Nippon Carbide Industries Company,Incorporated FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥24.26B
• Operating Income: ¥2.09B
• Net Income: ¥1.76B
• EPS: ¥164.33

Income Statement

Balance Sheet

Cash Flow Statement

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: Strong FY2026 Q2 performance with notable profit recovery on modest top-line growth. Revenue grew 3.8% YoY to 242.62, while operating income surged 65.7% YoY to 20.93 and net income rose 80.6% YoY to 15.31, indicating substantial operating leverage. Operating margin improved to 8.6%, and net margin reached 6.3%, both reflecting effective cost discipline and mix. Based on reverse-calculated prior-year figures, operating margin expanded by approximately 323 bps (from ~5.4% to 8.6%) and net margin expanded by approximately 268 bps (from ~3.6% to 6.3%). Ordinary income rose 71.1% YoY to 23.63, with ordinary margin expanding by ~383 bps to 9.7%, aided modestly by net non-operating gains. Gross profit was 81.55 (GPM 33.6%), supporting the margin improvement, though prior-year gross margin is unreported. Earnings quality is solid: operating cash flow of 17.23 exceeds net income (OCF/NI 1.13x), and EBITDA margin stands at 12.3%. Cash conversion is healthy, with interest coverage at 35.5x and a conservative D/E of 0.62x; liquidity is strong with a 264% current ratio. Comprehensive income (5.77) significantly trails net income (15.31), indicating negative OCI (likely securities valuation/FX), which tempers equity accretion despite strong P/L. ROE is calculated at 4.0% (DuPont: 6.3% margin × 0.393 asset turnover × 1.62x leverage), still modest relative to cost of equity benchmarks. ROIC is 4.7%, below the 5% warning threshold, suggesting continued capital efficiency challenges even amid profit recovery. Non-operating income contribution is meaningful (non-operating income ratio 28.5%), but ordinary profit remains primarily driven by core operations. On cash returns, the calculated payout ratio is 49.2%, appearing sustainable given OCF and modest capex. Forward-looking, sustaining the expanded operating margin and lifting ROIC above 7% will likely hinge on further mix improvement, pricing discipline, and asset efficiency (working capital turns), while monitoring OCI volatility. Overall, the quarter reflects a clear profitability inflection with healthy cash backing, offset by low ROIC and OCI headwinds.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 6.3% × 0.393 × 1.62 ≈ 4.0%. The largest positive change this quarter came from margin expansion: operating income +65.7% vs revenue +3.8% drove operating margin from ~5.4% (prior-year back-solved) to 8.6% (+323 bps), and net margin from ~3.6% to 6.3% (+268 bps). Asset turnover sits at a low 0.393, consistent with an asset-intensive profile and sizable cash/receivables balance relative to revenue; leverage is moderate at 1.62x (Assets/Equity), not a major driver of ROE. Business drivers: cost of sales growth lagged revenue and SG&A was contained (60.61), boosting operating leverage; non-operating net gains (income 4.37 vs expenses 1.67) contributed ~2.70 to ordinary income but were not the dominant factor. Sustainability: pricing/mix and cost discipline gains can be partly sustainable, but the magnitude of margin expansion may normalize if raw material costs or energy costs rebound or if demand slows; non-operating gains are inherently more volatile. Watch for any re-acceleration of SG&A relative to revenue; with limited disclosure of SG&A breakdown, we cannot confirm whether personnel or logistics costs may rise faster than sales in subsequent quarters.

Growth Assessment

Top-line growth of 3.8% is modest, but profit growth is strong due to improved margins. Operating income grew 65.7% and ordinary income 71.1%, indicating both core improvement and a modest non-operating tailwind. Net income up 80.6% reflects operating leverage and a normalized effective tax rate of 25.6%. Current gross margin is 33.6%; without prior-year gross margin, we infer improved spread from the operating margin expansion. EBITDA of 29.88 implies growing capacity to invest, with capex at 4.13 suggesting disciplined reinvestment. Outlook hinges on sustaining pricing and cost spreads; demand trends in end markets (likely electronics, automotive, industrial materials) will be key. Currency and raw material cost movements could swing profitability given the scale of the margin gains. With ROIC at 4.7%, further growth should emphasize high-return projects and tighter working capital to lift asset turnover.

Financial Health

Liquidity is strong: Current Ratio 263.7% and Quick Ratio 232.3%, with cash and deposits at 132.11 vs current liabilities of 143.15. No warning triggers (Current Ratio well >1.0; D/E 0.62x <2.0). Solvency is conservative with interest-bearing debt split between short-term loans 53.83 and long-term loans 28.71; interest coverage is robust at 35.47x. Maturity mismatch risk appears low: cash (132.11) plus receivables (146.37) comfortably exceed short-term loans and accounts payable (53.53). Total equity is 380.55 (owners’ equity 357.83), supporting a leverage ratio (Assets/Equity) of 1.62x. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF/Net Income at 1.13x indicates healthy earnings quality with cash backing the profit increase. Analyst-calculated FCF (OCF – Capex) is approximately 13.10, suggesting internal funding capacity for dividends and debt service; Investing CF line is unreported, but capex is provided. Working capital details (changes in AR/AP/inventory) are not disclosed, limiting identification of potential timing effects; however, positive OCF alongside modest revenue growth suggests no obvious working capital pull-forward. No signs of aggressive cash flow management are evident from the limited data.

Dividend Sustainability

Calculated payout ratio is 49.2%, within a prudent range (<60%). Using analyst-calculated FCF of ~13.10 and an implied dividend outlay of roughly 7.5 (49.2% × NI 15.31), FCF coverage is about 1.7x, indicating room to sustain dividends under current conditions. Balance sheet flexibility (net cash-like position when including receivables versus short-term debt, and low D/E) further supports sustainability. Policy signals (DPS, buybacks) are unreported; absent guidance, we assume a stable payout framework tied to earnings. Key watchpoint: if OCI continues negative, book value accretion slows, but it does not immediately pressure cash dividends unless it reflects persistent underlying valuation or FX losses.

Risk Assessment

Business Risks:

• Raw material and energy cost volatility potentially compressing gross margins
• End-market demand cyclicality in electronics/automotive/industrial applications
• Pricing pressure from competitors affecting recently improved margins
• Supply chain and logistics disruptions impacting cost and delivery

Financial Risks:

• OCI volatility (comprehensive income well below net income) could depress equity
• FX exposure (unquantified) potentially affecting both P/L and OCI
• Refinancing and interest rate risk on short-term loans (53.83), albeit mitigated by cash
• Low ROIC (4.7%) relative to cost of capital, risking value dilution if capex/m&A under-earn

Key Concerns:

• Sustainability of the ~323 bps operating margin expansion amid cost/mix uncertainties
• Non-operating income reliance (non-operating income ratio 28.5%) adds volatility to ordinary profit
• Data gaps in SG&A breakdown and investing CF limit visibility on cost trajectory and capital deployment
• Negative OCI shrinking comprehensive income vs net income in the period

Investment Implications

Key Takeaways:

• Clear profit inflection: operating income +65.7% YoY on +3.8% revenue signals strong operating leverage
• Operating margin expanded to 8.6% (+323 bps YoY) and net margin to 6.3% (+268 bps YoY)
• Cash earnings quality is solid (OCF/NI 1.13x) with robust liquidity and low leverage (D/E 0.62x)
• Capital efficiency remains the weak link: ROE 4.0% and ROIC 4.7% below desired thresholds
• Comprehensive income underperformed net income, highlighting OCI headwinds

Metrics to Watch:

• Operating margin sustainability and gross margin trajectory
• ROIC progression toward >7% via mix/pricing and asset turnover improvements
• OCF/Net Income ratio and working capital days (AR and inventory levels relative to sales)
• OCI components (securities valuation/FX) and their impact on equity
• Capex discipline versus growth (capex/EBITDA and returns on new investments)

Relative Positioning: Within Japanese chemical/materials peers, the company demonstrates superior near-term margin momentum and cash coverage but lags on structural capital efficiency (ROIC/ROE). Balance sheet and liquidity are stronger than average, offering resilience; the key to improving relative standing lies in sustaining margin gains and converting them into higher ROIC.

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