NICHIREKI GROUP CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥32.21B
• Operating Income: ¥1.23B
• Net Income: ¥890M
• EPS: ¥35.68

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

Nichireki Group (50110) reported FY2026 Q2 consolidated results under JGAAP showing stable topline but softer operating profitability against a backdrop of solid financial strength. Revenue grew modestly by 0.6% YoY to 32.211 billion yen, reflecting resilient demand but limited volume/price expansion. Gross profit was 6.824 billion yen, yielding a gross margin of 21.2%, consistent with an asphalt/pavement materials mix where input cost pass-through is crucial. Operating income declined 7.8% YoY to 1.225 billion yen, compressing operating margin to approximately 3.8%, indicative of cost pressures or an unfavorable project mix despite stable sales. Ordinary income reached 1.336 billion yen, slightly above operating income, suggesting minor net non-operating gains or financial income. Net income climbed 15.8% YoY to 1.03 billion yen (EPS 35.68), implying supportive below-the-line items versus the prior year despite weaker operating profit. The DuPont profile shows a net margin of 3.20%, asset turnover of 0.296x, and financial leverage of 1.44x, producing a modest ROE of 1.36%; this is typical for a capital-intensive, low-margin, infrastructure-linked supplier. EBITDA was 2.462 billion yen (7.6% margin), with D&A at 1.237 billion yen, highlighting notable fixed cost intensity and moderate operating leverage. Cash generation was sound: operating cash flow (OCF) of 1.014 billion yen was nearly in line with net income (OCF/NI 0.98), supporting earnings quality. Liquidity is strong with a current ratio of 347% and working capital of 39.916 billion yen; leverage remains conservative with liabilities of 35.047 billion yen against equity of 75.839 billion yen (D/E 0.46x) and interest expense only 3 million yen, yielding >400x interest coverage. The reported effective tax rate of 0.0% is not reflective of actual taxes; based on ordinary income and income tax, the implied tax rate is approximately 43%, underscoring a data caveat in the derived metric. Several line items are undisclosed or reported as zero in the dataset (e.g., equity ratio, cash and equivalents, investing cash flows, dividends, share count), limiting precision on capital allocation and per-share analysis. Free cash flow cannot be robustly assessed because capex/investing cash flows are not disclosed for the period; the reported FCF of zero should be treated as unreported rather than economically zero. Overall, the company exhibits steady revenue, compressed operating margins, good cash conversion, and a fortress balance sheet, but near-term growth appears muted and profitability is sensitive to input costs and project mix. Seasonal patterns typical of road construction and public works procurement may also skew intra-year comparisons. Looking forward, the key swing factors are cost pass-through of asphalt/bitumen, bidding discipline on public works, and stability in non-operating items that lifted net income. Given the limited disclosure on dividends and capital allocation this quarter, dividend sustainability cannot be judged from this dataset alone. Despite these limitations, the core fundamentals point to a resilient, low-risk financial profile with moderate return potential aligned to infrastructure demand cycles.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 3.20%
• asset_turnover: 0.296x
• financial_leverage: 1.44x
• calculated_ROE: 1.36%
• commentary: ROE is modest, driven primarily by low net margins inherent in the sector and low asset turnover typical of capital-intensive, seasonal civil engineering supply. Leverage contributes only moderately given a conservative balance sheet. margin_quality:
• gross_margin: 21.2% (6,824m / 32,211m)
• operating_margin: 3.8% (1,225m / 32,211m)
• ordinary_margin: 4.1% (1,336m / 32,211m)
• net_margin: 3.20% (as provided)
• drivers: ['YoY operating income down 7.8% despite flat sales, implying input cost headwinds or mix effects.', 'S,G&A burden estimated at 17.4% of revenue (32,211m - 25,187m - 1,225m = 5,599m), leaving limited operating margin cushion.', 'Ordinary income above operating income indicates small non-operating tailwinds.'] operating_leverage:
• EBITDA: 2,462m
• EBITDA_margin: 7.6%
• D&A: 1,237m (D&A/Revenue ≈ 3.8%)
• assessment: Moderate operating leverage; fixed cost base (notably D&A) magnifies margin sensitivity to volume/price. Thin operating margin suggests earnings are sensitive to input inflation and execution on projects.

Growth Assessment

revenue_sustainability: Revenue grew 0.6% YoY to 32.211b, indicating stable but subdued demand, consistent with public works and maintenance cycles. Pricing and pass-through likely supported sales in the face of cost movements, but no material volume expansion is evident. profit_quality: Operating income decline (-7.8% YoY) contrasts with net income growth (+15.8% YoY), implying that non-operating items and/or tax differences versus the prior year bolstered bottom line. Ordinary income slightly above operating income suggests limited, not structural, non-operating support. outlook: Near-term growth hinges on bid pipeline timing, seasonality in road paving, and asphalt/bitumen price pass-through. Without disclosed backlog or capex plans, visibility is moderate. Stable public-sector demand should underpin revenue, but operating margin recovery will depend on cost normalization and project selection.

Financial Health

liquidity:

• current_assets: 56,076m
• current_liabilities: 16,160m
• current_ratio: 347%
• quick_ratio: 339%
• working_capital: 39,916m
• assessment: Very strong liquidity; inventories are small (1,230m), and quick ratio close to current ratio indicates low inventory reliance. Seasonal working capital swings typical of the industry should be manageable. solvency:
• total_assets: 108,852m
• total_liabilities: 35,047m
• total_equity: 75,839m
• debt_to_equity: 0.46x (using total liabilities as a proxy for leverage)
• interest_expense: 3m
• interest_coverage: ≈408x (EBIT/interest)
• assessment: Balance sheet is conservative with ample equity cushion and minimal interest burden. Equity ratio is undisclosed in the dataset (0% reported is an undisclosed value). capital_structure: Predominantly equity-funded with low financial risk. Interest-bearing debt details are not disclosed this quarter; however, very low interest expense suggests limited borrowings.

Cash Flow Quality

earnings_quality: OCF/Net Income is 0.98 (1,014m / 1,030m), indicating solid cash conversion and limited accrual buildup for the period. FCF_analysis: Free cash flow cannot be assessed because investing cash flows/capex are undisclosed (reported as 0, indicating not reported). Using OCF as a proxy without capex is inappropriate; historically, the business requires steady maintenance capex. working_capital: Working capital is robust (39,916m). Period OCF suggests receivable collection and payables management were adequate, but detailed components (AR/AP/unbilled) are not disclosed.

Dividend Sustainability

payout_ratio_assessment: Dividend per share is undisclosed (reported 0.00), and the payout ratio is listed as 0.0% due to missing dividend data, not an actual zero payout policy. FCF_coverage: Not assessable this quarter because FCF is undisclosed (capex not reported). policy_outlook: Without dividend or share count disclosure, we cannot infer policy changes. Historically, companies in this segment often target stable or gradually increasing payouts aligned with cash generation; confirmation requires management guidance or full-year filings.

Risk Assessment

Business Risks:

• Input cost volatility for asphalt/bitumen linked to crude oil prices and potential lag in pass-through to contract prices.
• Seasonality and weather disruptions affecting paving schedules and quarterly utilization.
• Public works exposure leading to bidding competitiveness, price pressure, and timing risk of orders.
• Project mix variability impacting margins (maintenance vs. new construction, regional mix).
• Supply chain/logistics constraints for aggregates and materials.

Financial Risks:

• Margin compression risk from fixed-cost leverage if volumes soften.
• Potential working capital swings tied to receivables from public-sector customers.
• Uncertain effective tax rate (implied ~43%) impacting net income volatility.
• Limited disclosure on capex and cash balances reduces visibility on FCF and net cash position.

Key Concerns:

• Operating income decline (-7.8% YoY) despite stable sales suggests cost/mix pressure.
• Thin operating margin (~3.8%) leaves limited buffer against input inflation.
• Lack of disclosure on investing cash flows and dividends constrains assessment of capital allocation and FCF.

Investment Implications

Key Takeaways:

• Topline resilient (+0.6% YoY) but operating margin compressed; net income supported by non-operating/tax effects.
• Strong liquidity and conservative leverage with exceptionally high interest coverage.
• Cash conversion is healthy (OCF ≈ NI), but FCF and dividend visibility are limited due to undisclosed items.
• ROE modest at 1.36%, reflecting sector economics and low asset turnover.

Metrics to Watch:

• Gross and operating margin trends, particularly cost pass-through effectiveness.
• Order backlog and public works tender environment (not disclosed here).
• Capex and investing cash flows to gauge sustainable FCF.
• Working capital movements (AR/AP/unbilled), given seasonality.
• Asphalt/bitumen price indices and crude oil trends.
• Effective tax rate normalization vs. implied ~43% this period.

Relative Positioning: Within Japan’s road paving and asphalt materials space, Nichireki’s balance sheet strength and cash conversion are favorable, while profitability remains thin and sensitive to input costs and project mix; returns are moderate relative to peers in construction materials and civil engineering suppliers.

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