SHIMA SEIKI Q2 FY2027: Flat-knitting slump deepens operating loss

SHIMA SEIKI, formally SHIMA SEIKI MFG., posted lower revenue for the first half, with both operating and net losses widening. Revenue fell 17.5% year on year, operating loss increased from ¥79 million to ¥2.185 billion, and net income attributable to owners of the parent swung from a ¥672 million profit to a ¥1.790 billion loss.

• Lower sales of the core business: A decline in flat-knitting machine sales weighed on revenue. Competition remains intense in key Asian markets, particularly Bangladesh and China, where customers continue to take a cautious approach to capital spending.
• Limited contribution from new models: SHIMA SEIKI is marketing cost-performance-focused knitting machines ahead of a full rollout in the second half, so their contribution to first-half results was limited. Sales of legacy models also fell as the product lineup transitions.
• Costs weigh on earnings: Gross margin improved, but lower revenue and an increase in selling, general and administrative expenses from ¥6.441 billion a year earlier to ¥7.598 billion widened the operating loss.

A slump in core flat-knitting machines led the revenue decline, while the widening loss stood out on the earnings side. SHIMA SEIKI is reviewing development, procurement, manufacturing, sales and services. The extent to which new-model sales and restructuring deliver results in the second half will be key to meeting its full-year plan.

The decline in flat-knitting machines, SHIMA SEIKI's main source of revenue, outweighed growth in design systems-related and other businesses. Orders moved differently from sales, putting the focus on whether the increase in backlogs will translate into future shipments.

Flat-knitting machines: Revenue fell 23.0% year on year as sales volumes declined amid continued customer caution on capital spending in Bangladesh and China. In Italy, sales of shaped knitting machines were firm, but Wholegarment flat-knitting machines fell short of the year-earlier level, leaving the overall business in decline.

Design systems-related business: Revenue rose 0.5% year on year. Sales of the APEXFiz design software and P-CAM automated cutting machines increased, while sales of SDS-ONE APEX declined in line with lower computer flat-knitting machine sales.

• Glove and sock knitting machines: Revenue was weak, falling 66.5% year on year.
• Other businesses: Including parts for knitting machines and design systems, as well as repairs and maintenance, revenue rose 2.9% year on year.
• Orders: Total orders increased 6.5% year on year, while the order backlog grew 24.4%. The flat-knitting machine order backlog was up 21.7%.

Orders and backlogs for flat-knitting machines exceeded year-earlier levels, offering a possible sign that the sales downturn may be bottoming out. However, the timing of order conversion into revenue and its profitability remain unclear. Investors will also need to monitor the rollout of the cost-performance models.

SHIMA SEIKI revised its consolidated forecast for the fiscal year ending March 2027. It now expects revenue of ¥34.3 billion, an operating loss of ¥4.8 billion and a net loss attributable to owners of the parent of ¥5.1 billion. The earnings release does not include the previous forecast or prior-year results, limiting comparisons.

SHIMA SEIKI referred investors to a separate announcement on the forecast revision for details. The earnings release alone does not show the size or reasons for the revision. First-half revenue represented about 43.5% of the full-year forecast. A full rollout of new models is planned for the second half, making a sales recovery and progress on restructuring central to the plan.

Total assets increased from the previous fiscal year-end, while the equity ratio declined. SHIMA SEIKI recorded positive operating cash flow and ended the first half with more cash and cash equivalents than at the previous year-end.

Higher operating cash flow reflected the collection of trade receivables and a reduction in inventories. Investing cash outflows were mainly for time deposits. Financing cash flow, which included an increase in short-term borrowings, was positive at ¥538 million.

SHIMA SEIKI forecasts an interim dividend of ¥10 and a year-end dividend of ¥10, for a full-year payout of ¥20, unchanged from the previous year's actual dividend. The earnings release disclosed no new share buyback. The company is maintaining its dividend forecast despite difficult conditions, but short-term borrowings have risen from the previous fiscal year-end, making it important to track both earnings recovery and funding needs.

In the final year of its medium-term management plan, Ever Onward 2026, SHIMA SEIKI is prioritizing a rebuilt management foundation, a revival of its flat-knitting machine business and expansion of its automated cutting machine business. It established a restructuring headquarters in the first quarter and is reviewing its business operations.

• Restructuring: The company is undertaking a fundamental review across development, procurement, manufacturing, sales and services, aiming to improve profitability.
• Reviving flat-knitting machine sales: A full rollout of cost-performance models is planned from the second half. Their contribution to first-half results was limited, leaving sales volumes and profitability to prove themselves.
• Solutions and automated cutting machines: SHIMA SEIKI aims to offer products and services that support sustainable manufacturing and expand sales of products including its P-CAM automated cutting machines.

With market conditions challenging, SHIMA SEIKI plans to broaden its role beyond selling machinery to providing solutions that support customers' production. Progress on restructuring fixed costs and operations, alongside the launch of new products, will be key to a recovery.

Demand for SHIMA SEIKI's core machines fell sharply in the first half, and the company expects operating and net losses for the full year. A recovery will depend on overseas demand and competitive conditions, as well as the execution of internal reforms and new-model launches.

• Weak capital spending: If customers in Bangladesh and China remain cautious about investment, sales volumes and revenue for core flat-knitting machines could fall further.
• Intensifying competition: Competition is growing fiercer in key Asian markets. Stronger price pressure could delay margin improvements even if new models sell well.
• New-model ramp-up: A full rollout of cost-performance models is planned for the second half. If launches are delayed or customer response falls short of expectations, the full-year forecast and revival of the flat-knitting machine business could be affected.
• Global economy and foreign exchange: The outlook remains uncertain amid heightened Middle East tensions, inflation and currency fluctuations. Foreign-exchange losses also affected first-half results, leaving earnings exposed to external conditions.
• Continuing losses and financial burden: SHIMA SEIKI expects an operating loss for the full year, and short-term borrowings have risen from the previous fiscal year-end. The equity ratio remains high, but prolonged losses could constrain funding and investment capacity.