NIPPON THOMPSON CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥30.25B
• Operating Income: ¥1.54B
• Net Income: ¥1.71B
• EPS: ¥24.62

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: A solid rebound quarter with strong profit growth, margin expansion, and high-quality cash flow, albeit with still-subdued capital efficiency. Revenue rose 13.3% YoY to 302.5, driven by broader demand recovery in core industrial/auto end-markets. Operating income doubled (+101.3% YoY) to 15.4, lifting the operating margin to roughly 5.1%. Ordinary income surged 167.1% YoY to 17.8, supported by a larger non-operating contribution (notably dividend and interest income totaling 2.3). Net income jumped 418% YoY to 17.1, with an unusually low effective tax rate of 4.7% amplifying the bottom line. Gross margin stood at 31.1%, indicating constructive pricing/mix or cost normalization. We estimate operating margin expanded by about 223 bps YoY (from ~2.9% to ~5.1%) given operating profit growth far outpaced revenue. Net margin improved by roughly 441 bps YoY (from ~1.2% to ~5.6%), aided by low taxes and higher non-operating income. Cash generation was robust: operating cash flow of 47.8 implies OCF/NI of 2.8x, signaling strong earnings quality. Capex was disciplined at 15.3, implying a proxy FCF (OCF–Capex) of about 32.5 before financing and other investing flows. The balance sheet remains conservative with a current ratio of 359%, net cash position versus long-term loans, and D/E of 0.56x. Interest coverage of 10.36x underscores low financial risk. That said, reported ROE and ROIC at ~2.2% remain below acceptable thresholds, highlighting capital efficiency as the key structural challenge. Profit mix includes a notable non-operating component (non-operating income ratio ~24.5%), which adds variability versus pure operating earnings. Forward-looking, improved margins and cash flow provide a healthier base, but sustaining momentum will depend on mix/pricing discipline, normalization of the tax rate, and continued demand resilience. Overall, the quarter reflects cyclical recovery with improving fundamentals, but the path to structurally higher ROIC remains the main medium-term task.

Profitability Analysis

ROE decomposition: ROE ≈ Net Profit Margin (5.6%) × Asset Turnover (0.247) × Financial Leverage (1.56x) ≈ 2.2%. The largest swing factor this quarter was Net Profit Margin, which improved significantly as operating profit growth (+101% YoY) far outpaced revenue growth (+13% YoY) and was further lifted by low tax and higher non-operating income. Asset turnover remains modest at 0.247, reflecting a relatively asset-heavy balance sheet versus the current revenue base. Financial leverage is moderate at 1.56x, not a major driver of ROE changes. Business drivers: cost normalization, better pricing/mix, and lower tax burden expanded net margin; non-operating income (dividends/interest) provided an additional boost to ordinary and net income. Sustainability: margin gains from cost actions and mix are partly sustainable; however, the unusually low effective tax rate (4.7%) and elevated non-operating contribution are unlikely to persist at the same magnitude. Watch for reversion in tax rate and non-operating items. Concerning trends: while SG&A absolute level is 78.8 (and thus still meaningful versus gross profit), the operating leverage was favorable this quarter; there is no explicit evidence that SG&A rose faster than revenue, but reliance on non-operating income (24.5% of pre-tax drivers) tempers the quality of profit mix.

Growth Assessment

Top-line growth of 13.3% YoY indicates cyclical demand recovery across core bearing/linear motion products. Operating profit growth of 101% YoY reflects improved cost absorption and operating leverage. Net income growth of 418% YoY was amplified by a very low effective tax rate and increased non-operating income (dividends and interest). Revenue sustainability depends on capex cycles in industrial/auto, inventory normalization downstream, and FX tailwinds; none are guaranteed. Margin sustainability hinges on maintaining pricing/mix discipline and further cost efficiencies; raw material and energy price trends remain key variables. With gross margin at 31.1% and operating margin at ~5.1%, there remains headroom to improve toward peer medians if mix and utilization continue to improve. Non-operating income support (24.5% ratio) is helpful but volatile and not a reliable growth engine. Overall outlook: cautiously positive on near-term trajectory given improved utilization and healthy OCF, but medium-term growth requires sustained demand recovery and continued execution on efficiency.

Financial Health

Liquidity is strong: current ratio 358.7% and quick ratio 276.4%, with cash and deposits of 254.2 comfortably exceeding current liabilities of 221.7. No warning triggers (Current Ratio well > 1.0; D/E 0.56x < 2.0). Solvency is conservative with total liabilities 438.1 vs equity 787.9; long-term loans total 149.5 and are well covered by cash on hand. Maturity mismatch risk appears low: current assets 795.4 vs current liabilities 221.7 provide ample cushion. Interest coverage is robust at 10.36x, indicating low refinancing stress. No off-balance-sheet obligations were disclosed in the provided data. Equity ratio (not reported) can be approximated by equity/total assets ≈ 64%, reinforcing balance sheet strength.

Cash Flow Quality

OCF of 47.77 vs NI of 17.06 yields OCF/NI of 2.80x, indicating high-quality earnings with strong cash conversion. A proxy FCF (OCF–Capex) is approximately 32.5, suggesting ample internal funding capacity for capex and potential dividends after working capital needs. Financing CF of -21.86 implies net outflows (likely debt repayments/dividends), which appear manageable given OCF strength; exact dividend and buyback amounts were not disclosed. No explicit signs of working capital manipulation are evident from the summary data; however, without period-over-period detail on AR/inventory/payables movements, we cannot rule out short-term timing effects. With cash 254.2 and modest leverage, liquidity buffers reinforce cash flow resilience.

Dividend Sustainability

The calculated payout ratio is 81.9%, above the <60% benchmark for comfort and therefore on the high side relative to earnings. Cash coverage appears adequate on this quarter’s basis given proxy FCF of ~32.5 versus the implied dividend outlay, but full-year sustainability depends on the normalization of non-operating income and the effective tax rate. DPS figures and total dividends paid were not disclosed, limiting precision. Given low ROE/ROIC (~2.2%), management may balance shareholder returns with reinvestment aimed at improving capital efficiency. Policy outlook: stable-to-cautious, with room to sustain dividends if OCF remains strong, but sensitivity to earnings normalization is elevated.

Risk Assessment

Business Risks:

• Cyclical demand risk in industrial automation, automotive, and general machinery end-markets
• Pricing and mix risk amid competitive dynamics in bearings and linear motion components
• Raw material (steel) and energy cost volatility impacting gross margins
• FX fluctuation risk affecting export competitiveness and translation of overseas profits

Financial Risks:

• Low capital efficiency: ROE and ROIC at ~2.2% remain below target thresholds
• Profit mix reliance on non-operating income (24.5%) increases earnings variability
• Potential normalization of the tax rate from 4.7% could reduce net margins
• Exposure to long-term debt (149.5) albeit well covered by cash

Key Concerns:

• Sustainability of margin gains if demand moderates or input costs rise
• Reversion of effective tax rate may compress net income
• Limited asset turnover (0.247) constrains ROE even with margin improvement
• Data gaps on segment performance and investing cash flows limit visibility

Investment Implications

Key Takeaways:

• Strong profit rebound with operating margin expansion (~+223 bps YoY) and very high OCF/NI (2.8x)
• Balance sheet is robust (current ratio ~359%, D/E 0.56x) with healthy interest coverage (10.36x)
• Capital efficiency remains the core issue: ROE/ROIC ~2.2% despite profit recovery
• Non-operating income and unusually low tax rate materially boosted NI; sustainability is uncertain
• Proxy FCF of ~32.5 indicates capacity to fund capex and shareholder returns near term

Metrics to Watch:

• Operating margin trajectory and gross margin versus raw material/energy cost trends
• Effective tax rate normalization and its effect on net margin
• Non-operating income levels (dividends/interest) and their volatility
• Asset turnover improvements via utilization and inventory efficiency
• Order backlog and book-to-bill in core end-markets (industrial/auto) if disclosed

Relative Positioning: Within Japanese machinery components peers, the company exhibits a stronger balance sheet and cash conversion this quarter but lags on capital efficiency (ROE/ROIC). Execution on mix, cost, and utilization to lift operating margins and asset turnover will be key to closing the gap with higher-ROIC peers.

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