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

Nagaoka (6239) reported FY2026 Q1 consolidated results under JGAAP with revenue of ¥1.03bn, down 44.0% YoY, reflecting pronounced project timing effects typical of an EPC/industrial equipment order business. The company posted an operating loss of ¥77m, an 18.1% YoY improvement, indicating early benefits from cost control or a richer project mix despite the top-line contraction. Ordinary loss was ¥76m and net loss was ¥46m (YoY improvement of 17.5%), keeping the net margin at -4.47%. Gross profit is reported at ¥712m, implying a gross margin of 69.1%, which is unusually high for the sector and suggests a mix shift to higher-margin engineering services or milestone recognition; however, the disclosed cost of sales (¥1,129m) conflicts with this gross profit, pointing to a likely data-tagging inconsistency. Balance sheet strength remains a key support: total assets are ¥9.09bn and total equity is ¥7.28bn, implying an equity ratio around 80% despite the equity ratio field showing 0.0% (likely undisclosed). Liquidity is robust with current assets of ¥7.70bn and current liabilities of ¥2.38bn, yielding a current ratio of 323% and working capital of ¥5.32bn. Leverage is modest with total liabilities of ¥2.52bn and a debt-to-equity ratio of 0.35x; interest expense is low at ¥2.46m, but interest coverage is negative due to the operating loss. DuPont analysis indicates ROE of -0.63%, driven by a negative net margin, low asset turnover (0.113), and modest financial leverage (1.25x). The low turnover is consistent with Q1 seasonality and milestone accounting; utilization of assets is expected to normalize as deliveries convert later in the year. Income tax expense of ¥88m amid a pre-tax loss is atypical and may reflect non-recurring items or timing differences; the provided effective tax rate indicator (0.0%) appears mechanical and not reflective of the reported tax line. Cash flow statements are not disclosed for the quarter (values shown as 0 indicate not reported), limiting assessment of operating cash conversion and free cash flow. The company paid no dividend (DPS ¥0), appropriate given a quarterly loss and cash flow opacity. Overall, the quarter shows earnings resilience at the operating level despite a steep revenue decline, underpinned by a strong balance sheet that provides ample liquidity and solvency headroom. Key near-term variables are order intake, backlog execution, and the conversion of receivables/WIP into cash. Data limitations (notably cash flow and some per-share metrics) and an internal inconsistency between cost of sales and gross profit require caution in interpreting margins. The fundamental outlook hinges on project deliveries in subsequent quarters, which could improve turnover and profitability if the high gross margin is representative of the underlying mix.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin -4.47% x Asset turnover 0.113 x Financial leverage 1.25 = ROE -0.63% (aligned with reported). The negative margin is the primary ROE drag; leverage is low and does not amplify returns. Gross margin is indicated at 69.1% (gross profit ¥711.7m on revenue ¥1,030m), implying favorable project mix or milestone recognition; however, this conflicts with the disclosed cost of sales figure (¥1,129m), so margin interpretation relies on the gross profit figure provided and the calculated margin. Operating margin is -7.5% (OP ¥-77m / revenue), better YoY as operating loss narrowed despite the sharper revenue decline, indicating incremental fixed-cost flexibility or project cost discipline. Ordinary margin is -7.4% and net margin -4.5%, showing limited non-operating burden (interest expense is small at ¥2.46m). Operating leverage appears high: a 44% revenue decline produced only a modest deterioration in bottom line versus last year (loss narrowed YoY), suggesting cost base adjustments and/or exceptionally high margin on recognized Q1 work. Interest coverage is -31.3x due to operating loss but absolute interest costs are low, mitigating financial strain. Overall profitability is currently suppressed by low volume and timing; margins could normalize upward if revenue recovers in later quarters while preserving the higher gross margin mix.

Growth Assessment

Revenue contracted 44.0% YoY to ¥1.03bn, indicative of order and delivery timing rather than structural decline in addressable demand for filtration/screens and process equipment. Profit quality is mixed: operating loss improved 18.1% YoY and net loss improved 17.5% YoY, implying underlying efficiency gains; however, the gross margin signal is distorted by an internal CoGS/GP inconsistency. Asset turnover at 0.113 is low for a full-year lens but plausible for Q1 given milestone accounting; a rebound is likely contingent on backlog execution. Without cash flow and orders/backlog disclosure, sustainability of revenue is uncertain; typical seasonality for project businesses suggests stronger 2H recognition. Outlook near term is tied to conversion of in-progress projects and new order intake; if the implied high margin is representative, earnings could inflect with modest revenue recovery. Absent visibility on pipeline and book-to-bill, we assume flat-to-improving sequential trajectory as projects deliver, but acknowledge elevated uncertainty.

Financial Health

Liquidity is strong: current assets ¥7,700.9m vs current liabilities ¥2,381.4m yields a current ratio of 323% and quick ratio of 323% (inventory is small at ¥10.6m). Working capital is ample at ¥5,319.5m, providing runway for project execution and collection cycles. Solvency is solid: total equity ¥7,277m vs total assets ¥9,092m implies an equity ratio of ~80% (the 0.0% field appears undisclosed), and debt-to-equity is 0.35x. Interest burden is light (¥2.46m), limiting financial risk despite negative coverage for the quarter. Capital structure skews to equity, offering resilience against project volatility and potential delays in customer payments. The small inventory balance suggests most current assets sit in cash, receivables, or contract assets; exact composition is undisclosed this quarter.

Cash Flow Quality

Operating, investing, and financing cash flows are not disclosed for the quarter (shown as 0 per data availability). As such, OCF/Net income, FCF, and working capital cash conversion cannot be assessed from this release. Earnings quality signals are mixed: the high gross margin alongside an operating loss implies heavy fixed cost absorption at low volumes, consistent with project cyclicality; the unusual presence of ¥87.97m in income tax expense despite a pre-tax loss could reflect prior-period or non-deductible items. Working capital quality cannot be verified without receivables, contract assets, and payables turns; however, large positive working capital indicates capacity to fund ongoing projects. We will reassess cash conversion when quarterly cash flow statements are available.

Dividend Sustainability

DPS is ¥0 and payout ratio is 0% due to a quarterly net loss; FCF coverage is not assessable as cash flows are undisclosed. Given negative earnings and the project-cycle nature of cash generation, a conservative dividend stance is prudent near term. With an equity-heavy balance sheet and strong liquidity, the company has capacity to reinstate distributions when profitability and cash flows normalize, but timing depends on backlog conversion and visibility. Policy outlook likely remains flexible and performance-linked.

Risk Assessment

Business Risks:

• Order timing and project concentration leading to revenue volatility
• Execution risk on large EPC/engineering projects affecting margins
• Raw material and subcontractor cost inflation impacting project profitability
• Supply chain and logistics disruptions delaying deliveries and revenue recognition
• Customer credit risk and delayed collections in overseas projects
• FX exposure on imports/exports affecting costs and pricing

Financial Risks:

• Negative operating leverage at low volumes reducing coverage metrics
• Working capital build and potential cash absorption during project ramps
• Receivables/contract asset recoverability risk if counterparties delay payment
• Accounting estimate risks in percentage-of-completion or milestone recognition
• Tax timing differences (tax expense despite loss) affecting near-term cash

Key Concerns:

• Internal inconsistency between reported cost of sales and gross profit implies caution in interpreting margins
• Lack of quarterly cash flow disclosure limits assessment of cash conversion and FCF
• Sharp 44% YoY revenue decline elevates dependence on subsequent-quarter deliveries
• Negative interest coverage, albeit with low absolute interest cost
• Visibility on orders/backlog not provided, constraining outlook confidence

Investment Implications

Key Takeaways:

• Top line declined 44% YoY to ¥1.03bn, but operating loss narrowed 18% YoY, indicating cost discipline or higher-margin mix
• Balance sheet is strong with ~80% equity ratio and current ratio >3x, providing resilience
• ROE at -0.63% is primarily driven by negative margins and low Q1 asset turnover, not leverage
• Interest burden is minimal; financial risk from debt is low despite negative coverage this quarter
• Data inconsistencies (CoGS vs GP) and missing cash flow statements constrain margin and cash quality analysis

Metrics to Watch:

• Order intake and backlog, book-to-bill ratio
• Revenue recognition cadence and project delivery milestones
• Gross margin trend and project-level margin realization
• Operating cash flow and free cash flow, especially receivables and contract asset collections
• Days sales outstanding (DSO) and working capital turns
• FX impact on costs and pricing

Relative Positioning: Within Japanese industrial equipment and engineered solutions peers, Nagaoka appears conservatively financed with above-average liquidity and low leverage, but exhibits higher revenue and margin volatility tied to project timing; profitability normalization depends more on execution and backlog conversion than on balance-sheet capacity.

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