NIHON SEIKO CO.,LTD FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥20.84B
• Operating Income: ¥4.80B
• Net Income: ¥3.30B
• EPS: ¥1,348.61

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

Verdict: A standout quarter with exceptional top-line growth and margin expansion driving a step-change in profitability. Revenue surged to 208.39 (100M JPY), up 91.9% YoY, indicating strong demand and/or favorable pricing in core products. Operating income jumped to 48.02, up 419.7% YoY, reflecting significant operating leverage. Ordinary income reached 47.55 (+438.9% YoY), with minimal non-operating distortion (non-op net expense of 0.47). Net income rose to 33.01 (+445.9% YoY), translating to a 15.8% net margin. Operating margin expanded to roughly 23.0%, up an estimated 1,450 bps from ~8.5% in the prior year period based on reverse-engineered figures. Net margin expanded by approximately 1,020 bps (from ~5.6% to 15.8%), confirming broad-based profitability improvement. Gross margin printed at 26.5%, supportive of improved unit economics and likely price/mix tailwinds. Balance sheet strength underpinned the performance: current ratio of 224.7% and quick ratio of 161.2% indicate robust liquidity, while D/E of 0.63x remains conservative for a cyclical materials name. Interest coverage is extremely strong at 112.8x, reflecting low financial risk and a largely unlevered earnings base. ROE reached 22.1% via DuPont (NPM 15.8% × AT 0.856 × Leverage 1.63x), well above typical cost of equity and prior norms. ROIC at 23.3% is excellent versus a 7–8% benchmark, signaling strong value creation in the period. Earnings quality cannot be fully validated due to unreported operating cash flow; this is a key limitation. Non-operating items were not a major driver (non-operating income ratio 0.8%), suggesting the uplift is predominantly operational. Looking forward, the magnitude of margin gains points to price and cost tailwinds that may be partly cyclical; sustainability hinges on commodity/input prices, demand resilience, and inventory valuation effects. Overall, the quarter demonstrates a material inflection in profitability with a clean P&L and a healthy balance sheet, albeit with cash flow data gaps.

Profitability Analysis

ROE decomposition: 22.1% = 15.8% Net Profit Margin × 0.856 Asset Turnover × 1.63x Financial Leverage. The largest positive driver is the Net Profit Margin, which expanded materially YoY (estimated +1,020 bps), followed by a modest improvement in Asset Turnover given the strong revenue base on a relatively stable asset base. Financial leverage is moderate and stable at 1.63x, contributing but not driving the change. Business drivers behind margin expansion likely include favorable pricing/mix, improved utilization, and cost discipline (SG&A at 7.29 against much higher gross profit), as well as operating scale effects. Non-operating items had a small negative net effect (0.27 income vs 0.74 expenses), reinforcing that operating gains are the core driver. Sustainability: margins at 23% operating level are above long-term mid-cycle expectations for specialty materials and may partially normalize with commodity cycles and inventory revaluations; however, the improved cost base and scale could lift the structural floor versus prior years. Watch for any reversal in gross margin if input prices or selling prices shift unfavorably. Notable trend risk: if SG&A growth re-accelerates ahead of revenue normalization, operating leverage could reverse, but in this quarter SG&A intensity fell sharply as a share of sales.

Growth Assessment

Revenue growth of +91.9% YoY to 208.39 is exceptional and likely reflects both volume recovery and pricing strength. Operating income growth of +419.7% far outpaced revenue, evidencing powerful operating leverage and improved gross margin. The shift in mix toward higher-margin products or favorable price-cost spread is implied by the 26.5% gross margin and 23.0% operating margin. Non-operating effects were not a material growth driver; ordinary income closely tracks operating income. Profit quality on the P&L appears high given minimal reliance on non-operating items; however, the absence of cash flow data limits validation of cash conversion. Outlook: near-term growth sustainability depends on market conditions in end-use sectors and commodity price trajectories; a softer macro or price normalization could temper growth rates from these elevated levels. Inventory levels at 51.16 versus strong sales may indicate healthy throughput, but absent turnover metrics we cannot judge restocking vs drawdown dynamics. Net income growth (+445.9% YoY) benefited from operating leverage and a typical effective tax rate (30.5%), with no obvious one-offs disclosed. Overall, while current momentum is strong, we assume growth normalizes toward mid-teens to single digits if pricing tailwinds fade.

Financial Health

Liquidity is strong: current ratio 224.7% and quick ratio 161.2%, well above benchmarks. Short-term loans (22.67) are fully covered by cash (35.00) with additional coverage from accounts receivable (54.90), indicating minimal near-term refinancing risk. Working capital is positive at 100.48, and current assets (181.05) comfortably exceed current liabilities (80.57). Solvency is conservative: D/E 0.63x and total liabilities of 93.99 against equity of 149.38. Long-term loans are modest at 6.27, limiting maturity concentration risk. Interest coverage is extremely high at 112.8x, implying low sensitivity to interest rate increases. No explicit off-balance sheet obligations are reported; we note potential unreported items due to XBRL limitations. There is no warning trigger: Current Ratio >= 1.0 and D/E well below 2.0.

Cash Flow Quality

OCF is unreported, so OCF/Net Income and free cash flow cannot be calculated; earnings quality cannot be fully assessed. With inventories (51.16) and receivables (54.90) sizable against sales, working capital swing risk exists, but we cannot quantify changes period-over-period. Capex is unreported; thus, the sustainability of FCF to cover maintenance capex and dividends is unknown. There are no clear signs of working capital manipulation from the limited data, but absence of cash flow statements prevents a definitive view. Given strong profitability and low interest burden, internal cash generation should be robust absent large working capital build; verification requires the cash flow statement.

Dividend Sustainability

The payout ratio (calculated) is 15.8%, which would be highly conservative if accurate, but DPS and total dividends are unreported, so this ratio may reflect management guidance rather than actual paid. Without OCF and capex data, FCF coverage of dividends cannot be assessed. Balance sheet strength and earnings capacity suggest room to sustain or increase dividends, contingent on cash conversion and capex needs. Policy outlook cannot be inferred in the absence of disclosed dividend policy or historical DPS cadence. We flag data limitations and refrain from firm conclusions.

Risk Assessment

Business Risks:

• Commodity price volatility impacting selling prices and input costs, potentially compressing gross margins.
• Demand cyclicality in end-markets for specialty metals/minerals leading to revenue volatility.
• Inventory valuation risk (price fluctuations can cause gains/losses on inventory and affect gross margin).
• Operational risks including plant outages, yield issues, or maintenance downtime that impair utilization.
• Customer concentration risk if a few large customers drive a disproportionate share of sales (not disclosed).

Financial Risks:

• Working capital swing risk given sizable receivables and inventories versus quarterly sales.
• Refinancing and interest rate risk limited but present due to short-term loans (22.67), albeit covered by cash.
• FX risk if raw materials or sales are foreign currency-linked (not disclosed but common in materials).
• Data gaps on cash flows and capex reduce visibility into FCF resilience.

Key Concerns:

• Sustainability of the 23% operating margin amid potential normalization of price/cost spreads.
• Absence of OCF/FCF data prevents validation of earnings quality and dividend capacity.
• Potential reversal of operating leverage if volumes or prices soften.

Investment Implications

Key Takeaways:

• Earnings inflection with significant margin expansion: OP margin ~23% and net margin 15.8%.
• ROE 22.1% and ROIC 23.3% indicate strong value creation this period.
• Non-operating effects are minor; results are operationally driven.
• Balance sheet and liquidity are robust, reducing financial risk amid cyclicality.
• Data limitations on cash flows and dividends temper conviction on cash conversion and payout capacity.

Metrics to Watch:

• OCF/Net Income and working capital changes (AR and inventory turnover).
• Gross and operating margin trend versus commodity/input price indices.
• Order backlog or demand indicators in key end-markets.
• Capex plans and ROIC by project to gauge sustainability.
• FX exposure and sensitivity (if applicable).

Relative Positioning: Within Japanese specialty materials/metal processors, the company currently sits in the upper tier on profitability (ROE/ROIC) and balance sheet health, though durability versus peers will hinge on how margins hold as commodity and demand conditions evolve.

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