THE NIHON SEIMA CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.21B
• Operating Income: ¥-22M
• Net Income: ¥604M
• EPS: ¥137.21

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: Headline net profit surged due to one-off gains, but core operations deteriorated into loss, making the quarter low-quality from an earnings sustainability standpoint. Revenue declined 4.2% YoY to 12.09, while gross profit was 3.00 and SG&A was 3.22, resulting in an operating loss of -0.22. Ordinary income was -0.21, but profit before tax jumped to 8.34, implying roughly 8.55 of extraordinary gains between ordinary and pretax levels. Net income rose to 6.04 (+783.5% YoY), equating to a 50.0% net margin, entirely at odds with the negative operating margin. Gross margin printed at 24.8%, while operating margin was -1.8% and ordinary margin -1.7%. Precise basis-point comparisons to last year are not possible due to missing prior-period margin data, but the direction is clear: operating and ordinary margins compressed into negative territory while net margin expanded sharply on non-recurring gains. Non-operating income was 0.16 (mainly dividends of 0.14), and non-operating expenses were 0.15, so the earnings step-change was not from recurring financial items. Interest expense was 0.08, driving an interest coverage of -2.71x (warning). Liquidity is adequate but not robust: current ratio 120.6% and quick ratio 101.5%, with short-term loans of 6.50 largely offset by cash of 7.57. Balance sheet leverage appears moderate with D/E (liabilities/equity) at 0.68x and a calculated equity ratio of about 51%, but the earnings power to service debt from operations is currently weak. ROE screens high at 28.4% (DuPont: NPM 50.0%, AT 0.292x, FL 1.95x), but it is inflated by the extraordinary gains; ROIC is -0.7%, underscoring poor core returns. Cash flow disclosure is absent; with operating income negative and working capital data limited, we cannot validate cash conversion for the quarter. The implied payout ratio is low at 2.9%, but dividend sustainability should be judged against normalized earnings/OCF, not this quarter’s one-offs. Forward-looking, stabilization requires restoring a positive operating margin by lifting gross margin and/or reducing SG&A, and improving interest coverage above 2x. Without recurring operating profit, reliance on extraordinary gains is not a viable strategy and raises earnings volatility and valuation risk.

Profitability Analysis

ROE decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 50.0% × 0.292 × 1.95 ≈ 28.4%. The largest driver of the change versus underlying operations is the net profit margin, which ballooned due to approximately 8.55 of extraordinary gains lifting PBT and NI despite negative operating/ordinary income. Business reason: non-recurring items (likely asset sales, special gains, or similar extraordinary factors under JGAAP) transformed a small operating loss into strong bottom-line profit. Sustainability: not sustainable; absent similar extraordinary gains, ROE would revert sharply lower, given negative operating margin and ROIC (-0.7%). Concerning trends: SG&A (3.22, 26.6% of sales) exceeded gross profit (3.00), indicating negative operating leverage; revenue fell 4.2% YoY while operating income fell more than proportionally (-133.5% YoY), signaling deleveraging and possible cost stickiness.

Growth Assessment

Top-line contracted 4.2% YoY to 12.09, indicating a demand softness or mix headwind. Gross margin at 24.8% combined with SG&A at 26.6% of sales pushed operating profit to -0.22, evidencing margin pressure and cost rigidity. Ordinary income also negative (-0.21), meaning recurring profit generation is currently weak. The net profit surge (+783.5% YoY) was driven by non-recurring gains (~8.55 at the extraordinary level), not by operational momentum. With non-operating income limited (0.16) and interest expense 0.08, recurring financial income is insufficient to offset operating losses. Outlook depends on restoring positive operating margin via price/mix improvements, procurement savings, or SG&A rationalization; absent these, further revenue declines would deepen losses. Given small scale (revenue ~12) and short-term loans (6.50), execution risk is non-trivial. Near term, expect earnings normalization downward if extraordinary gains do not recur; medium term improvement requires cost actions and potentially portfolio measures to lift ROIC above 5%.

Financial Health

Liquidity: current ratio 120.6% (>1.0 but below 1.5 benchmark), quick ratio 101.5% (just above the healthy threshold). No explicit warning for current ratio <1.0; none triggered. Solvency: liabilities/equity (D/E) at 0.68x—conservative relative to a 1.5x benchmark. Equity ratio (calculated) ~51% (21.30/41.45), suggesting a solid capital base. Debt structure: short-term loans 6.50 versus cash 7.57 and receivables 3.65 mitigate near-term rollover risk; long-term loans are 1.51. Maturity mismatch risk is moderate given current assets (14.52) exceed current liabilities (12.03) by 2.48, but reliance on short-term funding amid negative operating income elevates refinancing sensitivity. Debt service capacity is weak now (interest coverage -2.71x), necessitating operating turnaround. No off-balance sheet obligations disclosed; data limitations prevent a comprehensive assessment.

Cash Flow Quality

OCF is unreported, so OCF/Net Income cannot be assessed; we flag this as a limitation. Qualitatively, earnings quality is low: operating and ordinary losses alongside large extraordinary gains indicate poor cash conversion from core activities. Free cash flow is unreported; with operating loss and unknown capex, sustainability of dividends and debt service from internally generated cash is uncertain. Working capital: receivables (3.65) and inventories (2.31) appear reasonable vs payables (1.51), but without OCF we cannot test for collection or inventory build issues; no clear signs of manipulation, just lack of disclosure. Monitoring OCF relative to NI (>1.0 desired) is critical in subsequent quarters.

Dividend Sustainability

Reported DPS is unreported; calculated payout ratio is 2.9%, implying a small dividend against an inflated net income base. Because NI is boosted by extraordinary items, the low payout ratio likely overstates true coverage; sustainability should be evaluated versus normalized earnings and OCF. With interest coverage negative and operating income below zero, we cannot confirm that recurring cash inflow comfortably covers dividends. Until operating profitability and OCF normalize, a conservative dividend stance would be prudent; policy signals are absent in the data.

Risk Assessment

Business Risks:

• Operating margin negative due to SG&A exceeding gross profit, indicating cost rigidity and weak pricing power
• Revenue decline (-4.2% YoY) suggesting demand softness or adverse mix
• Earnings dependence on extraordinary gains, leading to volatile bottom line
• Small scale limits operating leverage and bargaining power with suppliers/customers

Financial Risks:

• Interest coverage -2.71x (warning), implying weak debt service capacity from operations
• Reliance on short-term loans (6.50) creates refinancing and rate reset risk
• Absence of OCF disclosure obscures cash generation and FCF coverage
• ROIC -0.7% points to value-destructive core returns if sustained

Key Concerns:

• Sustainability of net profit absent extraordinary gains
• Need to reduce SG&A or improve gross margin to restore positive operating margin
• Liquidity buffer adequate but not robust if operating losses persist
• Potential sensitivity to input cost inflation (materials/energy) in industrial materials context

Investment Implications

Key Takeaways:

• Headline ROE 28.4% is not reflective of core performance; net margin inflated by one-offs
• Core profitability deteriorated: operating and ordinary losses despite only modest revenue decline
• Debt metrics acceptable in level (D/E 0.68x) but coverage weak; turnaround needed to de-risk
• ROIC at -0.7% underscores the urgency of margin recovery and cost actions
• Cash flow opacity (no OCF/FCF) is a key data gap; watch subsequent disclosures

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio (target: operating margin back to positive, SG&A below gross profit)
• Gross margin progression versus input cost trends
• OCF/Net Income ratio (>1.0 for quality)
• Interest coverage (>2.0 near term, >5.0 medium term)
• Extraordinary gains/losses: frequency and magnitude
• Short-term loan balance and refinancing terms

Relative Positioning: Versus small-cap industrial materials/textile peers, the company shows weaker core profitability and returns (negative operating income, ROIC -0.7%) but maintains a comparatively solid equity cushion (~51% equity ratio). Near-term positioning hinges on cost control and restoring operating profit; otherwise earnings will remain more volatile than peers reliant on recurring operations.

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