Nippon Crucible Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.04B
• Operating Income: ¥188M
• Net Income: ¥146M
• EPS: ¥22.07

Income Statement

Balance Sheet

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

Verdict: A mixed quarter—solid top-line growth but operating margin compression, with net income supported by non-operating gains and a higher tax burden, leaving capital efficiency weak. Revenue grew 3.9% year over year to 50.45, while operating income declined 13.3% to 1.88, indicating weakening operating leverage. Gross profit was 13.32 with a gross margin of 26.4%, and SG&A was 11.44, absorbing 85.8% of gross profit. Operating margin was 3.73% in the quarter, down from roughly 4.47% a year ago, implying about 74 bps of compression. Ordinary income held up better at 2.26 (-1.0% YoY), cushioned by 0.53 of non-operating income, including 0.25 of dividend income. Net income rose 6.5% to 1.46, aided by the non-operating line despite weaker operating profit and a roughly 35% effective tax rate. The non-operating income ratio of 36.1% highlights meaningful reliance on income outside core operations. ROE was a modest 2.5% (DuPont: NPM 2.9%, asset turnover 0.441x, leverage 1.92x), and ROIC of 2.0% remains below the 5% warning threshold. Liquidity is sound with a current ratio of 178.8% and quick ratio of 159.7%, and interest coverage is strong at 13.7x. Balance sheet shows moderate leverage (D/E 0.92x) and manageable short-term debt relative to cash and receivables. Earnings quality cannot be verified due to unreported cash flow data; OCF vs NI comparison is unavailable. The payout ratio is calculated at 82%, which is elevated versus typical sustainability benchmarks (<60%), though cash coverage cannot be assessed. Inventory and receivables levels look reasonable versus first-half activity, suggesting no evident working capital stress from the balance sheet snapshot. Forward-looking, stabilization of operating margin and improved capital efficiency are needed; dependency on non-operating gains should be monitored. Near-term drivers include demand in industrial ceramics end-markets and input cost pass-through, while high ROIC gap signals the need for profitability improvements or asset efficiency gains.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin ~2.9% × Asset Turnover ~0.441 × Financial Leverage ~1.92x = ROE ~2.5%. The largest change versus last year appears in net operating profitability: operating income -13.3% vs revenue +3.9% implies margin pressure, while ordinary income was resilient due to higher non-operating income. Business drivers likely include higher SG&A burden (11.44, 85.8% of gross profit) and/or weaker pricing versus input costs, partially offset by dividend income (0.25) and other non-operating gains (total non-op income 0.53). Sustainability: non-operating support (notably dividend income) can be recurring but is less controllable than operating earnings; reliance at 36.1% elevates volatility risk. Asset turnover at 0.441 is modest and likely constrained by capital intensity and a sizable investment securities balance (16.38), limiting operating asset efficiency; this is unlikely to inflect quickly without portfolio/asset optimization. Financial leverage at 1.92x is moderate; with D/E at 0.92x, incremental leverage-driven ROE expansion is limited by prudence and interest-rate risk. Concerning trend: operating deleverage (OI down despite sales growth) and SG&A absorption suggest cost discipline or pricing power issues. Watch if SG&A growth continues to outpace revenue; current data indicate pressure given the margin trajectory.

Growth Assessment

Revenue growth of 3.9% indicates steady demand, but operating profit declined 13.3%, signaling negative operating leverage. Ordinary income (-1.0% YoY) outperformed operating income thanks to non-operating income (0.53), with dividend income (0.25) a notable contributor. Net income rose 6.5%, aided by the non-operating line despite a circa 35% effective tax rate. Operating margin compressed by about 74 bps YoY to 3.73%, ordinary margin by ~22 bps to 4.48%, while net margin improved slightly by ~6 bps to 2.89%—the latter supported by non-operating items. Profit quality tilts away from core operations in this period; sustaining net growth without operating improvement may be difficult. Non-operating income dependence increases sensitivity to external equity holdings’ performance and market conditions. Without cash flow data, we cannot confirm whether growth is supported by cash generation. Outlook hinges on price-cost dynamics in industrial ceramics, end-market capex cycles, and the stability of dividends from investment securities. ROIC at 2.0% underscores that current growth is not creating sufficient economic value; margin recovery or asset base optimization is required to improve value creation.

Financial Health

Liquidity is solid: current ratio 178.8% and quick ratio 159.7% both exceed healthy thresholds. No warning on CR < 1.0 or D/E > 2.0; D/E is 0.92x, indicating moderate leverage. Short-term loans (14.43) are well covered by cash (19.14) and receivables (23.49), reducing near-term refinancing or maturity mismatch risk; total current assets (65.27) comfortably exceed current liabilities (36.51). Long-term loans are 6.74, and total liabilities are 54.93 against equity of 59.40, yielding financial leverage of ~1.92x. Interest coverage at ~13.7x (OI/interest expense) is strong, indicating ample buffer. Investment securities (16.38) provide an additional liquidity backstop if marketable, but also introduce valuation risk. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed; we cannot flag or dismiss earnings quality issues on this metric. Free cash flow and capex are also unreported, preventing dividend and capex coverage analysis. Working capital indicators from the balance sheet snapshot appear reasonable: receivables (23.49) vs H1 sales (50.45) imply roughly mid-80s days sales outstanding, and inventories (6.99) vs H1 cost of sales (37.13) imply ~34 days inventory—both plausible for industrial ceramics. No apparent signs of aggressive working capital management are observable from the point-in-time balances, but absence of cash flow statements limits conclusions.

Dividend Sustainability

The calculated payout ratio is 82.0%, which is elevated relative to a <60% sustainability benchmark. With OCF and FCF unreported, we cannot evaluate cash coverage for dividends. Balance sheet strength (retained earnings 44.50 and healthy liquidity) provides some flexibility for distributions in the near term, but structurally low ROIC (2.0%) and thin operating margins argue for caution if operating performance does not improve. Absent clarity on capex needs and cash generation, dividend trajectory likely depends on margin recovery and the stability of non-operating income.

Risk Assessment

Business Risks:

• Operating margin compression (operating income -13.3% YoY despite +3.9% revenue).
• Input cost inflation and energy cost volatility potentially outpacing pricing power.
• End-market cyclicality in industrial ceramics applications (metals, foundry, machinery).
• Dependence on non-operating income (36.1% contribution) to support ordinary profit.
• Low ROIC (2.0%) indicating sub-par value creation.

Financial Risks:

• Moderate leverage (D/E 0.92x) with reliance on short-term loans (14.43).
• Interest rate risk affecting borrowing costs and securities valuations.
• Valuation risk on investment securities (16.38) impacting non-operating results.
• Potential tax-rate variability (effective rate ~35%).

Key Concerns:

• Capital efficiency below threshold (ROIC 2.0% vs 5% warning).
• Sustained reliance on dividends and other non-operating gains to offset weak operations.
• High payout ratio (82%) without visibility on OCF/FCF.
• Operating deleverage suggesting SG&A and/or cost control issues.

Investment Implications

Key Takeaways:

• Top-line growth (+3.9%) but operating margin compressed by ~74 bps to 3.73%.
• Ordinary profit resilience driven by non-operating income (0.53), including dividend income (0.25).
• Net income +6.5% with net margin ~2.89%, but quality tilted away from core operations.
• ROE is low at 2.5%; ROIC at 2.0% highlights weak value creation.
• Liquidity strong (CR 179%, QR 160%); leverage moderate (D/E 0.92x) and interest coverage robust (13.7x).
• Payout ratio elevated at 82%, with cash coverage unknown.
• Balance sheet contains sizable investment securities (16.38), a source of both income and market risk.

Metrics to Watch:

• Operating margin trajectory and SG&A growth vs revenue.
• OCF, FCF, and capex once disclosed (OCF/NI > 1.0 target).
• ROIC improvement toward >5% first, then >7–8% medium-term.
• Contribution and stability of non-operating income (dividends, securities gains/losses).
• Working capital turns (DSO, inventory days) and receivables quality.
• Pricing power vs raw material and energy cost trends.

Relative Positioning: Within Japanese industrial ceramics peers, the company shows adequate liquidity and manageable leverage but trails on capital efficiency (ROIC 2.0%) and exhibits higher dependence on non-operating income to support earnings, suggesting a need for margin restoration and asset efficiency improvements to close the gap with higher-ROIC competitors.

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