NICHIWA SANGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥22.24B
• Operating Income: ¥538M
• Net Income: ¥399M
• EPS: ¥22.26

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

For FY2026 Q2 (consolidated, JGAAP), Hiyori Sangyo (2055) delivered resilient profitability despite a top line contraction. Revenue declined 9.3% YoY to ¥22.243bn, yet operating income rose 9.0% YoY to ¥538m and net income increased 1.0% YoY to ¥403m, signaling effective cost control and margin management. The operating margin stood at 2.4% and the net margin at 1.81%, which are thin but stable for a commodity‑influenced business. Gross profit was reported at ¥1.862bn, implying a gross margin of 8.4%; coupled with operating income, this suggests SG&A and other operating costs of roughly ¥1.324bn for the half. DuPont metrics indicate a modest ROE of 2.14%, driven by a 1.81% net margin, asset turnover of 0.756x, and conservative financial leverage of 1.57x. Liquidity is strong with a current ratio of 2.11x and working capital of ¥12.406bn, while solvency is conservative with total liabilities of ¥11.469bn versus equity of ¥18.791bn (liability‑to‑equity of 0.61x). Interest expense was low at ¥27m with robust coverage of about 19.9x, supporting financial flexibility. The effective tax rate, inferred from reported income tax of ¥146m, is approximately 26–27%, consistent with Japan’s statutory range, despite a placeholder line indicating 0.0%. Reported equity ratio is 0.0% but that appears undisclosed; based on the balance sheet, equity/asset ratio is about 63.9%, underscoring a solid capital base. Operating cash flow, investing cash flow, and financing cash flow were not disclosed (zeros indicate unreported), limiting cash‑flow quality analysis. Dividend data are not available for the period (DPS and payout shown as zero placeholders), so dividend sustainability must be assessed from earnings capacity and balance sheet strength rather than distributions. Revenue contraction alongside improved operating profit implies favorable mix, pricing discipline, and/or cost reductions, but sustaining this amid commodity and FX volatility remains a key challenge. Asset efficiency (0.76x turnover) is fair for the sector; further improvement would be a lever to lift ROE above the current low‑single‑digit level. Overall, the company exhibits defensive balance sheet quality and adequate profitability control, but thin margins and limited reported cash‑flow data temper confidence in the durability of earnings momentum. We acknowledge internal data inconsistencies (e.g., cost of sales vs. reported gross profit) and missing CF/share data, and therefore base conclusions on the consistent, non‑zero items provided.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 1.81% (¥403m / ¥22,243m)
• asset_turnover: 0.756x (Revenue / Average assets, consistent with end assets of ¥29,409m)
• financial_leverage: 1.57x (Assets/Equity ≈ 29,409/18,791)
• calculated_ROE: 2.14% (matches provided DuPont ROE)
• ROA_estimate: ≈1.37% (¥403m / ¥29,409m) margin_quality:
• gross_margin: 8.4% (based on reported gross profit ¥1,862m; note: cost of sales line appears inconsistent with this figure)
• operating_margin: 2.42% (¥538m / ¥22,243m)
• ordinary_margin: 2.50% (¥556m / ¥22,243m)
• net_margin: 1.81%
• comments: Margins are thin but stable; positive operating margin trend despite revenue decline suggests effective SG&A control or pricing/mix improvement. operating_leverage: Despite a 9.3% YoY revenue decline, operating income rose 9.0% YoY, indicating favorable operating leverage from cost reductions and/or improved mix. Sustaining this will depend on commodity inputs and pricing power.

Growth Assessment

revenue_sustainability: Revenue decreased 9.3% YoY to ¥22.243bn, likely reflecting softer market conditions or pricing normalization in feed/agribusiness end markets. profit_quality: Operating income growth (+9% YoY) against lower revenue implies underlying efficiency gains; however, thin gross and operating margins leave limited buffer against input cost spikes. outlook: Maintaining improved OPM near or above ~2.5% will require continued procurement discipline and price pass‑through amid FX and commodity volatility. Further asset efficiency gains would be needed to lift ROE materially above current 2.1%.

Financial Health

liquidity:

• current_ratio: 210.6% (CA ¥23,625m / CL ¥11,219m)
• quick_ratio: 209.4% (inventory reported ¥135m; quick assets ≈ ¥23,490m)
• working_capital: ¥12,406m
• comment: Very strong near‑term liquidity; inventory appears minimal as reported, though classification differences may apply. solvency_capital_structure:
• total_assets: ¥29,409m
• total_liabilities: ¥11,469m
• total_equity: ¥18,791m
• equity_ratio_estimate: ≈63.9% (equity/assets); reported 0.0% appears undisclosed
• debt_to_equity: 0.61x (liabilities/equity; not all liabilities are interest‑bearing)
• interest_coverage: ≈19.9x (operating income ¥538m / interest expense ¥27m)
• comment: Conservative leverage and ample coverage support resilience.

Cash Flow Quality

earnings_quality: OCF not disclosed; earnings quality cannot be validated via cash conversion this period. Net income aligns with ordinary income and a reasonable tax rate, supporting accrual quality in the P&L. free_cash_flow: Not available (FCF not disclosed). Balance sheet strength suggests capacity to fund operations without reliance on external financing. working_capital_dynamics: Large positive working capital (¥12.4bn) implies material capital tied in receivables/other current assets; inventory reported at ¥135m is unusually low for the sector and may reflect classification differences.

Dividend Sustainability

payout_ratio_assessment: Payout shown as 0.0% reflects undisclosed dividend. With EPS of ¥22.26 and modest leverage, capacity for distributions exists in principle, but cash data are absent. FCF_coverage: Not assessable due to missing OCF/FCF. Earnings coverage alone appears adequate given low interest burden. policy_outlook: Given conservative balance sheet and thin margins, a steady and prudent dividend policy would be consistent; visibility depends on cash generation and commodity pass‑through stability.

Risk Assessment

Business Risks:

• Commodity input price volatility (e.g., grains/soymeal) affecting gross margins
• FX risk (USD/JPY) impacting imported raw material costs
• Disease outbreaks in livestock/poultry (e.g., avian influenza) depressing demand and disrupting supply chains
• Customer concentration and pricing pressure in feed/livestock value chains
• Energy and logistics cost fluctuations influencing operating expenses
• Regulatory and food safety compliance costs

Financial Risks:

• Thin operating and net margins leave limited shock absorption
• Working capital swings impacting cash conversion in downturns
• Potential inventory/commodity valuation risks in volatile markets
• ROE below estimated cost of equity may pressure capital efficiency objectives

Key Concerns:

• Sustainability of margin improvement amid declining sales
• Lack of disclosed cash flow data limits assessment of earnings cash conversion
• Data inconsistency between reported cost of sales and gross profit introduces uncertainty

Investment Implications

Key Takeaways:

• Revenue contracted 9.3% YoY, but operating income rose 9.0% YoY, indicating effective cost management.
• ROE at 2.14% is subdued; improvement requires higher margins and/or better asset turnover.
• Balance sheet is strong with an estimated equity ratio ~64% and current ratio ~2.1x.
• Interest coverage is robust at ~20x, reflecting low financial risk.
• Cash flow data are undisclosed, constraining analysis of cash conversion and dividend capacity.

Metrics to Watch:

• Operating margin (targeting >2.5–3.0% to lift ROE)
• Gross margin trend versus grain and FX indices
• Asset turnover and days working capital
• OCF/Net income conversion once disclosed
• Interest‑bearing debt levels and coverage
• EPS trajectory and any dividend announcements

Relative Positioning: The company appears conservatively financed with better‑than‑headline resilience in profitability versus a soft revenue backdrop, but it remains exposed to commodity and FX cycles and operates with thin structural margins typical of the feed/agribusiness space.

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