Nitta Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥44.11B
• Operating Income: ¥2.58B
• Net Income: ¥5.53B
• EPS: ¥197.85

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

Verdict: A mixed FY2026 Q2—resilient core operations with slight operating margin expansion, but overall earnings down due to weaker non-operating contributions and negative OCI, keeping ROE and ROIC low. Revenue was 441.12 (−0.5% YoY), essentially flat, while operating income rose to 25.80 (+0.7% YoY), indicating decent cost control against a soft top line. Gross profit was 124.16, yielding a gross margin of 28.1%, and SG&A was 98.36, or 22.3% of sales. Operating margin improved to 5.85%, from an estimated 5.78% a year ago, an expansion of roughly +7 bps. Ordinary income fell to 64.43 (−11.1% YoY), compressing the ordinary margin to 14.6% from an estimated 16.4% (−175 bps), reflecting lower non-operating tailwinds. Net income was 54.82 (−6.0% YoY), with net margin at 12.4% versus an estimated 13.2% a year ago (−74 bps). Non-operating income was sizable at 43.58 (vs operating income 25.80), driven partly by dividend income (2.66) and interest income (1.09), with the remainder unspecified; the heavy reliance on non-operating items increased earnings volatility. Effective tax rate was low at 13.3%, supporting bottom-line results, but total comprehensive income was only 37.45, well below net income due to negative OCI, likely valuation/FX impacts on the large investment securities portfolio (642.86). Balance sheet strength is notable: cash and deposits at 333.31, current ratio 461%, quick ratio 375%, and D/E 0.17x, with long-term loans of just 0.19—indicating strong net cash and minimal refinancing risk. Capital efficiency remains the key weakness: ROE is 3.5% and ROIC is 1.8% (warning level <5%), pressured by low asset turnover (0.242x) and very low leverage (1.17x), amplified by a large securities portfolio and cash holdings. Interest coverage is robust at 78.2x, underscoring low financial risk. The calculated payout ratio is 74.8%, above the 60% comfort benchmark; with FCF unreported, near-term dividend capacity is supported by cash, but medium-term sustainability hinges on cash generation. With operating profit up but ordinary and net profit down, earnings quality skews toward core improvement offset by volatile non-operating factors. Forward-looking, focus on stabilizing profit drivers (core operations) and reducing reliance on non-operating gains/OCI volatility to lift ROIC/ROE toward acceptable levels. Overall, the quarter shows operational resilience, pristine liquidity, but persistent capital efficiency and earnings composition challenges that temper the outlook.

Profitability Analysis

ROE decomposition (DuPont): ROE (3.5%) = Net Profit Margin (12.4%) × Asset Turnover (0.242x) × Financial Leverage (1.17x). The biggest drag is asset turnover (0.242x), reflecting large holdings of cash and investment securities relative to sales, while leverage is intentionally low (1.17x) and net margin is comparatively healthy. YoY dynamics suggest net margin compressed (estimated −74 bps) even as operating margin expanded (~+7 bps), implying that non-operating income was weaker or more volatile YoY, which lowered overall profitability at the ordinary and net levels. Business driver: core operations benefited from SG&A discipline (22.3% of sales) and a stable gross margin (28.1%), but reduced or less favorable non-operating items (despite still being large in absolute terms) cut ordinary profit. Sustainability: the modest operating margin improvement is more sustainable than non-operating contributions, which are inherently volatile; continued dependence on non-operating gains will keep ROE/ROIC subdued and volatile. Watch points: SG&A growth versus revenue appears controlled this quarter, but if SG&A were to outpace sales in a flat demand environment, operating leverage would turn negative; also, the low effective tax rate (13.3%) may not persist.

Growth Assessment

Top line contracted slightly (−0.5% YoY), indicating soft demand or pricing in key end-markets. Operating income grew (+0.7% YoY) despite lower sales, signaling effective cost control and modest operating leverage. Ordinary income (−11.1%) and net income (−6.0%) contracted, driven by weaker non-operating support versus the prior year, partially offset by the low tax rate. Profit quality tilted toward core operations: operating profit improved, but headline earnings were still heavily influenced by non-operating items (43.58 vs operating income 25.80). With comprehensive income (37.45) materially below net (54.82), negative OCI reduced equity growth, likely from mark-to-market declines in securities or FX. Outlook: absent volume/pricing growth, sustaining operating margin gains will require continued SG&A discipline and potentially mix improvement. Normalization of non-operating gains could cap ordinary/net profit growth; reducing earnings reliance on non-operating items would improve predictability. Near-term growth visibility is limited by macro/industrial demand conditions; internal levers include cost management, portfolio optimization, and redeployment of excess cash/securities to higher-return uses.

Financial Health

Liquidity is very strong: current ratio 460.9% and quick ratio 374.6%; no warning thresholds triggered. Solvency is conservative with D/E 0.17x and long-term loans at 0.19; interest coverage 78.18x indicates low financial risk. No maturity mismatch evident: current assets (832.43) far exceed current liabilities (180.60), and cash (333.31) alone covers the majority of current liabilities. Balance sheet is asset-heavy with substantial investment securities (642.86), supporting liquidity but depressing capital efficiency. No specific off-balance sheet obligations were disclosed in the provided data; absence of disclosure does not imply absence of such items.

Cash Flow Quality

Operating cash flow was unreported, so OCF/Net Income cannot be assessed; therefore, earnings quality from a cash conversion perspective is indeterminable this quarter. Free cash flow and capex were also unreported, preventing assessment of reinvestment needs versus distributions. Working capital composition shows ample liquidity (AR 170.06, inventories 155.93) and positive working capital (651.83), with no clear signs of end-period working capital optimization from the available data; however, without cash flow statements, potential timing effects cannot be ruled out. Given large non-operating income and negative OCI, headline earnings quality is mixed: core operating improvement is positive, but overall profit includes volatile components not directly tied to cash operations.

Dividend Sustainability

The calculated payout ratio is 74.8%, above the 60% benchmark for comfort, implying limited buffer if earnings soften. DPS and cash dividends were unreported; thus, FCF coverage cannot be computed. Near-term capacity appears adequate given the sizeable cash position (333.31) and minimal debt, but medium-term sustainability depends on recurring OCF and capex needs, neither of which are disclosed here. If non-operating income normalizes downward or the effective tax rate rises, earnings coverage for dividends could tighten; conversely, redeployment of excess cash into higher-return projects may support payouts longer term.

Risk Assessment

Business Risks:

• Demand cyclicality in industrial/automotive/FA end-markets leading to top-line volatility
• Input cost and pricing pressure affecting gross margins (rubber/petrochemical feedstocks)
• FX fluctuations impacting export competitiveness and translation of overseas results
• Execution risk in cost control if sales remain flat-to-down

Financial Risks:

• High exposure to investment securities (642.86) driving OCI volatility and equity swings
• Earnings reliance on non-operating income (43.58) increases volatility of ordinary/net profit
• Low ROIC (1.8%) and low asset turnover (0.242x) indicate capital inefficiency
• Potential normalization of low effective tax rate (13.3%) could reduce net income

Key Concerns:

• Ordinary income down 11.1% YoY despite higher operating income, pointing to less favorable non-operating items
• Comprehensive income materially below net income due to negative OCI
• Payout ratio at 74.8% without FCF disclosure elevates dividend coverage uncertainty
• Structural under-leverage and large financial asset holdings depress ROE/ROIC

Investment Implications

Key Takeaways:

• Core operating margin improved modestly despite a slight revenue decline
• Headline earnings contracted due to weaker non-operating support and negative OCI
• Balance sheet is exceptionally strong with net cash and minimal debt
• Capital efficiency is the principal issue: ROE 3.5%, ROIC 1.8%, asset turnover 0.242x
• Earnings composition is skewed toward non-operating items, increasing volatility
• Dividend affordability appears acceptable near term on cash, but payout ratio is high and FCF unknown

Metrics to Watch:

• Operating margin progression and SG&A as a percentage of sales
• Non-operating income mix (dividends, interest, securities-related gains/losses) and volatility
• OCI movements tied to the investment securities portfolio
• OCF, capex, and FCF once disclosed; OCF/NI ratio
• ROIC and asset turnover improvements via portfolio optimization or growth
• Effective tax rate normalization

Relative Positioning: Versus domestic industrial components/rubber peers, Nitta exhibits superior balance sheet strength and interest coverage but lags on capital efficiency (low ROIC/ROE) due to significant financial assets and low leverage; operating execution appears steady, yet overall earnings visibility is more volatile given sizable non-operating contributions and OCI sensitivity.

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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