NIPPON COKE & ENGINEERING COMPANY,LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥49.68B
• Operating Income: ¥517M
• Net Income: ¥-2.23B
• 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

Nippon Coke & Engineering (3315) reported FY2026 Q2 consolidated results under JGAAP with modest topline growth but pressured margins and a swing to a net loss due to significant non-operating/special items. Revenue rose 4.2% YoY to ¥49.68bn, evidencing steady demand in core coke/coal-related businesses despite a sluggish industrial backdrop. Gross profit was ¥1.138bn, implying a very thin gross margin of 2.3%, highlighting intense input-cost pressure and limited pricing power in a commodity-centric model. Operating income remained ¥0.517bn, effectively flat YoY, translating to an operating margin of around 1.0%, which underscores limited operating leverage in the current cost environment. Ordinary income was ¥0.413bn, reflecting higher financial costs (interest expense ¥0.198bn) and other non-operating items. Net income fell to a loss of ¥0.487bn, implying sizable special/extraordinary losses; given ordinary income of ¥0.413bn and an income tax credit of ¥0.93bn, we infer roughly ¥1.8bn in extraordinary losses during the period. EPS printed at -¥1.68, though share count disclosure was not provided in the XBRL, limiting per-share diagnostics beyond the reported EPS. Liquidity tightened: the current ratio stood at 95.4% and the quick ratio at 70.3%, with working capital negative at approximately -¥2.22bn, pointing to a heavier reliance on short-term funding or tighter payables/receivables management. Leverage remains meaningful: total liabilities were ¥89.03bn versus equity of ¥41.37bn (D/E 2.15x), and financial leverage (assets/equity) was 3.14x. Despite low profitability, interest coverage of 2.6x suggests near-term debt service is manageable at current earnings levels. DuPont indicates ROE of -1.18% driven by a negative net margin (-0.98%), modest asset turnover (0.383x), and high leverage (3.14x); the negative margin is the primary driver of weak equity returns. Cash flow figures (OCF, investing, financing) and D&A were not disclosed in the XBRL extract, limiting our ability to fully assess earnings quality and free cash flow conversion. The reported equity ratio field shows 0%, but based on the balance sheet, the computed equity ratio is approximately 31.9% (¥41.37bn/¥129.73bn), indicating a moderate capital buffer. Inventory stood at ¥12.10bn, a sizable component of current assets, leaving the firm exposed to price/cycle risk in raw materials and finished coke. With annual DPS not disclosed in the extract, dividend visibility is low, and a near-term payout appears constrained by the loss and tight liquidity. Overall, the quarter shows resilient revenue but very thin margins, heightened sensitivity to extraordinary items, and constrained liquidity—key areas to monitor as the company navigates cost pass-through and capital discipline.

Profitability Analysis

ROE decomposition: ROE is -1.18%, arising from a net margin of -0.98%, asset turnover of 0.383x, and financial leverage of 3.14x. The primary ROE drag is the negative net margin, which reflects both thin operating margins and a large extraordinary loss in the period. Gross margin of 2.3% and operating margin of ~1.0% indicate that most value capture is being eroded by input costs, with limited pricing power typical of coke and coal-related product markets. Ordinary income of ¥0.413bn versus operating income of ¥0.517bn shows that non-operating costs—mainly interest of ¥0.198bn—are a material headwind to profitability. Interest coverage is 2.6x (operating income/interest expense), adequate but not robust; further margin compression would quickly erode coverage. The negative tax figure (income tax credit of ¥0.93bn) implies loss carryforwards or deferred tax effects; however, the quarter’s net loss still points to approximately ¥1.8bn in extraordinary losses. Operating leverage appears limited in the current mix: despite 4.2% YoY revenue growth, operating income was flat, implying rising costs and/or inability to pass through price increases. Margin quality is weak, with low gross margin leaving little cushion for SG&A, interest, or any non-recurring charges.

Growth Assessment

Revenue growth of 4.2% YoY to ¥49.68bn suggests stable demand across the company’s segments (likely coke, coal, and engineering-related services) and/or price stabilization after prior volatility. However, profit growth did not accompany the topline expansion: operating income was flat and net income turned negative, indicating growth quality is weak and sensitive to cost dynamics and special items. The inferred extraordinary loss (~¥1.8bn) overshadowed operating progress, indicating heightened earnings volatility. Asset turnover at 0.383x is modest, reflecting an asset-intensive model; without better margins, incremental revenue is unlikely to translate into strong returns. Near-term outlook hinges on input cost normalization (coal/coke), contract pricing renegotiations, and engineering order quality. If cost pass-through mechanisms strengthen, incremental revenue could lift operating income more visibly; absent that, growth may remain volume-heavy but margin-light. Given missing cash flow and D&A disclosures in this extract, we refrain from commenting on capex-driven growth or maintenance intensity; however, sector norms imply non-trivial ongoing capex and depreciation.

Financial Health

Total assets were ¥129.73bn, liabilities ¥89.03bn, and equity ¥41.37bn, yielding a computed equity ratio of ~31.9% (despite the equity ratio field showing 0% due to non-disclosure in XBRL). Leverage is meaningful with D/E of 2.15x and financial leverage of 3.14x; this magnifies earnings volatility. Liquidity is tight: current ratio 95.4% and quick ratio 70.3%, with negative working capital of -¥2.22bn, indicating reliance on short-term liabilities and working capital discipline. Interest coverage of 2.6x is adequate at present but vulnerable if operating income declines. Inventory of ¥12.10bn is material; inventory turns and valuation are key to managing liquidity and avoiding write-downs in down-cycles. Without disclosed cash and cash equivalents in the extract, we cannot precisely assess immediate liquidity headroom; bank lines and receivables collection will be important.

Cash Flow Quality

Operating, investing, and financing cash flows, as well as D&A, were not disclosed in the provided XBRL extract (zeros indicate non-disclosure, not actual zero). Therefore, we cannot directly assess cash conversion, free cash flow, or the split between maintenance and growth capex. Earnings quality appears fragile given thin operating margin and the presence of a large extraordinary loss; absent OCF data, we infer elevated working capital sensitivity consistent with the negative working capital position and commodity-linked inventories. With interest expense of ¥0.198bn and modest operating income, sustainable FCF generation will depend on stable OCF and disciplined capex. In the absence of OCF and capex, we cannot compute FCF coverage of obligations; monitoring OCF/net income and working capital swings in subsequent disclosures is critical.

Dividend Sustainability

Dividend information was not disclosed in the extract (annual DPS and payout shown as zero reflect non-disclosure). With negative net income in the period, tight liquidity (current ratio 95.4%), and meaningful leverage (D/E 2.15x), internal capacity to fund dividends appears constrained near term. Without OCF and capex data, FCF coverage cannot be assessed; given sector characteristics, dividends would likely be contingent on stabilization of operating margins and the absence of large extraordinary losses. Policy outlook is unclear from the extract; historically, payout policies in cyclical, asset-heavy businesses tend to be conservative and calibrated to cycle conditions and balance sheet strength.

Risk Assessment

Business Risks:

• Commodity price volatility in coking coal and coke affecting input costs and selling prices
• Limited pricing power and structurally low margins in coke/coal supply chains
• Large extraordinary losses (inferred ~¥1.8bn) indicating exposure to impairments, accident/maintenance events, or revaluation losses
• Demand cyclicality tied to steel and industrial production
• Inventory valuation risks amid rapid price swings
• Project execution and order quality in engineering-related businesses

Financial Risks:

• Tight liquidity with current ratio 95.4% and quick ratio 70.3%
• Negative working capital of ~¥2.22bn requiring short-term funding
• Meaningful leverage (D/E 2.15x; financial leverage 3.14x) increasing equity volatility
• Interest rate risk impacting interest burden (interest expense ¥0.198bn; coverage 2.6x)
• Cash flow opacity due to non-disclosure of OCF/CapEx in the extract

Key Concerns:

• Sustainability of operating margin at ~1.0% amid cost pressures
• Recurrence of extraordinary losses that overwhelmed ordinary profit
• Ability to pass through input cost increases to customers
• Maintenance vs. growth capex needs and their funding without stressing liquidity
• Working capital management to avoid liquidity pinch

Investment Implications

Key Takeaways:

• Topline grew 4.2% YoY to ¥49.68bn, but margin expansion did not materialize; operating income flat at ¥0.517bn
• Net loss of ¥0.487bn driven by inferred extraordinary losses (~¥1.8bn) despite a tax credit
• Gross margin 2.3% and operating margin ~1.0% underscore weak margin quality
• Liquidity is tight (current ratio 95.4%; quick ratio 70.3%) with negative working capital of ~¥2.22bn
• Leverage remains meaningful (D/E 2.15x; equity ratio computed ~31.9%) but interest coverage is still 2.6x
• Cash flow and D&A not disclosed, limiting visibility on earnings quality and FCF

Metrics to Watch:

• Unit margins: gross and operating margin trajectory vs. coal/coke price benchmarks
• Extraordinary items: frequency and size relative to ordinary profit
• Interest coverage and effective funding costs as rates evolve
• Working capital metrics: inventory levels, days sales outstanding, days payable outstanding
• OCF and capex once disclosed; OCF/net income and FCF conversion ratios
• Contract pricing mechanisms and pass-through terms in key customer agreements

Relative Positioning: Within Japan’s coke and coal-related industrial suppliers, the company appears asset-heavy with structurally thin margins and higher leverage than many specialty materials peers, leaving it more exposed to commodity cycles and extraordinary events; improving cost pass-through and stabilizing special items are necessary to enhance returns.

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