SENSHU ELECTRIC (9824) FY2026 Q1 Earnings Report

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Executive Summary

Q1 of fiscal 2026 saw decreases in both revenue and earnings, with the decline in gross margin being the most important factor amplifying the decrease in profits. Revenue was ¥362.7B (down -1.5% YoY), Operating Income was ¥23.5B (down -13.0%), Ordinary Income was ¥24.9B (down -12.8%), and Net Income was ¥16.6B (down -15.1%). The decline in earnings exceeding the decline in revenue indicates that, under a low-margin structure with a gross margin of 14.5%, small fluctuations in selling prices, procurement costs, and project mix had a significant impact on profitability.

Factors Affecting Business Performance

【Revenue】Revenue was ¥362.7B, down 1.5% YoY. The Company operates as a single segment comprising the wires and cables business, limiting the offsetting effect of its business mix. Progress toward the full-year company forecast of ¥1,440.0B was 25.2%, a standard level, and demand recovery in the second half is a prerequisite for achieving the plan.

【Profit and Loss】Operating Income was ¥23.5B (down -13.0%), and the Operating Income margin was 6.5%, down approximately 0.8pt from approximately 7.3% in the same period of the previous year. Gross profit remained at ¥52.8B (gross margin of 14.5%) due to the increase in the cost-of-sales ratio, and the Company was unable to fully absorb SG&A expenses of ¥29.2B (8.1% of revenue), which was the primary cause of the earnings decline. Ordinary Income was ¥24.9B (down -12.8%). Non-operating income of ¥1.9B (including dividend income of ¥0.4B, among other items) provided a modest boost, but its impact was limited. Net Income was ¥16.6B (down -15.1%); combined with the burden of an effective tax rate of 33.1%, the decline exceeded that of Operating Income. As the Company recorded decreases in both revenue and earnings, improving gross margin or strengthening SG&A absorption will be necessary to achieve the full-year plan’s Operating Income margin of 7.4%.

Key Financial Metrics

【Profitability】The Operating Income margin of 6.5% declined approximately 0.8pt from approximately 7.3% in the same period of the previous year, while the low-margin structure, represented by a gross margin of 14.5%, is weakening operating leverage. The Net Income margin was 4.6%, down approximately 0.7pt from approximately 5.3% in the same period of the previous year. 【Cash Quality】The Company had accounts receivable of ¥219.1B, electronically recorded monetary claims of ¥124.9B, and inventories of ¥90.0B, against accounts payable of ¥502.3B, reflecting the substantial transaction scale characteristic of the distribution business. Working capital was positive at ¥274.6B, securing liquidity headroom. 【Investment Efficiency】ROE based on Q1 results was 2.8%, but annualizing quarterly profit would result in approximately 11.2%, supported by asset turnover and a low interest-bearing debt structure. 【Financial Soundness】The Equity Ratio was 51.2%, and interest-bearing debt was ¥4.6B, making the Company effectively close to debt-free. The current ratio was 150.9% and the quick ratio was 134.2%, indicating sound short-term payment capacity.

Cash Flow Analysis

As specific figures from the cash flow statement are not included in the disclosed information, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥354.2B, up from ¥329.7B in the same period of the previous year, maintaining ample on-hand liquidity significantly exceeding interest-bearing debt of ¥4.6B. Accounts receivable were largely flat at ¥219.1B, while electronically recorded monetary claims increased to ¥124.9B and inventories also increased to ¥90.0B. Accounts payable increased to ¥502.3B, and the expansion of both operating receivables and payables appears to reflect an increase in transaction volume. Working capital remained positive at ¥274.6B, ensuring stability in cash management.

Earnings Quality

The impact of temporary factors such as extraordinary gains and losses on earnings this period was limited, and the decreases in Operating Income, Ordinary Income, and Net Income were primarily attributable to recurring factors stemming from the decline in the gross margin of the core business. Non-operating income of ¥1.9B comprised dividend income of ¥0.4B, foreign exchange gains of ¥0.1B, and other items, amounting to approximately 0.5% of revenue and not constituting a structure that significantly supplements core business profit. A loss on disposal of fixed assets of ¥0.3B was recorded, but the amount was small and its impact on overall performance was limited. Comprehensive income was ¥21.9B, exceeding Net Income of ¥16.6B, primarily due to a ¥4.5B increase in valuation differences on securities. The divergence between Net Income and comprehensive income was positive, indicating from an accrual perspective that changes in the fair value of securities held enhanced earnings quality.

Earnings Forecasts and Guidance

The full-year company forecast calls for revenue of ¥1,440.0B (up +6.2% YoY), Operating Income of ¥107.0B (up +19.5%), and Ordinary Income of ¥110.0B (up +18.6%), with no revisions to the earnings forecast made during the quarter. Q1 progress was 25.2% for revenue, a standard level, while progress for Operating Income, Ordinary Income, and Net Income was 22.0%, 22.6%, and 21.5%, respectively, all below the standard progress rate of 25%. The company plan assumes a full-year Operating Income margin of 7.4%, requiring an improvement of approximately 0.9pt from the Q1 result of 6.5%. Achieving the plan will require not only a recovery in revenue in the second half but also an improvement in gross margin or SG&A absorption.

Shareholder Returns

The full-year dividend forecast is ¥150.00 per share, with no revision to the dividend forecast made during the quarter. Based on the full-year EPS forecast of ¥451.33, the forecast Payout Ratio is approximately 33.2%, representing a conservative dividend burden relative to earnings. Capital accumulation consisting of equity of ¥590.8B, retained earnings of ¥554.1B, and cash and deposits of ¥354.2B supports dividend stability. As short-term borrowings are limited to ¥4.6B, continued dividend payments do not create a structure that increases reliance on borrowing. Dividend sustainability depends on achieving the full-year Operating Income plan, particularly improving the Operating Income margin from the Q1 level.

Risk Factors

1. Profitability vulnerability due to gross margin decline: Under the low-margin structure with a gross margin of 14.5%, the Q1 Operating Income margin declined approximately 0.8pt YoY. Trends in raw material prices, including copper, and the pass-through of costs into selling prices will determine future profitability.

2. Demand-cycle risk from the single-business structure: The Company operates as a single segment comprising the wires and cables business, leaving limited scope to offset fluctuations in demand from electrical equipment installation, construction, and manufacturing through other businesses.

3. Delayed progress toward achieving the full-year plan: The Operating Income progress rate was 22.0%, below the standard progress level, and achieving the plan will require revenue expansion in the second half and an improvement of approximately 0.9pt in the Operating Income margin.

Industry Benchmark (Reference; Company Research)

Industry Benchmark (trading)

Profitability and Returns

Growth and Capital Efficiency

※Source: Company research

Key Points from the Earnings Results

1. Q1 recorded decreases in both revenue and earnings, and the Operating Income margin declined approximately 0.8pt YoY to 6.5%. The fact that the decline in earnings exceeded the decline in revenue under the low-gross-margin structure warrants attention.

2. While full-year revenue progress was 25.2%, Operating Income progress was limited to 22.0%, making improvement in profitability in the second half an issue for achieving the full-year plan’s Operating Income margin of 7.4%.

3. The financial structure of an Equity Ratio of 51.2%, interest-bearing debt of ¥4.6B, and cash and deposits of ¥354.2B supports resilience against fluctuations in profitability. The forecast Payout Ratio of approximately 33.2% is at a highly sustainable level, assuming achievement of the earnings plan.

Theoretical Share Price (Reference Value)

Sensitivity: 3,747 yen–3,967 yen at ±1% for the cost of equity, and 3,846 yen–3,868 yen at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific issue. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting specialists as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q1 performance was weaker year on year, with a modest sales decline compounded by material margin compression. Revenue was ¥36.27bn, down 1.5% YoY. Operating income fell 13.0% YoY to ¥2.35bn. Ordinary income declined 12.8% to ¥2.49bn, while profit attributable to owners declined 14.9% to ¥1.66bn. The gross margin contracted by approximately 50bp YoY to 14.5%, from approximately 15.0% in the prior-year quarter. The operating margin declined by approximately 86bp to 6.5%, from approximately 7.3% a year earlier. Gross profit fell 4.5% to ¥5.28bn, materially faster than the revenue decline. SG&A expense increased 3.7% YoY to ¥2.92bn, lifting the SG&A-to-sales ratio by approximately 41bp to 8.1%. This negative operating leverage explains most of the disproportionate operating-profit decline. Non-operating income of ¥0.19bn exceeded non-operating expenses of ¥0.06bn, supporting ordinary income, with dividend income of ¥0.04bn and interest income of ¥0.02bn among the contributors. The effective tax rate was 33.1%, resulting in a tax burden of 0.666 and moderating conversion from pre-tax to net profit. Annualized ROE was 11.1%, which remains in a solid range despite the earnings slowdown. The balance sheet remains highly liquid, with cash and deposits of ¥35.42bn, a 150.9% current ratio, and only ¥0.05bn of interest-bearing debt. Full-year management guidance implies a recovery, targeting ¥144.0bn of revenue, ¥10.7bn of operating income, and ¥7.7bn of profit attributable to owners. Q1 progress against full-year guidance was 25.2% for sales, 22.0% for operating income, and 21.5% for net income, indicating that the planned profit recovery is weighted toward subsequent quarters. The central earnings issue is therefore whether gross-margin normalization and tighter SG&A absorption can deliver the substantial sequential improvement embedded in the unchanged forecast.

Profitability Analysis

Annualized DuPont ROE is 11.1%, comprising a 4.6% net profit margin, 1.246x asset turnover, and 1.95x financial leverage. The principal source of the YoY deterioration is profitability rather than balance-sheet efficiency: operating income declined 13.0%, substantially faster than the 1.5% revenue decline. Gross margin fell to 14.5%, approximately 50bp below the prior-year level, reducing gross profit by ¥0.25bn. Operating-margin compression was wider at approximately 86bp because SG&A increased by ¥0.10bn, or 3.7% YoY, despite lower sales. Consequently, the SG&A ratio rose to 8.1% from approximately 7.7%, demonstrating unfavorable operating leverage in the quarter. EBIT margin was 6.5%, while the net margin was 4.6%; both remain above the stated concern thresholds but below levels associated with high-margin businesses. The tax burden of 0.666 reflects a 33.1% effective tax rate, and is modestly dilutive to return on equity. Interest expense was only ¥0.01bn and interest coverage was 2,353x, so financing cost is not constraining profitability. The interest burden of 1.057 reflects net non-operating income rather than debt-funded earnings. The annualized ROE profile is supported by efficient turnover and moderate leverage, but sustained improvement depends on restoring gross margin and preventing further SG&A deleveraging.

Growth Assessment

Q1 sales of ¥36.27bn were 1.5% lower YoY, indicating a subdued start in the group’s single wire-and-cable business. Profit declined more rapidly than revenue because gross profit fell 4.5% and SG&A rose 3.7%. Inventory increased ¥1.20bn YoY to ¥9.00bn, while electronically recorded monetary claims increased ¥1.64bn to ¥12.49bn; these movements should be monitored alongside demand conditions and sales conversion. Management retained full-year guidance for 6.2% revenue growth, 19.5% operating-income growth, and 18.6% ordinary-income growth. Achieving this outlook requires revenue growth to accelerate meaningfully after Q1 and operating margin to recover from 6.5% toward the implied full-year operating margin of approximately 7.4%. Q1 sales progress of 25.2% is close to the standard 25% first-quarter run rate. However, operating-income progress of 22.0% is 3.0 percentage points below the standard pace, and net-income progress of 21.5% is 3.5 percentage points below it. These gaps are not sufficiently large to constitute a major deviation, but they make the forecast dependent on improved pricing, sales mix, procurement conditions, or fixed-cost absorption in later quarters. No forecast revision has been announced.

Financial Health

Financial health is strong from a liquidity and interest-bearing-debt perspective. Current assets totaled ¥81.44bn against current liabilities of ¥53.98bn, producing working capital of ¥27.46bn and a current ratio of 150.9%. The quick ratio was also robust at 134.2%, indicating that liquidity is not dependent on inventory liquidation. Cash and deposits were ¥35.42bn, equal to 30.4% of total assets. Interest-bearing debt was only ¥0.05bn, equivalent to a debt-to-capital ratio of 0.8%, and cash covered short-term debt by 76.83x. The reported debt-to-equity ratio was 0.95x, below the 2.0x aggressive-leverage warning threshold; however, the very low interest-bearing-debt balance is the more relevant indicator of financing risk. The refinancing-risk alert arises because 100% of interest-bearing debt is short term. Its root cause is the maturity concentration of the ¥0.05bn borrowing balance rather than an elevated debt amount. Its practical impact is limited at present because cash exceeds short-term debt by ¥34.96bn, but maturity concentration should remain controlled if borrowing rises to fund operations or investment. Trade payables rose ¥5.00bn YoY to ¥50.23bn and accounted for the overwhelming majority of current liabilities, consistent with the working-capital-intensive nature of a distribution business. Net defined benefit liability was ¥2.10bn, representing a non-interest-bearing long-term obligation that should be considered in assessing total commitments. Intangible assets increased ¥0.56bn YoY, or 43.1%, to ¥1.86bn, but remain only 0.2% of assets and therefore do not currently create material asset-quality or impairment risk. PPE was ¥22.10bn, including land of ¥12.75bn, providing a substantial tangible asset base.

Notable B/S Changes

Accounts payable: +¥5.00bn (+11.1%) to ¥50.23bn - a significant absolute increase in supplier financing within working capital; monitor alongside inventory and sales trends. Cash and deposits: +¥2.45bn (+7.4%) to ¥35.42bn - reinforces liquidity and provides substantial coverage of the ¥0.05bn short-term debt balance. Inventories: +¥1.20bn (+15.3%) to ¥9.00bn - inventory growth despite lower Q1 sales raises the importance of demand conversion and margin discipline. Electronically recorded monetary claims: +¥1.64bn (+15.1%) to ¥12.49bn - a material increase in working-capital exposure that should be assessed against collection trends. Investment securities: +¥0.65bn (+18.5%) to ¥4.17bn - valuation and investment exposure increased, contributing to other comprehensive income. Intangible assets: +¥0.56bn (+43.1%) to ¥1.86bn - percentage growth is high, but the balance remains immaterial at 0.2% of total assets.

Cash Flow Quality

Dividend Sustainability

The full-year dividend forecast is ¥150 per share, unchanged from the disclosed forecast. Against forecast EPS of ¥451.33, the implied dividend payout ratio is approximately 33.2%. This is comfortably below the 60% sustainability benchmark and leaves substantial earnings retention capacity. Q1 EPS was ¥96.70, representing 21.4% of forecast annual EPS, broadly consistent with the 21.5% net-income progress rate. Retained earnings totaled ¥554.09bn, equivalent to a substantial accumulated equity cushion relative to the planned dividend. Treasury shares totaled 889,083 shares, or approximately 4.9% of issued shares, but no current-period repurchase amount is provided; dividend analysis therefore focuses on the dividend-only payout ratio. The unchanged dividend forecast indicates management has not altered its shareholder-return stance despite the softer Q1 result. Maintaining the planned dividend will principally depend on delivery of the full-year earnings recovery embedded in guidance.

Risk Assessment

Business risks include Margin risk is the highest near-term operating concern: gross margin fell approximately 50bp YoY to 14.5%, below the 20% quality-alert threshold. The root cause is that gross profit declined faster than sales, and the impact is amplified by the business’s relatively thin distribution margin structure., The low-gross-margin alert is structurally relevant for the wire-and-cable business, where procurement costs, product mix, customer pricing, and competitive conditions can quickly affect earnings. A further small margin decline would have a disproportionate effect on operating profit., Sales declined 1.5% YoY while inventories increased 15.3% to ¥9.00bn. If demand remains weak, inventory turnover and pricing discipline could come under pressure., The full-year plan requires operating income to recover substantially after Q1, with Q1 representing only 22.0% of the annual operating-profit target. Execution risk is therefore elevated around margin recovery and fixed-cost absorption..

Financial risks include All interest-bearing debt is classified as short term, creating a 100% short-term debt ratio and triggering the refinancing-risk alert. The likelihood of a material liquidity event appears low given ¥35.42bn of cash against ¥0.05bn of short-term debt, but the maturity profile should be monitored if debt usage changes., Accounts payable increased ¥5.00bn YoY to ¥50.23bn and current liabilities increased ¥4.46bn. This makes liquidity partly dependent on continued ordinary settlement of trade payables, although current assets and cash provide substantial coverage., The effective tax rate of 33.1% reduced conversion of pre-tax profit to net profit, with a tax burden of 0.666..

Key concerns include Whether gross margin can return toward the level needed to support the implied full-year operating margin of approximately 7.4%., Whether SG&A growth can be brought below sales growth after Q1 SG&A rose 3.7% on a 1.5% sales decline., Whether higher inventories and electronic receivables convert into sales without requiring pricing concessions., Whether the unchanged full-year guidance remains achievable as subsequent-quarter earnings must outperform the Q1 run rate..

Investment Implications

Key takeaways include Q1 earnings weakened primarily because of gross-margin contraction and negative SG&A operating leverage, not because of financing costs., Annualized ROE of 11.1%, high liquidity, negligible interest-bearing debt, and 2,353x interest coverage provide financial resilience., The ¥150 per-share dividend forecast implies a moderate 33.2% payout ratio based on forecast EPS., Unchanged guidance embeds a pronounced improvement after Q1, making later-quarter revenue growth and margin recovery the decisive earnings variables..

Metrics to watch include Gross margin and operating margin versus Q1 levels of 14.5% and 6.5%, respectively, SG&A growth relative to revenue growth, Progress toward full-year operating-income guidance of ¥10.7bn, Inventory balance of ¥9.00bn and electronic receivables balance of ¥12.49bn, Trade-payables movement relative to sales and inventory, Short-term borrowing balance and maturity composition.

Regarding relative positioning, The company exhibits a financially conservative profile, with abundant cash, negligible interest-bearing debt, strong short-term liquidity, and an annualized ROE in the good 10–15% range. Its relative weakness is operating rather than financial: a 14.5% gross margin leaves earnings more sensitive to procurement, pricing, sales mix, and cost absorption than higher-margin industrial peers.