Satoh&Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥24.82B
• Operating Income: ¥800M
• Net Income: ¥639M
• EPS: ¥76.22

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

Sato Shokai (99960) delivered modest topline growth in FY2026 Q2 with revenue up 3.0% YoY to ¥24.82bn, while profitability was broadly flat: operating income declined 0.2% YoY to ¥0.80bn and net income slipped 0.6% to ¥0.64bn. Gross profit of ¥5.40bn translated to a gross margin of 21.8%, indicating a stable but not expanding margin profile. Operating margin of 3.2% and ordinary margin of 3.8% suggest that non-operating items (net financials/other) provided a small cushion versus core operations. DuPont decomposition shows a reported ROE of 2.38%, driven by a 2.56% net margin, asset turnover of 0.677x, and modest financial leverage of 1.37x. The slight disconnect between revenue growth and operating profit (-0.2% YoY) implies mild margin compression, likely from cost pressure or higher SG&A. Cash flow quality is a key watchpoint: operating cash flow was negative ¥0.99bn versus positive accounting earnings of ¥0.64bn (OCF/NI = -1.57x), pointing to a working capital outflow. Interest expense remains de minimis (¥1.26m), and interest coverage is extremely strong at ~635x, reflecting low financial risk from debt service. The balance sheet appears conservatively financed with total liabilities of ¥9.33bn against equity of ¥26.73bn (D/E ≈ 0.35x), and current ratio around 1.92x indicates adequate short-term liquidity. However, several items are undisclosed or not captured in the dataset (e.g., inventories, cash and equivalents, equity ratio, investing cash flows), which constrains a full assessment of liquidity buffers and capital expenditures. The effective tax rate inferred from reported tax expense and profit is roughly in the low-30% range, despite a displayed 0.0% calculated metric; we rely on the non-zero line items for analysis. Dividend data are not disclosed (DPS and payout show as zero placeholders), so distribution policy and cash returns to shareholders cannot be assessed from this dataset. Operating leverage appears muted, as a 3% revenue increase did not translate into higher operating profit, suggesting cost pass-through and efficiency gains are not fully offsetting input and labor pressures. Overall, the company exhibits steady revenue growth and strong solvency but faces near-term cash conversion weakness and margin pressure. Visibility into working capital drivers (receivables, payables, inventories) and capex is the primary data gap. Near-term focus should be on normalizing cash generation, maintaining gross margin discipline, and calibrating SG&A intensity. With modest leverage and robust interest coverage, financial flexibility seems sufficient to navigate operational challenges.

Profitability Analysis

ROE (DuPont) = Net Profit Margin (2.56%) × Asset Turnover (0.677x) × Financial Leverage (1.37x) = 2.38%. Net margin of 2.56% reflects limited pricing power and/or elevated operating costs for a wholesaling/food distribution-type business model. Gross margin of 21.8% is stable but leaves a thin operating spread after SG&A, evidenced by an operating margin of 3.2%. Ordinary margin of 3.8% indicates modest non-operating income support. Operating income declined 0.2% YoY despite 3.0% revenue growth, implying margin compression (negative operating leverage) in the period. EBITDA was ¥0.99bn (4.0% margin), suggesting limited buffer for unexpected cost spikes. Interest expense is immaterial (¥1.26m), and interest coverage is 635x, indicating profitability is not constrained by financing costs. The effective tax burden inferred from reported tax expense (¥298m) and pre-tax earnings (net + tax ≈ ¥933m) implies a tax rate around 32%, consistent with a normalized Japanese corporate tax environment. Overall margin quality appears adequate but not expanding; sustaining or improving gross margin and containing SG&A are key to improving ROE.

Growth Assessment

Revenue grew 3.0% YoY to ¥24.82bn, a moderate pace consistent with steady underlying demand. However, operating income decreased 0.2% YoY, indicating that incremental sales did not translate into incremental operating profit—suggesting input cost pressure, mix shifts, or higher logistics/labor expenses. Ordinary income at ¥0.94bn outpaced operating income, implying some benefit from non-operating items. Net income declined 0.6% YoY to ¥0.64bn, roughly in line with operating trends after tax. The sustainability of revenue growth appears reasonable given modest expansion, but profit quality lags as cash conversion (negative OCF) and margin compression raise questions about the durability of earnings. With low leverage, the company has capacity to invest in productivity or logistics efficiency; however, investing cash flow is undisclosed in the dataset, limiting visibility on capex-led growth. Near-term outlook hinges on stabilizing gross spreads and improving working capital discipline to convert sales growth into cash and profit. In the absence of detail on segment or product mix, we assume growth is broad-based and price-led rather than volume-accelerating.

Financial Health

Liquidity: Current assets of ¥17.13bn and current liabilities of ¥8.93bn translate to a current ratio of ~1.92x, indicating comfortable near-term coverage. Quick ratio is shown equal to current ratio due to undisclosed inventories; actual quick ratio is likely lower. Cash and equivalents are undisclosed in the dataset, so immediate liquidity buffer cannot be verified. Solvency: Total liabilities of ¥9.33bn vs. equity of ¥26.73bn give a debt-to-equity ratio around 0.35x, indicating conservative leverage. Interest expense is negligible with very high coverage, reducing refinancing risk. Capital structure: Financial leverage (assets/equity) stands at 1.37x, reinforcing a balance sheet with capacity for investment if needed. Equity ratio is not disclosed; however, assets (¥36.65bn) meaningfully exceed liabilities, supporting solvency. Overall, the company appears financially sound, with the main caveat being limited visibility on cash and inventories.

Cash Flow Quality

Earnings quality is mixed: accounting earnings are positive (net income ¥635m), but operating cash flow is negative ¥995m, yielding an OCF/NI ratio of -1.57x, signaling weak cash conversion this period. The negative OCF likely reflects working capital outflows—potentially higher receivables (from sales growth) and/or inventory build, partially offset by payables; however, inventories and detailed working capital components are undisclosed. EBITDA of ¥993m provides some capacity to fund working capital, but the period’s OCF shortfall consumes liquidity. Free cash flow cannot be reliably calculated because investing cash flows and capex are undisclosed (the zero displayed is a placeholder). Without capex visibility, we cannot assess whether OCF weakness is cyclical (timing) or structural (thin margins/greater reinvestment needs). Monitoring the reversal of working capital outflows and the trajectory of OCF relative to net income in subsequent quarters is critical.

Dividend Sustainability

Dividend data are not disclosed in this dataset (DPS and payout show as zero placeholders). Therefore, payout ratio, FCF coverage, and policy cadence cannot be assessed here. From a capacity standpoint, the company’s low leverage and strong interest coverage suggest balance-sheet room for distributions, but current-period negative OCF argues for caution until cash conversion normalizes. Absent actual DPS information, we assume no change to policy is inferable. Key to dividend sustainability will be restoring positive OCF, maintaining operating margin near 3%+, and ensuring capex remains within internally generated cash over the cycle.

Risk Assessment

Business Risks:

• Margin compression from input cost inflation (food/raw materials, logistics, labor) outpacing price pass-through
• Working capital intensity and potential inventory/receivables build reducing cash conversion
• Customer mix concentration risk if reliant on a few large clients (not disclosed)
• Competitive pricing pressure in wholesale/distribution leading to thin operating margins
• Operational disruptions in procurement and logistics affecting service levels and costs

Financial Risks:

• Negative operating cash flow despite positive earnings, indicating conversion risk
• Limited visibility on cash and equivalents and inventories, complicating liquidity assessment
• Potential capex needs (undisclosed) that could pressure free cash flow if OCF remains weak
• Earnings sensitivity to small margin movements given low EBITDA margin (~4%)

Key Concerns:

• OCF/Net Income at -1.57x highlights a near-term cash conversion issue
• Operating profit declining 0.2% YoY despite 3.0% revenue growth indicates negative operating leverage
• Undisclosed inventories and cash balances obscure short-term liquidity quality
• Inability to verify free cash flow due to undisclosed investing cash flows

Investment Implications

Key Takeaways:

• Topline up 3.0% YoY to ¥24.82bn, but operating income marginally down (-0.2% YoY) with 3.2% operating margin
• ROE of 2.38% reflects thin margins and modest asset turnover more than leverage
• Cash conversion weak: OCF -¥995m vs net income ¥635m; working capital likely the driver
• Balance sheet conservative with D/E ≈ 0.35x and negligible interest burden
• Data gaps (cash, inventories, capex) limit full assessment of liquidity and FCF

Metrics to Watch:

• Working capital components: days receivable, inventory days, and days payable (and their changes)
• Gross margin trend and SG&A-to-sales ratio to gauge operating leverage
• Operating cash flow vs net income (OCF/NI) normalization in subsequent quarters
• Capex and investing cash flows to establish sustainable free cash flow
• Customer/pricing mix indicators to assess pass-through ability

Relative Positioning: Within distribution/wholesale peers, Sato Shokai exhibits conservative leverage and strong interest coverage, but trails on cash conversion this quarter and operates with thin margins that constrain ROE; near-term improvement depends on working capital normalization and cost discipline.

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