NIKKATO CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.32B
• Operating Income: ¥497M
• Net Income: ¥344M
• EPS: ¥28.74

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

Nikkato Co., Ltd. (5367) reported FY2026 Q2 (non-consolidated, JGAAP) results showing healthy top-line growth and significant operating leverage. Revenue rose to ¥5,320 million (+7.9% YoY), while operating income surged to ¥497 million (+34.8% YoY), indicating strong cost discipline and/or improved product mix. Gross profit reached ¥1,044 million, implying a gross margin of 19.6%, and EBITDA was ¥809 million with a 15.2% margin, underscoring resilient underlying profitability. Ordinary income of ¥525 million exceeded operating income, suggesting a modest contribution from non-operating gains and minimal financing costs. Net income was ¥344 million (+20.7% YoY), yielding a net margin of 6.47% and EPS of ¥28.74. DuPont metrics show a calculated ROE of 2.52%, driven by a 6.47% net margin, 0.300x asset turnover, and 1.30x financial leverage, reflecting a conservative balance sheet that tempers equity returns. Liquidity is robust, with a current ratio of 288.6% and quick ratio of 262.3%, supported by working capital of ¥6,595 million. Solvency is strong, with total liabilities of ¥4,011 million against equity of ¥13,648 million (D/E 0.29x), and interest expense of only ¥3.2 million leading to an interest coverage of 154x. Operating cash flow was ¥1,093 million, 3.18x net income, indicating strong earnings-to-cash conversion and favorable working capital dynamics in the period. Investing cash flow is unreported and free cash flow is listed as zero, so capex and true FCF cannot be assessed from the provided data. The reported effective tax rate of 0.0% appears to be a placeholder; using provided income tax of ¥122 million against ordinary income of ¥525 million implies a proxy tax rate around the low-to-mid 20s. Asset intensity remains meaningful, with depreciation of ¥312 million (about 38.6% of EBITDA), consistent with specialty ceramics manufacturing. Inventory of ¥920 million versus cost of sales suggests reasonable inventory coverage (roughly low-40s days on a semiannual basis by rough proxy), mitigating near-term obsolescence concerns. Dividend is currently nil (DPS ¥0; payout 0%), preserving cash amid likely capex needs and cyclical uncertainties. Overall, the company exhibits strengthening profitability and cash generation with low leverage, but ROE remains modest due to a large equity base and moderate asset turnover. Data limitations are notable: several items show as zero due to non-disclosure (e.g., cash and cash equivalents, investing CF, equity ratio, share count), necessitating caution in interpretation.

Profitability Analysis

ROE_decomposition: ROE 2.52% = Net margin 6.47% x Asset turnover 0.300 x Financial leverage 1.30. Net margin expansion alongside low leverage caps ROE despite profit growth. Implied ROA (NI/Assets) is ~1.9% for the half, in line with DuPont components. margin_quality: Gross margin 19.6% and EBITDA margin 15.2% indicate solid manufacturing economics; operating margin improved to ~9.34% (¥497m / ¥5,320m), supported by better mix/pricing or cost control. Ordinary margin ~9.87% benefits slightly from non-operating items. Net margin 6.47% reflects normalizing tax and minimal interest burden. operating_leverage: Revenue grew +7.9% YoY while operating income rose +34.8% YoY, evidencing high operating leverage. D&A of ¥312m (38.6% of EBITDA) indicates a capital-intensive base, which can amplify profit swings with volume/mix changes.

Growth Assessment

revenue_sustainability: Top-line grew to ¥5.32bn (+7.9% YoY). Sustainability will hinge on demand in end-markets for industrial/specialty ceramics, pricing discipline, and export trends. Inventory levels appear reasonable relative to COGS, supporting near-term delivery capability. profit_quality: Net income growth (+20.7% YoY) trails operating profit growth, consistent with a more normalized tax load and minor non-operating effects. Interest expense is negligible (¥3.2m), so earnings quality is primarily operational. OCF/NI of 3.18x reinforces quality of earnings this period. outlook: Given demonstrated operating leverage and strong OCF, near-term earnings trajectory appears favorable if demand holds. Key swing factors include energy/raw material costs and the company’s ability to maintain pricing/mix. With low leverage, the firm has capacity to invest for growth if opportunities arise.

Financial Health

liquidity: Current ratio 288.6%, quick ratio 262.3%, and working capital ¥6,595m indicate ample short-term headroom. Cash and equivalents are not disclosed (shown as 0), but OCF strength mitigates immediate liquidity risk. solvency: Debt-to-equity is 0.29x with total liabilities at ¥4,011m versus equity ¥13,648m, implying conservative leverage. Interest coverage at 154x underscores minimal refinancing risk. capital_structure: Balance sheet is equity-heavy (financial leverage 1.30x), which supports resilience but suppresses ROE. The reported equity ratio of 0.0% is undisclosed; based on totals, equity/asset ratio is approximately 77% in substance.

Cash Flow Quality

earnings_quality: Operating CF of ¥1,093m versus net income ¥344m (3.18x) points to strong conversion, likely aided by favorable working capital movements and solid operating profit. FCF_analysis: Investing CF is undisclosed (reported as 0) and capex not provided; thus, true FCF cannot be quantified. EBITDA of ¥809m and D&A of ¥312m imply ongoing reinvestment needs typical for the sector, so normalized FCF may be below OCF depending on capex cycle. working_capital: Current assets ¥10,092m vs. current liabilities ¥3,496m; inventories ¥920m appear proportionate to semiannual COGS. Working capital of ¥6,595m provides cushion, and the OCF/NI outperformance suggests WC was a positive contributor in the period.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0 with a payout ratio of 0%. Given low leverage and strong OCF, capacity exists, but current policy appears geared to retention and reinvestment. FCF_coverage: FCF is undisclosed (listed as 0 due to missing investing cash flow). Without capex data, dividend coverage by FCF cannot be assessed quantitatively. policy_outlook: With improving profitability and robust liquidity, reinstatement or increase of dividends would depend on capex plans, growth opportunities, and earnings visibility. The company’s conservative capital structure supports flexibility should policy shift.

Risk Assessment

Business Risks:

• Demand cyclicality in end-markets for industrial/specialty ceramics
• Raw material and energy cost volatility impacting margins
• Pricing pressure from competitors and customer bargaining power
• Product mix shifts affecting gross margin
• Capacity utilization fluctuations given fixed-cost base
• Potential export exposure and FX translation/transaction effects
• Environmental and regulatory compliance costs related to manufacturing

Financial Risks:

• Potential increase in capex requirements reducing free cash flow in some periods
• Working capital swings impacting cash generation quarter-to-quarter
• Customer concentration risk (not disclosed) potentially affecting receivables and cash flow
• Limited disclosure on cash balances and investing cash flows hampering liquidity assessment

Key Concerns:

• Low reported ROE (2.52%) due to modest asset turnover and large equity base
• Unreported cash and investing cash flows limit visibility into FCF and net cash position
• High operating leverage can exacerbate downside in a demand slowdown

Investment Implications

Key Takeaways:

• Solid revenue growth (+7.9% YoY) with notable operating leverage (+34.8% YoY OI)
• Healthy margins: gross 19.6%, operating ~9.3%, EBITDA 15.2%, net 6.47%
• Strong cash conversion (OCF/NI 3.18x) and ample working capital
• Conservative leverage (D/E 0.29x) and very high interest coverage (154x)
• ROE modest at 2.52% due to low leverage and asset turnover
• Dividend currently suspended (DPS ¥0), prioritizing balance sheet and reinvestment
• Data gaps (cash, investing CF, equity ratio, shares) require cautious interpretation

Metrics to Watch:

• Operating margin trajectory and price/mix sustainability
• OCF/NI ratio and free cash flow after capex disclosure
• Inventory turns and receivables/payables days
• Energy and raw material cost trends and pass-through ability
• Capex plans and asset efficiency (asset turnover)
• Order backlog and utilization rates
• Leverage and interest coverage as financing needs evolve

Relative Positioning: Within Japanese ceramics/advanced materials peers, the company shows mid-teens EBITDA margins, strong liquidity, and low leverage, but comparatively modest ROE due to an equity-heavy structure and moderate asset turnover.

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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