Nippon Denko Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥57.86B
• Operating Income: ¥3.16B
• Net Income: ¥1.54B
• EPS: ¥3.25

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

Shin Nihon Denko (5563) reported FY2025 Q3 consolidated results under JGAAP with revenue of ¥57.864bn (+2.5% YoY) and operating income of ¥3.159bn (-13.6% YoY), indicating modest top-line growth but margin compression. Gross profit of ¥8.638bn implies a gross margin of 14.9%, while the operating margin stood at approximately 5.5%, reflecting cost pressures and/or weaker product spreads. Ordinary income declined to ¥1.368bn, dragged by interest expense of ¥0.444bn and likely other non-operating items. Net income was ¥0.439bn (-71.5% YoY), translating to a net margin of 0.76% and highlighting heavier below-OP impacts and a high tax and/or extraordinary burden this period. DuPont analysis shows ROE of 0.63% (net margin 0.76% × asset turnover 0.615 × leverage 1.35), far below a typical cost of equity, underscoring subdued shareholder returns. Balance sheet strength remains a notable positive: total assets were ¥94.102bn, liabilities ¥28.522bn, and equity ¥69.829bn, implying a low debt-to-equity of 0.41x and an equity ratio (computed) around 74%. Liquidity is strong with a current ratio of 2.87x and quick ratio of 1.75x, supported by ¥21.032bn of inventories and ample working capital of ¥35.154bn. Interest coverage is adequate at 7.1x (based on EBIT), though the absolute interest burden is material relative to ordinary income. Inventories remain sizable at ~36% of period sales, making working capital discipline and price-cost management important in a cyclical environment. Cash flow statements are unreported in this dataset (zeros indicate unreported), limiting assessment of conversion and free cash flow, but the balance sheet offers comfort on solvency and liquidity. Dividend is indicated as zero (DPS 0), consistent with a cautious stance given compressed earnings and incomplete cash flow visibility. The effective tax rate shown as 0.0% is unreported; however, the presence of ¥0.818bn in income tax suggests tax/extraordinary dynamics weighed on bottom line. Overall, the quarter portrays resilient sales but weaker profitability, with ordinary and net income pressured by non-operating items and taxes. With modest leverage and high liquidity, the company appears positioned to navigate cyclical normalization, but ROE recovery requires margin repair and better cost pass-through. Data limitations around cash flow and share data constrain full-quality analysis; conclusions focus on available non-zero figures and computed ratios.

Profitability Analysis

ROE_decomposition: ROE 0.63% = Net margin 0.76% × Asset turnover 0.615 × Financial leverage 1.35. Net income ¥0.439bn on revenue ¥57.864bn drives the weak net margin; asset turnover is modest for materials at 0.615 (sales ¥57.864bn / assets ¥94.102bn); leverage is low with assets/equity ≈ 1.35. margin_quality: Gross margin 14.9% (¥8.638bn/¥57.864bn) and operating margin 5.5% (¥3.159bn/¥57.864bn) indicate significant SG&A/overheads and/or lower spreads. The drop in operating income (-13.6% YoY) despite +2.5% sales growth points to price-cost pressure (raw materials, energy) or product mix shift. Net margin compression to 0.76% reflects higher non-operating costs (¥0.444bn interest) and tax/extraordinary burdens. operating_leverage: Revenue grew 2.5% while operating income fell 13.6%, implying negative operating leverage this period. The implied SG&A and other operating costs (¥5.48bn) represent ~9.5% of sales, indicating limited flexibility when spreads tighten.

Growth Assessment

revenue_sustainability: Top-line growth of +2.5% YoY suggests stable demand in core products, but scale remains constrained by cyclical metals markets and price realizations. profit_quality: Ordinary income (¥1.368bn) is well below operating income (¥3.159bn) due to interest and other non-op items, weakening recurring profit quality. Net income (¥0.439bn) was sharply lower (-71.5% YoY), indicating tax/extraordinary impacts and margin compression downstream of OI. outlook: For a ferroalloy/industrial materials profile, earnings are sensitive to raw material and energy costs, FX, and global steel/auto activity. Near-term growth hinges on spread recovery and inventory normalization; absent improved pricing or cost relief, profit growth may lag sales.

Financial Health

liquidity: Current ratio 286.8% and quick ratio 175.0% reflect ample short-term buffers; working capital totals ¥35.154bn. Inventories at ¥21.032bn require monitoring for valuation risk in a volatile price environment. solvency: Debt-to-equity 0.41x (liabilities ¥28.522bn / equity ¥69.829bn) indicates conservative leverage. Interest coverage at 7.1x is adequate, though the absolute interest expense (¥0.444bn) is meaningful relative to ordinary income. capital_structure: Computed equity ratio ≈ 74% (equity/assets), signifying a strong capital base supportive of volatility absorption and investment needs.

Cash Flow Quality

earnings_quality: Cash flow data are unreported in this dataset (OCF/NI 0.00 reflects missing OCF), preventing assessment of accrual intensity and cash conversion. FCF_analysis: Free cash flow is unreported (0 placeholder). With declining operating income and sizable inventories, FCF resilience depends on working capital release and capex intensity, which are not disclosed here. working_capital: Inventories of ¥21.032bn are ~36% of period revenue, implying sensitivity to price swings and potential cash tie-up; current assets of ¥53.971bn versus current liabilities of ¥18.817bn provide cushion despite possible inventory risk.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is reported as 0 and payout ratio 0.0% (DPS and payout figures reflect provided data). Given low net income (¥0.439bn) and incomplete cash flow visibility, a conservative payout stance is understandable. FCF_coverage: FCF coverage is unreported (0.00x placeholder). Without OCF/capex data, we cannot evaluate cash coverage of dividends; liquidity and low leverage provide optionality but do not substitute for recurring FCF. policy_outlook: Near-term dividends likely hinge on profit normalization and cash flow clarity. With ROE at 0.63%, internal reinvestment or balance sheet protection may be prioritized over distributions until profitability improves.

Risk Assessment

Business Risks:

• Cyclical demand in steel, automotive, and industrial end-markets affecting ferroalloy and materials volumes/pricing
• Raw material (e.g., manganese, chrome, coke) and energy cost volatility impacting spreads
• Inventory valuation risk amid commodity price swings
• FX fluctuations (JPY vs. USD and resource currencies) affecting input costs and export competitiveness
• Competition from overseas producers, particularly China, affecting price discipline
• Environmental regulations and decarbonization requirements increasing compliance and capex needs

Financial Risks:

• Interest burden (¥0.444bn) reducing ordinary income and sensitivity to rate changes
• Potential working capital expansion tying up cash during upcycles
• Tax/extraordinary item volatility contributing to weak net income
• Limited visibility on cash flows due to unreported OCF/FCF in this dataset

Key Concerns:

• ROE at 0.63% is well below cost of equity, requiring margin and asset efficiency improvements
• Negative operating leverage in the period despite revenue growth
• Large inventories relative to sales heighten cash and valuation risks if prices fall

Investment Implications

Key Takeaways:

• Top-line grew modestly (+2.5% YoY) but operating income fell (-13.6%), signaling margin pressure
• Net income dropped to ¥0.439bn with a net margin of 0.76%, highlighting weak bottom-line resilience
• ROE of 0.63% reflects compressed margins and modest asset turnover despite low leverage
• Balance sheet strength (equity ratio ~74%, D/E 0.41x) provides downside protection
• Interest coverage 7.1x is adequate, but interest expense is material relative to ordinary income
• Cash flow assessment is constrained due to unreported OCF/FCF; working capital remains sizable

Metrics to Watch:

• Operating margin and gross spread trends versus raw material and energy cost indices
• Inventory turnover and valuation adjustments
• Ordinary income drivers: non-operating gains/losses and interest expense trajectory
• FX rates (USD/JPY) and commodity price benchmarks relevant to ferroalloys
• Capex and depreciation (currently unreported) to gauge maintenance vs. growth investment
• Tax rate normalization and any extraordinary items impacting net income

Relative Positioning: Within Japanese basic materials and ferroalloy peers, Shin Nihon Denko exhibits stronger-than-average balance sheet resilience and liquidity, but currently lags on profitability and ROE due to spread compression and non-operating burdens.

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