Nisshinbo Holdings Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥364.57B
• Operating Income: ¥18.87B
• Net Income: ¥3.53B
• EPS: ¥88.44

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

Verdict: Solid top-line growth and a sharp rebound in profitability, but earnings quality signals are mixed given a high effective tax rate, sizable below-ordinary adjustments, and limited cash flow disclosure. Revenue rose 4.2% YoY to 3,645.68, with operating income surging 381.7% YoY to 188.68, and ordinary income up 155.2% YoY to 213.11. Net income increased 368.2% YoY to 138.24, translating to a calculated ROE of 4.6% on book value per share of 1,923.73 JPY. Gross margin printed at 19.9%, while the SG&A ratio was 18.9%, implying leaner overhead relative to sales and/or increased other operating gains supporting the operating margin. The operating margin calculates to about 5.2%, up from roughly 1.1% a year ago, an expansion on the order of ~406 bps. Interest coverage improved to 11.27x, helped by stronger operating profit and moderate interest expense of 16.74. Liquidity is robust with a current ratio of 214% and quick ratio of 180%, and equity-to-asset capital structure is conservative at approximately 47.5% equity ratio (3,004.84 / 6,325.22). However, the reported profit bridge is unusual: ordinary income of 213.11 drops to profit before tax of 87.24, suggesting large extraordinary losses; despite this, net income still lands at 138.24, producing a high reported effective tax rate of 59.5% and implying material below-the-line items and/or non-controlling interest effects. Non-operating income remains meaningful at 70.41 (dividends 9.19, interest 9.10), and the provided non-operating income ratio of 50.9% implies elevated reliance on non-core income streams. ROIC at 2.4% is below the 5% warning threshold, flagging capital efficiency as a key improvement area despite the earnings rebound. Cash flow data, depreciation, and capex are unreported, preventing confirmation that the earnings rebound is cash-backed. The payout ratio is estimated at 44.1%, which appears manageable given the profit recovery, but sustainability cannot be verified without FCF visibility. Inventories (546.32) and receivables (1,099.15) are sizable, so working capital discipline will be crucial to convert profits to cash. Forward-looking, operating leverage from cost control and revenue mix improvement appears supportive, but the heavy below-ordinary adjustments and low ROIC indicate the turnaround is not yet firmly structural. Key watchpoints are operating margin durability, working-capital turns, and any repeat of extraordinary losses that could undermine visibility. In sum, momentum improved meaningfully, but the quality and durability of the recovery require validation via operating cash flow and ROIC improvement in coming quarters.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.6% = Net Profit Margin 3.8% × Asset Turnover 0.576 × Financial Leverage 2.11x. The largest swing versus last year appears to be Net Profit Margin, given operating income rose +381.7% YoY on +4.2% revenue while leverage and asset turnover tend to move gradually. Margin expansion likely stems from improved operating efficiency/price-cost balance and other operating items, as SG&A intensity (18.9% of sales) appears contained and interest burden is modest. Operating margin approximates 5.2% this quarter, versus an estimated ~1.1% a year ago, implying stronger contribution from core operations and/or beneficial mix. Ordinary income grew strongly, but a substantial drop to profit before tax suggests large extraordinary losses, making some of the net margin uplift dependent on below-line dynamics (and potentially non-controlling interests). Sustainability: part structural (cost control, normalization in certain segments) and part one-time (extraordinary items, non-operating gains; non-operating income ratio 50.9% is elevated). Asset turnover at 0.576 suggests moderate efficiency; large working capital balances (AR 1,099.15, inventories 546.32) constrain turnover and ROIC. Financial leverage at 2.11x is moderate; debt-to-equity at 1.11x is within conservative bounds, so leverage is not the primary ROE driver. Concerning trends to monitor: any re-acceleration of SG&A ahead of revenue, reliance on non-operating gains, and persistence of extraordinary losses that depress PBT and cloud earnings quality.

Growth Assessment

Revenue growth of 4.2% YoY to 3,645.68 indicates moderate topline momentum, likely supported by price/mix and stabilization in key end-markets. Profit growth outpaced sales: operating income +381.7% YoY to 188.68 and ordinary income +155.2% YoY to 213.11, reflecting strong operating leverage and/or improved product mix. Estimated operating margin expansion of ~406 bps (to ~5.2%) signals better cost discipline and pricing power. However, the large gap between ordinary income (213.11) and profit before tax (87.24) points to sizable extraordinary losses, which if recurring, would cap earnings scalability. Non-operating income remained sizable at 70.41 (dividends and interest totaling 18.29), indicating partial support from financial returns. With ROIC at 2.4%, incremental growth should prioritize higher-return projects and working capital turns to lift capital efficiency. Outlook hinges on sustaining operating margin gains, minimizing extraordinary losses, and converting earnings to cash; absent OCF and capex data, visibility on sustainable growth is limited. Near-term growth is credible given the profit rebound, but the quality of growth needs validation through improved ROIC and OCF.

Financial Health

Liquidity is strong: current ratio 213.9% and quick ratio 180.1% imply ample coverage of short-term obligations; no warning (both well above benchmarks). Working capital stands at 1,844.33, with cash and deposits of 454.14 providing additional buffer. Solvency is conservative: total equity 3,004.84 versus liabilities 3,320.38, yielding an equity ratio near 47.5%; debt-to-equity at 1.11x remains within typical industrial comfort ranges (<1.5x). Short-term loans are 167.42 against cash 454.14 and receivables 1,099.15, indicating low maturity mismatch risk. Long-term loans of 1,200.07 dominate the debt stack, aligning borrowing tenors with likely asset lives; interest coverage of 11.27x indicates comfortable service capacity. No off-balance sheet obligations are disclosed in the provided data. There are no explicit red flags such as Current Ratio < 1.0 or D/E > 2.0.

Cash Flow Quality

Operating cash flow, free cash flow, and capex are unreported, so OCF/Net Income and FCF coverage cannot be assessed. This imposes a material limitation on earnings quality analysis. Working capital balances are sizable (AR 1,099.15; inventories 546.32), so conversion of earnings to cash will depend on receivable collections and inventory normalization. Interest coverage of 11.27x suggests current cash earnings support debt service, but without OCF we cannot confirm cash realization. The large gap between ordinary income and PBT implies extraordinary losses; cash vs non-cash nature of these items is unknown. No clear signs of working capital manipulation are inferable from the limited snapshot, but monitoring days sales outstanding and inventory turns is important in subsequent quarters.

Dividend Sustainability

The calculated payout ratio is 44.1%, which appears within a sustainable range (<60%) given the profit rebound. However, OCF and FCF are unreported; therefore, FCF coverage of dividends cannot be evaluated and remains a key uncertainty. Balance sheet liquidity is solid (cash 454.14; strong working capital), which provides near-term flexibility to maintain dividends. Medium-term sustainability hinges on maintaining operating margins, reducing extraordinary losses, and improving ROIC above the 5% warning threshold. Policy outlook cannot be inferred due to lack of disclosed DPS data; if management targets stable to rising dividends, current earnings provide capacity, but confirmation requires positive, recurring FCF.

Risk Assessment

Business Risks:

• End-market cyclicality in automotive/electronics affecting volume and pricing
• Commodity and input cost volatility impacting gross margins
• Execution risk in cost reduction and mix improvement necessary to sustain ~5% operating margin
• Dependence on non-operating income (non-operating income ratio 50.9%) to support earnings
• Potential recurring extraordinary losses given the large gap between ordinary income and PBT

Financial Risks:

• Low ROIC at 2.4% indicates capital inefficiency and potential value dilution if reinvestment is not disciplined
• Working capital intensity (AR 1,099.15; inventories 546.32) could pressure cash conversion if demand slows
• Exposure to interest rate risk on 1,200.07 of long-term loans (refinancing and rate reset risk)
• Currency fluctuation risk affecting import costs, export pricing, and translation of overseas operations

Key Concerns:

• Earnings quality: lack of OCF/FCF data and high effective tax rate (59.5%) obscure underlying quality
• Extraordinary losses compressing PBT to 87.24 despite strong ordinary income of 213.11
• Sustainability of margin gains amid macro uncertainty and input cost dynamics
• Persistently low capital efficiency (ROIC 2.4%) despite profit rebound

Investment Implications

Key Takeaways:

• Profitability rebound is real at the operating and ordinary income lines, with operating income +381.7% YoY.
• Operating margin expanded by an estimated ~406 bps to ~5.2%, aided by cost control/mix and other operating items.
• Balance sheet and liquidity are solid (current ratio 214%, equity ratio ~47.5%, interest coverage 11.27x).
• Earnings quality is not fully verifiable without OCF/FCF; reliance on non-operating income is elevated (50.9%).
• Large extraordinary losses reduced PBT materially, adding volatility to bottom-line visibility.
• ROIC at 2.4% flags capital efficiency as a priority for improvement.
• Payout ratio ~44% appears manageable, but FCF coverage remains unknown.

Metrics to Watch:

• Operating margin and SG&A-to-sales trend
• Operating cash flow, FCF, and capex once disclosed
• Working capital turns (DSO, DIO) and inventory normalization
• Extraordinary gains/losses and their recurrence
• ROIC trajectory and asset turnover improvement
• Non-operating income contribution and interest coverage
• Effective tax rate normalization

Relative Positioning: Within Japanese industrials with exposure to auto/electronics, the company shows improving operating leverage and strong liquidity, but trails on capital efficiency (ROIC 2.4%) and exhibits higher reliance on non-core income and extraordinary items than peers with steadier cash conversion.

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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