NIPPON PRIMEX INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.39B
• Operating Income: ¥196M
• Net Income: ¥149M
• EPS: ¥28.40

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Soft quarter with top-line contraction and operating margin compression, partially cushioned by non-operating gains, leaving ROE and ROIC subdued. Revenue declined 6.7% YoY to 33.90, while operating income fell 33.4% YoY to 1.96 as operating leverage turned negative. Gross profit was 8.51, implying a gross margin of 25.1%, but the key pressure point was SG&A at 6.55, keeping the SG&A ratio elevated at 19.3%. Operating margin compressed to 5.8% from roughly 8.1% a year ago, a decline of about 230 bps. Ordinary income was resilient at 2.33 (-0.9% YoY) thanks to non-operating income of 0.38 (mainly dividends 0.24 and interest 0.08), lifting the ordinary margin to about 6.9% versus ~6.5% last year (+40 bps). Net income decreased 11.1% YoY to 1.49, with net margin at 4.4% vs ~4.6% last year (-20 bps), pressured by a relatively high effective tax rate of 35.9%. Cash conversion was modest but passable with OCF at 1.20, equating to 0.81x of net income; not a red flag, but short of best practice (>1.0x). Liquidity remains a strength: cash and deposits of 51.21, current ratio 428%, and interest coverage 117x indicate very low financial stress. Balance sheet is conservative with D/E of 0.31x and working capital of 57.94, and current assets comfortably exceed current liabilities. Capital efficiency is the main weakness: ROE is 1.9% and ROIC is 4.4%, both below desirable levels, reflecting low asset turnover (0.324x) and low leverage. The quarter’s profit mix leaned more on financial income, which is less controllable, rather than core operating momentum. A calculated payout ratio of 92.7% looks elevated against cash generation and subdued growth, though dividend specifics were not disclosed. Forward-looking, stabilization of revenue and tighter SG&A control are required to restore operating margin to prior levels. With a sizeable cash position, the company has room to invest in growth or optimize capital structure, but sustained ROIC improvement above 5–7% will be critical for valuation re-rating.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.9% = Net Profit Margin 4.4% × Asset Turnover 0.324 × Financial Leverage 1.31x. The weakest link is asset turnover (0.324x), with low leverage (1.31x) also dampening ROE; margins are mid-single digit. YoY, operating margin compressed from 8.1% to 5.8% (-230 bps) as a 6.7% revenue decline outpaced any SG&A flexibility, indicating negative operating leverage. Ordinary margin improved about +40 bps due to higher non-operating income, masking part of the operating weakness; net margin slipped ~-20 bps on a high tax rate. Business reason: softer demand/top-line plus sticky fixed costs kept SG&A ratio high (19.3%), while dividend and interest income provided a cushion. Sustainability: reliance on non-operating income (dividends/interest) is less controllable; operating margin recovery needs revenue normalization and/or SG&A discipline. Concerning trend: operating income (-33.4% YoY) fell much faster than revenue (-6.7% YoY), signaling adverse operating leverage; continue to monitor if SG&A growth exceeds revenue when sales recover.

Growth Assessment

Revenue contracted 6.7% YoY to 33.90, reflecting softer demand or volume/pricing headwinds. Operating income declined 33.4% YoY to 1.96, indicating deleveraging on a smaller sales base. Ordinary income held nearly flat (-0.9% YoY) thanks to 0.38 of non-operating gains (dividends/interest), but this is not a structural driver of growth. Net income declined 11.1% YoY to 1.49, impacted by the tax rate (35.9%). Profit quality mixed: core profit weakened; headline ordinary profit benefited from financial income. Near-term outlook hinges on revenue stabilization and SG&A containment; without these, operating margin is likely to remain in the mid-5% range. With cash of 51.21 and minimal leverage, the company can invest to reignite growth; however, ROIC at 4.4% signals returns are currently below a healthy hurdle.

Financial Health

Liquidity is very strong: current ratio 428.1% and quick ratio 397.4%; no warning flags (both >> healthy thresholds). Cash and deposits (51.21) exceed current liabilities (17.66) by a wide margin, minimizing short-term refinancing risk. Solvency is conservative: D/E 0.31x and interest coverage 117.15x indicate ample capacity to service obligations. Maturity mismatch risk appears low given large liquid assets versus current liabilities; accounts receivable (10.11) and inventories (5.42) are covered by cash. Interest-bearing debt details are unreported, but overall liabilities are modest (24.60) relative to equity (79.96). No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF of 1.20 equates to 0.81x of net income (1.49); this is slightly below ideal (>1.0x) but not below the 0.8x warning threshold, indicating acceptable but improvable cash conversion. Working capital movements are not disclosed, limiting diagnosis of the OCF shortfall versus net income. Capex was light at 0.11; a proxy FCF of ~1.09 (OCF minus capex) is positive, but full investing CF was unreported, so true FCF may differ. With strong cash on hand, near-term funding for operations and maintenance capex is secure. No clear signs of working capital manipulation can be assessed due to limited disclosures.

Dividend Sustainability

Dividend details are largely unreported; however, a calculated payout ratio of 92.7% appears elevated relative to the <60% benchmark for sustainability. Given proxy FCF of ~1.09 and net income of 1.49, near-term dividend coverage could be tight if the payout approximates the calculated ratio, especially amid weaker operating trends. The balance sheet’s cash buffer provides flexibility to maintain dividends in the short run, but medium-term sustainability would benefit from improved operating cash generation and ROIC. Policy outlook is uncertain due to missing DPS data; management may need to balance shareholder returns with reinvestment to lift ROIC above 5–7%.

Risk Assessment

Business Risks:

• Revenue softness leading to negative operating leverage (sales -6.7% YoY vs operating income -33.4% YoY).
• Margin pressure if SG&A remains sticky relative to sales (SG&A ratio 19.3%).
• Dependence on non-operating income (dividends/interest 0.38) to stabilize ordinary profit.
• Potential input cost or pricing pressures not offset by mix.
• Domestic demand stagnation risk given Japan-centric exposure (implied).

Financial Risks:

• Low ROIC at 4.4% (<5% threshold) indicating weak capital efficiency.
• High effective tax rate (35.9%) dampening net profit and cash generation.
• Elevated payout ratio (92.7%) may strain cash if core earnings soften.
• Limited visibility on interest-bearing debt profile (unreported breakdown).

Key Concerns:

• Sustained operating margin compression (-~230 bps YoY).
• ROE at 1.9% and asset turnover at 0.324x point to subdued returns.
• Ordinary income resilience driven by non-operating items rather than core operations.
• Data gaps on DPS, detailed investing CF, and SG&A components reduce transparency.

Investment Implications

Key Takeaways:

• Core operating performance weakened; ordinary profit stability was non-core driven.
• Liquidity and solvency are very strong, providing flexibility to invest or support payouts.
• Capital efficiency is the main drag (ROIC 4.4%, ROE 1.9%); asset turnover is low.
• Cash conversion is acceptable but below best practice (OCF/NI 0.81x).
• Payout ratio looks high versus subdued earnings momentum.

Metrics to Watch:

• Revenue trajectory and order backlog (if disclosed) for signs of stabilization.
• Operating margin vs SG&A ratio to assess operating leverage normalization.
• OCF/Net income conversion and working capital days (AR and inventory turns).
• ROIC progression toward >5–7% through margin and turnover improvements.
• Dividend policy disclosures (DPS, payout target) and true FCF including investing CF.

Relative Positioning: Financially conservative with abundant liquidity versus many small-cap peers, but weaker capital efficiency and greater reliance on non-operating income leave it relatively disadvantaged on quality of earnings and sustainable returns.

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
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