Nippon Carbon Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥27.48B
• Operating Income: ¥3.46B
• Net Income: ¥3.46B
• EPS: ¥415.15

Income Statement

Balance Sheet

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

FY2025 Q3 was a mixed quarter for Nihon Carbon: stable top line but a sharp contraction in operating profitability offset by non-recurring gains that lifted bottom-line growth. Revenue was 274.79, up a modest 0.2% YoY, while operating income fell 26.9% YoY to 34.65. Gross profit was 84.90, implying a gross margin of 30.9%. SG&A was 37.49, rising relative to the muted revenue trend and squeezing operating leverage. Operating margin compressed to 12.6%, down an estimated 468 bps YoY from roughly 17.3% last year. Ordinary income declined 24.2% YoY to 36.87, but profit before tax rose to 50.62 due to sizable below-ordinary items (net extraordinary gains). Net income surged 59.0% YoY to 45.90, resulting in a net margin of 16.7%, despite the deterioration in operating profit. The gap between ordinary income (36.87) and profit before tax (50.62) suggests one-off/extraordinary factors were the key swing items. The effective tax rate is 31.7%, yet net income exceeds a simple after-tax PBT calculation, indicating additional post-tax positive items or classification effects; this elevates the risk that earnings quality is not purely operating. On capital efficiency, ROE is 7.3% (DuPont: 16.7% margin × 0.326 asset turnover × 1.34x leverage), while ROIC is 4.0%, below a typical cost-of-capital threshold and flagged as a concern. Liquidity is strong with a 252.7% current ratio and cash (139.33) exceeding short-term loans (101.73), and leverage is conservative at 0.34x D/E with an interest coverage of 88.9x. Working capital is ample at 291.16, mitigating near-term refinancing risk. Dividend payout is calculated at 51.6%, within a generally sustainable range, but cash flow data are unreported, preventing verification of cash coverage. Overall, operational momentum is weak, but bottom-line optics benefited from non-operating/extraordinary items. Forward-looking, restoring operating margin and lifting ROIC above 5% will be critical, alongside monitoring input cost trends and end-market demand in carbon-related applications. With OCF unreported and extraordinary items driving EPS, visibility into true recurring earnings remains limited. The quarter underscores the need to track normalization of below-the-line gains and the path to sustainable operating profit growth.

Profitability Analysis

ROE (7.3%) = Net Profit Margin (16.7%) × Asset Turnover (0.326) × Financial Leverage (1.34x). The largest driver of change this quarter is the net profit margin, which rose at the bottom line due to non-operating/extraordinary gains even as operating profitability fell. Operating margin compressed to 12.6% from roughly 17.3% a year ago (about -468 bps), reflecting weaker pricing/mix or cost inflation not fully offset by price, and SG&A rising faster than sales. The business reason is likely unfavorable operating leverage on flat revenue and possible cost pressures in raw materials/energy or product mix shift; non-operating dividend income (1.46) and sizeable extraordinary gains lifted PBT and NI. The uplift from below-ordinary items appears one-time or volatile rather than structural, so sustainability is low absent operating recovery. Concerning trends include: operating income down 26.9% YoY on flat sales (+0.2% YoY), indicating negative operating leverage; SG&A (absolute) not flexing with revenue; and ROIC at 4.0% below the 5% warning threshold.

Growth Assessment

Top-line growth was essentially flat (+0.2% YoY), suggesting limited volume or pricing momentum. Operating profit declined materially (-26.9% YoY), indicating margin pressure and unfavorable operating leverage. Ordinary income fell 24.2% YoY, reinforcing the operating softness, but net income rose 59.0% YoY due to non-recurring gains below ordinary income. Revenue sustainability appears stable near term but lacks catalysts for acceleration in the reported data. Profit quality is mixed: core operating profit contracted, while net profit strength was driven by items unlikely to recur at the same magnitude. Outlook hinges on margin repair (price-cost spread, product mix) and improved capital efficiency; without this, ROIC likely remains subpar. Near-term comparables may remain tough unless cost inputs ease or demand in key end-markets strengthens.

Financial Health

Liquidity is strong: Current Ratio 252.7% (>1.5 benchmark) and Quick Ratio 192.8%, with cash (139.33) exceeding short-term loans (101.73). Solvency is conservative: D/E 0.34x and interest coverage 88.85x (>>5x). No warnings for Current Ratio <1.0 or D/E >2.0. Maturity mismatch risk appears low given sizable current assets (481.89) vs current liabilities (190.73) and cash coverage of short-term borrowings. Long-term loans are minimal (2.00), reducing long-dated refinancing risk. Off-balance sheet obligations are not disclosed in the provided data, so contingent liabilities/guarantees cannot be assessed.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income and free cash flow cannot be calculated; this limits earnings quality verification. Given the large contribution from below-ordinary items to net income, cash conversion risk is elevated until OCF is confirmed. Dividend coverage by FCF cannot be assessed without OCF and capex data. Working capital levels are substantial; without turnover metrics, we cannot assess whether inventory or receivables built up to support earnings. No direct signs of working capital manipulation can be inferred from the limited data, but the lack of OCF disclosure is a key gap.

Dividend Sustainability

The calculated payout ratio is 51.6%, within a generally sustainable range (<60%) assuming normalized cash generation. However, DPS and total dividends paid are unreported, and FCF coverage cannot be verified due to missing OCF and capex. With ROIC at 4.0% and operating income down sharply, dividend sustainability rests on cash earnings rather than the elevated reported net income. Policy outlook likely favors stability, but confirmation requires forthcoming cash flow statements and guidance.

Risk Assessment

Business Risks:

• Operating margin compression (-468 bps YoY estimate) on flat revenue indicates pricing/mix or cost pressure risk.
• Dependence on non-operating/extraordinary gains to support net income in the quarter; low recurrence risk.
• ROIC at 4.0% (<5% threshold) signals subpar capital efficiency against likely cost of capital.
• Potential exposure to raw material (e.g., needle coke), energy cost volatility, and industrial end-market cycles (steel, semiconductors, advanced materials) typical for carbon product portfolios.
• Product mix shifts could impact gross margin sustainability.

Financial Risks:

• Short-term borrowings (101.73) are sizable, though currently covered by cash; exposure to interest rate increases on short-term debt.
• Earnings visibility risk due to unreported OCF and capex data, limiting assessment of cash coverage for dividends and investments.
• Equity market valuation sensitivity if extraordinary items normalize and reported EPS declines.

Key Concerns:

• Earnings quality: NI growth driven by below-ordinary items; core operating earnings declined materially.
• Capital efficiency: ROIC below 5% with weakening operating profit.
• Data gaps: Missing cash flow statement and DPS details constrain assessment of sustainability.

Investment Implications

Key Takeaways:

• Core operations softened: operating income -26.9% YoY on nearly flat sales, with operating margin down ~468 bps YoY.
• Bottom-line strength (+59% YoY NI) was driven by extraordinary/non-operating items, not recurring operations.
• Balance sheet is robust (CR 253%, D/E 0.34x) and interest coverage very strong (88.9x).
• ROE is moderate at 7.3%, but ROIC at 4.0% flags value creation challenges.
• Cash generation and FCF sustainability remain unverified due to unreported OCF/capex.

Metrics to Watch:

• Operating margin trajectory and SG&A efficiency vs revenue growth
• Price-cost spread and gross margin stability
• OCF/Net Income and FCF once disclosed
• ROIC improvement toward >5% and ideally >7–8%
• Scale of extraordinary gains/losses and their normalization
• Inventory and receivables trends (turnover) to gauge working capital health

Relative Positioning: Versus diversified industrial peers, Nihon Carbon shows stronger liquidity and low leverage but weaker operating momentum and below-par ROIC. Near-term earnings appear more volatile due to reliance on non-operating/extraordinary items, placing it at a disadvantage on quality of earnings until operating profit stabilizes and cash metrics are disclosed.

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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