Nissou Co.,Ltd. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.23B
• Operating Income: ¥-2M
• Net Income: ¥-12M
• EPS: ¥-19.34

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: FY2026 Q1 was mixed—modest topline growth but profitability slipped into a small operating and net loss, with an unusually high tax charge exacerbating the bottom line. Revenue grew 5.2% year over year to 12.26, demonstrating some demand resilience. Gross profit was 2.87, translating into a gross margin of 23.4%. SG&A was 2.83, effectively absorbing nearly all gross profit and driving operating income to -0.02. Operating margin was -0.16%, while ordinary income was -0.01 and net income was -0.21 (net margin -1.7%). Despite the loss, liquidity remained solid with a current ratio of 203.5% and cash and deposits of 19.30. Debt levels are moderate with D/E at 1.04x, but interest coverage was negative at -1.03x, indicating near-term earnings strain relative to debt service. The gross margin is 23.4% this quarter; prior-period margin data are not disclosed, so basis-point expansion/compression versus last year cannot be quantified. The SG&A ratio stood at 23.1%, implying minimal operating leverage in the quarter. Earnings quality cannot be fully assessed due to unreported operating cash flow, but the divergence between a small pre-tax profit (0.07) and a sizable tax expense (0.19) led to a disproportionately large effective tax rate of 278.1% and a net loss. Absent cash flow data, we cannot validate whether working capital drove any hidden cash outflows. Balance sheet strength (cash > short-term loans) reduces immediate refinancing risk. Forward-looking, normalization of the tax rate and tighter SG&A control are the key drivers to restore profitability. Given modest revenue growth and a lean margin structure, sustained cost discipline and pricing power will determine whether ROE can lift from the current -1.2%. Near-term priorities should include stabilizing gross margins, reducing SG&A intensity, and improving interest coverage.

Profitability Analysis

ROE decomposition: ROE (-1.2%) = Net Profit Margin (-1.7%) × Asset Turnover (0.371x) × Financial Leverage (1.97x). The component most responsible for weakness is the net profit margin, as the company posted a net loss despite modest leverage and typical small-cap asset turnover. Business drivers include: (1) SG&A at 23.1% of sales nearly offsetting gross profit (23.4% margin), leaving negligible operating profit; and (2) an unusually high effective tax rate (278.1%) on a small pre-tax profit, flipping the bottom line negative. Non-operating items were small (income 0.08 vs expenses 0.05), suggesting core operations and tax were the primary drags. The margin compression appears tied to cost pressure and limited operating leverage in the quarter, while the tax anomaly is likely non-recurring if driven by deferred tax valuation changes or prior-period adjustments; however, confirmation requires disclosures not provided. Asset turnover (0.371x on period-end assets) is typical for a project-based contractor and was not the primary swing factor. Flags: SG&A grew faster than operating profit (which turned negative), effectively eroding operating leverage; with revenue up 5.2%, cost control lagged. Sustainability: margin recovery depends on stabilizing gross margin and curbing SG&A; tax should normalize, but operating efficiency must improve to lift ROE.

Growth Assessment

Revenue growth was +5.2% YoY to 12.26, indicating steady demand. However, operating income fell to -0.02 (-93.3% YoY), reflecting negative operating leverage as expenses outpaced revenue growth. Gross margin printed at 23.4%; with no prior gross margin available, we cannot quantify the YoY basis-point change. The SG&A ratio of 23.1% leaves little room for profit variability and suggests fixed-cost absorption pressure. Ordinary income (-0.01) and net income (-0.21; -79.7% YoY) were dampened by a heavy tax charge relative to a small pre-tax profit. Outlook drivers: backlog conversion, pricing discipline, input cost stabilization, and SG&A control. Near-term, restoring a positive operating margin even in low single digits would meaningfully improve interest coverage and bottom line. With cash of 19.30 and manageable leverage, the company has runway to execute on efficiency initiatives, but sustained growth must translate into margin expansion to improve ROE.

Financial Health

Liquidity is strong: current assets 29.21 vs current liabilities 14.35 yield a current ratio of 203.5% (above the 1.5x benchmark). Quick ratio is also 203.5% given low inventory disclosure, indicating ample liquidity. No warning for Current Ratio (<1.0) is needed. Solvency: D/E is 1.04x (below the 2.0x warning threshold), suggesting moderate leverage. Short-term loans are 6.61, well covered by cash and deposits of 19.30 (≈2.9x), reducing near-term maturity risk. Long-term loans are 2.93, keeping overall debt manageable relative to equity (16.82). Interest coverage is weak at -1.03x due to negative operating income, signaling sensitivity to interest costs if earnings do not recover. No off-balance sheet obligations are mentioned in the available data. Equity base remains solid with BVPS of 1,547 JPY, and goodwill/intangibles total 1.19 (≈3.6% of assets), implying limited balance sheet risk from intangibles.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and free cash flow cannot be assessed; this is a key limitation in judging earnings quality. With net income at -0.21 and working capital details unreported, we cannot determine whether the loss was accompanied by cash generation (e.g., through collections) or cash burn (e.g., via receivable build). No signs of working capital manipulation can be inferred from the limited data. Given cash of 19.30 and short-term loans of 6.61, liquidity coverage is sufficient in the near term even if OCF was weak. Dividend and capex cash commitments are unreported, so FCF coverage of shareholder returns cannot be evaluated.

Dividend Sustainability

Dividend disclosures (DPS, total dividends paid, payout ratio) are unreported, preventing a payout sustainability assessment. With net income negative in Q1 and OCF unreported, we cannot gauge whether any prospective dividends would be covered by free cash flow. Retained earnings stand at 11.11 and liquidity is ample, but prudent policy would hinge on restoring positive operating margin and normalizing tax expense. Absent visibility on annual guidance and cash generation, we assume a cautious stance on near-term increases until earnings stabilize.

Risk Assessment

Business Risks:

• Thin operating margin with SG&A (23.1% of sales) nearly offsetting gross margin (23.4%), leaving little buffer for shocks
• Cost inflation in labor/materials that could pressure gross margin in a project-based model
• Execution risk on project timing and backlog conversion affecting revenue recognition
• Potential client concentration or competitive bidding pressure (not disclosed) that could compress margins
• Tax rate volatility evidenced by a 278.1% effective tax rate on minimal pre-tax income

Financial Risks:

• Negative interest coverage (-1.03x) exposing the company to earnings shortfalls relative to debt service
• Reliance on short-term loans (6.61) though currently covered by cash; rollover risk if earnings remain weak
• Small absolute profit base, making results sensitive to minor operational variances
• Unreported operating cash flow obscures cash generation profile and FCF sustainability

Key Concerns:

• Net loss (-0.21) despite revenue growth, driven by high SG&A intensity and unusual tax expense
• Operating margin at -0.16%, requiring immediate cost discipline to return to profitability
• Tax normalization uncertainty without disclosure on drivers (deferred taxes, non-deductibles, prior adjustments)
• Limited visibility on capex, dividends, and OCF constrains assessment of capital allocation flexibility

Investment Implications

Key Takeaways:

• Topline grew 5.2% YoY to 12.26, but operating income slipped to -0.02 and net income to -0.21
• Gross margin 23.4% and SG&A ratio 23.1% left virtually no operating leverage
• Effective tax rate of 278.1% converted a small pre-tax profit into a net loss
• Liquidity is strong (current ratio 203.5%; cash 19.30 > short-term loans 6.61), leverage moderate (D/E 1.04x)
• Interest coverage is negative (-1.03x), highlighting urgency to restore operating profit

Metrics to Watch:

• Operating margin trajectory and SG&A ratio vs revenue growth
• Gross margin stability amid input cost trends
• Normalization of effective tax rate toward statutory levels
• Operating cash flow and free cash flow once disclosed
• Interest coverage improvement and debt mix (short vs long term)

Relative Positioning: Compared to TSE small-cap construction/renovation peers, revenue growth is modestly positive but profitability is weaker this quarter, with negative operating and net margins; balance sheet liquidity is comparatively strong, while earnings sensitivity to SG&A and tax effects appears elevated.

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