NITTO KOHKI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.17B
• Operating Income: ¥920M
• Net Income: ¥939M
• EPS: ¥5.62

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

Nitto Kohki (TSE:6151) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥13.17bn, down 2.4% YoY, indicating modest top-line softness. Gross profit was ¥6.306bn, implying a robust gross margin of 47.9%, but operating income declined sharply to ¥0.92bn (-33.7% YoY), compressing the operating margin to roughly 7.0%. Ordinary income of ¥1.056bn exceeded operating income, suggesting positive non-operating contributions (net +¥0.136bn vs. operating). Net income fell to ¥0.105bn (-88.8% YoY), driving a net margin of 0.8%, likely due to a significant extraordinary loss and a heavy tax burden. Reconciling ordinary income and net income implies approximately ¥0.51bn in extraordinary losses, bringing pre-tax income to an estimated ¥0.544bn and producing an implied effective tax burden of roughly 81% on that base in this period. EBITDA was ¥1.514bn, yielding an EBITDA margin of 11.5%, evidencing still-solid cash earnings capacity despite weaker operating leverage this quarter. DuPont shows ROE of 0.18% (net margin 0.80% × asset turnover 0.201 × leverage 1.14), reflecting profitability pressure and low asset turnover characteristic of a cash-rich, low-leverage balance sheet. Operating cash flow of ¥1.108bn was strong relative to net income (OCF/NI 10.55x), suggesting earnings were cash-supported, likely aided by working capital dynamics, though detailed drivers are undisclosed. The balance sheet remains very conservative: total assets ¥65.673bn, liabilities ¥8.421bn, and equity ¥57.802bn (implying an equity ratio of about 88% by calculation, though the disclosed equity ratio field is unreported). Liquidity appears ample with a current ratio of 9.27x and working capital of ¥34.513bn, signaling considerable short-term financial flexibility. Interest expense is minimal at ¥18m with an interest coverage ratio of 51.1x, underscoring low financial risk from leverage. Inventory stands at ¥6.541bn; inventory discipline will be important amid softer sales to avoid margin risk from markdowns or underutilization. The financing cash outflow of ¥0.847bn suggests shareholder returns or debt repayment, though dividends are not disclosed in the dataset; thus payout assessment depends on management guidance. Overall, the quarter shows resilient gross profitability but high operating leverage to revenue and a one-off drag at the below-ordinary line that heavily reduced net profit. Cash generation remains a relative bright spot, and the balance sheet strength provides a buffer to navigate near-term demand variability. Data gaps limit full assessment of free cash flow and capital allocation, particularly absent investing cash flows and dividend detail.

Profitability Analysis

ROE for the period is 0.18%, decomposed into net margin 0.80%, asset turnover 0.201x, and financial leverage 1.14x. Operating margin compressed to about 7.0% (¥0.92bn / ¥13.17bn) versus a gross margin of 47.9%, indicating elevated SG&A pressure or mix headwinds despite solid manufacturing spreads. Ordinary margin of 8.0% (¥1.056bn / ¥13.17bn) benefited from net non-operating gains (¥0.136bn), partially cushioning the operating shortfall. The steep drop in operating income (-33.7% YoY) against a modest revenue decline (-2.4% YoY) signals high operating leverage—cost base rigidity and/or adverse product mix amplified the earnings impact. EBITDA margin of 11.5% demonstrates underlying cash earnings capacity, though below the gross margin gap indicates sizable overhead intensity. The implied extraordinary loss (~¥0.51bn) and heavy tax burden depressed net profitability; adjusting for one-offs would likely raise normalized net margin above the reported 0.8%. Asset turnover at 0.201x is low, consistent with substantial liquidity and equity capital; improving utilization (e.g., inventory turns, fixed asset productivity) would support ROE. Interest burden is immaterial (¥18m expense) with coverage at 51.1x, so financing costs are not a constraint on margins.

Growth Assessment

Top-line declined 2.4% YoY to ¥13.17bn, indicating mild demand softness or currency/mix effects in the period. Given the company’s industrial exposure, the revenue dip likely reflects macro capex hesitancy or order timing in key end-markets; however, the limited magnitude suggests no structural demand impairment. Profit growth was materially weaker: operating income fell 33.7% YoY to ¥0.92bn, reflecting high operating leverage and potentially higher SG&A (e.g., labor, logistics) or unfavorable sales mix. Ordinary income of ¥1.056bn was supported by non-operating items, but net income collapsed to ¥0.105bn due to extraordinary losses and a heavy tax burden, distorting the growth picture at the bottom line. Without detail on the extraordinary items, profit quality at the net level appears transiently weak; underlying operating earnings remain the better gauge. Sustainability hinges on margin restoration via pricing, mix optimization, and cost control; the strong gross margin (47.9%) provides scope to defend profitability if overheads normalize. Outlook-wise, the conservative balance sheet allows continued investment in R&D and capacity to support growth, while OCF generation implies the business model remains cash-accretive. Data limitations (no segment or geographic breakdown, no order/backlog data) constrain a more granular growth diagnosis.

Financial Health

Total assets are ¥65.673bn, liabilities ¥8.421bn, and equity ¥57.802bn, implying low leverage with an estimated equity ratio around 88% (calculated; the disclosed equity ratio is unreported). Current assets of ¥38.687bn versus current liabilities of ¥4.174bn yield a current ratio of 9.27x and quick ratio of 7.70x (as provided), evidencing very strong liquidity. Working capital is substantial at ¥34.513bn, providing ample buffer to absorb demand fluctuations and supply chain variability. Debt-to-equity is 0.15x, consistent with a conservatively capitalized structure; interest expense is ¥18m with very high coverage (51.1x), indicating negligible solvency risk from debt service. Inventories are ¥6.541bn; absent turnover data, we cannot assess inventory efficiency, but the sizeable liquidity reduces short-term risk even if turns slow. Overall solvency and liquidity metrics are strong, giving flexibility for strategic investments or shareholder returns.

Cash Flow Quality

Operating cash flow was ¥1.108bn, 10.55x reported net income (¥0.105bn), indicating strong cash conversion relative to depressed accounting earnings. The disparity likely reflects the impact of extraordinary losses and/or non-cash charges (e.g., depreciation of ¥0.594bn) plus favorable working capital movements; however, detailed working capital components are not disclosed. EBITDA of ¥1.514bn supports the quality of cash earnings, and interest outflows are minimal, reinforcing cash flow resiliency. Investing cash flow is unreported, preventing calculation of free cash flow and capex intensity; as such, FCF assessment for the period is not possible. Financing cash outflow of ¥0.847bn suggests either dividend payments, share repurchases, or debt repayment, but dividend details are not disclosed here. Overall, cash flow quality appears solid at the operating level, though full-cycle sustainability requires visibility on capex and maintenance vs. growth investments.

Dividend Sustainability

Dividend per share and payout ratio are not disclosed in the dataset provided, so we cannot infer current distribution levels. Given net income of ¥0.105bn this period, payout ratios based on reported earnings could appear elevated if distributions continued at prior levels, but extraordinary losses distort this quarter’s earnings capacity. OCF of ¥1.108bn suggests coverage capacity from cash flows is stronger than net profit implies, yet without investing cash flows and capex we cannot judge free cash flow coverage. The conservative balance sheet (estimated equity ratio ~88%, low debt) provides headroom to maintain a stable policy if management prioritizes continuity. Near-term dividend sustainability thus depends on normalization of one-off items and maintenance capex needs; explicit guidance from the company would be determinative.

Risk Assessment

Business Risks:

• Demand cyclicality in industrial end-markets affecting quick-coupling, tools, and components sales
• Operating leverage to revenue causing outsized profit swings on modest top-line changes
• Product mix or pricing pressure compressing operating margins despite strong gross margins
• Inventory management risk if demand slows, potentially impacting cash conversion and margins
• Supply chain and input cost volatility (materials, logistics) affecting cost of goods and lead times
• FX fluctuations impacting export competitiveness and translation effects on earnings

Financial Risks:

• Extraordinary losses and high tax burden driving volatility in net income and ROE
• Limited visibility on capex and investing cash flows constraining FCF assessment
• Potential for working capital reversals after a cash-generative quarter
• Concentration of cash and low asset turnover depressing ROE despite low leverage

Key Concerns:

• Sharp YoY decline in operating income (-33.7%) against modest revenue decline (-2.4%)
• Implied extraordinary loss (~¥0.51bn) materially depressing net income to ¥0.105bn
• High implied tax burden on a reduced pre-tax base, further squeezing net margin to 0.8%

Investment Implications

Key Takeaways:

• Resilient gross margin at 47.9% but high operating leverage hurt operating income (-33.7% YoY)
• Net profit impacted by one-off factors; ordinary income (¥1.056bn) stronger than bottom line
• Strong OCF (¥1.108bn) versus net income (OCF/NI 10.55x) underscores cash earnings quality
• Very conservative balance sheet (estimated ~88% equity ratio) and ample liquidity (current ratio 9.27x)
• Limited disclosure on investing cash flows and dividends constrains FCF and payout assessment

Metrics to Watch:

• Extraordinary items and their recurrence/resolution
• Operating margin recovery and SG&A ratio trends
• Order intake/backlog and book-to-bill for demand visibility
• Inventory turns and working capital intensity
• Capex and investing cash flows to gauge FCF sustainability
• FX sensitivity and pricing actions to defend gross margin

Relative Positioning: Financially conservative with strong liquidity and minimal leverage relative to typical industrial peers, but with lower asset turnover and currently depressed ROE due to one-offs and operating leverage; underlying cash generation remains a supportive differentiator if margins normalize.

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
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