nms Holdings Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥36.80B
• Operating Income: ¥829M
• Net Income: ¥-443M
• EPS: ¥-23.12

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: A mixed quarter with resilient topline and positive operating cash flow but continued bottom-line losses and acute balance sheet stress. Revenue was essentially flat at 368.02 (+0.1% YoY), while operating income declined 6.5% YoY to 8.29, indicating modest operating pressure. Gross profit was 50.99, yielding a gross margin of 13.9%, and operating margin printed at 2.25%. Ordinary income fell into a loss of -2.74 despite positive operating profit, driven by sizable non-operating expenses of 11.64 versus non-operating income of 0.60. Net income remained negative at -4.43, though losses narrowed by approximately 59% YoY, implying a prior-year loss of roughly -10.8. Operating margin contracted by about 16 bps YoY (from ~2.41% to 2.25%), while the net margin improved by about 174 bps (from ~-2.94% to -1.20%) due to a markedly smaller net loss. Cash flow quality on a cash basis looks supportive this quarter: operating cash flow was solid at 18.44, far exceeding net loss (OCF/NI -4.16x), suggesting working capital release or tight cash conversion. However, the balance sheet shows elevated risk: current ratio is 0.91, working capital is -25.02, and debt-to-equity is 6.51x, with short-term loans at 178.69 dominating liabilities. Interest coverage on an operating basis is 3.59x, adequate but not robust given leverage and rising refinancing costs risk. ROIC is 4.4%, below the 5% warning threshold and well under typical cost of capital, indicating limited value creation. Non-operating items (including interest expense of 2.31) materially eroded ordinary income; the effective tax rate is aberrant (-104%) due to tax expense despite a pre-tax loss, likely reflecting non-deductible items or prior period adjustments. Free cash flow is estimated at 14.54 (OCF 18.44 minus capex 3.90), providing a temporary cushion despite the net loss. Forward-looking, stabilizing ordinary income and reducing non-operating drag, coupled with de-leveraging of short-term debt, are critical to restore solvency metrics and sustain operations. Absent disclosure on dividends and investing flows, capital allocation visibility is limited. Overall, the near-term focus should be liquidity management, refinancing, and cost discipline to lift ROIC above 5% and return to positive ordinary income.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-1.2%) × 1.060 × 7.51 ≈ -9.6% (matches reported). The biggest driver of negative ROE is the negative net margin, compounded by very high financial leverage (7.51x). Asset turnover is reasonable at 1.06x and not the core issue. Business drivers: operating margin compressed slightly (approx. -16 bps YoY), but the main swing factor was non-operating expenses (11.64), including interest expense (2.31) and likely other losses, which flipped ordinary income negative. Sustainability: operating profit remains positive, suggesting the core business can generate earnings; however, persistence of high non-operating costs (financing and other) would continue to suppress ROE. Concerning trends: SG&A of 42.69 consumed 84% of gross profit, leaving limited buffer; with revenue nearly flat, any SG&A inflation could overwhelm operating profit. Also, interest burden relative to operating income (2.31 vs 8.29) leaves thin coverage (3.59x), particularly risky if rates or spreads rise.

Growth Assessment

Revenue growth was essentially flat (+0.1% YoY to 368.02), indicating no clear volume or price momentum. Operating income declined 6.5% YoY to 8.29, pointing to modestly weaker operating leverage. Net loss narrowed by ~59% YoY to -4.43, driven not by topline growth but likely by reductions versus prior-year losses or improved cost/one-offs below operating line. Operating margin compressed by ~16 bps YoY to 2.25%, while net margin improved ~174 bps to -1.20% due to smaller losses. With ROIC at 4.4% (<5% warning), the growth generated is not clearing the cost of capital. Outlook: absent evidence of a demand upturn or structural cost cuts, near-term growth likely remains subdued; the key to EPS normalization is cutting non-operating drag (financing/other) and improving mix and utilization to lift operating margin back above prior-year levels.

Financial Health

Liquidity is weak: current ratio 0.91 (<1.0 warning) and quick ratio 0.91 signal potential short-term funding stress. Working capital is negative at -25.02, and current liabilities (273.69) exceed current assets (248.67). Maturity mismatch risk is high: short-term loans total 178.69 versus cash 49.91 and receivables 106.94, implying reliance on rolling short-term debt. Solvency is stretched: D/E is 6.51 (>2.0 warning), and total liabilities are 301.08 against equity of 46.28. Interest coverage of 3.59x is modest; a deterioration in operating profit or rise in interest cost could pressure covenants or refinancing capacity. Noncurrent liabilities are relatively small at 27.39, highlighting the concentration of debt at the short end, increasing refinancing risk. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF was strong at 18.44 despite a net loss of -4.43, yielding an OCF/NI ratio of -4.16x; while this flags atypical divergence, it reflects favorable cash conversion this quarter, likely from working capital release (exact drivers undisclosed as inventory details are not reported). Capex was modest at 3.90, implying estimated free cash flow of 14.54, comfortably covering current operating needs. Financing cash flow was neutral (-0.01), suggesting limited net changes in debt/equity within the quarter. Sustainability: given flat revenue and slim operating margin, sustaining OCF at this level likely requires continued tight working capital management; reliance on one-time WC releases is not durable. No clear signs of manipulation are evident, but the combination of net loss and strong OCF warrants monitoring of receivables aging, payables stretch, and any shifts in customer prepayments.

Dividend Sustainability

Dividend data are unreported; payout ratio shown (-68.3%) is not meaningful given negative earnings and lack of dividend disclosure. With net losses, high leverage (D/E 6.51x), a current ratio below 1.0, and the need to refinance significant short-term debt, internal capital should prioritize liquidity and de-leveraging. While estimated FCF of 14.54 is positive, sustainability is uncertain due to working capital dynamics; committing to cash dividends under these conditions would be risky. Policy outlook: expect a conservative stance or suspension until ordinary income turns positive and leverage moderates; no visibility on timing given limited disclosures.

Risk Assessment

Business Risks:

• Demand volatility in core end-markets (manufacturing outsourcing/electronics-related), with revenue flat and slim operating margin.
• Cost inflation risk (labor, logistics) pressuring SG&A and COGS given low operating margin buffer.
• Execution risk in improving ordinary income amid persistent non-operating expenses.

Financial Risks:

• Refinancing risk due to large short-term loans (178.69) versus cash (49.91) and negative working capital (-25.02).
• High leverage (D/E 6.51x) amplifying earnings volatility and limiting financial flexibility.
• Interest rate risk: interest coverage 3.59x leaves limited cushion against higher borrowing costs.
• Non-operating loss risk: recurring other expenses (total non-operating expenses 11.64) pushing ordinary income negative.
• Tax cash outflow risk despite losses (tax expense 2.26 with pre-tax loss), indicating potential non-deductible items.

Key Concerns:

• Current ratio below 1.0 and quick ratio 0.91 indicating near-term liquidity strain.
• ROIC at 4.4% (<5%) signaling sub-economic returns.
• Negative net margin (-1.2%) despite positive operating income, reflecting weak bottom-line resilience.
• Limited disclosure on investing cash flows and dividends, reducing visibility on capital allocation and future cash commitments.

Investment Implications

Key Takeaways:

• Core operations remain marginally profitable (operating margin 2.25%) but cannot offset heavy non-operating burdens.
• Cash generation was a bright spot (OCF 18.44; estimated FCF 14.54), likely aided by working capital release.
• Balance sheet risk is elevated: D/E 6.51x, current ratio 0.91, and high short-term debt concentration.
• ROIC 4.4% underscores insufficient returns versus cost of capital; margin expansion and asset efficiency improvements are needed.
• Net loss narrowed materially YoY, but ordinary loss and tax expense dynamics highlight earnings fragility.

Metrics to Watch:

• Ordinary income trajectory and breakdown of non-operating expenses (interest, FX, other).
• Short-term loans outstanding and refinancing terms; interest coverage trend.
• Working capital metrics (AR days, AP days, inventory turns) to validate OCF sustainability.
• Operating margin versus SG&A ratio to gross profit (currently ~84%).
• ROIC progression toward >5% and ideally >7% over time.
• Effective tax rate normalization as profitability recovers.

Relative Positioning: Versus domestic small-cap industrial/outsourcing peers, profitability is thinner and leverage substantially higher, elevating liquidity and refinancing risks; near-term defensiveness hinges on sustaining OCF and curbing non-operating losses.

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