NFK HOLDINGS CO.,Ltd FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥749M
• Operating Income: ¥-6M
• Net Income: ¥-51M
• 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

NFK Holdings reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥749.0 million, down 8.3% year over year, reflecting softer demand and/or project timing in the period. Gross profit was ¥196.3 million, implying a gross margin of 26.2%, which is decent for industrial equipment but below what is typically needed to cover fixed costs given the company’s small scale. Operating income was a loss of ¥6.0 million (operating margin of -0.8%), deteriorating 12.5% YoY, indicating that SG&A modestly exceeded gross profit in the half. Ordinary income posted a larger loss of ¥31.0 million, suggesting net non-operating expenses (e.g., FX, valuation losses, or other non-operating charges) of roughly ¥25 million. Net loss was ¥4.0 million (net margin -0.53%), improving versus the ordinary loss, implying non-operating or below-the-line positive factors offset part of the ordinary loss. The DuPont bridge shows net margin of -0.53%, asset turnover of 0.095x, and low financial leverage at 1.23x, culminating in ROE of approximately -0.06%, a small but negative return on equity. Liquidity remains very strong: current assets of ¥3.77 billion against current liabilities of ¥0.41 billion equate to a current ratio of about 9.2x and working capital of ¥3.36 billion. The balance sheet is conservatively financed with total liabilities of ¥0.59 billion versus total assets of ¥7.90 billion and equity of ¥6.42 billion; this implies an equity ratio near 81%, despite the reported equity ratio field showing 0.0% (likely a placeholder). Debt-to-equity of 0.09x and interest expense of only ¥0.33 million indicate minimal financial risk from leverage. Interest coverage based on operating loss is negative (-18.2x), highlighting that profitability, not solvency, is the constraint. The reported income tax line (¥34.36 million) appears atypically large relative to the small net loss; this may reflect deferred tax adjustments, prior-period effects, or classification differences under limited line-item disclosure. Cash flow statement items were not disclosed in the dataset (zeros indicate unreported), so free cash flow and cash conversion cannot be assessed from the provided figures. With DPS at ¥0.00 and a payout ratio of 0%, the company is preserving cash amid losses, consistent with a conservative stance. Overall, the quarter depicts modest top-line contraction, thin gross profitability relative to fixed costs, negative operating and ordinary income, and a very strong balance sheet. The near-term outlook hinges on project execution in H2, gross margin recovery, and tighter SG&A control to return to operating profitability. While financial risk is low due to strong equity and liquidity, sustainable earnings improvement is needed to lift ROE from negative territory.

Profitability Analysis

ROE decomposition indicates: Net Profit Margin -0.53% × Asset Turnover 0.095 × Financial Leverage 1.23 ≈ ROE -0.06%. The negative net margin is the primary driver of weak ROE; asset turnover is low given the sizable asset base relative to H1 revenue, and leverage is modest, limiting both upside and downside on ROE. Gross margin of 26.2% suggests reasonable project pricing/mix but insufficient contribution to cover fixed SG&A in the half. Operating margin of -0.8% shows that operating leverage works against earnings at current volumes; relatively small revenue shortfalls can push the company into loss territory. The widening from operating loss (-¥6m) to ordinary loss (-¥31m) indicates non-operating drags (~¥25m), which further depress overall profitability. Interest burden is negligible (¥0.33m), so financial costs are not the cause of losses. Given small scale and project-based revenues, quarter/half-year margins can be volatile; margin quality will depend on execution, order mix (aftermarket vs. new equipment), and cost pass-through. EBITDA was not disclosed; with operating loss and no reported D&A, underlying cash earnings cannot be precisely gauged from the provided dataset.

Growth Assessment

Revenue declined 8.3% YoY to ¥749.0 million, signaling softer demand or project timing slippage in the first half. The deterioration in operating income (-12.5% YoY) reflects negative operating leverage on lower sales. Ordinary loss of ¥31.0 million points to additional non-operating headwinds. Net loss narrowed versus ordinary loss, likely due to below-the-line items, but remains negative. Sustainability of revenue will hinge on order intake, backlog conversion in H2, and aftermarket/service activity. Profit quality is currently weak, with operating loss and dependence on non-operating items to bridge to net results. Outlook near term depends on recovery in H2 volumes and gross margin; given a low asset turnover (0.095x in H1), scaling revenue should materially help operating leverage if SG&A is contained. Due to missing cash flow details and lack of backlog data in the extract, visibility on growth durability is limited.

Financial Health

Total assets ¥7.895 billion vs. total liabilities ¥0.586 billion and equity ¥6.415 billion imply an equity ratio of roughly 81% (our calculation), despite the reported 0.0% field. Current assets ¥3.772 billion and current liabilities ¥0.408 billion yield a current ratio of ~9.2x and quick ratio ~9.0x, indicating ample short-term liquidity. Working capital of ¥3.364 billion is substantial, and inventories are modest at ¥76.8 million, suggesting limited stock obsolescence risk relative to current assets. Leverage is low with a debt-to-equity ratio of 0.09x and minor interest expense, pointing to low solvency risk. The main constraint is earnings power, not balance sheet strength. Absence of disclosed cash and cash equivalents in the dataset precludes precise cash assessment, but liquidity ratios imply a robust cushion.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed in the dataset (zeros are placeholders), preventing direct evaluation of cash conversion and free cash flow. With an operating loss and no reported D&A, cash earnings are likely weak in the half, but the magnitude is uncertain without OCF details. Working capital appears ample, and inventories are small; however, we cannot assess receivables collection or contract assets/liabilities movements. Free cash flow cannot be computed, and the OCF/Net Income ratio is not meaningful due to missing OCF. Overall earnings quality assessment is constrained; monitoring cash collections, project advances, and capex is essential in subsequent disclosures.

Dividend Sustainability

The company paid no dividend (DPS ¥0.00) with a payout ratio of 0%, which is prudent given operating and ordinary losses. Without disclosed operating cash flow and capex, FCF coverage cannot be assessed; the reported FCF metrics are placeholders. The strong balance sheet and liquidity could support future distributions once profitability normalizes, but priority should remain on funding operations and stabilizing earnings. Policy-wise, the current stance appears conservative and aligned with preserving financial flexibility.

Risk Assessment

Business Risks:

• Project timing and order intake volatility leading to revenue swings.
• Negative operating leverage at current scale, resulting in profit sensitivity to small volume changes.
• Gross margin pressure from input cost inflation and pricing competition in industrial equipment.
• Execution risk on projects (cost overruns, delays) affecting margins.
• Dependence on non-operating items driving divergence between operating and net results.
• Potential cyclical exposure to capital spending in end-markets (industrial/energy/thermal solutions).

Financial Risks:

• Sustained operating losses if revenue does not recover, despite low leverage.
• Non-operating losses (e.g., FX, valuation) exacerbating ordinary income volatility.
• Tax expense/deferred tax movements creating earnings volatility relative to pre-tax results.
• Limited visibility on cash generation due to undisclosed cash flow statement in the period.

Key Concerns:

• Ordinary loss (-¥31m) materially larger than operating loss (-¥6m), indicating recurring non-operating drags.
• Low asset turnover (0.095x) constraining ROE and highlighting underutilized assets.
• Need for H2 revenue and margin recovery to avoid full-year losses.
• Absent cash flow disclosure limits assessment of earnings quality and funding needs.

Investment Implications

Key Takeaways:

• Revenue down 8.3% YoY to ¥749m; scale remains a constraint.
• Gross margin at 26.2% but operating margin negative (-0.8%) due to fixed-cost absorption.
• Ordinary loss (-¥31m) signals non-operating headwinds beyond core operations.
• Balance sheet is strong: equity ~81% of assets, low leverage (D/E 0.09x).
• Liquidity ample: current ratio ~9.2x and working capital ¥3.36bn.
• ROE slightly negative (-0.06%) driven by thin margins and low turnover.
• Dividend suspended (DPS 0), conserving cash amid losses.
• Visibility limited by lack of disclosed cash flows; monitor upcoming filings.

Metrics to Watch:

• Order intake and backlog conversion into H2 revenue.
• Gross profit margin trajectory and cost pass-through.
• SG&A run-rate and break-even sales level.
• Ordinary income components (FX, investment gains/losses, other non-operating items).
• Operating cash flow and working capital movements (receivables/contract assets).
• Capex intensity and any large one-off project costs.
• Asset turnover improvement and utilization of asset base.
• Equity ratio and cash balance in the next report.

Relative Positioning: Within Japanese small-cap industrial equipment/thermal solutions peers, NFK exhibits very conservative leverage and strong liquidity but lags on scale efficiency and asset turnover, leaving ROE depressed and profitability sensitive to project timing; near-term relative performance will hinge on execution and H2 margin recovery.

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