NFK HOLDINGS CO.,Ltd FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥749M
• Operating Income: ¥-6M
• Net Income: ¥-5M
• EPS: ¥-0.11

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

FY2026 Q2 was weak overall with a small operating loss and negative bottom line despite positive pre-tax profit aided by extraordinary gains. Revenue was 7.49 (−8.3% YoY), with gross profit of 2.32 and SG&A of 2.38, resulting in operating income of −0.06 (−12.5% YoY). Gross margin printed at 31.0%, while operating margin was −0.8%, underscoring that fixed costs slightly exceeded gross profit in the period. Non-operating line was a net drag (income 0.39 vs expenses 0.64), pushing ordinary income to −0.31 (−22.1% YoY). Profit before tax bounced to +0.11, implying net extraordinary gains of roughly +0.42, but a heavy effective tax rate of 144.2% (tax 0.16 on PBT 0.11) flipped net income to −0.04. Total comprehensive income was +0.21, likely reflecting valuation gains (e.g., investment securities) rather than core earnings. Balance sheet remains robust: equity is 64.15 on assets of 78.95 (leverage 1.23x), cash and deposits are a sizable 32.45, and current ratio is a very strong 624.8%. Debt remains modest with short-term loans 1.10 and long-term loans 3.34; D/E is 0.23x, indicating conservative leverage. Asset turnover is low at 0.095, consistent with a project/engineered-products business and indicating limited scale utilization. ROE is −0.1%, driven mainly by the negative net margin and very low asset turnover; ROIC is also −0.1% (below the 5% warning threshold). Margin comparison vs prior year in basis points cannot be precisely quantified due to missing prior-period margin data, but the ordinary loss widened YoY and operating loss modestly worsened. Earnings quality cannot be evaluated from cash flows as OCF was unreported; however, accounts receivable of 11.46 vs half-year sales of 7.49 suggests elongated collection cycles or project milestone billing risk. Liquidity is ample and mitigates near-term financial stress, but the results indicate weak core profitability and reliance on non-operating/extraordinary items to support pre-tax profit. Forward-looking, order conversion, gross margin recovery, and tighter SG&A control are needed to restore operating profitability; monitoring tax normalization and any goodwill impairment risk is also key. Overall, the quarter reflects soft demand and cost absorption pressure, with financial safety intact but profitability below target.

Profitability Analysis

ROE decomposition: Net Profit Margin (−0.5%) × Asset Turnover (0.095) × Financial Leverage (1.23x) ≈ −0.1% ROE. The most constraining components are the negative margin and very low asset turnover; leverage is modest and not a major driver. Business drivers: gross margin at 31.0% was insufficient to cover SG&A of 2.38, producing a −0.8% operating margin; non-operating expenses (0.64) further pressured ordinary income, while extraordinary gains masked part of the weakness at the pre-tax level. The negative tax impact (effective tax rate 144.2%) exacerbated the bottom line. Sustainability: reliance on extraordinary gains to lift PBT is not durable; margin recovery must come from better mix/pricing and cost discipline. Operating leverage is currently unfavorable: SG&A exceeded gross profit (2.38 > 2.32), so even small revenue declines translate into losses; this is a concerning trend unless SG&A is flexed down or gross margins improve. With revenue down 8.3% YoY and ordinary loss worsening 22.1% YoY, overhead growth or insufficient cost cuts likely outpaced revenue trends, implying limited operating flexibility.

Growth Assessment

Top line contracted 8.3% YoY to 7.49, suggesting softer order intake or delivery phasing in H1. Profit quality is weak: operating margin −0.8% and ordinary loss −0.31 indicate core earnings pressure; pre-tax profit was positive only due to extraordinary factors (~+0.42). Non-operating expenses of 0.64 outpaced non-operating income of 0.39, hinting at recurring drags (e.g., FX, equity-method losses, or other expenses). Without OCF disclosure, sustainability of earnings is unclear, but AR levels exceeding half-year sales indicate working capital intensity that could weigh on growth if collections slow. Outlook hinges on backlog conversion, cost pass-through, and SG&A containment; normalization of the effective tax rate would mechanically help EPS if PBT stabilizes. Near term, expect cautious growth with a focus on mix/pricing and project execution rather than volume-driven expansion.

Financial Health

Liquidity is strong: current assets 58.10 vs current liabilities 9.30 yields a current ratio of 624.8% and quick ratio of 616.5%. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 0.23x, conservative. Cash and deposits of 32.45 and investment securities of 8.43 provide substantial liquidity buffer. Maturity mismatch risk appears low: short-term loans are 1.10 against cash 32.45 and receivables 11.46. Long-term loans 3.34 are manageable relative to equity 64.15. Interest coverage flagged at −20.41x reflects operating loss versus minimal interest expense and should improve if operating profit normalizes. No off-balance sheet obligations are disclosed in the provided data; none can be assessed.

Cash Flow Quality

Operating cash flow is unreported; OCF/Net Income cannot be assessed, so earnings quality remains uncertain. Free cash flow cannot be calculated due to missing capex data. Working capital signals: accounts receivable 11.46 vs half-year revenue 7.49 suggests long DSO or milestone timing; inventories are small at 0.77, indicating limited stock risk but also highlighting project-based revenue recognition. Potential manipulation flags cannot be confirmed without cash flow detail; however, reliance on extraordinary items to reach positive PBT and a high effective tax rate point to volatile, lower-quality earnings in the period.

Dividend Sustainability

Dividend information is unreported. With net income at −0.04 and ROE −0.1%, dividend capacity would depend on cash and past retained earnings rather than current earnings. The company has ample liquidity (cash 32.45) and low leverage, which could support a modest dividend if policy permits, but sustainability should be judged against recurring FCF, which is unavailable. Without OCF and capex data, payout ratio and FCF coverage cannot be evaluated; prudence suggests prioritizing profitability recovery and cash generation before increasing distributions.

Risk Assessment

Business Risks:

• Revenue softness (−8.3% YoY) and low asset turnover (0.095) imply underutilization risk and operating leverage to downturns.
• Gross margin/SG&A imbalance (SG&A 2.38 > gross profit 2.32), risking persistent operating losses if sales do not recover.
• Project execution and collection risk: AR 11.46 vs half-year sales 7.49 suggests elongated DSO/milestone timing.
• Dependence on non-operating/extraordinary items to support PBT, which are inherently volatile.
• Potential goodwill impairment risk (goodwill 4.72; ~7% of equity) if profitability remains weak.

Financial Risks:

• Earnings volatility feeding into a high and erratic effective tax rate (144.2%), depressing net profit.
• Interest coverage flagged negative due to operating loss; although cash is ample, sustained losses could erode coverage.
• Refinancing and rate risk on loans (short-term 1.10, long-term 3.34) if operating recovery lags.

Key Concerns:

• Core profitability: operating margin −0.8% with widening ordinary loss (−22.1% YoY).
• Non-operating expenses (0.64) consistently outweigh income (0.39), pressuring ordinary earnings.
• Data gaps (no cash flow, capex, segment detail) limit visibility into earnings quality and investment needs.

Investment Implications

Key Takeaways:

• Top line down 8.3% YoY to 7.49; gross margin 31.0% insufficient to cover SG&A.
• Operating loss of −0.06 and ordinary loss of −0.31 despite positive PBT via extraordinary gains (~+0.42).
• Net income −0.04 due to heavy effective tax rate (144.2%).
• Balance sheet is strong: current ratio 625%, cash 32.45, D/E 0.23x.
• ROE −0.1% and ROIC −0.1% highlight sub-par capital efficiency.
• Receivables elevated (11.46) vs H1 sales, indicating WC and collection risk.
• Profitability recovery depends on margin improvement and SG&A control rather than leverage.

Metrics to Watch:

• Order backlog and book-to-bill to gauge near-term revenue recovery.
• Gross margin trajectory and SG&A run-rate to assess operating leverage.
• Ordinary income drivers: net non-operating balance and any equity-method/FX impacts.
• Effective tax rate normalization versus PBT.
• Operating cash flow, DSO/collection trends, and capex to evaluate FCF.
• Impairment indicators on goodwill and investment securities.

Relative Positioning: Versus domestic small-cap industrial equipment peers, NFK shows superior liquidity and conservative leverage but weaker profitability, with negative operating margin and ordinary loss; recovery credibility hinges on backlog conversion and cost discipline rather than balance-sheet strength.

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