nms Holdings Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥36.80B
• Operating Income: ¥829M
• Net Income: ¥892M
• 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

nms Holdings (TSE:2162) reported FY2026 Q2 consolidated results under JGAAP with largely flat top-line and pressured bottom-line due to sizable non-operating losses. Revenue was ¥36,802,000,000, up a modest +0.1% YoY, indicating a stable but subdued demand environment. Gross profit of ¥4,957,147,000 translates to a gross margin of 13.5%, suggesting limited pricing power and/or elevated cost pass-through constraints. Operating income declined 6.5% YoY to ¥829,000,000, implying an operating margin of approximately 2.3% and highlighting operating leverage remains modest. Ordinary income deteriorated to a loss of ¥274,000,000, pointing to material non-operating headwinds that more than offset operating profits. Based on operating income and interest expense (¥255,426,000), implied other non-operating items were deeply negative, roughly in the ¥800–900 million range. The company posted a net loss of ¥443,000,000 (EPS: -¥23.12), though YoY loss narrowed by 59.0%, reflecting some improvement below the line or lower extraordinary burdens versus the prior year. DuPont metrics show a net margin of -1.20%, asset turnover of 1.060x, and high financial leverage of 7.51x, resulting in a calculated ROE of -9.57%. EBITDA was ¥1,564,880,000 and the EBITDA margin was 4.3%, indicating limited buffer to absorb shocks from non-operating items and interest. The interest coverage ratio was about 3.2x on an EBIT basis, which is adequate but leaves little room if operating performance softens or financing costs rise. Liquidity is tight: the current ratio is 93.3% and working capital is negative at -¥1,870,267,000, increasing short-term refinancing and cash management risk. Total assets were ¥34,735,000,000 and total equity ¥4,628,000,000, implying an equity ratio around 13.3% by our calculation (the reported 0.0% appears to be an undisclosed item rather than an actual zero). Debt-to-equity is high at 6.69x, consistent with the DuPont financial leverage figure and highlighting balance-sheet strain. Operating cash flow was positive at ¥164,238,000 despite the net loss, but conversion was weak (OCF/Net income = -0.37; OCF/EBITDA ≈ 10%), implying working capital and/or cash interest/tax outflows weighed on cash generation. The company paid no dividends (DPS: ¥0.00), which is prudent given losses and leverage; FCF metrics are not determinable this quarter because investing cash flow and cash balances were undisclosed in XBRL. Overall, the quarter shows resilient revenue but thin margins, high leverage, and significant non-operating drag; stabilization of non-operating items and improved cash conversion are key to restoring profitability and strengthening financial flexibility.

Profitability Analysis

ROE decomposition (DuPont): Net margin -1.20% × Asset turnover 1.060 × Financial leverage 7.51 = ROE -9.57%, consistent with the reported figure. Gross margin of 13.5% indicates modest value-add after cost of sales; with an operating margin near 2.3%, the conversion from gross to operating profit is thin, suggesting limited operating leverage or elevated SG&A/overheads. EBITDA margin of 4.3% provides a small cushion for interest and non-operating items; given interest expense of ¥255,426,000, the EBIT-based interest coverage is about 3.2x, which is adequate but not robust. The delta from operating income (¥829,000,000) to ordinary income (-¥274,000,000) implies substantial non-operating losses (approximately -¥1.1 billion), likely comprising net interest and other losses such as FX, valuation losses, or equity-method losses. This non-operating drag fully erased operating profits and drove the net loss. Operating leverage appears moderate: revenue was flat (+0.1% YoY) while operating income fell 6.5% YoY, indicating cost rigidity and/or mix deterioration. Margin quality is mixed: gross margin is acceptable for a dispatch/manufacturing services profile, but the step-down to net loss highlights vulnerability to financial and other non-core items.

Growth Assessment

Revenue grew +0.1% YoY to ¥36.8 billion, indicating stable but stalled growth. Operating income fell 6.5% YoY to ¥0.83 billion, pointing to cost pressure and limited operating leverage at current volumes. Net income improved meaningfully YoY (loss narrowed by 59.0% to -¥0.44 billion), but the company remains loss-making, with progress partly offset by substantial non-operating losses. Sustainability of revenue appears moderate; the 1.060x asset turnover suggests a relatively asset-light model with throughput-driven growth, but margin recovery is necessary to translate sales stability into profit growth. Profit quality is constrained by large non-operating expenses; improving financing terms, reducing non-core losses, or hedging FX/valuation exposures could materially improve bottom-line trajectory. Near-term outlook hinges on stabilizing non-operating items and lifting operating margins via cost control, mix improvement, and utilization gains. Without a rebound in operating margin and a reduction in non-operating drag, bottom-line growth will remain constrained even if revenue is steady.

Financial Health

Liquidity is tight: current assets ¥26,077,681,000 vs. current liabilities ¥27,947,948,000 yields a current ratio of 93.3% and negative working capital of -¥1,870,267,000. The quick ratio is shown as 93.3% given inventories were undisclosed (reported as zero); actual quick ratio may be slightly lower if inventories exist. Solvency is stretched: total liabilities ¥30,946,695,000 vs. equity ¥4,628,000,000 implies a debt-to-equity of 6.69x and an equity ratio we estimate at roughly 13.3% (the 0.0% equity ratio field appears undisclosed rather than truly zero). Financial leverage of 7.51x (DuPont) underscores sensitivity of ROE to small changes in margins. Interest expense of ¥255,426,000 against EBIT of ¥829,000,000 provides ~3.2x coverage, leaving some cushion but limited headroom if operating income slips or rates rise. Ordinary loss despite positive operating income signals notable non-operating risk to financial stability. Overall, balance sheet resilience is modest, with limited equity buffer and near-term liquidity pressure.

Cash Flow Quality

Operating cash flow was ¥164,238,000 versus a net loss of ¥443,000,000, yielding OCF/Net income of -0.37; while positive OCF is constructive, conversion is weak relative to EBITDA (¥1,564,880,000), implying working capital draw and/or cash interest/tax outflows. Investing cash flow and cash & equivalents were undisclosed (reported as zero), so free cash flow cannot be reliably computed for the period; the reported FCF of 0 likely reflects missing disclosures rather than true zero. Earnings quality is mixed: EBITDA-positive operations are not yet translating into robust operating cash due to working capital/other cash items, and non-operating losses depress statutory earnings. Working capital appears a drag, consistent with the negative working capital position; careful management of receivables and payables turnover will be key to improving OCF. Given the high leverage, sustaining positive OCF and improving conversion toward EBITDA are critical to servicing obligations and rebuilding cash buffers.

Dividend Sustainability

DPS is ¥0.00 with a payout ratio of 0.0%, appropriate given a net loss and elevated leverage. With operating cash flow of ¥164 million and unknown investing outflows, FCF coverage of dividends cannot be determined this quarter; the reported 0.00x reflects undisclosed items rather than actual coverage. Near-term dividend capacity is constrained by negative earnings, thin interest coverage, and tight liquidity. Unless profitability and cash generation improve and non-operating losses subside, reinstating dividends would be difficult without stressing the balance sheet. Policy-wise, preservation of cash for deleveraging and working capital appears prudent until sustainable profitability is restored.

Risk Assessment

Business Risks:

• Cyclical demand in electronics/automotive manufacturing and staffing markets impacting utilization and pricing
• Cost inflation (wages, subcontracting, materials) outpacing customer price adjustments, compressing margins
• Customer concentration and contract repricing risk in dispatch/EMS-like businesses
• Execution risk on cost control and productivity improvements needed to lift thin operating margins
• Potential FX exposure and overseas operations volatility impacting non-operating items

Financial Risks:

• High leverage (D/E ~6.69x) and thin equity buffer (estimated equity ratio ~13%)
• Tight liquidity with current ratio 93.3% and negative working capital of ~¥1.87 billion
• Interest rate/refinancing risk given interest expense of ~¥255 million and ~3.2x coverage
• Non-operating losses (~¥1.1 billion implied) creating volatility in ordinary income and cash flows
• Potential covenant pressure if earnings weaken or cash conversion deteriorates

Key Concerns:

• Ordinary loss despite positive operating income due to sizable non-operating expenses
• Weak cash conversion (OCF/EBITDA ≈ 10%) and working capital drag
• Limited operating leverage with flat revenue and declining operating income
• Visibility on balance sheet liquidity reduced by undisclosed cash and inventory data
• Sustainability of financing costs and access given leverage and losses

Investment Implications

Key Takeaways:

• Top-line stabilized (+0.1% YoY) but operating leverage remains modest (OP margin ~2.3%)
• Non-operating losses (~¥1.1bn) drove ordinary and net losses despite positive EBIT
• Leverage is high (D/E 6.69x; financial leverage 7.51x) with tight liquidity (CR 93.3%)
• Cash generation lags earnings capacity (OCF ¥164m vs EBITDA ¥1,565m)
• Focus areas: reducing non-operating drag, improving working capital, and strengthening margins

Metrics to Watch:

• Ordinary income trend and composition of non-operating items (FX, equity-method, valuation)
• EBITDA margin and operating margin progression
• Interest expense and interest coverage
• Current ratio, working capital days (DSO/DPO/DIO) and OCF/EBITDA conversion
• Equity ratio and net debt trajectory (deleveraging progress)

Relative Positioning: Versus domestic staffing/contract manufacturing peers, nms shows comparable asset turnover but weaker profitability and cash conversion, with higher leverage and tighter liquidity; improvement in non-operating items and working capital is needed to close the 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