Nippon Hume Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥16.75B
• Operating Income: ¥1.15B
• Net Income: ¥2.08B
• EPS: ¥80.63

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

Nippon Hume Co., Ltd. (5262) reported FY2026 Q2 consolidated JGAAP results showing softer topline and operating profitability but solid ordinary profit and strong cash conversion. Revenue declined 11.5% YoY to ¥16.75bn, reflecting weaker demand and/or project timing in its core concrete product and civil engineering solutions. Gross profit of ¥3.96bn implies a 23.6% margin, which is respectable for the sector but likely pressured by input costs and utilization. Operating income fell 22.0% YoY to ¥1.15bn, compressing operating margin to 6.8%, indicative of negative operating leverage on lower volumes and/or cost passthrough lag. Ordinary income of ¥2.28bn exceeded operating income by a large margin, suggesting material non-operating gains (e.g., investment income, equity-method contributions, or financial income), which bolstered bottom-line resilience. Net income decreased a milder 10.0% YoY to ¥1.87bn, with an implied effective tax rate around the low-20s percent range despite a displayed 0.0% (the 0.0% field value appears unreported). DuPont analysis indicates a calculated ROE of 4.09%, driven by an 11.18% net margin, low asset turnover of 0.288x, and modest financial leverage of 1.27x. The balance sheet is conservative: equity of ¥45.76bn against assets of ¥58.21bn implies an equity ratio around 78.6% (the displayed 0.0% is unreported), and D/E of 0.31x. Liquidity is robust with a current ratio of 280.5% and quick ratio of 243.7%, supported by ample working capital (¥17.44bn). Cash generation was strong with operating cash flow of ¥2.65bn, translating to a healthy OCF/Net Income ratio of 1.41x, indicating high earnings quality this period. EBITDA of ¥1.51bn (9.0% margin) and interest coverage of 160.5x underscore low financial risk. Investment and cash balances are unreported in the XBRL snapshot, limiting free cash flow and net cash assessments; as such, FCF cannot be reliably derived from the provided data. Dividend figures are also unreported (DPS and payout shown as 0.00), so distribution policy and coverage cannot be concluded from this dataset. Overall, the company exhibits strong financial stability and cash conversion, but underlying operating momentum weakened, and ordinary profit reliance on non-operating items raises quality-of-earnings questions. Key watchpoints include demand recovery, pricing power versus input costs, and the sustainability of non-operating income.

Profitability Analysis

ROE decomposition (DuPont): Calculated ROE is 4.09%, derived from Net Profit Margin of 11.18%, Asset Turnover of 0.288x, and Financial Leverage of 1.27x. The modest ROE primarily reflects structurally low asset turnover typical of asset-heavy materials/infrastructure suppliers and a conservative balance sheet (low leverage), while net margin is elevated by non-operating gains (ordinary income far above operating income). Gross margin stands at 23.6%, broadly healthy, but operating margin compressed to 6.8% (¥1.145bn / ¥16.754bn), suggesting negative operating leverage as revenue declined 11.5% YoY. EBITDA margin is 9.0%, with D&A of ¥363m indicating limited near-term depreciation drag; however, operating margin deterioration points to either cost passthrough lag or a less favorable product mix. Ordinary margin of 13.6% (¥2.284bn / ¥16.754bn) exceeds operating margin by a wide gap, implying significant non-operating contributions to profitability; this inflates net margin quality relative to core operations. Interest expense is minimal (¥7m), and interest coverage is very strong at 160.5x, reinforcing that leverage does not contribute meaningfully to ROE. Estimated effective tax rate, inferred as income tax of ¥570m over approximated pre-tax profit of ~¥2.44bn, is about 23–24%, despite an unreported displayed rate of 0.0%. Overall operating leverage was adverse this half, as lower sales translated into a larger percentage decline in operating profit, indicating fixed-cost absorption pressure.

Growth Assessment

Revenue decreased 11.5% YoY to ¥16.75bn, indicating a soft demand environment and/or project timing slippage in public works and civil infrastructure. Operating income fell 22.0% YoY to ¥1.15bn, a sharper decline than revenue, highlighting negative operating leverage and potential margin pressure from raw material and labor costs. Net income declined 10.0% YoY to ¥1.87bn, cushioned by strong non-operating items that lifted ordinary income to ¥2.28bn; the sustainability of these gains is uncertain. Gross margin at 23.6% suggests reasonable pricing and cost control, but the drop in operating margin to 6.8% points to challenges in SG&A absorption and/or project execution. EBITDA margin of 9.0% provides some buffer, yet the trajectory is down with the topline. Looking forward, revenue sustainability hinges on order intake and backlog conversion in civil engineering, municipal demand cycles, and normalization of procurement costs. Profit quality will improve if operating profits recover and reliance on non-operating income diminishes. Without disclosed capex and investing cash flows, capacity expansion and maintenance investment trends cannot be assessed, which constrains the medium-term growth outlook analysis. Overall, near-term outlook is cautious on volumes and operating margin, with upside if public works demand stabilizes and cost passthrough catches up.

Financial Health

Liquidity is strong: current ratio 280.5% (¥27.10bn / ¥9.66bn) and quick ratio 243.7%, supported by sizable working capital of ¥17.44bn. Solvency is robust with total liabilities of ¥14.16bn against equity of ¥45.76bn, yielding D/E of 0.31x and an equity ratio around 78.6% (calculated from the balances; displayed equity ratio is unreported). Financial leverage is low (assets/equity 1.27x), contributing to stability but capping ROE. Interest expense is minimal at ¥7m, and interest coverage of 160.5x indicates negligible refinancing risk. Asset turnover is low at 0.288x, consistent with an asset-heavy model and high working capital intensity in the sector. Overall, the balance sheet is conservative with ample headroom for downturns.

Cash Flow Quality

Operating cash flow of ¥2.65bn exceeds net income of ¥1.87bn, giving an OCF/NI ratio of 1.41x, which indicates high earnings quality and favorable working capital conversion this period. EBITDA of ¥1.51bn provides a solid cash earnings base relative to interest burden. Investing cash flow is unreported (displayed as 0), preventing a reliable free cash flow calculation; thus, the displayed FCF of 0 should not be interpreted as the true economic FCF. Without capex detail, we cannot assess maintenance vs. growth investment intensity or capital discipline. Working capital levels are disclosed (inventories ¥3.56bn), but period-over-period changes are not provided, limiting diagnostics on drivers (receivables collection, inventory turns, and payables). Overall, cash flow quality appears strong for the half, but the durability depends on sustaining operating cash and managing investment needs.

Dividend Sustainability

Dividend per share and payout ratio are shown as 0.00 due to unreported data in the snapshot; therefore, we cannot infer the company’s distribution policy or actual cash dividends. On an economic basis, net income of ¥1.87bn and OCF of ¥2.65bn suggest capacity to fund dividends while maintaining balance sheet strength, but this is contingent on capex needs and potential working capital swings. Free cash flow is not computable from provided data (investing CF unreported), so FCF coverage of dividends cannot be assessed. The company’s conservative leverage (D/E 0.31x) and strong liquidity would generally support dividend stability should the company choose to prioritize shareholder returns. Policy outlook cannot be concluded from the dataset; monitoring official guidance and historical payout practices is essential.

Risk Assessment

Business Risks:

• Cyclicality of public works and municipal infrastructure demand affecting order intake and backlog
• Raw material (cement, steel) and energy price volatility impacting margins
• Labor shortages and subcontractor capacity constraints driving cost inflation and execution risk
• Project timing, weather, and seasonality affecting revenue recognition and utilization
• Competitive pricing pressure in concrete and civil materials markets
• Reliance on non-operating income to sustain ordinary/net profit in the period
• Potential delays in cost passthrough to contract prices

Financial Risks:

• Low asset turnover and high working capital intensity suppress capital efficiency
• Earnings sensitivity to volume due to fixed-cost absorption (negative operating leverage)
• Uncertainty around capex and investment cash flows due to unreported data
• Potential normalization of effective tax rate impacting net margin (estimated ~23–24%)
• Limited transparency on cash and equivalents, making net cash position unclear

Key Concerns:

• Operating margin compression to 6.8% amid an 11.5% revenue decline
• Large gap between ordinary and operating income, raising earnings quality questions
• Inability to assess true FCF and dividend coverage due to missing investing CF and DPS data

Investment Implications

Key Takeaways:

• Topline contracted 11.5% YoY with operating income down 22.0%, indicating negative operating leverage
• Ordinary and net profits were supported by non-operating gains; quality of earnings warrants scrutiny
• Balance sheet is very strong with an estimated equity ratio ~78.6% and D/E 0.31x
• Cash conversion is solid (OCF/NI 1.41x), but FCF cannot be determined from unreported investing CF
• ROE is modest at 4.09% due to low asset turnover and conservative leverage

Metrics to Watch:

• Order intake, backlog, and book-to-bill for civil infrastructure projects
• Selling price adjustments vs. input cost trends (cement, steel, energy)
• Operating margin and EBITDA margin progression as volumes normalize
• Non-operating income components and sustainability
• Capex levels and investing cash flows to assess true FCF
• Working capital turns (DSO/DIO/DPO) and OCF/NI conversion
• Effective tax rate normalization

Relative Positioning: Within domestic construction materials and civil engineering suppliers, Nippon Hume exhibits above-average balance sheet strength and liquidity, but current-period operating performance lagged on volume and margin, resulting in modest ROE that trails peers with higher asset turnover or greater pricing power.

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