Nippon RAD Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.99B
• Operating Income: ¥50M
• Net Income: ¥70M
• EPS: ¥13.20

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

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: solid but mixed quarter with modest operating profitability, outsized contribution from non-operating dividend income, strong liquidity, and low capital efficiency. Revenue came in at 19.93, generating gross profit of 4.23 and operating income of 0.50, for an operating margin of 2.5%. Ordinary income reached 1.13 aided by 0.65 of non-operating income, notably 0.59 of dividend income and 0.04 of interest income. Net income was 0.69, translating to a net margin of 3.5% and basic EPS of 13.20 yen. Cash generation was robust: operating cash flow of 2.01 was 2.91x net income, indicating strong earnings-to-cash conversion. Liquidity is very strong with a current ratio of 453.8% and cash and deposits of 20.54, versus current liabilities of 6.75. The balance sheet is conservative with a reported D/E of 0.42x and minimal interest expense (interest coverage 2,381x). However, ROE is low at 2.0% and ROIC is flagged at 2.3% (<5%), reflecting modest margins and low asset turnover (0.411). Gross margin sits at 21.2% while SG&A of 3.73 absorbs most of gross profit, leaving thin operating leverage. Non-operating income accounts for a large share of earnings (dividend income ~52% of ordinary income), raising questions about the sustainability of bottom-line strength if investment income normalizes. Without YoY disclosures, we cannot quantify basis-point margin expansion/compression; margin level analysis suggests a defensive, not growth, quarter. The effective tax rate is 38.7%, a headwind to net profit conversion. Capex was light at 0.10, and financing cash outflows of -0.54 likely reflect dividends and/or debt repayment. Working capital positioning is favorable with accounts receivable of 8.23 and negligible inventories (0.06), supporting low inventory risk. Forward-looking, the company’s cash cushion provides strategic flexibility, but improving core operating margin and asset utilization is essential to lift ROE/ROIC. The key near-term watchpoint is the durability of dividend income from investment securities, given its outsized role in ordinary income.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.0% = Net Profit Margin (3.5%) × Asset Turnover (0.411x) × Financial Leverage (1.42x). The largest drag is low asset turnover (0.411) alongside a thin operating margin (operating margin 2.5%, net margin 3.5%). Business driver: SG&A of 3.73 absorbs ~88% of gross profit (4.23), leaving limited operating income (0.50) and signaling limited operating leverage at current scale. Non-operating dividend income (0.59) lifts ordinary income (1.13), masking weak core operating profitability. Sustainability: dividend/interest income can be volatile and is not fully controllable by operations; margin expansion must come from cost discipline and mix/price improvements to be durable. Trend flags: with no YoY SG&A or revenue disclosure, we cannot confirm SG&A growth versus revenue; however, the SG&A-to-sales ratio of ~18.7% is high relative to the 2.5% operating margin, indicating margin compression risk if revenue softens. Effective tax rate at 38.7% further limits net margin expansion unless pre-tax profitability improves.

Growth Assessment

Top-line of 19.93 establishes the run-rate, but lack of YoY data constrains growth-rate assessment. Profit composition shows reliance on non-operating income (0.65), especially dividend income (0.59), which is not purely recurring at the same level. Core operating income is modest at 0.50, implying limited operating leverage at current sales mix. EBITDA of 0.92 (margin 4.6%) indicates room to improve profitability through gross margin expansion or SG&A efficiency. Revenue sustainability hinges on maintaining order intake and execution in core IT/services while containing SG&A. With cash and deposits of 20.54 and light capex (0.10), the company has capacity to invest in growth or efficiency projects. Outlook bias: stable to cautiously constructive on cash generation, but earnings growth quality depends on improving operating margin and reducing dependence on investment income.

Financial Health

Liquidity is very strong: current ratio 453.8% and quick ratio 452.9%, with cash and deposits (20.54) far exceeding current liabilities (6.75). No warning on Current Ratio (<1.0) or D/E (>2.0): D/E is 0.42x (conservative). Maturity mismatch risk appears low: current assets (30.65) comfortably cover current liabilities; accounts receivable (8.23) plus cash provide a substantial buffer. Interest-bearing debt details are unreported, but interest expense is near zero and interest coverage is 2,381x, suggesting minimal financial risk. Noncurrent liabilities (7.55) are moderate versus equity (34.15). No off-balance sheet obligations are disclosed in the provided data. Working capital is ample (23.90), supporting operational resilience.

Cash Flow Quality

OCF/Net Income is 2.91x (>1.0), signaling high-quality earnings and positive working capital dynamics. Operating cash flow of 2.01 comfortably exceeds capex of 0.10, implying a proxy FCF (OCF minus capex) of ~1.91 before other investing flows (full investing CF not disclosed). Financing CF of -0.54 likely reflects dividend payments and/or debt service; debt costs appear minimal. The strong cash position (20.54) plus OCF suggests adequate internal funding for operations and modest investments. No clear signs of working capital manipulation are evident from the snapshot (receivables and payables are proportionate; inventories de minimis). Given lack of full investing CF disclosure, total FCF cannot be confirmed, but coverage of routine capex is strong.

Dividend Sustainability

Payout ratio (calculated) is 77.6%, above the <60% benchmark, implying a relatively high distribution versus earnings. DPS is unreported; the payout ratio suggests an implied DPS around low-teens yen per share, but this is indicative only. On cash coverage, OCF (2.01) materially exceeds net income (0.69) and routine capex (0.10), implying underlying capacity to fund dividends from cash generation; however, full FCF coverage cannot be verified due to missing investing CF details. With ample cash (20.54) and low financial leverage, near-term dividend capacity appears supported, but medium-term sustainability depends on strengthening operating earnings to reduce reliance on non-operating income. Policy outlook cannot be inferred due to missing dividend policy disclosures.

Risk Assessment

Business Risks:

• Core operating margin is thin (2.5%), leaving limited buffer against revenue or cost shocks.
• High reliance on non-operating dividend income (0.59) to support ordinary income (1.13).
• Low ROIC (2.3%) implies weak value creation versus typical cost of capital.
• Customer concentration and project execution risks typical of IT/services (not disclosed, but industry-relevant).
• Potential volatility in investment income if market conditions change.

Financial Risks:

• Earnings sensitivity to effective tax rate (38.7%).
• Limited visibility on interest-bearing debt due to unreported loan details (though interest expense is minimal).
• Potential mark-to-market risk on investment securities (5.64) impacting comprehensive income.

Key Concerns:

• Sustained dependence on investment/dividend income to achieve ordinary income levels.
• Operating leverage constrained by SG&A consuming ~88% of gross profit.
• Capital efficiency flagged: ROE 2.0% and ROIC 2.3% below typical targets.

Investment Implications

Key Takeaways:

• Strong liquidity and cash generation support stability.
• Core operating profitability is modest; improvement is needed to lift ROE/ROIC.
• Non-operating dividend income is a meaningful earnings pillar this quarter.
• Tax rate and SG&A intensity cap net margin expansion.
• Balance sheet conservatism limits downside financial risk.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio trends.
• Composition and sustainability of non-operating income (dividends/interest).
• Order backlog and revenue visibility (not disclosed).
• ROIC progression and asset turnover (targeting >5% then 7–8%).
• Effective tax rate normalization.
• Cash conversion (OCF/NI) and full FCF once investing CF is disclosed.

Relative Positioning: Within small-cap IT/services peers, the company exhibits superior liquidity and low financial risk but lags on capital efficiency and operating margin, with higher dependence on investment income than typical operating-focused peers.

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