NIPPN CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥207.90B
• Operating Income: ¥10.86B
• Net Income: ¥9.49B
• EPS: ¥112.20

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

Verdict: Solid top-line and operating performance with slight margin expansion, but headline net income declined sharply YoY due to below-the-line dynamics, keeping capital efficiency subdued. Revenue rose 1.5% YoY to 2,079.03, with gross profit of 522.08 and operating income up 3.1% to 108.55, indicating disciplined cost control. Gross margin printed at 25.1%, and operating margin is estimated at 5.22% (108.55/2,079.03). Given operating income grew faster than revenue, operating margin likely expanded by roughly 8 basis points versus last year. Ordinary income was essentially flat at 121.30 (+0.3% YoY), as non-operating income of 19.03 (notably dividend income 13.18 and interest income 3.07) was partially offset by 6.28 in non-operating expenses. Profit before tax reached 136.84, but net income fell 34.0% YoY to 92.69, implying prior-year one-offs or a less favorable below-the-line mix; the effective tax rate is 30.7%. Total comprehensive income of 126.71 exceeded net income, suggesting positive other comprehensive income, likely from valuation gains on investment securities (balance of 918.28). Operating cash flow was 90.00, nearly matching net income (OCF/NI 0.97x), indicating decent earnings quality this quarter. Liquidity is strong with a current ratio of 210.5% and cash of 461.63 versus short-term loans of 182.26, and interest coverage is robust at 45.8x. Leverage is conservative with D/E at 0.55x, providing balance sheet flexibility. However, capital efficiency remains a clear weakness: ROE is 3.4% and ROIC is just 2.7%, well below 5%, signaling value-creation challenges. The non-operating income ratio is 20.5%, highlighting some reliance on financial income streams in profit composition. SG&A of 413.53 absorbed 79% of gross profit, so continued cost discipline is key to sustain margins. Dividend payout ratio is calculated at 60.3%, slightly above a comfortable threshold, with free cash flow coverage unassessed due to missing investing cash flow data. Forward-looking, price-cost discipline, product mix improvement, and ROIC uplift are priorities; the healthy balance sheet offers optionality, but sustaining earnings growth above inflation and managing input-cost/FX volatility will be critical.

Profitability Analysis

ROE decomposition: ROE (3.4%) = Net Profit Margin (4.5%) × Asset Turnover (0.493) × Financial Leverage (1.55x). The most constrained component is asset turnover at 0.493, indicating relatively low capital efficiency for the asset base. Net margin held at 4.5% with operating margin around 5.22% and a noticeable non-operating income contribution (dividends/interest totaling 16.25 within 19.03 of non-op income), cushioning ordinary income. Financial leverage is modest at 1.55x, limiting ROE uplift from gearing but supporting risk profile. The quarter saw slight operating margin expansion (estimated ~+8 bps YoY) because operating income (+3.1%) outpaced revenue (+1.5%), suggesting some operating leverage and/or cost control in SG&A. Business reason: input cost normalization and price pass-through likely stabilized gross margin (25.1%), while SG&A growth appears contained given the OI outgrew sales; however, SG&A still represents 79% of gross profit, capping margin expansion. Sustainability: modest margin gains seem sustainable if pricing and mix hold and SG&A is kept in check; reliance on non-operating income (dividends, interest) is typically more variable. Concerning trends: capital efficiency remains weak (ROIC 2.7% well below 5%), and net income fell 34% YoY despite stable operations, indicating sensitivity to non-operating/extraordinary items and taxes, which could obscure underlying profitability.

Growth Assessment

Top-line growth of 1.5% indicates stable demand, with operating income up 3.1% showing modest operating leverage. Ordinary income was flat (+0.3%), implying limited upside from non-operating sources versus prior year. Net income fell 34% YoY, likely due to unfavorable below-the-line factors versus a strong prior-year base (e.g., one-offs, tax effects), not an operational downturn. Gross margin at 25.1% and slight operating margin expansion suggest pricing/mix and cost discipline helped offset cost pressures. Non-operating income of 19.03 (dividend/interest 16.25) supported ordinary income, but such income can be volatile; recurring operating growth drivers will be more durable. With comprehensive income above net income, equity market-related valuation gains aided total return this period. Outlook: With a conservative balance sheet, the company can invest for growth and protect margins, but elevating ROIC above the cost of capital requires improved asset turnover and/or higher sustainable margins. Near-term revenue growth likely tracks modest consumption and food demand trends; watch input costs (wheat, edible oils) and FX for pass-through dynamics.

Financial Health

Liquidity is strong: current ratio 210.5% and quick ratio 172.3%, with no warning flags (both comfortably >1.0). No maturity mismatch risk evident: current assets 1,637.61 exceed current liabilities 777.79 by 859.82 of working capital; cash 461.63 more than covers short-term loans of 182.26. Solvency is conservative: D/E 0.55x, long-term loans 346.78, and interest coverage at 45.8x indicates ample debt service capacity. Total liabilities are 1,490.01 against equity of 2,725.06, reflecting a solid equity cushion. Off-balance sheet obligations are not disclosed in the provided data; none can be assessed. Equity ratio is not reported; however, equity/asset implies ~64.7%, consistent with low leverage.

Cash Flow Quality

OCF/Net Income is 0.97x, slightly below 1.0 but above the 0.8 caution threshold, indicating broadly aligned accrual and cash earnings this period. OCF of 90.00 is close to NI of 92.69, suggesting limited working capital drag; however, without detail on inventory/receivables changes, we cannot assess potential timing effects. Free cash flow cannot be calculated due to unreported investing cash flows and capex, though depreciation is 52.57, implying maintenance capex could be material. Dividend and buyback cash outs are unreported, preventing full coverage analysis. No clear signs of working capital manipulation can be drawn from the limited data.

Dividend Sustainability

The calculated payout ratio is 60.3%, slightly above the preferred <60% threshold, implying limited headroom if earnings remain pressured by below-the-line volatility. DPS and total dividends paid are unreported, and FCF coverage cannot be assessed due to missing investing cash flow/capex data. Liquidity and balance sheet strength are supportive of dividend maintenance in the near term, but low ROIC (2.7%) and modest growth could constrain dividend growth without improved cash generation. Policy outlook will hinge on stabilizing net income and enhancing operating cash conversion.

Risk Assessment

Business Risks:

• Raw material price volatility (wheat, edible oils) impacting gross margins
• FX risk (USD/JPY) given material import exposure
• Energy and logistics cost fluctuations affecting COGS and SG&A
• Competitive pricing pressure in food and consumer staples segments
• Potential variability in non-operating income (dividends/interest) that props up ordinary income

Financial Risks:

• Low capital efficiency (ROIC 2.7%) relative to cost of capital
• Earnings sensitivity to below-the-line items and tax effects (NI -34% YoY)
• Market risk on sizeable investment securities balance (918.28) impacting OCI/equity
• Interest rate risk on floating-rate debt, albeit mitigated by low leverage
• Potential capex needs not visible due to missing investing cash flow data

Key Concerns:

• Sustaining margin gains while SG&A consumes 79% of gross profit
• Dependence on cost pass-through to maintain gross margin amid input cost/FX swings
• Insufficient asset turnover (0.493) limiting ROE
• Unclear FCF due to unreported investing cash flows, complicating dividend cover assessment

Investment Implications

Key Takeaways:

• Operational performance is stable with slight margin expansion; OI +3.1% vs revenue +1.5%
• Headline NI fell 34% YoY, likely due to non-operating/tax effects rather than core weakness
• Balance sheet is strong (current ratio 210%, D/E 0.55x, interest coverage 45.8x)
• Capital efficiency is the main challenge: ROE 3.4%, ROIC 2.7%
• Non-operating income (19.03) remains a notable profit contributor

Metrics to Watch:

• Gross and operating margins (bps trend)
• OCF/NI and working capital movements (AR/inventory turns)
• ROIC progression and asset turnover
• Input cost indices (wheat/oil) and USD/JPY
• Ordinary vs net income gap and effective tax rate
• Dividend policy updates and capex/FCF disclosure

Relative Positioning: Within Japanese food manufacturers, the company shows resilient operating margins and a fortress-like balance sheet, but trails best-in-class peers on capital efficiency and growth, with profits more exposed to non-operating variability.

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