NAGAOKA INTERNATIONAL CORPORATION FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.03B
• Operating Income: ¥-77M
• Net Income: ¥151M
• EPS: ¥-6.67

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: Weak topline and operating loss in FY2026 Q1, but balance sheet remains very strong; results appear affected by project timing and data inconsistencies in the reported lines. Revenue fell 44.0% YoY to 10.30, pointing to a sharp contraction in activity versus last year’s Q1. Gross profit is reported at 7.12, implying a high gross margin of 69.1%, but this is incongruent with the reported cost of sales figure; we rely on the provided gross profit/margin as the more reliable indicator. Operating income was -0.77 (improved 18.1% YoY), translating to an operating margin of -7.5%. Non-operating income of 0.23 and expenses of 0.45 net to -0.22, yielding ordinary income of -0.76 (-12.6% YoY). Net income came in at -0.46, with EPS of -6.67 JPY. The effective tax expense of 0.88 (36.8% rate) despite losses suggests non-recurring or timing-related tax items. Balance sheet quality is strong: total assets 90.92, equity 72.77, and liabilities 18.15, implying low leverage and an implied equity ratio around 80%. Liquidity is ample with current ratio 400.7%, quick ratio 400.2%, cash and deposits 20.96, and working capital 50.54. Accounts receivable are sizable at 34.59 relative to quarterly sales, highlighting collection/timing risk typical for project-based companies. DuPont shows ROE at -0.6% driven by a -4.5% net margin and a very low asset turnover of 0.113, with modest leverage of 1.25x. Interest coverage is weak at -31.30x due to the operating loss, though absolute interest burden is small (interest expense 0.02). ROIC is -0.9%, below a 5% warning threshold, indicating value-destructive returns this quarter. Cash flow data are unreported, so earnings quality and working-capital dynamics cannot be verified against cash conversion. Forward-looking, the quarter suggests a soft start to FY26 and heightened execution risk until order intake, backlog conversion, and cash collection normalize. Investors should focus on backlog, book-to-bill, revenue cadence in subsequent quarters, and consistency of gross margin reporting given the apparent line-item mismatch.

Profitability Analysis

ROE decomposition: ROE (-0.6%) = Net Profit Margin (-4.5%) × Asset Turnover (0.113) × Financial Leverage (1.25x). The biggest drag is net profit margin, which is negative on a sharply lower revenue base and operating loss. Asset turnover is also very low for the quarter (0.113), reflecting slow revenue conversion relative to a sizable asset base and likely seasonality/project timing. Financial leverage is modest at 1.25x, providing little amplification in either direction. Business drivers: the revenue decline (-44% YoY) suggests fewer project deliveries or delayed milestones, compressing operating leverage and pushing operating income to -0.77 despite a reported high gross margin. SG&A of 4.50 appears relatively fixed in the short term, so the sharp sales drop amplified the operating loss; we cannot benchmark SG&A YoY growth due to missing prior-year detail, but fixed-cost drag is evident. Sustainability: the negative margin may reverse if project deliveries and revenue recognition normalize in later quarters, but visibility depends on order backlog and execution. Concerning trends: (1) Operating margin -7.5% in Q1 on low sales, (2) large accounts receivable vs quarterly sales signals collection/timing and potential working-capital pressure, and (3) reported line-item inconsistencies (cost of sales vs gross profit) cloud margin analysis; we rely on the reported gross profit and margin for assessment.

Growth Assessment

Revenue contracted 44.0% YoY to 10.30, indicating a weak start likely driven by project timing or lower order conversion. Operating loss narrowed YoY (+18.1%), suggesting some cost containment or mix support despite the revenue decline. Gross margin is reported high (69.1%), but the COGS line conflicts with this; if the margin is accurate, mix and pricing remain supportive, yet scale is insufficient to cover fixed SG&A. Non-operating net expense (-0.22) modestly worsened ordinary income. Net loss of -0.46 underscores that profitability recovery requires a rebound in volume and milestone recognition. Outlook hinges on backlog execution, shipment schedules, and customer capex appetite; without order/backlog disclosures, sustainability of growth is uncertain. Near-term, the company needs sequential revenue recovery to restore positive operating margin and improve ROIC.

Financial Health

Liquidity is very strong: current ratio 400.7% and quick ratio 400.2% (both well above benchmarks). No warning on current ratio (<1.0) or D/E (>2.0); D/E is conservative at 0.25x. Short-term loans total 3.21 and long-term loans 0.38 (total loans 3.59), comfortably covered by cash of 20.96 and current assets of 67.35. Maturity mismatch risk appears low given the large current asset base versus current liabilities (16.81). Equity base is robust at 72.77, implying an equity ratio near 80% (not reported, inferred). Off-balance sheet obligations are not disclosed; we cannot assess guarantees or performance bonds which may exist for project businesses. Interest coverage is negative due to operating loss, but the absolute interest burden is small (0.02), limiting immediate solvency risk.

Cash Flow Quality

Operating cash flow, free cash flow, and capital expenditures are unreported; we cannot compute OCF/NI or FCF coverage. Given the net loss and large accounts receivable (34.59) relative to quarterly sales (10.30), working capital absorption is a plausible headwind in Q1. OCF/Net Income cannot be assessed; we cannot flag a quality ratio, but cash conversion risk exists until collections are evidenced. Dividend and repurchase cash outflows are unreported, so aggregate cash commitments cannot be matched to FCF. Potential manipulation signs cannot be assessed without WC detail (receivables, advances, contract liabilities, and inventory movements). Monitoring subsequent quarters’ OCF and AR turnover will be key to validating earnings quality.

Dividend Sustainability

Dividend data for the quarter and year are unreported; the provided payout ratio (-538.6%) appears mechanical and not reliable without DPS/FCF disclosure. With net income negative and FCF unreported, we cannot assert coverage. The strong cash position (20.96) and low leverage provide some buffer, but sustainable dividends depend on restoring positive operating cash flow and earnings in subsequent quarters. Policy outlook is unclear without management guidance; we would anchor on full-year profitability and cash conversion before assessing capacity for stable or growing dividends.

Risk Assessment

Business Risks:

• Project timing and backlog conversion risk leading to revenue volatility (Q1 revenue -44% YoY).
• Execution risk on complex engineered products/projects, including potential cost overruns.
• Customer concentration or end-market cyclicality (likely exposure to energy/water/process industries).
• Pricing and margin risk despite reported high gross margin, given inconsistent COGS line.
• Supply chain and procurement cost variability impacting delivered margins.

Financial Risks:

• Negative operating income driving a negative interest coverage ratio (-31.30x), albeit with small absolute interest cost.
• Working capital risk: high accounts receivable (34.59) versus quarterly revenue (10.30) may delay cash conversion.
• ROIC (-0.9%) below threshold, indicating value dilution if sustained.
• Tax volatility (tax expense 0.88 despite losses) impacting bottom-line predictability.

Key Concerns:

• Data inconsistencies in reported cost of sales vs gross profit and PBT vs net income relationships.
• Unreported cash flow statements limit verification of earnings quality and dividend capacity.
• Limited disclosure on segment/order backlog and pipeline reduces visibility into recovery trajectory.

Investment Implications

Key Takeaways:

• Topline contraction and operating loss highlight a weak Q1 start.
• Balance sheet strength (high liquidity, low leverage) mitigates near-term financial stress.
• Earnings quality and cash conversion cannot be validated due to missing CF data and high receivables.
• ROE (-0.6%) and ROIC (-0.9%) are depressed by negative margins and low asset turnover.
• Outlook hinges on order intake, backlog execution, and sequential revenue recovery.

Metrics to Watch:

• Order intake, backlog level, and book-to-bill ratio.
• Sequential revenue growth and operating margin trajectory.
• Operating cash flow and AR days/collection trends.
• Gross margin consistency and reconciliation of COGS reporting.
• ROIC improvement toward >5% and eventually >7–8% over the full year.

Relative Positioning: Within Japanese small-cap industrial/engineering peers, the company exhibits stronger-than-average liquidity and low leverage but weaker near-term profitability and ROIC due to a sharp revenue decline and operating loss; transparency on cash flows and backlog will be critical to narrow the visibility gap versus peers with steadier order 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