NAKAYAMA STEEL WORKS,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥76.60B
• Operating Income: ¥3.02B
• Net Income: ¥3.21B
• EPS: ¥31.62

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

Nakayama Steel Works (TSE:5408) reported FY2026 Q2 consolidated results under JGAAP showing cyclical pressure on topline and earnings but with a solid balance sheet. Revenue was ¥76.6bn, down 14.4% YoY, reflecting weaker steel demand and/or price normalization after the prior upcycle. Operating income was ¥3.0bn, down 36.9% YoY, indicating margin compression as price-cost spreads narrowed and operating leverage turned adverse. Ordinary income of ¥2.93bn closely tracked operating income, suggesting limited non-operating distortion in the period. Net income was ¥1.71bn, down 46.7% YoY, with EPS of ¥31.62. Gross profit is disclosed at ¥11.58bn (15.1% margin); while the reported cost of sales number appears inconsistent with that margin, we rely on the stated gross profit and margin for analysis. DuPont shows ROE of 1.59%, driven by a 2.24% net margin, 0.512x asset turnover, and modest 1.39x financial leverage. The operating margin was approximately 3.9%, and the ordinary margin 3.8%, both thinner than typical mid-cycle levels for the sector. Interest coverage was healthy at 35.1x (OI/interest), supported by low financial leverage and low interest expense of ¥86m. Liquidity is strong: current ratio 343% and quick ratio 280%, with working capital of ¥65.6bn. The balance sheet is conservative with total liabilities of ¥42.3bn against equity of ¥107.6bn (debt-to-equity 0.39x), implying ample solvency headroom to navigate cyclical volatility. Cash flow statements and depreciation are not disclosed in the dataset (zeros denote unreported), limiting assessment of earnings-to-cash conversion and investment intensity in the period. The effective tax burden calculated from disclosed figures appears closer to roughly 50% of pretax profit despite the “0.0%” metric shown, highlighting a data artifact in the calculated metrics. No dividend is shown for the period (DPS 0), and with FCF unreported we cannot evaluate coverage, though the balance sheet strength is a positive. Overall, results show demand/price headwinds compressing profits and ROE, but financial flexibility remains solid, and ordinary income quality appears reasonable with limited non-operating noise. Key data limitations include the absence of OCF, FCF, depreciation and share count, which constrain deeper assessments of cash flow quality, capital intensity and per-share metrics beyond EPS.

Profitability Analysis

ROE of 1.59% decomposes into net margin 2.24%, asset turnover 0.512x, and financial leverage 1.39x. The primary drag on ROE is the slim net margin, reflecting weaker spreads and negative operating leverage on lower revenue. Operating margin is ~3.9% (¥3.019bn / ¥76.602bn), down meaningfully YoY, indicating cost pass-through lag and/or mix headwinds. Gross margin is disclosed at 15.1% (¥11.581bn gross profit), pointing to positive spreads but below strong-cycle peaks; we prioritize the disclosed margin despite the inconsistency with the cost-of-sales line. Ordinary income is close to operating income (¥2.932bn vs ¥3.019bn), suggesting minimal reliance on non-core gains or financial income. Interest expense is modest at ¥86m, yielding coverage of 35.1x, so financing costs are not the constraint on profitability. The tax burden appears heavy based on figures (income tax ¥1.464bn versus pretax approximated by ordinary income), further suppressing net margin; the “0.0% effective tax rate” reported in calculated metrics is not reflective of the provided tax expense. EBITDA and D&A are not disclosed (zeros denote unreported), so traditional EBITDA-based leverage or coverage metrics are not meaningful here. Operating leverage turned adverse: a 14.4% revenue decline coincided with a 36.9% drop in operating profit, implying high fixed-cost absorption and/or narrowed spreads. Overall profitability is subdued versus mid-cycle steel benchmarks, with the key swing factor being price-cost spread management.

Growth Assessment

Revenue declined 14.4% YoY to ¥76.6bn, indicating end-market softness and/or price normalization from prior highs. Operating income fell 36.9% YoY to ¥3.0bn, outpacing the revenue decline, consistent with adverse operating leverage and spread compression. Net income fell 46.7% YoY to ¥1.71bn, reflecting not only weaker operating results but also a heavier tax burden. The ordinary income proximity to operating income suggests stable core operations without unusual one-offs driving YoY variances. Absent OCF and order-related disclosures, visibility on demand sustainability is limited, but sector context implies sensitivity to construction, machinery, and automotive cycles, and to raw material price trends. The 15.1% gross margin indicates retained, albeit compressed, spread; recovery depends on the ability to pass through input costs and stabilize volumes. Asset turnover at 0.512x is moderate and may recover with improved utilization if demand normalizes. Near-term outlook hinges on steel price spreads, inventory valuation effects, and downstream demand trajectories; no explicit company guidance is provided in the dataset. Mix and product differentiation (if higher-value steel segments) will influence the trajectory of margins into H2.

Financial Health

Liquidity is strong with current assets of ¥92.5bn versus current liabilities of ¥26.9bn, yielding a current ratio of 343% and quick ratio of 280%. Working capital stands at ¥65.6bn, offering a sizable buffer against cyclical swings and input cost volatility. Inventories are ¥17.2bn; given sector characteristics, inventory valuation changes can impact margins and cash flows, but supporting data on turnover is not disclosed. Solvency is comfortable: total liabilities of ¥42.3bn vs equity of ¥107.6bn implies a debt-to-equity measure of 0.39x. Financial leverage is modest at 1.39x (assets/equity), reducing refinancing and interest rate risk. Equity ratio is shown as 0.0% in the dataset, but this appears to be a placeholder; the balance sheet figures imply an equity ratio of approximately 72% (¥107.6bn / ¥149.5bn). Interest expense is low (¥86m), and coverage is high at 35.1x, underscoring low financial risk. No cash and equivalents are disclosed (zero denotes unreported), so net cash/debt cannot be calculated from the dataset. Overall, the company exhibits a conservative capital structure with ample liquidity.

Cash Flow Quality

Operating, investing, and financing cash flows are undisclosed in this dataset (zeros indicate unreported), preventing direct assessment of earnings-to-cash conversion for the period. The OCF/Net Income metric showing 0.00 is not informative without reported OCF. Free cash flow is likewise unreported; thus FCF-based payout and leverage metrics cannot be evaluated. Depreciation and amortization are not disclosed; hence EBITDA and non-cash earnings components cannot be assessed. Working capital appears ample (¥65.6bn), but without period cash flow data, we cannot determine whether inventory or receivable changes contributed to or absorbed cash in H1. Ordinary income tracking operating income suggests limited non-operating earnings distortion, which is supportive for earnings quality, but this cannot substitute for OCF evidence. Given steel’s capital intensity, capex can be lumpy and materially affect FCF; the absence of investing CF data is a key limitation. Overall, cash flow quality cannot be concluded from the provided data; additional disclosure of OCF, capex, and D&A is needed.

Dividend Sustainability

The dataset shows DPS at ¥0 and a payout ratio of 0.0%, but cash flow data are unreported, preventing FCF coverage analysis. With no OCF or FCF disclosed, we cannot determine the degree of dividend capacity or sustainability beyond the observation that the balance sheet is conservatively financed. Profitability is positive but compressed (net income ¥1.71bn; ROE 1.59%), which may constrain distributable capacity absent stronger cash conversion. If the company adheres to a stable dividend policy, sustainability would depend on normalized earnings and capex needs, but such policy details are not provided. In summary, dividend sustainability cannot be robustly assessed without OCF/FCF and policy disclosure; current stance appears cautious given DPS=0 in the dataset.

Risk Assessment

Business Risks:

• Cyclical demand in construction, machinery, and automotive end markets impacting volumes and pricing.
• Raw material price volatility (iron ore, coking coal, scrap) affecting spreads and margins.
• Energy cost fluctuations influencing production cost base.
• Inventory valuation effects causing quarter-to-quarter margin and earnings volatility.
• Competitive pressure from domestic peers and imports, including Chinese and other Asian steel supply.
• Potential delays in cost pass-through to customers during downcycles, amplifying operating leverage.
• Environmental regulation and decarbonization requirements potentially increasing capex needs.

Financial Risks:

• Margin compression leading to reduced cash generation in downcycles.
• Working capital swings (receivables/inventories) potentially consuming cash during price declines.
• Capex intensity typical of steelmakers can depress FCF in investment phases.
• Interest rate increases would modestly raise financing costs, though leverage is currently low.
• Tax burden variability, with the period showing a high effective rate based on disclosed tax expense.

Key Concerns:

• Revenue decline of 14.4% YoY and operating income down 36.9% YoY indicate adverse operating leverage.
• Net income down 46.7% YoY; net margin 2.24% and ROE 1.59% are subdued.
• Gross margin 15.1% suggests spread compression versus stronger periods.
• Cash flow statements and depreciation are not disclosed, limiting assessment of earnings quality and FCF.
• Apparent inconsistency between cost of sales and disclosed gross profit; analysis relies on the stated margin.
• No dividend reported; payout capacity unclear without FCF visibility.

Investment Implications

Key Takeaways:

• Topline contracted 14.4% YoY to ¥76.6bn amid cyclical pressures.
• Operating margin compressed to ~3.9%, driving a 36.9% YoY decline in operating income.
• ROE is low at 1.59%, constrained by a 2.24% net margin; leverage remains modest at 1.39x.
• Balance sheet is strong with current ratio 343%, quick ratio 280%, and debt-to-equity 0.39x.
• Interest coverage is robust at 35.1x, indicating limited financial strain.
• Cash flow and D&A are unreported, restricting FCF and capital intensity analysis.
• Dividend shown as zero; sustainability and policy cannot be evaluated without OCF/FCF.

Metrics to Watch:

• Price–cost spread (selling price versus raw materials and energy) and its pass-through timing.
• Volume trends and capacity utilization rates.
• Operating cash flow, capex, and free cash flow once disclosed.
• Inventory levels and turnover, and any inventory valuation gains/losses.
• Ordinary income margin versus operating margin to monitor non-operating effects.
• Effective tax rate normalization in subsequent periods.
• Net debt and interest coverage as rates evolve.

Relative Positioning: Within the Japanese steel sector, Nakayama appears conservatively financed with strong liquidity and low leverage, but current profitability and ROE are subdued versus mid-cycle peers; recovery potential depends on demand normalization and restoration of price–cost spreads.

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