NISHIKAWA RUBBER CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥57.35B
• Operating Income: ¥3.98B
• Net Income: ¥4.87B
• EPS: ¥111.85

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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 profitability resilience with cleaner earnings quality despite topline softness and heavy buybacks. Revenue declined 6.3% YoY to 573.5, but operating income slipped only 3.0% to 39.8, evidencing cost discipline. Ordinary income rose 26.6% to 47.4 on stronger non-operating income (notably dividend and interest income), and net income doubled (+105.1% YoY) to 42.9, aided by a favorable tax line. Gross margin printed at 18.7%, and operating margin improved to roughly 6.9%. We estimate operating margin expanded about 23 bps YoY, while ordinary margin expanded about 214 bps, and net margin expanded roughly 406 bps. The quality of earnings is strong this quarter with OCF of 64.0, translating to OCF/NI of 1.49x, comfortably above the 1.0x benchmark. Balance sheet strength remains a key positive: current ratio at 264% and net cash position implied by cash (459.3) exceeding total interest-bearing loans (approx. 248.3). Interest coverage is a robust 13.2x, and equity ratio is approximately 61% (861.7/1,403.2). Non-operating income (13.3) underpinned the jump in ordinary income; dividends (4.7) and interest income (1.6) were notable contributors. Depreciation & amortization totaled 27.1, supporting EBITDA of 66.9 and an EBITDA margin of 11.7%. The effective tax rate of -2.6% indicates a tax credit/benefit, a likely one-off swing factor behind the outsized net income growth. Cash returns to shareholders were significant via buybacks (-74.4 financing CF), exceeding our simple FCF proxy (OCF - capex ≈ 34.8), suggesting reliance on existing cash reserves for capital returns. Reported payout ratio (194.9%) flags that distributions (dividends/buybacks or a specific measure) exceed earnings in the period, though DPS itself is unreported. Forward-looking, sustaining the improved net margin will depend on normalization of the tax line and maintaining non-operating income, while continued opex control can preserve operating margin gains. With ROE at 5.0% and ROIC at 6.1%, capital efficiency is improving but still below typical 7–8% targets, pointing to continued focus on mix and asset utilization. The company remains financially conservative, providing flexibility to navigate demand cycles and input cost volatility. Overall, Q2 shows resilient core operations, clean cash conversion, and proactive capital returns, albeit with a likely one-time tax tailwind and elevated payout relative to earnings.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.0% = Net Profit Margin (≈7.5%) × Asset Turnover (≈0.409x) × Financial Leverage (≈1.63x). The most notable change vs. last year was the net margin improvement (net income +105% YoY against revenue -6.3%), while asset turnover likely declined modestly due to lower revenue on a relatively stable asset base, and leverage was largely steady. Business drivers: (1) disciplined SG&A (67.4) kept operating income decline milder than revenue, expanding operating margin; (2) higher non-operating income (dividends 4.7, interest 1.6) boosted ordinary income; (3) a favorable tax effect (-2.6% effective rate) lifted net margin significantly. Sustainability: operating margin gains from cost control are partially sustainable; however, the negative effective tax rate is unlikely to recur at the same scale, and non-operating contributions can be volatile. Watch for SG&A growth exceeding revenue growth in future quarters; in this quarter, operating leverage was positive (OI down less than sales), which is constructive. Overall margin quality is supported by EBITDA margin of 11.7% and interest coverage of 13.2x, but the ROE level remains modest, capped by subdued asset turnover.

Growth Assessment

Topline contracted 6.3% YoY to 573.5, indicating softer demand or pricing/mix headwinds. Operating income fell only 3.0%, implying favorable cost actions and/or better product mix. Ordinary income grew 26.6% on stronger non-operating items, and net income surged 105.1% on an unusually favorable tax effect. Revenue sustainability hinges on end-market trends (likely auto/industrial) and currency/commodity pass-through; current data suggests stabilization rather than growth. Profit quality is decent at the operating level, with margin expansion and EBITDA margin at 11.7% despite revenue decline. Outlook: absent the tax tailwind, net margin should normalize closer to operating/ordinary trends; maintaining cost efficiencies and pricing discipline will be key to preserving OI margin near ~7%. Non-operating income (dividends, interest) may remain supportive but is inherently less controllable. ROIC of 6.1% is below the 7–8% target range, indicating room for improvement via asset turnover and mix. Near-term, capital allocation (buybacks) and balance sheet strength can cushion variability in operating results.

Financial Health

Liquidity is strong: current ratio 264.4% and quick ratio 264.4%, with cash (459.3) comfortably exceeding short-term loans (100.2). No warning on current ratio (<1.0) or D/E (>2.0); D/E at 0.63x is conservative. Solvency: equity/asset ≈ 61.4%, indicating a robust capital base; interest coverage at 13.2x shows ample debt service capacity. Maturity mismatch risk appears low, as cash and current assets (745.3) cover current liabilities (281.9) by a wide margin. Long-term loans are 148.1 against sizable liquidity and investment securities (273.6), adding optionality. No off-balance sheet obligations are disclosed in the provided data. Overall, the firm operates with net cash when comparing cash to total interest-bearing loans, reducing refinancing risk.

Cash Flow Quality

OCF/Net Income at 1.49x indicates high earnings quality and good cash conversion. Using a simple proxy, FCF ≈ OCF (63.97) - Capex (29.13) = 34.84, positive and sufficient for routine investment needs. Financing CF was -43.41, driven largely by share repurchases (-74.41), implying distributions exceeded internally generated FCF and were financed in part by existing cash. Working capital behavior is not fully observable due to unreported inventory details, but the strong OCF vs NI suggests no aggressive working capital pull-forward this quarter. Sustainability: cash generation appears sound; however, maintaining both heavy buybacks and capex solely from OCF would be challenging if earnings normalize without the tax benefit.

Dividend Sustainability

DPS is unreported, and total dividends paid are unreported; however, the provided payout ratio metric is 194.9%, flagging that shareholder returns (as defined/calculated in the source) exceeded earnings for the period. Given estimated FCF of ~34.8 and significant buybacks (-74.4), total cash returns exceeded FCF and relied on the existing cash balance. With net cash and strong liquidity, near-term distributions are fundable, but sustainability at this pace depends on maintaining OCF and/or moderating buybacks. Policy outlook is unclear due to missing DPS disclosures; monitoring guidance and capital allocation commentary is essential.

Risk Assessment

Business Risks:

• End-market demand softness (revenue -6.3% YoY), likely tied to automotive and industrial cycles
• Input cost volatility (rubber, petrochemical derivatives) affecting gross margin
• Pricing/passthrough risk if volume declines continue
• Dependence on non-operating income (dividends/interest) to support ordinary income

Financial Risks:

• Shareholder returns (buybacks) exceeding FCF, drawing down cash buffers if sustained
• Potential normalization from a negative effective tax rate to a positive rate, lowering net profit
• Interest rate risk on floating-rate debt and reinvestment risk on cash/investment securities
• Currency fluctuation risk impacting procurement, sales, and financial income

Key Concerns:

• Net income surge driven partly by one-off tax benefit (-2.6% effective rate)
• ROIC at 6.1% below 7–8% target range, indicating efficiency improvement needed
• Asset turnover at 0.409x is low, constraining ROE despite margin improvements
• Limited disclosure on inventories and R&D may obscure operational levers

Investment Implications

Key Takeaways:

• Core profitability resilient: operating margin expanded ~23 bps despite a 6.3% revenue decline
• Ordinary and net margins benefited from higher non-operating income and a one-time tax tailwind
• High-quality earnings with OCF/NI at 1.49x and positive estimated FCF (~34.8)
• Balance sheet strength (net cash, ~61% equity ratio) provides flexibility for cycles and buybacks
• Capital efficiency improving but still modest: ROE 5.0%, ROIC 6.1%
• Shareholder returns (notably buybacks) outpaced FCF this quarter; pace may need calibration if OCF normalizes

Metrics to Watch:

• Operating margin trajectory vs input costs and pricing
• OCF/NI ratio and working capital movements
• Non-operating income (dividends/interest) sustainability
• Tax rate normalization from -2.6% toward a structural range
• Capex trend vs growth projects and maintenance needs
• Net cash position after buybacks and any dividend resumption/changes

Relative Positioning: Versus domestic auto-parts/industrial rubber peers, the company exhibits stronger liquidity and net cash, solid interest coverage, and decent margin resilience, but lags on capital efficiency with ROE at 5% and ROIC at 6.1% (below typical 7–8% targets).

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