NITTO KOGYO CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥88.96B
• Operating Income: ¥5.29B
• Net Income: ¥5.11B
• EPS: ¥90.26

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

Nitto Kogyo (6651) reported FY2026 Q2 consolidated results under JGAAP with solid top-line and operating momentum but a notable decline in bottom-line profit. Revenue reached ¥88.96bn, up 8.5% YoY, reflecting resilient demand across its electrical equipment and enclosure-related businesses. Gross profit was ¥21.77bn, implying a gross margin of 24.5%, which supports the view that pricing and mix remained constructive despite input cost pressures. Operating income rose 30.2% YoY to ¥5.29bn, showcasing clear operating leverage as SG&A discipline and fixed-cost absorption improved. Ordinary income of ¥5.62bn exceeded operating income by ¥0.33bn, indicating positive non-operating contributions (e.g., interest/FX/other). Despite these positives, net income fell 34.3% YoY to ¥3.42bn, suggesting extraordinary losses, minority interests, or other below-the-line items impacted the bottom line under JGAAP. The reported effective tax rate metric is shown as 0.0%, which is inconsistent with the disclosed income tax amount of ¥1.67bn and points to data limitations rather than a true zero. DuPont analysis indicates a calculated ROE of 2.96% driven by a 3.85% net margin, 0.509x asset turnover, and 1.51x financial leverage, highlighting modest profitability and conservative leverage. Liquidity is strong with a current ratio of 267.6% and quick ratio of 237.4%, underpinned by ¥66.92bn in working capital. Solvency appears solid with debt-to-equity at 0.58x and interest coverage at 69.6x, indicating ample capacity to service financial obligations. Operating cash flow was robust at ¥7.33bn, more than 2x net income, supporting earnings quality. Investing cash flow and cash balances were not disclosed (recorded as zero), limiting full free cash flow assessment and cash position analysis. The implied equity ratio is approximately 66% when derived from total equity over total assets, though the reported field is unpopulated. Dividend data were not disclosed (DPS shown as zero), preventing an assessment of distribution trends or payout policy in this period. Overall, the quarter reflects healthy underlying operations and cash generation but weaker reported net income due to below-the-line factors, with data gaps in cash, investing flows, and dividends constraining a complete view.

Profitability Analysis

ROE_decomposition: Calculated ROE of 2.96% = Net margin 3.85% × Asset turnover 0.509 × Financial leverage 1.51. The leverage of 1.51x (Assets/Equity ~ ¥174.88bn/¥115.79bn) indicates a conservative balance sheet, so ROE is primarily constrained by margin and turnover rather than leverage. margin_quality: Gross margin is 24.5% (¥21.77bn/¥88.96bn). Operating margin is approximately 5.95% (¥5.29bn/¥88.96bn). The gap between gross profit and operating income implies SG&A of ~¥16.47bn, or ~18.5% of sales. Ordinary income exceeded operating income by ~¥0.33bn, suggesting net non-operating gains. Net margin at 3.85% is depressed relative to operating performance, likely due to extraordinary items or non-controlling interests under JGAAP. operating_leverage: Revenue grew 8.5% YoY while operating income rose 30.2% YoY, evidencing meaningful operating leverage through better fixed-cost absorption and SG&A efficiency. EBITDA of ¥8.22bn (9.2% margin) further supports improved operating throughput.

Growth Assessment

revenue_sustainability: Top-line growth of 8.5% YoY suggests healthy demand in core end-markets (electrical distribution equipment, enclosures). Sustainability hinges on construction and industrial capex cycles, and the ability to maintain pricing amid input cost dynamics. profit_quality: Operating profit growth outpaced sales, indicating underlying efficiency gains. Ordinary income benefitted from non-operating factors. However, the divergence between operating income (+30.2% YoY) and net income (-34.3% YoY) points to lower predictability at the bottom line due to below-the-line items. outlook: With strong liquidity and conservative leverage, the company appears positioned to sustain operational initiatives. Continuity of margin expansion depends on raw material pass-through, product mix, and cost control. Clarity on extraordinary items and minority interests will be key to translating operating gains into net income growth.

Financial Health

liquidity: Current ratio 267.6% and quick ratio 237.4% indicate ample short-term coverage. Working capital is ¥66.92bn (Current assets ¥106.84bn – Current liabilities ¥39.92bn). Inventories are ¥12.06bn, consistent with an asset-light working capital profile relative to current assets. solvency: Debt-to-equity is 0.58x (based on total liabilities/equity), reflecting moderate leverage. Interest coverage is 69.6x (Operating income ¥5.29bn / Interest expense ¥0.076bn), indicating strong capacity to service debt. capital_structure: Total assets ¥174.88bn, total equity ¥115.79bn. The implied equity ratio is ~66% (equity/assets), though the reported equity ratio field is unpopulated. Balance sheet conservatism supports resilience through cycles.

Cash Flow Quality

earnings_quality: OCF/Net income is 2.14x (¥7.33bn/¥3.42bn), indicating strong cash conversion and limited accrual risk this period. FCF_analysis: Free cash flow cannot be reliably calculated because investing cash flow and capex are undisclosed (shown as zero). Given solid OCF, underlying FCF is likely positive absent outsized capex or acquisitions, but this cannot be confirmed. working_capital: With inventories at ¥12.06bn and significant working capital, OCF strength likely benefited from either stable working capital or releases; however, the lack of detailed breakdown (receivables/payables movements) limits attribution.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are shown as zero, indicating a lack of disclosure rather than an actual suspension. Therefore, payout sustainability cannot be assessed from this dataset. FCF_coverage: FCF coverage cannot be determined since investing cash flow (proxy for capex) is not disclosed. OCF is healthy, suggesting capacity to fund distributions if policy remains conservative, but the data are insufficient for a definitive view. policy_outlook: No explicit dividend policy or guidance is provided in the data. Historically, companies in this segment target stable dividends; however, conclusions for this issuer cannot be drawn without disclosed DPS or policy statements.

Risk Assessment

Business Risks:

• Exposure to construction and industrial capex cycles affecting demand for electrical equipment and enclosures
• Raw material cost volatility (steel, copper) impacting gross margins and pricing strategies
• Competitive pricing pressure in standard enclosure and distribution board segments
• Project timing and mix shifts affecting utilization and operating leverage
• Supply chain constraints and lead-time variability for components

Financial Risks:

• Potential extraordinary losses or non-controlling interest impacts introducing volatility to net income
• Currency fluctuations influencing non-operating gains/losses and import costs
• Working capital swings affecting quarter-to-quarter cash conversion
• Refinancing and interest rate risks, albeit mitigated by strong coverage

Key Concerns:

• Net income decline (-34.3% YoY) despite strong operating performance, implying below-the-line headwinds
• Incomplete disclosure of equity ratio, cash balances, and investing cash flows limits full solvency and FCF assessment
• Unclear dividend trajectory due to undisclosed DPS and payout

Investment Implications

Key Takeaways:

• Solid revenue growth (+8.5% YoY) and pronounced operating leverage (+30.2% YoY OI) underline healthy core operations
• Net income decline suggests extraordinary or minority interest factors are masking underlying strength
• Strong liquidity (current ratio 267.6%) and conservative leverage (implied equity ratio ~66%) support resilience
• Cash earnings quality is high (OCF/NI 2.14x), though full FCF is indeterminable due to data gaps
• Monitoring of raw material pass-through and SG&A discipline is key to sustaining margin improvement

Metrics to Watch:

• Operating margin trajectory vs gross margin (SG&A ratio; currently ~18.5% of sales)
• Ordinary-to-operating income gap to gauge non-operating contributions
• Extraordinary gains/losses and minority interests driving NI volatility
• Working capital turns (inventory days, receivable/payable days) and OCF conversion
• Capital expenditure and investing cash flows to assess true FCF
• Order backlog and book-to-bill indicators for demand visibility

Relative Positioning: Within Japan’s electrical equipment/enclosure peers, the company exhibits above-average balance sheet strength and solid operating leverage this quarter, but reported ROE and net income are held back by below-the-line items, leaving overall capital efficiency at the lower end absent sustained margin gains.

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
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