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

Nippon Carbon (5302) reported FY2025 Q3 consolidated results under JGAAP showing resilient top-line but weaker operating profitability, offset by sizable below-operating and/or extraordinary contributions to the bottom line. Revenue was ¥27.48bn, up a modest 0.2% YoY, indicating largely flat demand conditions through the first three quarters. Gross profit of ¥8.49bn implies a gross margin of 30.9%, which remains healthy for a carbon materials producer but suggests some cost pressure relative to revenue growth. Operating income declined 26.9% YoY to ¥3.47bn, compressing the operating margin to roughly 12.6%, reflecting weaker operating leverage and likely higher input costs or mix effects. Ordinary income was ¥3.69bn, exceeding operating income, indicating positive non-operating contributions (e.g., FX gains, interest/dividend income, securities-related gains). Net income surged 59.0% YoY to ¥4.59bn, lifting the net margin to 16.7%; this gap versus operating performance suggests material extraordinary gains and/or tax effects. The DuPont bridge shows a calculated ROE of 7.32% based on net margin of 16.7%, asset turnover of 0.326x, and financial leverage of 1.34x, underscoring that profitability, not leverage, drove equity returns. Balance sheet strength is notable: total assets are ¥84.29bn, equity ¥62.68bn, and liabilities ¥21.53bn, implying low leverage and an equity-to-asset ratio of approximately 74% (the reported equity ratio of 0.0% is clearly not reflective of the disclosed balance sheet). Liquidity is strong with a current ratio of 250% and quick ratio of 189%, supported by ¥46.32bn of current assets against ¥18.54bn of current liabilities. Interest burden is light at ¥39m with an interest coverage of ~89x, reinforcing conservative financing. Working capital is ample at ¥27.78bn, and inventories of ¥11.30bn appear manageable relative to sales. Cash flow statements were not disclosed in this dataset (zeros indicate unreported), limiting visibility into operating cash conversion and capex/FCF. Dividend data are also unreported (DPS 0.00 and payout ratio 0.0% shown are placeholders), preventing assessment of actual distributions year-to-date. Overall, the quarter reflects stable sales, margin pressure at the operating level, and bottom-line uplift from non-operating/extraordinary items, within a very solid financial position. The principal analytical watchpoints are the sustainability of non-operating gains, normalization of tax effects, and the trajectory of operating margin as cost pressures and mix evolve.

Profitability Analysis

ROE_decomposition: DuPont indicates ROE of 7.32% = Net margin 16.70% × Asset turnover 0.326 × Financial leverage 1.34. With leverage modest (Assets/Equity ≈ 1.35x), equity returns are primarily driven by profit margin rather than balance sheet gearing. margin_quality: Gross margin is 30.9% (¥8.49bn/¥27.48bn), supporting value-added product contribution but showing insufficient operating leverage as operating margin compressed to ~12.6% (¥3.47bn/¥27.48bn). Ordinary margin is ~13.4% (¥3.69bn/¥27.48bn), above operating margin due to positive non-operating items. Net margin rose to 16.7% on the back of extraordinary/non-operating gains and/or tax effects; this quality is lower and less repeatable than pure operating earnings. operating_leverage: Revenue was flat (+0.2% YoY) while operating income fell 26.9% YoY, signaling negative operating leverage in the period. Likely drivers include higher raw material/energy costs, product mix shifts, or SG&A step-ups not offset by pricing/volume. The large spread between operating and net income also indicates that reported bottom-line improvement is not reflective of core operating leverage.

Growth Assessment

revenue_sustainability: Sales were essentially flat YoY at ¥27.48bn, implying stable but uninspiring demand through Q3. Without segment detail, sustainability hinges on end-markets such as graphite electrodes/carbon materials and potential exposure to steel EAF, batteries, and specialty carbon demand. profit_quality: Operating profit decline despite stable revenue points to margin pressure. The net income surge (+59% YoY) is driven by below-operating items (ordinary/extraordinary) and tax effects, which may not be recurring. Interest expense is de minimis (¥39m), so ordinary income uplift likely came from FX or financial assets. outlook: Key to near-term growth will be margin recovery via pricing, input cost normalization (e.g., needle coke/pitch, energy), product mix improvement, and discipline on SG&A. Sustainability of non-operating gains is uncertain; normalization could reduce net margin even if sales are steady. Monitoring order trends, inventory levels, and spread between selling prices and raw materials will be critical into FY-end.

Financial Health

liquidity: Current ratio 249.9% and quick ratio 188.9% indicate ample short-term liquidity, supported by ¥46.32bn current assets vs. ¥18.54bn current liabilities. Working capital is robust at ¥27.78bn; inventories of ¥11.30bn appear manageable. solvency: Total liabilities of ¥21.53bn vs. equity of ¥62.68bn imply low balance sheet risk; debt-to-equity of 0.34x (liabilities as proxy) and an implied equity ratio around 74% denote strong solvency. capital_structure: Leverage is conservative with financial leverage of 1.34x. Interest coverage is ~88.8x (operating income/interest), suggesting high headroom under potential earnings volatility.

Cash Flow Quality

earnings_quality: Cash flow data were not disclosed in this dataset (Operating CF, Investing CF, Financing CF reported as 0 indicate unreported). As a result, OCF/Net Income and FCF cannot be assessed and the displayed ratios (e.g., OCF/NI = 0.00) should not be interpreted as economic zeros. FCF_analysis: Free cash flow cannot be calculated due to missing OCF and capex data. With operating profit under pressure, FCF resilience will depend on working capital release and capex discipline. working_capital: Working capital stands at ¥27.78bn. Inventories of ¥11.30bn relative to revenue warrant monitoring for potential de-stocking or write-down risks should demand soften, but current liquidity metrics mitigate near-term concerns.

Dividend Sustainability

payout_ratio_assessment: Dividend data are not disclosed here (DPS 0.00 and payout ratio 0.0% are placeholders). EPS is ¥415.15 for the period, but without actual dividend figures we cannot infer payout behavior. FCF_coverage: Unavailable due to missing OCF and capex. True FCF coverage of dividends cannot be assessed. policy_outlook: Given the strong balance sheet and low leverage, the company appears capable of sustaining dividends in principle, but sustainability depends on core operating cash generation rather than extraordinary gains. Confirmation requires actual DPS and cash flow disclosures.

Risk Assessment

Business Risks:

• End-market cyclicality in steel (EAF electrode demand) and industrial carbon applications
• Raw material price volatility (needle coke, pitch) impacting spreads
• Energy cost fluctuations affecting manufacturing margins
• Product mix and pricing pressure amid global competition, including Chinese suppliers
• FX volatility (especially USD/JPY) influencing both non-operating income and competitiveness
• Potential demand variability in specialty carbon segments (battery materials, semiconductor-related)
• Execution risk in cost control and capacity utilization

Financial Risks:

• Earnings volatility with reliance on non-operating/extraordinary gains for bottom-line support
• Inventory valuation risks if demand weakens
• Working capital expansion tying up cash during slowdowns
• Interest rate risk is limited given low interest expense, but market valuation of financial assets could affect ordinary income

Key Concerns:

• Operating margin compression despite flat sales, indicating unfavorable operating leverage
• Sustainability of net income uplift driven by non-operating/extraordinary items
• Limited visibility due to undisclosed cash flow and dividend data in this dataset

Investment Implications

Key Takeaways:

• Revenue stable (+0.2% YoY) but operating income down 26.9% YoY, signaling margin pressure
• Net income up 59.0% YoY to ¥4.59bn, driven by non-operating/extraordinary factors
• Strong balance sheet with implied equity ratio ~74% and low leverage (D/E ~0.34x)
• Excellent liquidity (current ratio ~250%, quick ratio ~189%) and high interest coverage (~89x)
• Cash flow and dividend details not disclosed here, limiting assessment of cash conversion and distributions

Metrics to Watch:

• Operating margin and gross-to-operating spread
• Price-cost spread for key inputs (needle coke, pitch) and energy costs
• Ordinary vs. operating income gap (sustainability of non-operating gains)
• Inventory levels and working capital turns
• OCF and FCF once disclosed; capex intensity
• FX impacts and hedging gains/losses
• Order trends in electrodes and specialty carbon products

Relative Positioning: Financially conservative with strong liquidity and low leverage versus many materials peers, but current-period profitability relies more on non-operating/extraordinary items than on core operating improvement.

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