NICHIAS CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥122.74B
• Operating Income: ¥17.78B
• Net Income: ¥14.53B
• EPS: ¥199.03

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

Nichias Co., Ltd. (5393) reported FY2026 Q2 consolidated results under JGAAP showing moderate topline softness and more pronounced profit compression, alongside very strong balance sheet liquidity and healthy cash generation. Revenue declined 3.1% year over year to ¥122.7bn, indicating a tepid demand environment or some pricing/mix drag. Gross profit of ¥35.1bn implies a gross margin of 28.6%, which is solid for an industrial materials portfolio but likely slightly compressed given operating income fell faster than sales. Operating income decreased 10.5% YoY to ¥17.8bn, bringing the operating margin to approximately 14.5%, suggesting some negative operating leverage and/or cost inflation not fully passed through. Ordinary income of ¥18.4bn exceeded operating income, indicating positive non-operating contributions; with interest expense at only ¥0.09bn, this likely reflects FX or investment-related income. Net income fell 11.9% to ¥12.7bn, and EPS came in at ¥199.03. DuPont metrics point to moderate profitability: net margin of 10.38%, asset turnover of 0.424x, and financial leverage of 1.30x yield an ROE of 5.73%, below typical Japanese industrial/materials peer ranges in the high single digits. Liquidity is a standout: current assets of ¥190.0bn versus current liabilities of ¥59.8bn drive a current ratio of 3.18x and a quick ratio of 2.77x, with working capital at ¥130.3bn. The capital structure is conservative, with total liabilities of ¥72.6bn against equity of ¥222.2bn (equity-to-asset ratio roughly 76.7% by calculation), and an interest coverage ratio above 200x. Operating cash flow of ¥19.9bn exceeded net income (OCF/NI 1.56x), reinforcing earnings quality; however, investing cash flow is unreported this period, limiting free cash flow analysis. The reported equity ratio and cash balance are shown as zero, which are unreported items rather than true zeros; per instruction, analysis focuses on disclosed non-zero values. Dividend data are also unreported for the period (DPS and payout shown as zero), so distribution policy for FY2026 cannot be inferred from this dataset. Overall, Nichias combines resilient margins, strong non-operating tailwinds, and robust liquidity with near-term revenue and profit headwinds. The balance sheet can comfortably absorb cyclical volatility, but ROE remains modest and is constrained by low leverage and slower asset turnover. Key watchpoints are demand normalization in core end-markets, cost pass-through, and the trajectory of non-operating income. Despite data gaps, the available figures suggest stable fundamentals with temporary margin pressure rather than structural deterioration.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 10.38% (¥12.7bn net income on ¥122.7bn revenue)
• asset_turnover: 0.424x (calculated, indicating moderate capital intensity)
• financial_leverage: 1.30x (low leverage dampens ROE volatility)
• calculated_ROE: 5.73% (matches reported DuPont figure) margin_quality: Gross margin is 28.6%, with operating margin at ~14.5% and ordinary margin at ~15.0%. The decline in operating income (-10.5% YoY) outpaced the revenue decline (-3.1% YoY), implying some margin compression from negative operating leverage and/or incomplete price-cost recovery. Net margin at 10.38% remains healthy for the business mix, aided by non-operating gains. operating_leverage: Revenue down 3.1% vs operating income down 10.5% suggests fixed-cost absorption and negative operating leverage in the period. D&A of ¥3.7bn (EBITDA margin 17.5%) indicates manageable non-cash cost load; however, incremental margins likely tightened YoY.

Growth Assessment

revenue_sustainability: Topline contracted 3.1% YoY, pointing to softer volumes and/or pricing in key segments (e.g., industrial gaskets, thermal insulation, automotive, and electronics-related materials). The decline is modest, suggesting demand remains broadly intact but below prior-year levels. profit_quality: Ordinary income exceeded operating income, supported by favorable non-operating items; with interest expense at just ¥0.09bn, this likely reflects FX or investment income. Core profitability weakened due to operating deleverage. Calculated effective tax rate is approximately 30–31% (income tax ¥5.59bn on ordinary income ¥18.36bn), consistent with normal taxation. outlook: Near-term growth hinges on stabilization in end-markets (auto build rates, industrial production, semiconductor/plant-related demand) and continued cost pass-through. With strong liquidity and low leverage, Nichias can sustain investment in efficiency and product mix, supporting a gradual margin rebuild as demand normalizes.

Financial Health

liquidity: Current ratio 3.18x and quick ratio 2.77x underscore substantial short-term coverage. Working capital of ¥130.3bn provides a significant liquidity cushion. solvency: Total liabilities of ¥72.6bn vs equity of ¥222.2bn indicate a conservative balance sheet; computed equity-to-assets is ~76.7%. Interest coverage is 204x, reflecting minimal financial risk. capital_structure: Debt-to-equity (broadly using total liabilities) at ~0.33x suggests ample capacity for funding needs if required. Low leverage, while supportive for resilience, tempers ROE in the current cycle.

Cash Flow Quality

earnings_quality: OCF/Net income ratio of 1.56x indicates strong cash conversion, consistent with high-quality earnings and disciplined working capital management. FCF_analysis: Investing cash flow is unreported this period (shown as zero), so free cash flow cannot be reliably calculated. EBITDA of ¥21.5bn and OCF of ¥19.9bn imply capacity to fund typical maintenance capex and dividends, but exact coverage is indeterminable without capex data. working_capital: Inventories at ¥24.6bn equate to roughly 3.2 months of COGS (inventory/COGS ≈ 0.27), a reasonable level. Receivables and payables are not disclosed, limiting a fuller working capital turnover assessment, but overall liquidity metrics point to solid management.

Dividend Sustainability

payout_ratio_assessment: DPS and payout ratio are shown as 0.00, which indicates unreported data for the period rather than an actual zero payout. With EPS at ¥199.03 and OCF of ¥19.9bn, internal capacity to fund distributions appears adequate, but actual payout policy for FY2026 cannot be inferred here. FCF_coverage: Free cash flow cannot be assessed due to unreported investing cash flows; therefore, dividend coverage by FCF is indeterminate for this period. policy_outlook: Given the strong balance sheet and low leverage, the company has flexibility for stable or progressive dividends over the cycle; confirmation depends on management policy disclosures and capex needs not provided in this dataset.

Risk Assessment

Business Risks:

• End-market cyclicality in automotive, industrial, construction, and electronics-related segments
• Raw material and energy cost volatility affecting margin pass-through
• Pricing pressure and competitive intensity in sealing and thermal insulation products
• FX fluctuations impacting non-operating income and export competitiveness
• Project and capex cycle exposure in plant engineering-related materials

Financial Risks:

• Potential working capital swings if demand weakens further
• ROE dilution from persistently low leverage and slower asset turnover
• Limited visibility on capex and investment outflows due to unreported investing CF
• Possible legacy liabilities (e.g., historical asbestos-related exposures) typical for the sector

Key Concerns:

• Negative operating leverage evident in the quarter as profits fell faster than revenue
• Dependence on non-operating gains to support ordinary income
• Data gaps on cash, investing cash flows, and dividend specifics constrain full assessment

Investment Implications

Key Takeaways:

• Topline declined 3.1% YoY with operating income down 10.5%, indicating margin pressure
• Net margin remains healthy at 10.38%, supported by non-operating income
• ROE at 5.73% is modest, constrained by low leverage and moderate asset turnover
• Liquidity and solvency are very strong, providing resilience
• Cash conversion is robust with OCF/NI at 1.56x
• Investing CF and dividend data are unreported, limiting FCF and payout analysis

Metrics to Watch:

• Order intake and backlog across automotive, industrial, and electronics-related segments
• Gross and operating margin trajectory (price-cost spread, energy/raw material trends)
• Inventory and receivables turnover to validate sustained cash conversion
• Non-operating income components (FX, investment income) and their sustainability
• Capex levels and investing cash flows to ascertain true FCF
• ROE drivers: asset turnover improvement and capital structure changes

Relative Positioning: Relative to Japanese industrial materials peers, Nichias exhibits superior balance sheet strength and liquidity, average-to-good margins, but lower ROE due to conservative leverage and moderate asset turnover; near-term profit momentum is softer given negative operating leverage.

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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