Nihon Tokushu Toryo Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥30.30B
• Operating Income: ¥1.64B
• Net Income: ¥2.40B
• EPS: ¥119.32

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

Nippon Tokushu Toryo (4619) reported FY2026 Q2 consolidated (JGAAP) results marked by top-line softness and heavier operating leverage, while bottom-line strength benefited from non-operating items. Revenue declined 7.0% YoY to ¥30.3bn, and operating income fell 14.4% YoY to ¥1.64bn, driving an operating margin of 5.4%. Gross profit was ¥6.889bn, implying a gross margin of 22.7%, consistent with a value-added portfolio but pressured by softer sales. Ordinary income of ¥2.825bn exceeded operating income, indicating material non-operating contributions (e.g., financial income, equity-method gains, or FX), which supported net income. Net income rose 22.8% YoY to ¥2.595bn, lifting the net margin to 8.6%, a notable divergence from the operating trend and a potential sustainability question. DuPont metrics show a reported ROE of 4.08%, decomposed into an 8.56% net margin, 0.364x asset turnover, and 1.31x financial leverage, suggesting low asset intensity and conservative leverage. Liquidity is strong with a 237.7% current ratio and ¥22.205bn in working capital; solvency appears solid with a 0.33x debt-to-equity ratio and 109x interest coverage. Despite reported profit growth, operating cash flow was negative at -¥1.311bn, resulting in an OCF-to-net income ratio of -0.51, pointing to working capital outflows or timing effects. EBITDA was ¥3.141bn (10.4% margin), and D&A of ¥1.501bn reflects a meaningful capital base supporting manufacturing operations. The effective tax rate, inferred from the reported income tax and net income, appears around 20–21%, even though a metric table shows 0.0% (likely a placeholder or calculation artifact). Inventory is reported at ¥1.814bn; relative to current assets of ¥38.327bn this seems low for a manufacturer, implying that other current assets (e.g., receivables, cash) are the dominant components, though several cash flow and cash balance items were not disclosed in this dataset. The decline in operating income versus revenue (DOL ≈ 2.1x) indicates meaningful operating leverage, which can amplify cyclicality in end markets. Ordinary income strength and net profit growth appear supported by non-operating items that may not repeat, calling for caution in extrapolating net margins. Financing cash outflow of -¥1.531bn suggests debt repayment, share buybacks, or dividends at some point, but dividends are shown as 0 in this dataset and cannot be validated. Overall, the company shows resilient bottom-line optics and strong balance sheet health, but underlying operating momentum and cash conversion weakened in the period. Data gaps (e.g., cash balance, investing CF, dividend details, and shares outstanding) limit precision of several assessments; conclusions focus on disclosed non-zero items.

Profitability Analysis

ROE_decomposition: ROE 4.08% = Net margin 8.56% × Asset turnover 0.364 × Financial leverage 1.31. The main drag on ROE is low asset turnover, with leverage conservative and margins supported by non-operating gains. margin_quality: Gross margin 22.7% and operating margin 5.4% show manufacturing value-add but with cost or volume pressure. Ordinary margin (9.3%) and net margin (8.6%) exceed operating margin, indicating reliance on non-operating gains; sustainability is less certain absent recurring drivers. operating_leverage: Operating income declined 14.4% on a 7.0% revenue drop (DOL ≈ 2.1x), evidencing meaningful fixed-cost leverage. Further top-line softness would likely disproportionately impact operating income.

Growth Assessment

revenue_sustainability: Revenue -7.0% YoY suggests end-market softness (likely auto/industrial). Without clear volume/mix commentary, sustainability remains uncertain near term. profit_quality: Operating income -14.4% YoY contrasts with net income +22.8% YoY, implying non-operating support (e.g., FX gains, investment income). Profit quality is mixed, with core earnings weaker and bottom-line aided by items that may not recur. outlook: Absent evidence of demand reacceleration or cost normalization, operating trends could stay pressured. If non-operating gains normalize, net margin may converge toward operating margin. Key swing factors include raw material costs, FX, and recovery in automotive/industrial coatings demand.

Financial Health

liquidity: Current ratio 237.7% and quick ratio 226.5% indicate robust short-term liquidity. Working capital of ¥22.205bn provides ample buffer. solvency: Debt-to-equity 0.33x and interest coverage ~109x signal low financial risk. Total equity of ¥63.579bn versus liabilities of ¥21.129bn reflects a strong capital structure. capital_structure: Leverage is conservative (financial leverage 1.31x), supporting durability but moderating ROE. Equity ratio is shown as 0.0% in the dataset, but that is an unreported metric; balance sheet values imply a high equity ratio.

Cash Flow Quality

earnings_quality: OCF of -¥1.311bn versus net income of ¥2.595bn (OCF/NI = -0.51) indicates weak cash conversion this period. Given EBITDA of ¥3.141bn and D&A of ¥1.501bn, the negative OCF likely stems from working capital outflows or timing effects rather than lack of operating profitability. FCF_analysis: Investing CF is shown as 0 (unreported), so true free cash flow cannot be determined. Based on OCF alone, FCF would appear negative absent asset sales or capex reductions, but disclosure is insufficient to conclude. working_capital: Inventories are ¥1.814bn, a small share of current assets; the OCF shortfall likely reflects receivables build or other current items. Monitoring AR days, AP terms, and inventory turns is crucial to assess normalization potential.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are shown as 0.00% in the dataset, which likely indicates non-disclosure here rather than actual zero. With net income positive and healthy solvency, capacity exists, but policy cannot be inferred from this dataset. FCF_coverage: FCF coverage cannot be assessed as investing CF is unreported and OCF is negative this period. policy_outlook: Given conservative leverage and strong liquidity, the balance sheet could support stable shareholder returns in normal periods; however, current cash conversion weakness and lack of disclosure on DPS limit visibility.

Risk Assessment

Business Risks:

• End-market cyclicality in automotive and industrial coatings volumes
• Raw material price volatility (resins, solvents, pigments) affecting gross margin
• Foreign exchange fluctuations impacting input costs and non-operating gains
• Customer concentration risk with major OEMs or tier suppliers
• Environmental and regulatory compliance costs for coatings/chemicals
• Competitive pricing pressure and substitution by alternative materials/coatings

Financial Risks:

• Weak cash conversion this period (OCF negative) increasing reliance on balance sheet liquidity
• Potential normalization of non-operating gains reducing net margins
• Working capital volatility (receivables and inventory) impacting OCF
• Capex needs relative to D&A not disclosed here, creating FCF uncertainty

Key Concerns:

• Divergence between operating income decline and net income growth
• Negative OCF versus positive reported earnings
• Operating leverage amplifying profit sensitivity to demand

Investment Implications

Key Takeaways:

• Core operations softened: revenue -7% YoY and operating income -14.4% YoY with 5.4% operating margin
• Net income strength (+22.8% YoY) appears supported by non-operating items; sustainability is uncertain
• Cash conversion weak this period (OCF/NI -0.51), likely due to working capital outflows
• Balance sheet and liquidity are strong (current ratio 238%, D/E 0.33x, interest cover ~109x), moderating financial risk
• ROE of 4.08% is constrained by low asset turnover and conservative leverage

Metrics to Watch:

• Order trends and revenue trajectory in automotive/industrial coatings
• Operating margin recovery and cost pass-through vs. raw material prices
• OCF normalization and working capital metrics (AR days, inventory turns, AP days)
• Non-operating income components (FX, investment income) and their durability
• Capex versus D&A to gauge true FCF
• FX rates (JPY) and exposure hedging effectiveness

Relative Positioning: Financially conservative with strong liquidity and low leverage compared with typical mid-cap industrials, but currently showing weaker cash conversion and heavier operating leverage; bottom-line outperformance relies on non-operating items relative to peers emphasizing operating profit quality.

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
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