NIHON SEIKO CO.,LTD FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥20.84B
• Operating Income: ¥4.80B
• Net Income: ¥605M
• 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

For FY2026 Q2 (consolidated, JGAAP), revenue reached ¥20,839 million, up a strong 91.9% YoY, indicating a sharp cyclical or volume/price upswing. Operating income surged to ¥4,802 million (+419.7% YoY), outpacing topline growth and suggesting powerful operating leverage and/or significant non-recurring or other operating income. Ordinary income was ¥4,755 million, only slightly below operating income, reflecting minimal financial burden with reported interest expense of ¥15.7 million and an interest coverage of roughly 305x. Net income came in at ¥3,301 million (+445.9% YoY), implying a high net margin of 15.8% and a robust DuPont ROE of 22.1% (net margin 15.84%, asset turnover 0.856x, financial leverage 1.63x). Liquidity appears strong with a current ratio of 198.5%, quick ratio of 147.8%, and working capital of approximately ¥7,431 million. The balance sheet shows total assets of ¥24,337 million and equity of ¥14,938 million; this implies an equity ratio of about 61.4% despite the reported equity ratio field showing 0.0% (unreported). Debt-to-equity of 0.60x suggests modest leverage relative to equity. The reported gross profit of ¥1,534 million (gross margin 7.4%) is below operating income, which is atypical under standard cost classifications and points to material other operating income or reclassifications within JGAAP reporting. The effective tax rate is listed as 0.0% despite income tax of ¥278 million; this likely reflects a data capture gap rather than a true zero rate, and the underlying tax burden appears favorable. Cash flow statement items are unreported (showing zero), which limits assessment of earnings quality and free cash flow conversion at this stage. Dividend data show DPS and payout ratio as 0.00 (unreported), so distribution policy and sustainability cannot be inferred from this dataset. Overall profitability optics are excellent on ROE and margins, but margin hierarchy anomalies indicate that one-off or classification effects may be inflating operating profit. The company’s liquidity and solvency look sound, giving balance-sheet support to near-term operations. Sustainability of the outsized earnings uplift will depend on normalization of operating items and the durability of the revenue step-up. Given the data limitations (notably CF and share data unreported), conclusions rely on the provided DuPont and ratio outputs and may change as fuller disclosures become available.

Profitability Analysis

ROE decomposition: Reported DuPont ROE is 22.10% based on net margin 15.84%, asset turnover 0.856x, and financial leverage 1.63x, indicating that profitability (margin) is the dominant driver, with moderate asset efficiency and conservative leverage. Margin quality: Operating income of ¥4,802 million on revenue of ¥20,839 million implies an operating margin near 23.0%, which exceeds the reported gross margin of 7.4%. This inversion is not typical under standard cost structures and suggests substantial other operating income, reclassifications, or one-time gains embedded above the operating line; consequently, core gross profitability appears thin while reported operating profitability looks inflated by non-core factors. Ordinary income (¥4,755 million) is close to operating income, indicating limited drag from financial items; interest expense is minimal at ¥15.7 million. Net margin of 15.84% is strong, aided by low financing costs and a favorable tax burden in the period. Operating leverage: Revenue rose 91.9% YoY while operating income rose 419.7% YoY, evidencing significant operating leverage and/or non-recurring boosts; fixed-cost absorption likely improved, but the scale of operating profit expansion relative to gross profit points to non-run-rate contributors. Efficiency: Asset turnover at 0.856x is reasonable for a manufacturing/materials-type business and contributed meaningfully to ROE given moderate leverage. Overall, headline profitability is very strong, but underlying margin quality is uncertain due to the gross-to-operating anomaly.

Growth Assessment

Revenue growth of +91.9% YoY is exceptional; sustainability depends on whether the uplift is volume-driven, price-led, mix-shift, or tied to commodity/market cycles. The magnitude of operating income growth (+419.7% YoY) suggests more than underlying demand—likely contributions from pricing power, fixed-cost leverage, and/or other operating income or reversals. Net income growth (+445.9% YoY) underscores strong flow-through, aided by low financing burden and a favorable tax load this period. Without segment detail, backlog, or order visibility, it is difficult to assess persistence; normalization risk is non-trivial if one-offs are present. Asset turnover of 0.856x indicates better utilization of the asset base alongside the revenue step-up; whether this is structural or cyclical remains to be seen. Inventory of ¥3,824 million versus H1 revenue suggests inventory is manageable, but without prior-period or turnover data, conclusions on replenishment cadence are limited. Profit quality is unclear given the margin hierarchy anomaly; recurring gross profitability looks thin at a 7.4% gross margin if that metric is comparable, which would typically constrain sustainable operating margins absent other income. Outlook hinges on end-market momentum and the mix of recurring versus non-recurring operating items; investors should expect elevated earnings volatility if the present margins are not fully repeatable.

Financial Health

Liquidity: Current ratio 198.5% and quick ratio 147.8% indicate solid short-term coverage; working capital of ¥7,430 million supports ongoing operations and procurement needs. Solvency: Total assets ¥24,337 million and equity ¥14,938 million imply an equity ratio of ~61.4% (computed), indicating a strong capital base despite the reported 0.0% equity ratio field being unreported. Capital structure: Debt-to-equity at 0.60x denotes moderate leverage; with interest expense only ¥15.7 million and coverage ~305x, interest burden is very light. The financial leverage in DuPont (1.63x) aligns with balance-sheet figures and suggests conservative gearing. Overall, the balance sheet appears resilient, providing a buffer against earnings volatility.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported in this dataset, so OCF/Net Income and free cash flow cannot be assessed; the reported OCF/NI ratio of 0.00 and FCF of 0 reflect missing data rather than true zero cash generation. Earnings quality thus cannot be validated through cash conversion analysis. Working capital: Inventories of ¥3,824 million within current assets of ¥14,973 million and current liabilities of ¥7,542 million suggest adequate liquidity, but without receivables/payables detail or period-over-period changes, we cannot assess working capital efficiency or cash tie-up. Depreciation is unreported; absence of D&A data prevents EBITDA and maintenance capex normalization, further limiting quality-of-earnings analysis.

Dividend Sustainability

Dividend per share and payout ratio are shown as 0.00 due to unreported data; therefore, no conclusions can be drawn on current dividend policy or sustainability from this release. With cash flow data also unreported, free cash flow coverage of dividends cannot be evaluated. From a balance-sheet perspective, moderate leverage and strong liquidity are supportive of potential distributions, but sustainability ultimately depends on recurring earnings power and cash generation, which remain unverified in this dataset.

Risk Assessment

Business Risks:

• Sustainability of the extraordinary revenue and profit surge is uncertain; potential normalization risk if one-off factors contributed materially.
• Margin hierarchy anomaly (operating income exceeding gross profit) suggests reliance on other operating income or reclassifications that may not recur.
• Potential exposure to cyclical end-markets or commodity/price volatility could amplify earnings swings.
• Limited visibility on segment mix, pricing, and order backlog hampers forward assessment.
• Tax rate variability risk given low apparent tax burden in the period.

Financial Risks:

• Cash flow data unreported, preventing validation of earnings-to-cash conversion.
• D&A and capex visibility absent, making maintenance capital needs and underlying EBITDA unclear.
• Potential hidden leverage or off-balance-sheet commitments cannot be ruled out due to data gaps.
• Inventory and receivables quality cannot be assessed without turnover data.

Key Concerns:

• Reliance on unverified operating items elevates quality-of-earnings risk.
• Earnings volatility risk if current operating margins are non-recurring.
• Data limitations (CF statement, equity ratio, share data) constrain confidence in payout capacity and valuation metrics.

Investment Implications

Key Takeaways:

• ROE is strong at 22.1%, driven primarily by an elevated net margin and supported by reasonable asset turnover and modest leverage.
• Operating profit growth far outpaced revenue, indicating strong operating leverage and/or non-recurring gains.
• Liquidity and solvency metrics are solid, with an implied equity ratio around 61% and very low interest burden.
• Gross margin at 7.4% contrasts with a ~23% operating margin, highlighting margin quality and classification concerns.
• Cash flow, D&A, and dividend data are unreported; validation of earnings quality and distribution capacity remains pending.

Metrics to Watch:

• Disclosure of operating cash flow, capex, and free cash flow to validate earnings quality.
• Reconciliation of gross profit to operating income and identification of other operating income/one-offs.
• Sustainability of net margin and operating margin in subsequent quarters.
• Working capital movements (inventories, receivables, payables) and turnover ratios.
• Tax rate normalization and effective tax rate guidance.

Relative Positioning: On reported metrics, the company appears stronger than typical peers on ROE, operating margin, and balance-sheet resilience; however, margin quality and lack of cash flow disclosure temper comparability and suggest higher uncertainty relative to peers with clearer recurring profit and cash conversion.

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