NITTOH CO., LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.34B
• Operating Income: ¥173M
• Net Income: ¥117M
• EPS: ¥28.88

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

FY2026 Q2 was a solid quarter for NITTOH, delivering profit growth ahead of revenue and cleaner earnings quality. Revenue rose 3.4% YoY to 53.43, while operating income increased 24.4% YoY to 1.73 and ordinary income grew 23.0% to 1.85. Net income advanced 21.5% to 1.17, translating to EPS of 28.88 JPY. Gross profit reached 13.82, implying a gross margin of 25.9%. Operating margin improved to 3.2–3.3% (1.73/53.43), expanding roughly 55 bps YoY based on implied prior-year levels. Ordinary margin was 3.5% (1.85/53.43) with a modest tailwind from non-operating income (0.20) net of expenses (0.09). Earnings quality was strong: operating cash flow of 2.53 exceeded net income by 2.16x, aided by low capex (0.04) and yielding a proxy FCF of about 2.49. Liquidity remains conservative with current ratio at 202% and quick ratio at 148%. Leverage is moderate (D/E 0.59x) and interest coverage is robust at 41x, supporting financial flexibility. That said, capital efficiency is a weakness: ROE is 2.5% and ROIC is 3.0% (below the 5% warning threshold), reflecting thin margins and moderate asset turnover. The SG&A burden remains heavy at 22.6% of revenue (12.08/53.43), leaving limited room for operating leverage if top-line growth stalls. Non-operating contributions (non-operating income ratio 17.2%) are not excessive but indicate some dependence beyond core operations. The effective tax rate is relatively high at 36.7%, modestly constraining net margin. Dividend payout appears elevated at a calculated 69.4%, though cash coverage looks adequate given OCF strength; visibility is limited due to unreported dividend cash flow details. Forward-looking, sustaining gross margin improvement and tighter SG&A control are key to lifting ROIC above 5%. Monitoring order intake, pricing, and execution amid cost inflation will be critical to maintain margin gains and improve capital efficiency.

Profitability Analysis

ROE (2.5%) = Net Profit Margin (2.2%) × Asset Turnover (0.716) × Financial Leverage (1.59x). The largest driver of the YoY improvement appears to be margin expansion at the operating level (operating income +24.4% vs revenue +3.4%), implying operating margin rose about 55 bps YoY to ~3.2–3.3%. Business-wise, this likely reflects better project mix, improved pricing, and/or execution discipline offsetting cost pressures, while non-operating items provided a small net positive (0.11). Asset turnover (0.716) and leverage (1.59x) seem relatively stable; the data do not indicate a material shift in balance sheet intensity. The improvement in margin is incrementally sustainable if cost controls and pricing discipline persist, but given the SG&A ratio at 22.6% of revenue and industry cost inflation, gains could be modest without stronger top-line growth. Watch for any divergence where SG&A growth outpaces revenue; currently, profit growth outstrips sales, suggesting positive operating leverage in the period.

Growth Assessment

Top-line growth was modest at +3.4% YoY, but profit growth was stronger (OP +24.4%, NP +21.5%), indicating healthier mix and/or cost control. Gross margin of 25.9% and operating margin of ~3.2–3.3% show resilience, though the absolute margin level remains low for a sustainable high-ROIC profile. Non-operating items contributed moderately (non-operating income 0.20 vs expenses 0.09), but core operations drove most of the improvement. Revenue sustainability will hinge on order intake and backlog (not disclosed), as well as the company’s ability to pass through input cost inflation. Profit quality is supported by OCF exceeding NI (2.16x), implying earnings are cash-backed. Outlook-wise, continued incremental margin expansion and disciplined SG&A could lift profitability; however, low ROIC (3.0%) highlights a need for better asset efficiency or higher margins to create stronger shareholder value.

Financial Health

Liquidity is strong: current ratio 202% and quick ratio 148% indicate ample short-term coverage. We do not flag any warning for current ratio (<1.0) or leverage; D/E at 0.59x is conservative. Maturity mismatch risk appears low: cash and deposits (16.69) plus receivables (12.16) comfortably exceed short-term loans (5.10) and accounts payable (8.00). Total equity is 46.87 against total assets of 74.64, implying an equity ratio of roughly 62.8% (derived), indicating a solid capital base. Interest expense is small (0.04) with very strong coverage (41x). No off-balance sheet obligations were disclosed in the provided data. Overall solvency and liquidity positions are robust, providing room to navigate market volatility.

Cash Flow Quality

OCF/Net Income is 2.16x, signaling high-quality earnings and good cash conversion. Capex is minimal (0.04), so proxy FCF (OCF – capex) is about 2.49, comfortably positive. With financing cash outflows of -1.32 (likely debt repayments and/or dividends), internal cash generation appears adequate to fund both maintenance capex and shareholder returns. We do not observe working capital manipulation from the summary data, but detailed components are not disclosed; the strong OCF suggests collection and billing were favorable in the period. Given the volatility typical of project-based businesses, sustaining OCF > NI across periods remains a key watchpoint.

Dividend Sustainability

The calculated payout ratio is 69.4%, above the <60% benchmark for comfort, implying dividends of roughly 0.81 on NI of 1.17. Despite the high payout, cash coverage appears adequate this period given proxy FCF of ~2.49; however, dividend cash flow details (total dividend paid, DPS breakdown) are unreported. Sustainability will depend on maintaining positive OCF and stable earnings, given thin margins and low ROIC (3.0%). If management targets higher ROIC and reinvestment, scope for dividend growth may be limited without stronger earnings expansion. Policy visibility is limited due to missing disclosures on DPS and dividend timing.

Risk Assessment

Business Risks:

• Project execution and cost overrun risk in construction/engineering-related activities
• Input cost inflation (materials, subcontracting, labor) potentially compressing margins
• Order intake/backlog visibility risk (not disclosed), affecting revenue sustainability
• Customer concentration risk (not disclosed) which could impact pricing and volumes
• Pricing power constraints in competitive bids limiting margin expansion

Financial Risks:

• Low capital efficiency (ROIC 3.0%) limits value creation and buffers against shocks
• Reliance on short-term borrowings (5.10) requires ongoing liquidity discipline, though currently well covered
• Elevated payout ratio (69.4%) may reduce balance sheet flexibility if earnings weaken
• Tax rate sensitivity (effective tax 36.7%) impacts net margins

Key Concerns:

• Thin operating margin (~3.2–3.3%) leaves limited room for error
• SG&A intensity (22.6% of revenue) constrains operating leverage
• Non-operating income contribution (17.2% ratio) adds some variability to ordinary profit
• Capital efficiency below threshold (ROIC <5%) flagged by quality alert

Investment Implications

Key Takeaways:

• Profit growth outpaced revenue with clear operating margin expansion (~+55 bps YoY)
• Earnings quality strong: OCF/NI at 2.16x; proxy FCF ~2.49 with minimal capex
• Balance sheet conservative: equity ratio ~63% (derived), D/E 0.59x, strong liquidity
• Capital efficiency weak: ROE 2.5%, ROIC 3.0% below warning threshold
• Dividend payout appears high (~69%), but currently cash-covered
• Sustained improvement hinges on SG&A discipline and gross margin resilience

Metrics to Watch:

• Order intake and backlog (timing, mix, pricing)
• Gross margin and operating margin trajectory
• SG&A ratio vs revenue growth
• OCF/NI and working capital turns (AR and inventory days)
• ROIC progression toward >5%
• Leverage mix (short-term loans) and interest coverage
• Dividend policy disclosures (DPS, total dividends paid)

Relative Positioning: Within small-cap construction/engineering peers, NITTOH shows stronger liquidity and cash conversion this quarter but lags on capital efficiency and structural margins; execution on cost discipline and asset turns will determine whether it can close the ROIC 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