NIPPON CHUZO K.K. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.00B
• Operating Income: ¥76M
• Net Income: ¥222M
• EPS: ¥46.21

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

For FY2026 Q2 (standalone, JGAAP), Nippon Chuzo reported revenue of ¥6,001 million, down 8.7% YoY, indicating a soft demand environment and/or pricing pressure. Gross profit of ¥839 million translates to a gross margin of 14.0%, which is modest for a heavy-industry casting business and suggests limited pricing power or elevated input costs. Operating income fell sharply to ¥76 million (-81.8% YoY), compressing the operating margin to 1.3% and highlighting high operating leverage with weak fixed-cost absorption. Despite this, ordinary income was ¥257 million and net income was ¥222 million (+3.9% YoY), implying meaningful non-operating support (approximately ¥181 million difference between ordinary and operating income) and a low tax burden in the period. The DuPont framework yields a 3.70% net margin, 0.277x asset turnover, and 1.85x financial leverage, resulting in a 1.89% ROE; this ROE is low and heavily reliant on non-operating items given the thin operating margin. Liquidity appears adequate with current assets of ¥9,646 million versus current liabilities of ¥5,381 million (current ratio 179.3%) and working capital of ¥4,265 million. Using balance sheet figures, the implied equity ratio is approximately 54.2% (equity ¥11,751 million / assets ¥21,682 million), indicating a solid capital base even though the reported equity ratio field shows 0.0% (likely a disclosure limitation). Interest expense was ¥23 million, and interest coverage stands at 3.3x, acceptable but with limited buffer given the low operating profit. Cash flow statement items are undisclosed (shown as zero), so operating cash flow, free cash flow, and cash balances cannot be assessed from this dataset; accordingly, any cash-flow-based quality metrics are not reliable for this period. Dividend per share is reported as ¥0 with a 0% payout, consistent with a cautious stance amid depressed operating profitability. The YoY divergence between operating earnings (down sharply) and net income (up slightly) raises questions about the sustainability of current profit levels absent recurring non-operating gains. The revenue decline paired with a much steeper drop in operating profit signals elevated fixed costs and/or unfavorable sales mix. Margin stabilization will likely require improved volumes, further price pass-through, and cost discipline. The company’s balance sheet provides resilience, but earnings quality appears weak in this half. Overall, the data point to cyclical and cost-driven headwinds, adequate liquidity and solvency, and a near-term focus on restoring operating margin while managing working capital.

Profitability Analysis

ROE decomposes to 1.89% = 3.70% net margin × 0.277x asset turnover × 1.85x leverage, indicating that profitability is primarily constrained by low margins and modest asset utilization. Gross margin at 14.0% is thin for capital-intensive casting, suggesting limited price pass-through or elevated raw material/energy costs. Operating margin at 1.3% reflects high operating leverage; an 8.7% revenue decline translated into an 81.8% drop in operating income, evidencing weak fixed-cost absorption. Ordinary margin (~4.3%) exceeded operating margin due to approximately ¥181 million in non-operating income, which buoyed net results. Interest expense of ¥23 million is manageable at current earnings, but the 3.3x interest coverage leaves little cushion if operating profit slips further. The low reported effective tax rate (tax expense ¥20 million vs. ordinary income ¥257 million) aided net margin, but the sustainability of this low rate is uncertain. Depreciation is undisclosed; therefore, EBITDA and operating cash earnings quality cannot be evaluated from the provided data. Overall, core profitability is fragile and highly sensitive to volume and mix, with current ROE dependent on non-operating contributions rather than operating strength.

Growth Assessment

Revenue declined 8.7% YoY to ¥6,001 million, implying softer end-market demand, potential shipment timing effects, or competitive pricing pressure. The disproportionate decline in operating income versus sales suggests negative operating leverage in the period. Net income grew 3.9% YoY, supported by non-operating items and a low tax charge, masking the deterioration in operating fundamentals. Without order backlog and segment details, visibility on revenue sustainability is limited; recovery will likely hinge on macro demand in core casting end-markets (e.g., industrial machinery, construction, shipbuilding, energy) and the company’s ability to pass through costs. Price/mix improvements and productivity gains are necessary to rebuild operating margin from 1.3%. The outlook is cautiously stable on the balance sheet side but uncertain on earnings quality; continuation of non-operating gains should not be assumed. Monitoring H2 seasonality, order intake, and any cost reduction initiatives will be critical for assessing trajectory.

Financial Health

Total assets stand at ¥21,682 million with equity of ¥11,751 million, implying an equity ratio of roughly 54.2% notwithstanding the reported 0.0% field. Total liabilities are ¥10,366 million; the provided debt-to-equity ratio is 0.88x, though the precise interest-bearing debt amount is not disclosed. Liquidity is sound with current assets of ¥9,646 million vs. current liabilities of ¥5,381 million (current ratio 179.3%) and working capital of ¥4,265 million. The quick ratio equals the current ratio due to undisclosed inventories; this likely overstates true quick liquidity. Interest coverage is 3.3x, acceptable but not robust given thin operating profit. Overall solvency appears solid due to the sizable equity base, while near-term liquidity seems adequate; however, lack of cash balance disclosure limits precision.

Cash Flow Quality

Operating cash flow, investing cash flow, financing cash flow, and cash balance are undisclosed in this dataset (zeros indicate not reported). As a result, OCF/Net Income and free cash flow cannot be reliably assessed. Earnings quality appears weak on an accrual basis given the reliance on non-operating income to support net profit while operating profit is minimal. Working capital is positive (¥4,265 million), but without period changes in receivables, payables, and inventories, we cannot evaluate cash conversion or the extent of working capital drag. Depreciation is undisclosed, preventing assessment of non-cash charges and maintenance capex requirements. Until cash flow data are available, conclusions on FCF sustainability and cash conversion remain tentative.

Dividend Sustainability

Reported DPS is ¥0 with a 0% payout ratio. Given operating margin compression (1.3%) and low ROE (1.89%), withholding dividends aligns with balance sheet preservation. FCF coverage cannot be evaluated due to undisclosed OCF and capex, so any prospective dividend policy would need to be grounded in a demonstrated recovery of operating cash generation. If dividends are reinstated, prudent payout would require consistent OCF coverage and headroom after maintenance capex; current period results do not establish that foundation. Policy outlook appears conservative until operating profitability normalizes.

Risk Assessment

Business Risks:

• Cyclical demand in core casting end-markets (industrial machinery, construction, shipbuilding, energy) impacting volumes.
• Raw material and energy price volatility compressing margins if pass-through lags.
• High operating leverage and fixed-cost base leading to sharp profit swings on small revenue changes.
• Potential customer concentration and pricing pressure in a competitive market.
• Production mix and yield variability affecting gross margin.
• Supply chain disruptions affecting lead times and costs.
• Labor availability and wage inflation impacting cost structure.
• Environmental compliance and potential capex for emissions/efficiency.

Financial Risks:

• Limited operating buffer with 3.3x interest coverage if earnings weaken further.
• Uncertain sustainability of non-operating income that currently supports net profit.
• Working capital swings potentially straining cash if demand softens.
• Potential exposure to interest rate increases if interest-bearing debt is material (exact debt mix undisclosed).
• Low effective tax rate may normalize, reducing net income.

Key Concerns:

• Sharp decline in operating income (-81.8% YoY) despite a single-digit revenue drop (-8.7% YoY).
• Dependence on non-operating gains to achieve positive net income.
• Insufficient disclosure on cash flows, depreciation, and inventories, limiting assessment of cash conversion and maintenance capex.

Investment Implications

Key Takeaways:

• Core operating profitability is weak with a 1.3% operating margin and significant negative operating leverage.
• Net income resilience (+3.9% YoY) is driven by non-operating items and a low tax burden, which may not be recurring.
• Balance sheet strength is a mitigating factor (implied ~54% equity ratio and ample working capital).
• Liquidity appears adequate (current ratio 179%) but true quick liquidity is uncertain due to undisclosed inventories and cash.
• Visibility on cash generation is limited; FCF and cash balances are not disclosed.

Metrics to Watch:

• Order intake/backlog and pricing to gauge revenue recovery.
• Gross margin and operating margin progression as cost pass-through and utilization improve.
• Operating cash flow, capex, and free cash flow once disclosed.
• Interest-bearing debt levels and interest coverage trend.
• Non-operating income components (e.g., subsidies, investment gains) and their recurrence.
• Inventory levels and turns, receivables/payables days to assess cash conversion.

Relative Positioning: Within Japanese industrial casting peers, Nippon Chuzo currently exhibits weaker operating profitability but comparatively solid capitalization. Short-term earnings quality trails peers relying more on operating income, while the balance sheet provides resilience pending margin recovery.

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