Nikko Co., Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.52B
• Operating Income: ¥221M
• Net Income: ¥3M
• EPS: ¥5.11

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

Nikko Co., Ltd. (TSE:5343) delivered modest topline growth in FY2026 Q2 with revenue of ¥7.524bn (+1.2% YoY), while profitability improved sharply at the operating level. Operating income rose to ¥221m (+564.6% YoY), indicating meaningful operating leverage and cost discipline despite only a small increase in sales. Gross profit was ¥2.184bn, translating to a gross margin of 29.0%, which supported a rebound in operating margin to 2.9%. Ordinary income (¥218m) tracked operating income closely, implying limited net non-operating effects and manageable interest costs. Net income was ¥147m (flat YoY), suggesting offsetting factors below the operating line, despite the strong improvement in operating earnings. EBITDA reached ¥399m (EBITDA margin 5.3%), underpinned by ¥178m of depreciation and amortization, highlighting a capital-intensive manufacturing base. Liquidity is tight but adequate, with a current ratio of 108.8% and a quick ratio of 86.4%, reflecting working capital intensity and the importance of inventory management. Leverage remains high: total liabilities are ¥7.901bn versus equity of ¥1.934bn, resulting in financial leverage of 5.28x (assets/equity) and a debt-to-equity ratio of 4.09x. ROE is estimated at 7.6%, driven primarily by asset turnover of 0.737 and modest net margins (1.95%) amplified by leverage. Operating cash flow was ¥151m, broadly aligned with net income (OCF/NI of 1.03), pointing to acceptable earnings quality in the period. Positive financing cash flow of ¥238m likely supported working capital and/or refinancing needs, consistent with the company’s leveraged balance sheet. The effective tax burden appears low on the face of the provided metrics, though tax disclosures are limited. Dividend data are not disclosed for this period; hence payout capacity cannot be fully assessed from free cash flow due to the absence of investing cash flow detail. The equity ratio was reported as 0.0% in the dataset, but based on disclosed assets and equity, it approximates 18.9%, consistent with a highly leveraged profile. Overall, the quarter shows improving operating momentum and adequate interest coverage (22.1x), counterbalanced by tight liquidity and elevated leverage that heighten sensitivity to demand and working capital swings. Data limitations (notably zeros indicating unreported items) constrain certain conclusions, particularly around free cash flow and dividend capacity.

Profitability Analysis

ROE_decomposition: ROE 7.60% = Net Profit Margin 1.95% × Asset Turnover 0.737 × Financial Leverage 5.28. The return is leverage- and turnover-driven; margin remains thin. margin_quality: Gross margin 29.0% supports an operating margin of 2.9% (¥221m on ¥7.524bn). Ordinary margin is 2.9% and net margin is 1.95%, indicating limited non-operating drag. Interest expense is modest at ¥10m with strong EBIT coverage (22.1x). The flat YoY net income despite large operating income growth suggests below-the-line offsets (taxes/minorities/extraordinary) or prior-period one-offs. operating_leverage: Revenue grew 1.2% YoY while operating income rose 564.6%, evidencing significant operating leverage from cost control and/or mix. SG&A intensity implied at ~26.1% of sales (¥1.963bn), so marginal improvements in gross profit flow through meaningfully to EBIT. Sustainability depends on maintaining gross margin and controlling fixed costs.

Growth Assessment

revenue_sustainability: Topline growth of 1.2% suggests stable demand but not a strong expansion; likely influenced by price/mix rather than volume acceleration. With asset turnover at 0.737, utilization appears moderate; further growth may require either volume recovery or improved throughput. profit_quality: The close alignment of OCF (¥151m) and net income (¥147m) supports earnings quality for the half. Ordinary income tracking operating income indicates low reliance on non-operating gains. Depreciation (¥178m) is substantial, underscoring the need for ongoing capex to sustain productive capacity. outlook: Maintaining the improved operating margin will be key. Given slim net margins and high leverage, earnings remain sensitive to small changes in revenue and costs. Near-term growth likely hinges on price discipline, product mix upgrades, and efficiency gains rather than volume-led expansion.

Financial Health

liquidity: Current ratio 108.8% and quick ratio 86.4% reflect tight short-term liquidity. Working capital is positive at ¥548m, but near-term obligations (current liabilities ¥6.239bn) remain high relative to liquid assets, underscoring the importance of inventory turns and receivables collection. solvency: Total liabilities of ¥7.901bn versus equity of ¥1.934bn imply high leverage. The implied equity ratio is approximately 18.9% (equity/assets), despite a reported 0.0% figure in the dataset. Interest coverage is strong at 22.1x, but solvency depends on sustaining operating cash flows. capital_structure: Debt-to-equity of 4.09x and financial leverage of 5.28x indicate a balance sheet geared to debt financing. Positive financing cash flow (¥238m) suggests recent funding inflows (potentially borrowings) to support operations and/or refinancing.

Cash Flow Quality

earnings_quality: OCF/Net Income of 1.03 indicates earnings are backed by cash generation in the period. EBITDA of ¥399m provides a cash earnings buffer, though conversion to OCF is moderate given working capital needs. FCF_analysis: Investing cash flow is not disclosed (reported as 0), so Free Cash Flow cannot be reliably assessed. The provided FCF of 0 should be treated as not meaningful given missing capex data under JGAAP classifications. working_capital: With inventories at ¥1.394bn and current liabilities at ¥6.239bn, cash conversion is sensitive to inventory and payables timing. The modest OCF suggests manageable, but non-trivial, working capital drag.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are not disclosed for the period (reported as 0). With net income of ¥147m, a sustainable payout would depend on recurring FCF and leverage covenants. FCF_coverage: FCF coverage cannot be determined due to undisclosed investing cash flows; the reported 0.00x is not informative. policy_outlook: Given leverage (D/E 4.09x) and tight liquidity, prudence would favor balance sheet strengthening over aggressive distributions until consistent FCF is evidenced.

Risk Assessment

Business Risks:

• Demand cyclicality in tableware/ceramics end-markets impacting volume and pricing.
• Input cost volatility (energy, raw materials) pressuring gross margins.
• Operational leverage: small revenue changes have outsized EBIT impact.
• Product mix shifts or customer concentration affecting margins.
• Capex needs to maintain quality and efficiency in a capital-intensive process.

Financial Risks:

• High leverage (D/E 4.09x; equity ratio ~18.9%) increasing sensitivity to earnings shortfalls.
• Tight liquidity (quick ratio 86.4%) and large current liabilities requiring careful cash management.
• Refinancing risk if credit conditions tighten, despite current interest coverage of 22.1x.
• Working capital swings (inventory and receivables) potentially straining OCF.

Key Concerns:

• Sustainability of the operating margin improvement with only +1.2% revenue growth.
• Visibility on capex and investing cash flows is limited, obscuring true FCF.
• High balance sheet leverage leaves little room for execution missteps.

Investment Implications

Key Takeaways:

• Operating turnaround evident: EBIT up 5.6x on +1.2% sales.
• Margins remain thin (net margin 1.95%); leverage amplifies ROE to 7.6%.
• Liquidity is tight but manageable; interest coverage is currently solid.
• Cash flow quality acceptable this half, but FCF unassessable without investing data.
• Balance sheet leverage is the principal constraint on flexibility.

Metrics to Watch:

• Gross and operating margins (sustainability of 29.0% GP and ~3% OP margins).
• Working capital metrics: inventory days, receivables collection, and payables terms.
• Capex and investing cash flows to gauge true FCF generation.
• Debt level and maturity profile; interest coverage trajectory.
• Revenue mix and pricing to assess durability of operating leverage.

Relative Positioning: Within Japan’s ceramics/tableware peers, Nikko shows improving operating momentum but remains more leveraged and liquidity-constrained than conservative peers; margin profile is mid-pack, with execution on cost and mix critical to narrow the gap.

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
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