Nippon Kанryu Kogyo Co., Ltd. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥17.59B
• Operating Income: ¥697M
• Net Income: ¥627M
• EPS: ¥101.69

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

Nihon Kanryu Kogyo (TSE:17710) delivered essentially flat topline in FY2025 with revenue of ¥17.594bn (+0.3% YoY), but profitability compressed sharply as operating income fell 20.1% to ¥0.697bn. Gross profit of ¥3.967bn implies a 22.5% margin, which is respectable for construction-related services, yet operating margin slipped to 4.0%, signaling SG&A and/or project cost pressures outweighing the modest sales growth. Ordinary income of ¥0.765bn exceeded operating income, suggesting modest non-operating tailwinds (e.g., financial income), while interest expense remained negligible at ¥4.3m. Net income declined 23.3% to ¥0.528bn (net margin 3.0%), reflecting margin pressure and possibly higher tax/other below-the-line items. DuPont analysis shows ROE of 5.55% driven by a 3.0% net margin, healthy asset turnover of 1.228x, and conservative financial leverage of 1.50x. Liquidity is strong with a current ratio of 249% and quick ratio of 246%, underpinned by high current assets and low inventories (¥116.7m), typical of project-based businesses. The balance sheet is conservative with total liabilities of ¥4.81bn against equity of ¥9.52bn, implying a debt-to-equity (total liabilities/equity) of ~0.51x; by our calculation, the equity ratio would be roughly 66.5% despite the reported 0.0% placeholder. Cash generation from operations was solid at ¥0.504bn (OCF/NI ~0.95), indicating reasonable earnings quality, but heavy investing outflows of ¥1.327bn produced negative free cash flow of ¥0.823bn. Interest coverage is very comfortable at ~162x EBITDA/interest, reaffirming low financial risk. The company paid no dividends (DPS ¥0, payout 0%), consistent with conserving cash during a capex-heavy year and margin pressure. While the materials list includes zeros for certain items (e.g., equity ratio, cash balance, shares, effective tax rate), these are not actual zero values but unreported placeholders; analysis is therefore based on the available non-zero data. The near-flat revenue alongside a disproportionate decline in operating profit highlights negative operating leverage and possibly cost inflation or less favorable project mix. With ample liquidity and modest leverage, the balance sheet can absorb near-term profitability volatility, but sustained capex and negative FCF could constrain future capital returns absent an OCF uplift. Key monitoring items include order backlog, project pricing, labor/materials costs, and progress billings given their impact on margin trajectory and OCF conversion. Overall, the company remains financially sound but is navigating margin headwinds and investment-driven cash outflows that require careful execution to restore ROE momentum.

Profitability Analysis

ROE_decomposition: DuPont ROE 5.55% = Net margin 3.00% × Asset turnover 1.228 × Financial leverage 1.50. The ROE is modest, with efficiency (asset turnover) providing the largest positive contribution, leverage conservative, and the primary drag being the compressed net margin. margin_quality: Gross margin 22.5% supports value-add in construction-related services, but operating margin of ~4.0% and net margin of 3.0% indicate pressure from SG&A and/or project cost inflation. Ordinary income exceeded operating income, implying minor non-operating gains or financial income; interest burden is minimal. The reported effective tax rate of 0.0% appears to be an unreported placeholder; actual tax burden likely meaningful given disclosed income tax of ¥404.6m. operating_leverage: Revenue +0.3% YoY versus operating income -20.1% indicates negative operating leverage in the period, likely driven by cost inflation, project mix, or timing of revenue recognition. EBITDA margin is 5.1% (EBITDA ¥0.894bn), leaving limited buffer for further cost pressure without impacting EBIT.

Growth Assessment

revenue_sustainability: Topline was stable (+0.3% YoY) at ¥17.594bn, suggesting steady demand/order execution, but no growth catalyst evident from disclosed data. Backlog data were not provided, limiting forward visibility. profit_quality: Net margin at 3.0% and EBIT margin ~4.0% reflect compression; ordinary income outpaced operating income, but recurring financial contribution appears small. The OCF/NI ratio of 0.95 indicates earnings are largely cash-backed in the year, a positive for quality. outlook: Near-term growth hinges on pricing discipline, cost pass-through for materials and subcontracting, and labor availability. Public works exposure, if material, could support stability but margin recovery will depend on project mix and execution. Absent backlog and guidance, baseline expectation is for stable revenues with a focus on restoring margins.

Financial Health

liquidity: Current ratio 248.9% and quick ratio 246.1% indicate ample short-term liquidity. Working capital is strong at ¥6.293bn, and inventories are low (¥116.7m), consistent with project billing structures. solvency: Total liabilities ¥4.81bn vs equity ¥9.52bn implies conservative leverage (≈0.51x liabilities/equity). Interest expense is minimal (¥4.3m), and interest coverage is very high at 161.8x, reflecting low financial risk. capital_structure: With total assets of ¥14.326bn and equity of ¥9.52bn, the implied equity ratio is ~66.5% (despite the 0.0% placeholder), supporting resilience to earnings volatility and capacity to fund operations and selective investments.

Cash Flow Quality

earnings_quality: OCF ¥0.504bn vs NI ¥0.528bn yields OCF/NI of 0.95, indicating good cash conversion and limited accrual distortion in the year. FCF_analysis: Investing CF of -¥1.327bn drove FCF to -¥0.823bn, implying a capex-heavy year or strategic investments. Sustained negative FCF would necessitate reliance on cash reserves or financing; one year is manageable given the balance sheet. working_capital: High current assets versus current liabilities indicate a cushion, and low inventory points to limited stock risk. Working capital movements likely influenced OCF, but details by component (receivables/payables) were not disclosed.

Dividend Sustainability

payout_ratio_assessment: DPS was ¥0 (payout 0%), aligning with weaker earnings and elevated investment outflows. With net income of ¥0.528bn, a payout was possible mathematically, but prudence favors retention given margin headwinds. FCF_coverage: FCF was negative (-¥0.823bn), so any cash dividend would not have been covered by FCF this year. Future distributions hinge on normalizing capex and improving OCF. policy_outlook: No explicit policy disclosed here. Given strong liquidity and low leverage, the company could resume dividends if FCF turns positive and margins recover; however, near-term priority likely remains reinvestment and balance-sheet conservatism.

Risk Assessment

Business Risks:

• Project execution risk and cost overruns in a fixed-price contract environment
• Materials and labor cost inflation pressuring margins
• Timing risk in revenue recognition and progress billings affecting quarterly volatility
• Order backlog visibility not disclosed, limiting forward revenue assurance
• Competitive bidding pressure in public/private works impacting pricing

Financial Risks:

• Negative FCF due to elevated capex, if sustained
• Potential working capital swings (receivables collection timing) impacting OCF
• Tax burden variability (effective tax rate not disclosed) influencing net earnings
• Concentration risk if reliant on a small number of large projects or clients

Key Concerns:

• Operating income down 20.1% on flat revenue, signaling negative operating leverage
• Margin recovery dependence on cost pass-through and mix improvements
• Capex intensity leading to -¥0.823bn FCF in the year

Investment Implications

Key Takeaways:

• Stable revenue base but notable margin compression in FY2025
• ROE of 5.55% is mainly constrained by low net margin; leverage remains conservative
• Liquidity and solvency are strong, reducing financial stress risk
• Earnings quality is fair (OCF/NI ~0.95), but capex drove negative FCF
• Dividend suspended (DPS ¥0), consistent with reinvestment and cash preservation

Metrics to Watch:

• Order backlog and book-to-bill for revenue visibility
• Gross and operating margin trajectory, especially cost pass-through rates
• OCF/NI and working capital days (DSO/DPO) for cash conversion
• Capex plans vs. maintenance needs to gauge FCF inflection
• Win rates and pricing in new bids, and labor/material cost indices

Relative Positioning: Within Japanese construction/services peers, the company appears conservatively financed with strong liquidity and efficient asset use, but currently trails best-in-class peers on margin resilience and FCF due to cost pressure and elevated investment.

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