NITTO BOSEKI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥57.41B
• Operating Income: ¥9.45B
• Net Income: ¥7.02B
• EPS: ¥188.94

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: A solid first half with double-digit profit growth, margin expansion, and decent cash conversion, albeit with sub-target capital efficiency (ROIC 4.7%). Revenue rose 8.2% YoY to 574.1, supported by improved operating leverage as operating income climbed 28.7% YoY to 94.5. Ordinary income increased 18.6% YoY to 91.6, reflecting a net non-operating loss (non-op income 7.8 vs non-op expenses 10.8) that slightly diluted the operating outperformance. Net income advanced 27.1% YoY to 68.8, and total comprehensive income was notably higher at 97.0, implying positive OCI tailwinds (likely securities and FX). Profitability strengthened: operating margin reached about 16.5%, and net margin ~12.0%. We estimate operating margin expansion of roughly 262 bps YoY (from ~13.9% to ~16.5%) and net margin expansion of ~179 bps YoY (from ~10.2% to ~12.0%). Gross margin stands at 38.7% (YoY change not disclosed). Earnings quality appears sound: OCF of 70.7 slightly exceeds net income (OCF/NI 1.03x), pointing to acceptable cash realization of profits. The balance sheet is conservative with a current ratio of 263% and D/E of 0.67x; interest coverage is strong at 24.1x, indicating ample debt service capacity. That said, capital efficiency is a weak spot: ROE is 4.8% and ROIC 4.7%, both below typical cost-of-equity thresholds and the 7–8% ROIC benchmark. Non-operating items net to a small drag despite dividend and interest income, signaling that core operating improvement is the main earnings driver. With D&A of 44.0 and investing cash flows unreported, capex intensity and FCF durability remain the key unknowns for the sustainability of growth and dividends. The positive spread between ordinary and operating income narrowed due to higher non-operating costs, but the effective tax rate of ~24% is normal. Forward-looking, sustaining the margin gains will hinge on continued mix improvement and cost pass-through, as well as demand conditions in end markets (not disclosed here). Absent capex and dividend cash data, we assume moderate dividend sustainability given a 58.1% payout ratio and acceptable cash conversion, but FCF coverage cannot be confirmed.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.8% = Net Profit Margin 12.0% × Asset Turnover 0.241 × Financial Leverage 1.67x. The largest driver of YoY improvement is margin expansion: operating income grew 28.7% vs revenue +8.2%, lifting net margin by an estimated ~179 bps YoY (to ~12.0%). Asset turnover remains low at 0.241 (half-year basis) given a sizable asset base (assets 2,386), and financial leverage is moderate (D/E 0.67; equity 1,425). Business rationale: stronger operating leverage (SG&A and fixed costs absorbed on higher sales) and possibly favorable mix/pricing likely drove operating margin to ~16.5% (ordinary margin to ~16.0%), while non-operating items were a small net drag. Sustainability: margin gains appear operationally driven (rather than one-off), but durability depends on input costs/energy normalization and end-market demand—no segment data provided to validate persistence. Watchpoints: • Non-operating expenses outpaced non-operating income despite 3.66 in dividends and 0.30 in interest income, reducing ordinary income vs operating income. • We cannot verify whether SG&A growth exceeded revenue growth due to lack of YoY SG&A disclosure; current SG&A is 127.5. • ROIC at 4.7% remains below the 7–8% target zone; even with better margins, low asset turnover constrains returns.

Growth Assessment

Top-line growth of 8.2% YoY to 574.1 is healthy, with profit growth outpacing sales (OP +28.7%, NI +27.1%), indicating improved operating leverage. Operating margin expanded to ~16.5% (up ~262 bps YoY), and ordinary margin to ~16.0% (up ~140 bps), reflecting core execution rather than one-time gains (non-operating net was negative). Net margin improved by ~179 bps YoY to ~12.0%. EBITDA of 138.6 implies an EBITDA margin of 24.1%, supporting the margin narrative. However, without segment details, it is unclear how much came from mix or price vs volume. The absence of capex and order/backlog data limits visibility into the sustainability of growth in 2H. With a normalized tax rate (~24%) and limited FX/investment gains in P/L, earnings quality appears decent. Near-term outlook will depend on cost pass-through resilience and demand in core end-markets (e.g., glass fiber/insulation, electronics/industrial applications), which are not disclosed here.

Financial Health

Liquidity is strong: current ratio 263% and quick ratio 233%, with cash 295.2, AR 345.3 and inventories 139.0 versus current liabilities 456.3. No warning on current ratio (<1.0), and no D/E red flag (>2.0); D/E stands at 0.67x. Maturity profile looks balanced: short-term loans 125.0 are well-covered by cash and liquid working capital; long-term loans are 261.2, supporting a manageable term structure. Interest coverage is robust at 24.1x (EBITDA or EBIT vs interest expense of 3.93), indicating low refinancing risk under current conditions. Off-balance sheet obligations are not reported here; given investment securities of 247.7 and positive OCI, market valuation swings could influence equity but not liquidity near term. Equity base is sizable at 1,425.5, yielding a conservative capital structure. No signs of a near-term maturity mismatch given net working capital of 744.8.

Cash Flow Quality

OCF/Net Income is 1.03x (70.7 OCF vs 68.8 NI), clearing the 0.8x quality threshold and suggesting acceptable realization of earnings into cash. Working capital appears reasonably controlled given positive OCF alongside revenue growth; AR and inventory levels are not excessive relative to sales and COGS, though detailed turns are unavailable. Free cash flow cannot be assessed due to unreported investing CF and capex; D&A is 44.0, implying non-trivial reinvestment needs, but we cannot determine whether capex exceeded D&A. Financing CF was +8.0, suggesting modest net borrowing or other financing inflows; dividend and share repurchase cash outflows are unreported. No clear signs of working capital manipulation based on available data (no large divergence between NI and OCF, and no outsized receivable build indicated).

Dividend Sustainability

The calculated payout ratio is 58.1%, within the typical sustainability threshold (<60%), but DPS and total dividends paid are unreported. With OCF roughly matching net income and a conservative balance sheet, baseline coverage looks acceptable; however, the absence of capex and FCF data prevents confirmation of FCF coverage. If capex approximates or exceeds D&A (44.0), FCF headroom may be tighter, but strong liquidity and low leverage provide a buffer. Policy visibility is limited without management guidance; absent negative surprises in 2H, maintaining dividends at the implied payout level appears plausible, but growth in dividends will require continued margin resilience and better ROIC.

Risk Assessment

Business Risks:

• End-market cyclicality in core materials segments (e.g., glass fiber/insulation, electronics-related uses) could pressure volumes and pricing.
• Input cost and energy price volatility may erode recently improved margins if not fully passed through.
• Product mix normalization risk if high-margin categories underperform in 2H.
• Supply chain and logistics cost fluctuations impacting gross margin (currently 38.7%, YoY change unknown).

Financial Risks:

• ROIC at 4.7% (<5%) signals subpar capital efficiency; returns may lag cost of capital.
• Non-operating items net negative (income 7.8 vs expenses 10.8) could continue to dilute ordinary income if interest costs or other expenses rise.
• Market value fluctuations in investment securities (247.7) can drive OCI volatility and impact equity.
• Potential capex needs (capex unreported) could absorb OCF and constrain FCF, affecting dividend capacity.

Key Concerns:

• Low asset turnover (0.241) and moderate leverage (1.67x) cap ROE at 4.8% despite margin gains.
• Data gaps on capex, investing CF, and dividend cash flows limit FCF and payout visibility.
• Sustainability of margin expansion without segment-level evidence of structural mix shift.

Investment Implications

Key Takeaways:

• Operational improvement is the main earnings engine: OP +28.7% on revenue +8.2% with ~262 bps operating margin expansion.
• Earnings quality is acceptable (OCF/NI 1.03x) and leverage is conservative (D/E 0.67x; interest cover 24x).
• Capital efficiency is the weak link: ROIC 4.7% and ROE 4.8% highlight the need for better asset turns or portfolio optimization.
• Non-operating items are a modest drag; core performance, not one-offs, is driving growth.
• Dividend sustainability looks reasonable at a 58.1% payout, but FCF proof is missing without capex data.

Metrics to Watch:

• Operating and net margin trajectory in 2H (target: sustain ~16%+ OP margin).
• Capex and investing CF disclosure to validate FCF coverage of dividends.
• ROIC improvement toward 7–8% via asset turn and mix enhancements.
• Working capital turns (AR days, inventory days) to maintain OCF ≥ NI.
• Non-operating expense trend (especially interest expense vs coverage) and OCI volatility from investment securities.

Relative Positioning: Within Japan materials/industrial peers, the company is demonstrating above-peer margin momentum and strong balance sheet conservatism but lags on capital efficiency (ROIC/ROE). Confirmation of sustainable FCF and clearer capex discipline would improve its relative standing.

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