NCD Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥14.94B
• Operating Income: ¥1.06B
• Net Income: ¥965M
• EPS: ¥85.97

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

NCD Co., Ltd. (TSE: 47830) reported FY2026 Q2 consolidated results under JGAAP with modest top-line growth but notable profit compression. Revenue rose 1.2% YoY to ¥14.94bn, while operating income declined 24.4% to ¥1.06bn, indicating significant margin pressure. Net income fell 26.8% YoY to ¥703m, yielding a net margin of 4.71%. Gross profit of ¥3.25bn implies a gross margin of about 21.8%, consistent with the provided metric and suggesting stable gross-level economics, but higher SG&A or lower non-operating tailwinds pressured operating and bottom-line results. Operating margin stands at roughly 7.1%, down sharply versus the prior year given the operating income decline amid only modest revenue growth. DuPont outputs indicate ROE of 8.61%, driven by a net margin of 4.71%, asset turnover of 0.941, and financial leverage of 1.95x, highlighting that profitability is the main drag rather than balance-sheet intensity. Liquidity appears strong: current ratio of 219% and quick ratio of 216%, with working capital of ¥6.84bn, offering ample short-term cushion. Solvency is solid as well: total liabilities/total equity of about 1.01x and an implied equity-to-asset ratio around 51% (despite the reported equity ratio field showing 0% due to disclosure tagging differences). Interest coverage is robust at ~90.8x, reflecting limited financial risk from interest-bearing obligations. Cash flow statement line-items are unreported (zeros), so we cannot corroborate earnings with operating cash flow this quarter; conclusions on cash generation are therefore constrained. EPS was ¥85.97; based on net income, this implies roughly 8.2 million shares outstanding, supporting per-share earnings resilience despite margin compression. Dividend fields show zeros (unreported), so payout and FCF coverage cannot be assessed from this dataset. Overall, the company exhibits resilient balance sheet strength and liquidity, but the quarter reflects weaker operating leverage and higher cost intensity, depressing ROE despite stable leverage. The near-term earnings outlook hinges on restoring operating margin through cost control, mix improvement, or better project execution. We see limited financial risk but elevated execution risk on profitability normalization. Our analysis relies solely on available non-zero disclosures; cash flow, depreciation, and dividend items appear unreported and are not interpreted as actual zeros.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.61% = Net margin 4.71% × Asset turnover 0.941 × Financial leverage 1.95x. The margin leg is the key headwind versus prior year as operating income fell 24.4% on only 1.2% revenue growth. Gross margin at ~21.8% suggests cost of sales remained largely in line; the compression likely stems from higher SG&A, project cost over-runs, or mix effects that did not impact gross margin but reduced operating margin to ~7.1%. Ordinary income of ¥1.073bn was slightly above operating income, indicating modest net non-operating gains; however, net income of ¥703m implies a meaningful tax burden and/or extraordinary items. Estimated effective tax rate (based on net and tax expense) is roughly 41% (¥485m tax on implied pre-tax of ~¥1.19bn), higher than a typical domestic baseline, which also weighed on net margin. Operating leverage was unfavorable this period: incremental revenue of ~¥180m YoY (from ~¥14.76bn to ¥14.94bn) coincided with an estimated ¥340m decline in operating income, implying negative drop-through and elevated fixed/semifixed costs. Interest burden is negligible (interest expense ¥11.7m), and interest coverage of ~90.8x indicates financing costs are not a profitability constraint. Sustaining ROE at or above current levels will require margin recovery rather than balance sheet-driven leverage.

Growth Assessment

Top line grew 1.2% YoY to ¥14.94bn, a modest pace that suggests stable demand but limited volume or pricing tailwinds in the period. The sharp YoY declines in operating income (-24.4%) and net income (-26.8%) reflect deteriorating operating efficiency, unfavorable mix, or project delivery dynamics, outweighing the mild revenue gain. Gross margin held near 22%, indicating that revenue quality at the gross level did not deteriorate markedly; thus, margin pressure likely sits in SG&A intensity or timing of expense recognition. Given the scale of profit decline against modest revenue growth, near-term growth quality is mixed: revenue appears sustainable, but conversion to profit needs remediation. The ordinary income slightly exceeding operating income implies small non-operating gains, but these were insufficient to offset operating headwinds. Without reported cash flows, we cannot assess whether working capital consumption or billing timing affected near-term growth in a cash sense; however, strong liquidity suggests no immediate funding pressure. Outlook hinges on cost normalization, improved utilization, and tighter project controls to restore operating leverage. If management can stabilize SG&A growth below revenue growth and maintain gross margin, profit growth should recover even on low-single-digit revenue expansion.

Financial Health

Liquidity is strong: current ratio 219% (¥12.59bn current assets vs. ¥5.74bn current liabilities) and quick ratio 216% (inventory is modest at ¥160m), yielding working capital of ¥6.84bn. Solvency appears solid: total liabilities of ¥8.24bn vs. total equity of ¥8.17bn implies liabilities/equity ~1.01x, while equity/asset is approximately 51.4% (¥8.17bn/¥15.89bn), indicating a conservatively capitalized balance sheet despite the equity ratio field showing 0% (likely unreported). Financial leverage used in DuPont (1.95x) aligns with assets/equity, corroborating moderate leverage. Interest expense is low at ¥11.7m with interest coverage ~90.8x, indicating minimal refinancing risk from interest-bearing debt. The structure suggests capacity to absorb short-term shocks without balance sheet strain. No granular debt maturity or covenants are provided; hence, longer-dated solvency assessment is limited by data.

Cash Flow Quality

Cash flow statements are unreported for the period (OCF/ICF/FCF show as zero, which should be treated as undisclosed). Accordingly, we cannot validate earnings with operating cash flow nor calculate free cash flow. Earnings quality thus cannot be triangulated via cash conversion metrics this quarter. Working capital appears ample, and inventories are small relative to current assets, which can be supportive of cash generation in typical services/solution businesses. Depreciation and amortization are also unreported, so EBITDA and non-cash cost structure cannot be assessed from the dataset. Overall, conclusions on cash flow quality remain provisional pending OCF and capex disclosure.

Dividend Sustainability

Dividend per share and payout ratio are shown as zero due to non-disclosure; we therefore cannot assess actual distributions for the period. On capacity, net income of ¥703m and strong liquidity (current ratio 219%) indicate underlying ability to fund ordinary dividends in principle, but without OCF and capex we cannot confirm free cash flow coverage. EPS of ¥85.97 suggests annualized earnings power could support distributions depending on policy and second-half performance, but visibility is limited. Policy outlook cannot be inferred from the provided data; we defer to company guidance and historical policy when available.

Risk Assessment

Business Risks:

• Margin compression risk from higher SG&A or project execution costs despite steady gross margin.
• Low revenue growth (+1.2% YoY) increases dependence on cost discipline to drive earnings.
• Potential variability in effective tax rate (~41% estimated) affecting net margins.
• Execution risk in restoring operating leverage amid a potentially fixed-cost-heavy structure.
• Customer or project concentration risk typical for IT/services integrators (not disclosed here).

Financial Risks:

• Limited visibility on cash flows (OCF/FCF not disclosed), constraining assessment of cash conversion.
• Potential working capital swings from billing and collection cycles impacting intra-period liquidity.
• Unspecified debt composition and maturities; although interest burden is low, covenant or rollover risk cannot be evaluated from the data.

Key Concerns:

• Operating income declined 24.4% YoY against only 1.2% revenue growth, signaling negative operating leverage.
• Net income down 26.8% YoY; net margin at 4.71% may be below internal targets.
• Unreported cash flow and depreciation data limits analysis of earnings quality and investment needs.

Investment Implications

Key Takeaways:

• Top line is stable but low growth; profit decline driven by cost intensity rather than revenue softness.
• ROE of 8.61% is primarily constrained by net margins; leverage and asset turns are adequate.
• Balance sheet is strong with ~51% equity ratio (implied) and interest coverage ~91x, limiting financial risk.
• Cash flow visibility is insufficient this quarter due to non-disclosure; monitor OCF and capex updates.
• Restoring operating leverage via SG&A control and project execution is the key earnings driver for 2H.

Metrics to Watch:

• Operating margin trajectory (targeting recovery from ~7.1%).
• SG&A as a percentage of sales and utilization rates.
• Order backlog/book-to-bill (if disclosed) as a signal of sustainable revenue growth.
• Operating cash flow and free cash flow, including capex levels.
• Effective tax rate normalization and any extraordinary items.

Relative Positioning: Financially conservative with strong liquidity and moderate leverage versus many domestic peers in IT/services; however, near-term profitability lags given negative operating leverage, placing emphasis on execution to realign margins with sector norms.

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