gross margin stands at 30.4%, suggesting the cost base is broadly stable relative to mix and pricing. SG&A of 27.30 implies an SG&A ratio of ~26.7%, which, combined with revenue growth, underpins the operating margin expansion; however, lack of a YoY SG&A figure limits precision on operating leverage drivers. Earnings quality cannot be verified because operating cash flow was not disclosed; OCF/NI and FCF coverage are N/A. The balance sheet is robust: current ratio 213%, quick ratio 198%, and net cash position (cash 32.89 vs total interest-bearing debt ~12.94) supports financial flexibility. Leverage is conservative (D/E 0.44x reported; equity ratio estimated at ~69%), and interest coverage is very strong at 113.5x. Despite better margins, ROE is low at 2.1% with ROIC at 2.6%, highlighting subdued capital efficiency for a healthcare services business. Working capital looks comfortable with 37.43 of surplus and receivables of 30.27 (AR days estimated at ~54 on an annualized basis), appropriate for hospital/clinic customer terms. Effective tax rate is 34.3%, roughly in line with statutory norms. Dividend payout ratio is calculated at 38.8% (DPS not disclosed), implying room to sustain or incrementally grow dividends if cash flows track earnings; however, FCF coverage cannot be confirmed. Forward-looking, modest revenue growth with incremental efficiency gains appears plausible, but structural improvement in ROIC and ROE is needed to bridge the gap with typical cost of capital.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.1% = Net Profit Margin 2.4% × Asset Turnover 0.610 × Financial Leverage 1.44x. The most notable driver of YoY improvement appears to be Net Profit Margin, which expanded by ~23 bps to 2.44%, as operating profit grew faster than revenue (+12.4% vs +2.4%). Business reason: operating leverage from stable gross margin (30.4%) and disciplined SG&A ratio (~26.7%), plus minimal financing burden (interest expense 0.03) with non-operating items largely net neutral (0.88 income vs 0.78 expense). Sustainability: incremental margin improvement could be sustained if volume mix and productivity initiatives persist, but clinical testing reimbursement pressures and wage inflation for lab staff could cap further gains. Asset turnover at 0.610 appears modest for a service business with significant fixed assets; without asset base optimization, ROE uplift will be constrained. Financial leverage is low (1.44x), which limits ROE mathematically but enhances resilience. Watch-outs: SG&A detail is unreported; we cannot confirm whether personnel costs are accelerating faster than revenue. Also note that non-operating income contributed to ordinary profit (ordinary margin 3.8% vs operating margin 3.7%); a reduction here would pinch overall profitability.

Growth Assessment

Revenue grew 2.4% YoY to 102.38, indicating stable underlying demand in core clinical testing. Operating income rose 12.4%, outpacing sales growth and improving operating margin by ~34 bps to 3.7%, suggesting positive operating leverage. Ordinary and net income gains of 13.6% and 12.8% respectively point to consistent bottom-line expansion. Mix and pricing detail are not disclosed, but a 30.4% gross margin supports a view of reasonably stable cost dynamics. Given the regional and hospital/clinic customer base, growth appears steady rather than cyclical; however, normalization post-pandemic and reimbursement revisions can temper volume and price. Outlook hinges on maintaining throughput and productivity (automation/digitization) to offset labor and reagent cost pressures. With ROIC at 2.6%, incremental growth that is not accompanied by better capital turns or higher margins may dilute value creation. Near-term, expect low-single-digit revenue growth with continued focus on cost discipline; upside requires either mix improvements (esoteric/genetic tests) or operational efficiency gains.

Financial Health

Liquidity is strong: current ratio 213.3% and quick ratio 198.0% comfortably exceed benchmarks; no warning thresholds triggered. Solvency is conservative with reported D/E at 0.44x, and long-term loans of 12.64 vs equity of 116.43; estimated equity ratio is ~69.4% (116.43 / 167.86). Interest coverage is very strong at 113.54x, reflecting minimal interest burden (0.03). Maturity mismatch risk appears low: current assets 70.48 cover current liabilities 33.05 by over 2x; short-term loans are only 0.30, and payables of 21.96 are manageable against cash plus receivables of 63.16. Net cash position is favorable (cash 32.89 vs interest-bearing debt ~12.94), supporting flexibility for capex and dividends. No off-balance sheet obligations are reported in the provided data; absence of disclosure means potential lease or contingent liabilities cannot be assessed. There are no warnings for Current Ratio < 1.0 or D/E > 2.0.

Cash Flow Quality

Operating cash flow is unreported; thus, OCF/Net Income and FCF quality cannot be evaluated. This prevents verification of earnings-to-cash conversion and working capital dynamics. Balance sheet hints at reasonable receivables management (AR ~54 days annualized), and inventories are small relative to sales (5.03 vs half-year revenue 102.38), which is typical for a testing services model. Without OCF and capex, we cannot confirm FCF sufficiency for dividends or growth investments. No evident signs of working capital manipulation are detectable from point-in-time balances, but absence of period cash flow statements is a limitation.

Dividend Sustainability

The calculated payout ratio is 38.8% (DPS unreported), which is comfortably below the 60% benchmark and suggests headroom relative to earnings. Cash reserves (32.89) and low debt (12.94) support near-term dividend capacity. However, FCF coverage is not calculable due to missing OCF and capex data; sustainability from cash generation cannot be verified. With ROIC at 2.6%, management should balance distributions against the need for efficiency-enhancing investments to avoid further dilution of capital returns. Policy outlook is likely stable to modestly progressive if earnings growth and cash conversion are maintained.

Risk Assessment

Business Risks:

• Reimbursement/pricing risk from NHI fee schedule revisions affecting clinical testing tariffs
• Volume normalization risk post-pandemic leading to softer infectious disease test demand
• Wage inflation and technician shortages increasing SG&A pressure
• Customer concentration in regional hospital/clinic networks (Hokkaido) impacting volumes and bargaining power
• Operational/quality control risk inherent in clinical lab processes and accreditation requirements

Financial Risks:

• Low ROIC (2.6%) and ROE (2.1%) indicating weak capital efficiency
• Potential receivables collection risk from healthcare providers (AR ~54 days estimated)
• Limited visibility on cash generation due to unreported OCF/FCF
• Exposure to reagent and equipment cost inflation affecting gross margin

Key Concerns:

• Sustaining margin gains amid reimbursement headwinds
• Lack of disclosed cash flow data obscures earnings quality assessment
• Capital allocation efficiency given low returns relative to likely WACC
• Dependence on non-operating items to support ordinary profit at the margin

Investment Implications

Key Takeaways:

• Q2 delivered modest top-line growth (+2.4% YoY) with stronger operating leverage (+12.4% OI) and 34 bps operating margin expansion to 3.7%
• Balance sheet is robust: current ratio 213%, equity ratio ~69%, interest coverage 113x, and net cash position
• Capital efficiency is a clear weakness: ROIC 2.6% and ROE 2.1%
• Earnings quality cannot be verified due to missing OCF/FCF
• Dividend affordability looks reasonable at a 38.8% payout, but FCF coverage is unverified

Metrics to Watch:

• OCF/Net Income and FCF once disclosed
• SG&A ratio trend vs revenue growth (labor cost pressure)
• Gross margin and test mix (esoteric vs routine)
• AR days and working capital turns
• ROIC trajectory and capex intensity
• Operating margin sustainability (bps changes QoQ/YoY)

Relative Positioning: Within Japanese clinical testing peers, the company shows solid liquidity and conservative leverage but lags on capital efficiency (ROIC/ROE). Profitability improved modestly this quarter, yet structural returns remain below typical sector targets, suggesting a need for mix upgrade and asset utilization improvement to close 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