NITCHO CORPORATION FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥18.12B
• Operating Income: ¥844M
• Net Income: ¥601M
• EPS: ¥540.86

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: FY2025 Q4 (full-year) results were mixed—resilient profitability metrics on the P/L but a clear deterioration in cash flow quality, with negative operating cash flow overshadowing stable balance sheet liquidity. Revenue declined 1.8% YoY to 181.2, while operating income fell a steeper 20.2% YoY to 8.44, indicating margin pressure. Net income decreased 14.2% YoY to 6.01, with an effective tax rate of 34.5% dampening bottom-line resilience. Gross margin printed at 29.7% and operating margin at 4.7%, with EBITDA margin at 5.5%, reflecting modest operating leverage in a softer top-line environment. Based on the provided growth rates, operating margin contracted by roughly 107 bps YoY (from about 5.7% to 4.7%). Net margin compressed by about 48 bps YoY (from roughly 3.80% to 3.32%). Ordinary income margin was 5.0% and benefited little from non-operating items (non-operating income: 0.13; expenses: 0.03), underscoring that the P/L was driven by core operations. ROE was 8.0% via DuPont (Net Margin 3.3% × Asset Turnover 1.365 × Leverage 1.78x), indicating acceptable capital efficiency for a single-entity JGAAP filer. Liquidity is solid: current ratio 176.5%, quick ratio 160.5%, cash and deposits 45.78 versus current liabilities 63.87, and interest coverage an ample 1,073x. However, earnings quality is weak this year: OCF was -8.59 versus net income 6.01 (OCF/NI -1.43x), and free cash flow was -8.69, suggesting heavy working capital outflows or timing effects. SG&A totaled 43.13, with salaries and allowances 15.81 indicating continued cost stickiness amid softer sales; this capped operating leverage. Leverage is moderate with total liabilities/equity at ~1.01x, and short-term loans of 2.30 are easily covered by cash on hand. Dividend affordability on an earnings basis appears manageable (calculated payout ~30%) but is not covered by FCF this year (FCF coverage -4.78x), raising a caution flag if cash conversion does not normalize. The absence of consolidated data and several unreported line items limits precision—particularly on long-term debt, detailed SG&A, and dividends. Looking forward, a normalization of working capital and firming order intake are key to restoring OCF and sustaining dividends; absent this, management may need tighter cost controls or capex moderation to protect cash. Overall, stable profitability with healthy liquidity, but near-term focus shifts to cash conversion and margin recovery.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.0% = Net Profit Margin 3.3% × Asset Turnover 1.365 × Financial Leverage 1.78x. Component change: The primary drag YoY was the net margin, inferred from operating income -20.2% vs revenue -1.8%, implying operating margin contracted roughly 107 bps to 4.7% and net margin shrank ~48 bps to 3.3%. Business drivers: Soft sales and sticky SG&A (43.13; salaries 15.81) reduced operating leverage; limited non-operating support (net non-op +0.10) could not offset the weaker core. Sustainability: Margin compression appears cyclical/operational rather than structural—recoverable if pricing, mix, or utilization improve and SG&A growth is constrained; however, wage inflation embedded in salaries may limit quick rebound. Asset turnover (1.365) appears stable relative to the business model and likely did not materially worsen; leverage at 1.78x is moderate and not the ROE driver. Concerning trends: SG&A growth versus revenue is not disclosed, but the decline in operating income against a modest top-line dip implies SG&A intensity rose; close monitoring of SG&A-to-sales is warranted.

Growth Assessment

Top-line: Revenue fell 1.8% to 181.2, suggesting softer demand or shipment timing in commercial kitchen-related markets. Profitability: Operating income -20.2% and net income -14.2% indicate negative operating leverage; EBITDA was 10.04 (5.5% margin). Margin dynamics: Operating margin ~4.7% (down ~107 bps YoY by inference); net margin 3.3% (down ~48 bps). Non-operating: Minor contribution (non-op income 0.13; expenses 0.03), with negligible interest income; no material one-off gains disclosed. Quality of growth: Weak, given OCF -8.59 despite positive earnings; likely driven by working capital outflows (receivables 36.62 and inventories 10.23 suggest cash tied up). Outlook: Recovery hinges on order intake normalization, AR collections, and margin discipline; with cash reserves strong, the company can bridge the near term, but sustained margin pressure would cap earnings growth.

Financial Health

Liquidity: Current ratio 176.5% and quick ratio 160.5% are healthy; cash 45.78 covers ~72% of current liabilities (63.87). No warning on current ratio (<1.0) or D/E (>2.0). Solvency: Total liabilities/equity ~1.01x is moderate for a single-entity manufacturer; interest coverage is extremely strong (1,073.8x) due to very low interest expense (0.01). Maturity profile: Short-term loans 2.30 are immaterial versus cash and current assets (112.74), implying low near-term refinancing risk; long-term loans are unreported. Balance sheet composition: Working capital is ample at 48.87; accounts receivable 36.62 and inventory 10.23 are manageable relative to sales but require attention given negative OCF. Off-balance sheet: No disclosures provided; none assumed.

Cash Flow Quality

OCF/Net Income at -1.43x is a clear quality flag, indicating earnings did not translate into cash this year. Free cash flow was -8.69 despite modest capex (-1.36), implying working capital was the dominant headwind. With financing CF at -2.22 (including share repurchases -0.89), cash usage exceeded internal generation; however, the cash balance remains sizable (45.78). Sustainability: If OCF normalizes via receivable collections and inventory control, dividend and capex could be covered; absent improvement, continued buybacks/dividends would rely on cash reserves. Working capital signals: Elevated AR relative to sales and negative OCF suggest elongated collection cycles or shipment timing; no evidence of aggressive revenue recognition from the data, but monitoring DSO and inventory turns is essential.

Dividend Sustainability

Payout ratio (calculated) is 30.2%, which is reasonable on an earnings basis, but dividends are not covered by FCF this year (FCF coverage -4.78x). Total dividends and DPS are unreported; therefore, we infer sustainability mainly from earnings and cash flow. With cash 45.78 and low debt, near-term dividend capacity is supported by the balance sheet, but persistence of negative OCF would pressure future distributions or necessitate reductions in buybacks (already -0.89 this year). Policy outlook: Maintaining payout appears feasible if working capital normalizes and margins stabilize; otherwise, management may prioritize liquidity over incremental shareholder returns.

Risk Assessment

Business Risks:

• Demand volatility in commercial kitchen/foodservice and institutional equipment markets, leading to uneven order intake.
• Input cost inflation (steel and components) compressing gross margins if pricing lags.
• Wage inflation and fixed SG&A burden (salaries 15.81) limiting operating leverage.
• Project/timing risk causing AR build and OCF volatility.
• Regulatory/standards changes for food safety and energy efficiency requiring product updates.

Financial Risks:

• Negative OCF (-8.59) versus positive NI (6.01) indicating weak cash conversion.
• Dividend and buyback funding not covered by FCF (-8.69), increasing reliance on cash reserves.
• Receivables concentration/collection risk implied by AR 36.62 and negative OCF.
• Limited disclosure on long-term borrowings; potential hidden maturity exposure cannot be fully assessed.

Key Concerns:

• Margin compression (operating margin down ~107 bps YoY by inference).
• OCF/NI at -1.43x (below 0.8 benchmark) signaling earnings quality risk.
• SG&A intensity rise amid revenue decline, constraining profit recovery.
• Sustainability of dividends if cash conversion does not normalize.

Investment Implications

Key Takeaways:

• Core profitability held positive but weakened: operating income -20.2% on revenue -1.8%.
• Operating and net margins compressed by ~107 bps and ~48 bps YoY, respectively (derived).
• ROE at 8.0% is acceptable, driven mainly by asset turnover and moderate leverage rather than margin strength.
• Cash conversion is the primary issue: OCF -8.59 vs NI 6.01; FCF -8.69.
• Liquidity is strong (current ratio 176.5%, cash 45.78), mitigating near-term stress.
• Dividend affordability on earnings is fine (~30% payout), but not covered by FCF this year.

Metrics to Watch:

• OCF recovery and OCF/NI ratio (target >1.0).
• DSO and inventory turns to diagnose working capital release.
• Gross margin trajectory and price-cost spread versus input inflation.
• SG&A-to-sales ratio, particularly salaries trend versus revenue.
• Order backlog/book-to-bill as a demand leading indicator.
• Capex discipline and buyback intensity relative to FCF.

Relative Positioning: Within small-cap Japanese industrials/foodservice equipment peers, the company exhibits solid liquidity and moderate leverage with mid-single-digit operating margins and an ROE near 8%. However, cash flow conversion lags peers that maintain consistently positive OCF, placing near-term emphasis on working capital normalization and margin stabilization.

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