NIKKO CO.,LTD. FY2026 FY Earnings Report

Financial Highlights

• Net Sales: ¥49.37B
• Operating Income: ¥3.10B
• Net Income: ¥2.54B
• EPS: ¥65.85

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

Verdict: Solid margin-led earnings beat with disciplined cost control and resilient cash generation, offset by working-capital drag. Revenue was 493.71 (100M JPY, +0.4% YoY), while operating income rose to 30.99 (+12.0% YoY) and net income to 25.36 (+26.3% YoY). Gross margin expanded to 30.8% (+235 bps YoY), operating margin improved to 6.3% (+65 bps), and ordinary margin to 6.9% (+69 bps). Net margin rose to 5.1% (+105 bps), aided by higher gross profit and tight SG&A execution. Ordinary income increased to 34.25 (+11.6% YoY), with non-operating income of 5.44 primarily from dividends (2.31) and FX gains (1.27). Extraordinary items were a net loss of 1.49 (gain on sale of securities 4.20 offset by impairment 1.71 and loss on liquidation of subsidiaries/affiliates 4.02), modestly depressing bottom-line but keeping earnings quality conservative. Operating cash flow was 25.92, essentially in line with net income (OCF/NI 1.02x), but cash conversion from EBITDA was soft at 0.59x due to inventory build and slower collections. Free cash flow was positive at 11.64 after 20.04 of capex and intangibles, but below total cash dividends paid. Balance sheet remains strong: current ratio 189%, D/E 0.72x, interest coverage 23.3x, and Debt/EBITDA 1.83x. Short-term debt ratio is elevated at 46.7%, but liquidity is ample with cash/short-term debt at 3.08x and significant contract liabilities (63.11) providing visibility. Segment mix improved: Concrete-Related and Environment & Conveyor delivered higher margins and growth, offsetting softness in Manufacturing Outsourcing. ROE improved to 6.8% (from ~5.9%), driven mainly by margin expansion, while leverage declined modestly. For the next fiscal year, the company guides to 550.0 in sales (+11.4%) and 38.0 in operating income (+22.6%), implying operating margin expansion to ~6.9%. EPS guidance is 68.79, with DPS indicated at 21.0. Key watchpoints are working-capital efficiency (DSO 70 days, DIO 150 days, CCC 185 days) and project execution in high-margin businesses.

Profitability Analysis

ROE (6.8%) = Net Profit Margin (5.1%) × Asset Turnover (0.766) × Financial Leverage (1.72x). The largest YoY change came from net profit margin (up ~105 bps), supported by a 235 bps gross margin expansion as product mix improved toward higher-margin segments and pricing/efficiency gains outpaced SG&A growth. Asset turnover was broadly stable (slight dip vs prior year), reflecting flat revenue against a modestly larger asset base. Financial leverage eased as equity rose, slightly dampening ROE but outweighed by margin gains. The margin uplift appears partly sustainable given recurring strength in Concrete-Related (13.9% margin) and Environment & Conveyor (27.7%), though these are project-based and can be lumpy. SG&A rose 7.8% YoY versus gross profit +8.6%, indicating positive operating leverage.

Growth Assessment

Top-line grew marginally (+0.4%), but profit grew faster (OP +12.0%, NI +26.3%) on mix and cost control. Segment drivers were Concrete-Related (+0.7% sales, +16.2% OP) and Environment & Conveyor (+34.5% sales, +43.6% OP), while Asphalt-Related was flat to slightly lower in sales (-0.8%) but improved profit (+7.1%). Crusher recovered profitably (+72.5% OP on +8.5% sales). Manufacturing Outsourcing declined in both sales (-30.5%) and OP (-15.8%). Forward outlook targets sales of 550.0 (+11.4% YoY) and OP of 38.0 (+22.6%), implying operating margin expansion to ~6.9%; NI guidance of 26.5 suggests stable net margin near ~4.8–4.9%. Growth sustainability hinges on order intake and project timing in Environment & Conveyor and sustained demand in domestic infrastructure cycles for Concrete-Related.

Financial Health

Liquidity is solid with a current ratio of 188.9% and quick ratio of 172.9%. Leverage is moderate: Debt-to-Equity 0.72x, Debt/EBITDA 1.83x, Debt/Capital 17.6%, and interest coverage 23.3x (EBITDA coverage 32.8x), indicating strong covenant headroom. Short-term debt ratio is elevated at 46.7%; however, cash/short-term debt is 3.08x and working capital is positive at 183.18, mitigating refinancing risk. Contract liabilities are sizable at 63.11, supporting revenue visibility. Notable maturity profile consideration: short-term loans decreased by 32.0% YoY, and long-term loans modestly declined, while cash decreased, but overall liquidity remains ample.

Notable B/S Changes

Inventories: +20.81 (from 12.19 to 33.00, +170.7%) - Build tied to project WIP; elevates execution and obsolescence risk, weighs on cash. Short-term Loans: -17.55 (from 54.89 to 37.34, -32.0%) - Reduced reliance on short-term funding; lowers refinancing pressure. Contract Liabilities: +12.19 (from 50.92 to 63.11, +24.0%) - Strong advance billing/supports near-term revenue visibility. Valuation and Translation Adjustments (AOCI): +15.83 (from 35.67 to 51.50, +44.3%) - Equity uplift mainly from securities valuation and pension remeasurements. Deferred Tax Assets: -1.84 (from 5.38 to 3.54, -34.2%) - Lower tax assets, potentially reflecting utilization of losses/temporary differences. Net Defined Benefit Liability: -6.01 (from 21.47 to 15.46, -28.0%) - Reduced pension obligation improves solvency.

Cash Flow Quality

OCF/Net Income is 1.02x, indicating broadly aligned earnings and cash generation. Cash conversion from EBITDA is low at 0.59x due to working-capital absorption: inventories increased (Δ -21.23 in CF), receivables improved sequentially but remain elevated in days, and payables decreased. Free cash flow was 11.64, positive but below cash dividends paid, implying partial reliance on cash reserves for shareholder returns this year. No apparent signs of deliberate working-capital manipulation; the drag is consistent with project build (high WIP) and timing of deliveries and billings.

Dividend Sustainability

DPS totaled 40.0 yen (17.0 interim, 23.0 year-end), equating to a payout ratio of 63.1% and DOE of 3.6%. FCF coverage is 0.73x, indicating dividends exceeded internally generated free cash this year; however, the balance sheet can absorb the gap near term. With NI improving and leverage moderate, the payout appears manageable, but sustained distributions at this level will require improved cash conversion and working-capital efficiency. Forecast DPS is indicated at 21.0; policy clarity on payout ratio versus absolute DPS will be important against capex and growth plans.

Risk Assessment

Business risks include Project timing and execution risk in high-margin Environment & Conveyor and Concrete-Related segments, Demand cyclicality in domestic infrastructure and construction end-markets, Pricing and input cost volatility affecting gross margin.

Financial risks include Refinancing exposure from high short-term debt ratio (46.7%), albeit mitigated by cash/STD of 3.08x, Working-capital intensity with DSO 70 days, DIO 150 days, CCC 185 days pressuring cash conversion, Concentration of inventory in WIP (66.4%) increasing project delay risk.

Key concerns include LOW_CASH_CONVERSION: OCF/EBITDA 0.59x reflects heavy WC build; while not unusual for project businesses, it weakens cash generation and raises reliance on liquidity during growth phases, REFINANCING_RISK: Short-term debt ratio 47% is above the 40% threshold; context: leverage is low and cash covers 3.1x STD, but rollover discipline is essential if credit conditions tighten, HIGH_RECEIVABLE_DAYS: DSO 70 days exceeds benchmark, typical for engineered projects but raises collection risk and ties up cash, HIGH_INVENTORY_DAYS: DIO 150 days with elevated WIP indicates long production cycles and scheduling risk; potential margin risk if rework/deferrals occur, LONG_CCC: CCC 185 days underscores structural cash lag versus revenue recognition; requires tight project and supplier terms management, HIGH_WIP_RATIO: WIP at 66.4% of inventory points to execution and delivery timing sensitivity; slippage could defer revenue and cash.

Investment Implications

Key takeaways include Margin expansion drove double-digit OP and NI growth despite flat revenue, Segment mix shift toward higher-margin Concrete and Environment & Conveyor underpinned profitability, Cash generation is adequate versus earnings but constrained by WC; improving CCC is the key upside lever, Balance sheet strength (low leverage, strong liquidity) supports operations and dividends, Guidance implies further operating margin expansion to ~6.9% on higher sales.

Metrics to watch include Order backlog and order intake, especially in Environment & Conveyor, CCC and its components (DSO, DIO, DPO), with target to reduce CCC toward <150 days, Contract liabilities trend as a proxy for forward revenue visibility, CapEx vs depreciation to sustain capacity and efficiency (current D&A 12.63), Short-term debt mix and rollover schedule relative to cash and OCF.

Regarding relative positioning, Within domestic industrial plant and machinery peers, the company exhibits mid-single-digit operating margins with improving mix, conservative leverage, and above-average working-capital intensity; profitability trajectory is favorable, but cash efficiency trails best-in-class project manufacturers.