NOZAWA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.57B
• Operating Income: ¥1.12B
• Net Income: ¥577M
• EPS: ¥38.76

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

Nozawa Co., Ltd. (5237) delivered steady top-line growth in FY2026 Q2 with revenue of ¥11.57bn, up 3.6% YoY, and strong operating execution, as operating income rose 19.1% YoY to ¥1.116bn. Gross margin was solid at 27.2%, and operating margin expanded to roughly 9.6%, indicating better cost control and/or a more favorable mix. Ordinary income reached ¥1.213bn, outpacing operating profit growth and reflecting low financing costs and manageable non-operating items. However, net income declined 21.3% YoY to ¥454m, implying significant extraordinary losses and/or higher minority interest impacts between ordinary and bottom line. EPS was ¥38.76. DuPont metrics show a calculated ROE of 2.15%, driven by a modest net margin (3.92%), low asset turnover (0.373x), and conservative leverage (1.47x). Liquidity is very strong with a current ratio of 304.8% and quick ratio of 295.4%, supported by sizable current assets relative to current liabilities. The balance sheet remains conservatively financed, with total liabilities of ¥9.57bn versus equity of ¥21.07bn (liabilities-to-equity ~0.45x), and interest expense is minimal at ¥1.68m, translating to an exceptionally high interest coverage of ~665x. Despite accounting profitability, operating cash flow for the period was only ¥7.3m, resulting in a very low OCF-to-net income ratio (~0.02x), signaling a timing-heavy working capital drag or other cash conversion headwinds. EBITDA was ¥1.493bn (12.9% margin), supporting the view that core operating capacity remains healthy even as cash realization lagged. The ordinary-to-net income gap plus weak OCF suggests transient or non-recurring factors weighed on the bottom line and cash conversion this half. Inventory stood at ¥461m, relatively small compared to current assets of ¥14.93bn, implying the OCF shortfall likely stems from receivables or other current asset movements rather than inventory build. Reported equity ratio is shown as 0.0% in the dataset but that appears undisclosed; based on available totals, the implied equity-to-assets ratio is roughly 68% (¥21.07bn/¥30.99bn), indicating robust solvency. Dividend and share-related data are not disclosed in this dataset (zeros indicate unreported values), so distribution policy trends cannot be inferred from this release alone. Overall, the company demonstrates improved operating profitability and strong financial resilience, but cash flow conversion and the drivers behind the net profit decline warrant close monitoring into H2.

Profitability Analysis

ROE decomposition indicates: net profit margin 3.92%, asset turnover 0.373x, and financial leverage 1.47x, yielding a calculated ROE of 2.15%. Operating margin improved to ~9.6% (¥1,116m/¥11,572m), evidencing cost discipline and likely favorable pricing/mix in the first half. Gross margin at 27.2% is consistent with improved contribution from core products and lower manufacturing cost intensity versus revenue. EBITDA of ¥1,493m and a 12.9% EBITDA margin show healthy operating capacity and moderate operating leverage. Ordinary income margin of ~10.5% (¥1,213m/¥11,572m) benefited from negligible interest costs (¥1.68m), allowing operating gains to flow through. However, the drop from ordinary income to net income implies material extraordinary losses, special charges, or non-controlling interests weighing on the bottom line. Effective tax expense was ¥294m; while a 0.0% effective tax rate is shown in the provided metrics, the non-zero tax line suggests a normalized effective rate closer to the mid-20% range relative to ordinary income, with the remainder of the net decline likely due to below-the-line items. Overall margin quality at the operating level is strong, but bottom-line quality is clouded by non-recurring factors.

Growth Assessment

Revenue growth of 3.6% YoY indicates steady demand, likely supported by stable construction and building-materials orders. Operating income growth of 19.1% YoY outpaced revenue, reflecting operating leverage and improved cost efficiencies. Ordinary income was also firm, suggesting non-operating items are not a structural drag. However, net income fell 21.3% YoY, indicating that extraordinary or non-controlling items negatively impacted profits in the half. The sustainability of revenue appears reasonable given incremental growth and strong liquidity backing operations, but visibility into H2 depends on order intake and sector demand. Profit quality at the operating level remains solid (expanding margins, strong coverage), while bottom-line quality is temporarily weaker due to below-the-line items. Outlook hinges on whether extraordinary charges are one-off and whether cash conversion normalizes as working capital unwinds in the second half.

Financial Health

Total assets were ¥30.99bn against total liabilities of ¥9.57bn and equity of ¥21.07bn, implying an equity-to-assets ratio near 68% (despite a reported equity ratio of 0.0% in the dataset, which appears undisclosed). Current assets of ¥14.93bn versus current liabilities of ¥4.90bn yield a current ratio of 304.8% and quick ratio of 295.4%, indicating ample short-term liquidity. Working capital stands at ¥10.03bn, providing a strong buffer for seasonal needs. Leverage is conservative with liabilities-to-equity of roughly 0.45x and financial leverage of 1.47x. Interest expense was only ¥1.68m, and interest coverage is exceptionally high at ~665x, underscoring minimal refinancing risk. Overall solvency is strong, and liquidity is ample, positioning the company well to navigate short-term volatility.

Cash Flow Quality

Operating cash flow was ¥7.3m versus net income of ¥454m, resulting in an OCF/Net Income ratio of ~0.02x, which is weak for the period and points to significant working capital outflows or timing effects. EBITDA of ¥1.493bn contrasts with the low OCF, reinforcing that the issue lies in cash conversion rather than operating capacity. Investing cash flow is shown as ¥0 (undisclosed), so period free cash flow cannot be reliably computed; the provided FCF is shown as 0, reflecting the lack of disclosure for investing outlays rather than true zero capex. With inventories at ¥461m and quick ratio nearly equal to the current ratio, the working capital drag likely stems from receivables or other current assets rather than inventory accumulation. Given the strong liquidity base, short-term OCF weakness is manageable, but sustained under-conversion would be a concern if it persists into H2.

Dividend Sustainability

Dividend data (DPS, payout) is shown as zero in the dataset and should be treated as undisclosed for this period. Based on EPS of ¥38.76 and strong balance sheet metrics, capacity for distributions exists in principle, but weak OCF in H1 reduces near-term cash coverage. Without investing cash flow disclosure, free cash flow coverage of dividends cannot be assessed with confidence. Policy outlook cannot be inferred from this dataset; future guidance and full-year results will be key for assessing dividend stability.

Risk Assessment

Business Risks:

• Cyclical demand in construction and building materials affecting order volumes and pricing
• Raw material and energy cost volatility impacting gross margins
• Project timing and seasonality driving revenue recognition and working capital swings
• Competition and pricing pressure in domestic building materials markets
• Potential extraordinary losses (impairments, one-off costs) affecting net income visibility

Financial Risks:

• Weak cash conversion in the half (OCF/Net Income ~0.02x), indicating working capital risk
• Dependence on timely receivables collection given modest asset turnover (0.373x)
• Potential capex requirements not disclosed this period, creating uncertainty around FCF
• Exposure to macro slowdown that could elongate cash conversion cycles

Key Concerns:

• Large gap between ordinary income (¥1.213bn) and net income (¥454m) suggests below-the-line headwinds
• Very low operating cash flow despite strong EBITDA points to temporary but material cash strain
• Dividend and share data undisclosed, limiting assessment of shareholder return policy

Investment Implications

Key Takeaways:

• Top-line growth of 3.6% YoY and 19.1% YoY operating profit growth demonstrate improved operating efficiency
• Operating and ordinary margins are solid; interest burden is negligible
• Bottom-line decline reflects extraordinary/non-controlling effects rather than core weakness
• Liquidity and solvency are strong, providing resilience
• Cash conversion is the primary watchpoint heading into H2

Metrics to Watch:

• Working capital movements and OCF recovery in Q3–Q4
• Extraordinary items and minority interests affecting the ordinary-to-net income gap
• Order intake, backlog, and pricing to gauge revenue sustainability
• Raw material and energy cost trends impacting gross margin
• Capex disclosures to assess true free cash flow

Relative Positioning: Within Japanese building materials peers, Nozawa shows stronger balance sheet resilience and interest coverage, competitive operating margins, but weaker cash conversion in the current half; normalization of OCF and clarity on below-the-line items will be critical to align bottom-line performance with improved operating trends.

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