NIPPON COKE & ENGINEERING COMPANY,LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥49.68B
• Operating Income: ¥517M
• Net Income: ¥-487M
• EPS: ¥-1.68

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

FY2026 Q2 was a weak quarter operationally with a headline net loss despite modest topline growth. Revenue rose 4.2% year over year to 496.8, while gross profit reached 39.3 for a gross margin of 7.9%. SG&A of 34.2 left operating income at 5.2, translating to a thin operating margin of roughly 1.0%. Ordinary income was 4.1 as non-operating losses (net -1.0, mainly interest expense of 4.24) compressed earnings below operating level. Profit before tax was near breakeven at 0.09, but an outsized tax expense of 4.96 pushed net income to a loss of -4.87 (net margin -1.0%). Interest coverage stood at 1.22x, highlighting limited buffer versus financing costs. Balance sheet leverage remains elevated with a reported D/E of 2.14x and equity ratio of about 32% (calculated), while liquidity is tight with a current ratio of 0.89 and negative working capital of -53.2. Asset turnover was 0.383, and with financial leverage at 3.14x, ROE printed at -1.2% per DuPont. Operating margin trends versus last year are not disclosed, so basis-point expansion/compression cannot be quantified; however, the current margin structure is narrow and vulnerable to cost or price shocks. Earnings quality cannot be assessed fully as cash flow data are unreported; nonetheless, the low interest coverage and negative net income indicate weak cash generation resilience. ROIC of 0.3% is well below the 5% warning line, suggesting ongoing value erosion at current returns. The abnormal effective tax rate (over 5,000%) likely reflects one-off tax items against minimal pretax profit, but it exacerbated the net loss in the quarter. Short-term funding reliance is high (short-term loans 287.4), creating refinancing and liquidity risk if credit conditions tighten. Forward-looking, stabilization requires margin improvement (pricing/pass-through, cost control), normalization of tax expense, and deleveraging or refinancing at acceptable costs. Absent cash flow disclosure, we remain cautious on dividend capacity and near-term financial flexibility.

Profitability Analysis

ROE decomposed: Net Profit Margin (-1.0%) × Asset Turnover (0.383) × Financial Leverage (3.14x) ≈ -1.2%. The largest swing factor is the net profit margin, driven by the combination of thin operating margin (~1.0%), negative net non-operating items (interest burden), and an extraordinary tax charge that turned marginal PBT into a loss. Business drivers include cost pressures within cost of sales and high financing costs; the tax item appears non-recurring given the mismatch versus minimal pretax income, but confirmation is needed. Asset turnover at 0.383 is low, typical for asset-heavy coke/industrial operations; no evidence suggests a structural change this quarter. Financial leverage remains high, amplifying equity returns in upcycles but magnifying losses in downcycles; it is unlikely to decline quickly without asset sales or equity infusion. Concerning trend: SG&A at 34.2 consumed 86.8% of gross profit, leaving limited operating leverage; with revenue up 4.2% YoY yet operating profit margin only ~1%, cost discipline and pricing are insufficient to widen margins under current conditions.

Growth Assessment

Revenue grew 4.2% YoY to 496.8, indicating stable to modest demand or pricing. Profit growth did not follow revenue; operating income was 5.2 (OPM ~1.0%) and ordinary income 4.1, both constrained by cost of sales and financing costs. Net income fell to -4.87 due to heavy tax expense; absent cash flow data and YoY profit comparatives, underlying growth quality cannot be fully validated. The profit mix remains heavily weighted to core operations with non-operating headwinds (interest); no disclosed one-time gains supported earnings. Outlook hinges on: (1) gross margin stabilization (commodity input pass-through), (2) lowered interest burden or improved interest coverage via EBITDA growth, and (3) normalization of the effective tax rate toward statutory levels. Near-term growth sustainability is challenged by thin margins and leverage; pricing power and cost efficiencies will be critical to convert revenue growth into profit growth.

Financial Health

Liquidity is weak: current ratio 0.89 and quick ratio 0.68, both below healthy thresholds, with negative working capital of -53.2. Explicit warning: Current Ratio < 1.0. Solvency is stretched: reported D/E is 2.14x (explicit warning: D/E > 2.0), though the calculated equity ratio is about 31.9% (413.65/1297.3), providing some balance sheet buffer. Maturity mismatch risk is present: current liabilities (494.7) exceed current assets (441.5), and short-term loans of 287.4 are high relative to cash (60.7) and receivables (122.3), elevating refinancing risk. Total interest-bearing debt inferred from loans is roughly 596.2 (short-term 287.4 + long-term 308.8). Off-balance sheet obligations are not disclosed; contingent liabilities, guarantees, or lease commitments, if present, could further constrain flexibility but are unobservable from available data.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported, so OCF/Net Income and free cash flow cannot be calculated. As a proxy, low interest coverage (1.22x) and negative net income suggest constrained internal cash generation. Working capital posture (negative) can bolster cash flow in the short term if liabilities fund operations, but it increases liquidity risk and can reverse if payables compress or credit terms tighten. Without capex disclosure, sustainability of any prospective dividend or debt reduction through FCF cannot be assessed. No clear signs of working capital manipulation can be determined given missing cash flow details and turnover metrics.

Dividend Sustainability

Dividend data are unreported, and net income is negative for the quarter, making payout assessment indeterminable. With FCF unavailable and interest coverage weak, discretionary distributions would likely rely on balance sheet capacity or seasonal cash inflows, which is risky under current liquidity conditions. Retained earnings stand at 332.8, offering accounting capacity, but near-term cash coverage is uncertain. Until profitability normalizes and OCF is evidenced above dividends and capex, sustainability cannot be confirmed. Policy outlook cannot be inferred without management guidance.

Risk Assessment

Business Risks:

• Commodity input price volatility affecting coke/coal-related cost of sales and gross margin
• Demand cyclicality tied to steel and industrial end-markets
• Energy cost volatility impacting production costs
• Potential environmental and carbon regulation costs affecting profitability
• Supply chain and procurement risks for imported raw materials (FX exposure to USD)

Financial Risks:

• Low liquidity with current ratio 0.89 and negative working capital
• High leverage (reported D/E 2.14x) increasing vulnerability to shocks
• Weak interest coverage at 1.22x raising debt service risk
• Refinancing risk due to large short-term loans (287.4)
• Earnings sensitivity to non-operating items, particularly interest expense

Key Concerns:

• Abnormally high effective tax rate (>5,000%) turning marginal pretax profit into a net loss
• Thin operating margin (~1.0%) provides limited cushion against cost or price volatility
• ROIC at 0.3% indicates value erosion at current returns
• Absence of cash flow disclosure limits assessment of earnings quality and FCF
• Potential covenant or rating pressure if profitability and coverage do not improve

Investment Implications

Key Takeaways:

• Topline grew 4.2%, but profitability deteriorated to a net loss due to tax and financing burdens
• Operating structure remains fragile with OPM ~1.0% and SG&A absorbing most gross profit
• Leverage and liquidity profiles are tight (CR 0.89, D/E 2.14x, interest coverage 1.22x)
• ROIC 0.3% well below hurdle suggests need for margin uplift or capital optimization
• Normalization of tax expense is a key swing factor for a return to profitability

Metrics to Watch:

• Gross margin trend and price pass-through to offset input costs
• Interest coverage and net financial expenses
• Working capital trajectory (payables, inventory, receivables) and current ratio
• Any disclosure on OCF/FCF and capex plans
• Debt maturity profile and refinancing terms
• Effective tax rate normalization and any one-off tax items

Relative Positioning: Within Japan’s coke/industrial materials space, the company exhibits weaker near-term liquidity and leverage metrics than conservative peers, with thinner operating margins and lower ROIC, leaving it more exposed to cost and rate shocks until cash flow visibility improves.

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