NAKANISHI MFG. CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥16.91B
• Operating Income: ¥544M
• Net Income: ¥389M
• EPS: ¥62.56

Income Statement

Balance Sheet

Cash Flow Statement

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

FY2026 Q2 (cumulative) was mixed: modest top-line growth but margin compression and weak cash conversion culminated in lower profits and negative operating cash flow. Revenue grew 1.5% YoY to 169.1, while operating income declined 14.4% to 5.44 and ordinary income fell 14.5% to 6.18. Net income decreased 14.9% YoY to 3.89, with EPS at 62.56 JPY. Gross margin printed at 24.7% and the operating margin came in at 3.22%. Based on prior period reconstruction, operating margin compressed by roughly 60 bps YoY (from ~3.82% to 3.22%). Net margin also compressed by about 44 bps (from ~2.74% to 2.30%). SG&A as a percentage of sales was elevated at 20.9%, indicating limited operating leverage despite revenue growth. Non-operating income contributed 0.90 (notably 0.23 from dividends), cushioning ordinary income modestly. The effective tax rate was high at 35.7%, further weighing on bottom-line delivery. Cash flow quality is a clear concern: operating cash flow was -12.14 versus net income of 3.89 (OCF/NI -3.12x), implying significant working capital outflow or timing issues. Liquidity remains solid (current ratio 178.9%, quick ratio 158.0%), and interest coverage is strong at 235x, mitigating near-term solvency risk. ROE is low at 1.9% and ROIC at 1.8%, well below typical cost of capital, highlighting capital efficiency challenges. Financing cash flow was -4.65, including share repurchases of -2.49, despite negative OCF, which pressured cash. With accounts receivable at 84.9 (about half of cumulative H1 sales), 2H collections and project billing discipline will be key to normalize cash. Forward-looking, margin recovery will require tighter SG&A control and better pass-through of cost pressures, while near-term focus should be on working capital normalization to restore cash generation.

Profitability Analysis

ROE (1.9%) decomposes into Net Profit Margin (2.3%) × Asset Turnover (0.573) × Financial Leverage (1.45x). The dominant driver of YoY deterioration is margin compression: operating margin declined roughly 60 bps YoY amid a 1.5% revenue increase, indicating negative operating leverage and/or input cost pressure. SG&A intensity at 20.9% of sales limited profit flow-through, and a high effective tax rate (35.7%) further pressured net margin. Asset turnover at 0.573 suggests a moderately asset-heavy structure for the revenue base; receivables of 84.9 are sizable relative to H1 sales, which dampens turnover. Leverage at 1.45x is conservative and not a significant ROE lever. The decline appears primarily operational (margin/OCF), not capital-structure-driven. Unless SG&A growth is curtailed and working capital cycles improve, margin and turnover headwinds could persist. Watch for any trend of SG&A growth outpacing revenue; in this period, revenue grew but operating income fell, signaling cost creep and/or lower gross spread.

Growth Assessment

Top-line growth was modest (+1.5% YoY), suggesting stable demand but limited momentum. Profit growth lagged due to margin compression and a high tax rate, resulting in double-digit declines in operating and net income. Non-operating income (0.90) provided some support but remains a small part of earnings composition. EBITDA of 8.14 indicates limited scale benefits at current volumes given SG&A density. Sustainability hinges on backlog conversion and pricing power to offset material and labor costs. Outlook: a recovery in 2H requires improved gross spread and SG&A discipline; otherwise, full-year growth could trail initial expectations even if sales hold steady.

Financial Health

Liquidity is healthy: current ratio 178.9% and quick ratio 158.0% exceed benchmarks, with working capital of 68.9. No warning on current ratio (<1.0) or leverage (D/E > 2.0); reported D/E is 0.49x, and interest coverage is very strong at 234.8x. Short-term loans total 18.0 against cash and deposits of 30.0, reducing near-term refinancing pressure. Maturity mismatch risk appears manageable as current assets exceed current liabilities by a wide margin; however, the quality of current assets is a watch point given large receivables (84.9). Off-balance sheet obligations are not disclosed in the provided data. Equity stands at 203.8 with a solid capital base versus total assets of 295.4.

Cash Flow Quality

OCF/Net Income is -3.12x (<0.8 threshold), flagging poor earnings-to-cash conversion. Despite positive earnings, operating cash outflows suggest working capital consumption (likely receivables build and/or project timing). Capex was modest at -1.37, but with OCF negative, implied FCF is likely negative absent asset sale proceeds (investing CF not disclosed). Financing CF of -4.65 included share repurchases of -2.49, adding cash pressure in a period of negative OCF. No clear signs of deliberate working capital manipulation can be concluded from the limited line items, but the receivables level relative to H1 sales indicates collection risk/timing sensitivity. Restoring positive OCF in 2H is essential for funding dividends and buybacks without increasing debt.

Dividend Sustainability

Annual DPS is unreported; however, a calculated payout ratio of 141% suggests distributions above earnings on a trailing basis. With OCF negative and capex needs ongoing, dividend and buyback coverage from internal cash generation appears weak in this period. FCF coverage cannot be computed precisely due to missing investing CF and dividend totals, but indicators point to under-coverage. Policy outlook: unless OCF normalizes and margins recover in 2H, sustaining a high payout ratio and buybacks could require balance sheet support, which may not be prudent given low ROE/ROIC.

Risk Assessment

Business Risks:

• Margin pressure from input cost inflation (materials/labor) with limited pricing power, evidenced by operating margin compression (~60 bps YoY).
• Project timing and receivables collection risk, given AR of 84.9 versus H1 sales of 169.1 and negative OCF.
• Execution risk on turnkey/commercial kitchen or equipment projects (installation schedules, cost overruns).
• Demand cyclicality tied to public/education sector capex and institutional clients.

Financial Risks:

• Earnings-to-cash divergence (OCF/NI -3.12x) increasing reliance on working capital normalization.
• Potential liquidity draw if negative OCF persists alongside shareholder returns (buybacks of -2.49 in H1).
• Short-term debt (18.0) requires ongoing rollover discipline, though covered by cash (30.0) currently.

Key Concerns:

• Low capital efficiency (ROE 1.9%, ROIC 1.8%) versus typical cost of capital.
• High effective tax rate (35.7%) exacerbating net margin compression.
• Limited visibility due to unreported line items (e.g., detailed SG&A, investing CF, dividend totals).

Investment Implications

Key Takeaways:

• Top-line stable but profit under pressure; operating margin ~3.2% with YoY compression.
• Cash flow quality weak; near-term thesis hinges on 2H OCF recovery via receivables collection.
• Balance sheet/liquidity robust, mitigating immediate solvency risk.
• Capital efficiency low (ROE 1.9%, ROIC 1.8%); improvement requires both margin expansion and better asset turnover.
• Shareholder returns (buybacks) continued despite negative OCF, reducing cash flexibility if trends persist.

Metrics to Watch:

• Operating cash flow and AR days outstanding in Q3–Q4.
• Gross margin trajectory and SG&A-to-sales ratio.
• Order backlog and book-to-bill (if disclosed).
• Effective tax rate normalization.
• Capex plans versus cash generation; any changes in payout policy.

Relative Positioning: Within Japan small/mid-cap industrial equipment makers, the company shows solid liquidity and low leverage but lags peers on ROIC/ROE and cash conversion this half. Near-term positioning depends on execution of collections and cost control to restore margins and free cash flow.

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