Nippon Signal Company,Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥44.12B
• Operating Income: ¥1.76B
• Net Income: ¥1.63B
• EPS: ¥22.36

Income Statement

Balance Sheet

Cash Flow Statement

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

For FY2026 Q2 (cumulative), Nippon Signal Co., Ltd. posted revenue of ¥44.1bn (+9.3% YoY), evidencing solid topline momentum in a project-driven business. Gross profit of ¥9.21bn implies a gross margin of 20.9%, while operating income of ¥1.76bn (-1.9% YoY) indicates margin compression despite higher sales. Operating margin stood at roughly 4.0%, highlighting cost pressures and/or project mix effects in the period. Ordinary income of ¥2.51bn outpaced operating income, suggesting non-operating gains (e.g., interest income, FX, or investment-related gains) supplemented earnings. Net income was ¥1.39bn (-14.5% YoY), with EPS of ¥22.36; a back-of-the-envelope inference suggests roughly 62–63 million shares outstanding, though official share count was not disclosed here. DuPont analysis shows ROE of 1.33%, driven by a 3.16% net margin, 0.284x asset turnover, and 1.48x financial leverage. The low asset turnover should be interpreted cautiously given the interim period (half-year revenue against period-end assets). Liquidity is strong: current ratio 2.04x and quick ratio 1.92x reflect ample short-term coverage, supported by modest inventories (¥6.73bn). The balance sheet is robust, with total liabilities at ¥63.6bn versus equity of ¥104.6bn; the equity ratio reported as 0% is clearly unreported in the dataset, and we estimate approximately 67% (equity/total assets). Interest expense is minimal (¥28m) and interest coverage is high (62.9x), signaling low financial risk. Operating cash flow was ¥4.39bn, exceeding net income (OCF/NI 3.15x), a positive indicator of earnings quality. However, investing cash flow and cash balance were not disclosed here (shown as zeros), limiting visibility into capital intensity and cash position. The effective tax rate metric shows 0.0% in the dataset, but based on income tax (¥1.22bn) and net income, an implied tax rate near the mid-40% range is more realistic for the period. Dividend data (DPS and payout) were not disclosed; thus, dividend sustainability cannot be assessed from this extract. Overall, the company demonstrates healthy revenue growth, solid liquidity, and conservative leverage, but faces near-term operating margin pressure and limited disclosure on capex and cash holdings in this snapshot.

Profitability Analysis

ROE is 1.33% via DuPont: net margin 3.16% × asset turnover 0.284 × financial leverage 1.48. Operating margin of ~3.99% (¥1.76bn/¥44.13bn) contracted YoY despite higher sales, indicating cost inflation, project mix, or execution timing effects weighed on profitability. Gross margin at 20.9% provides decent headroom, but the conversion from gross to operating profit (OP/Gross Profit ~19%) suggests elevated SG&A or other operating costs in the half. Ordinary income margin (~5.7%) exceeded operating margin, pointing to supportive non-operating items offsetting weaker core margins. EBITDA of ¥2.94bn (margin 6.7%) implies moderate operating leverage; depreciation (¥1.18bn) is meaningful, reflecting an asset-intensive base. Interest expense is negligible (¥28m), so financial costs are not a constraint on profitability. The low interim asset turnover (0.284x) likely understates full-year efficiency due to seasonality and the cumulative-half-year denominator mismatch. Overall, profit quality hinges on stabilizing operating margins; reliance on non-operating gains is secondary but noticeable.

Growth Assessment

Topline growth of +9.3% YoY to ¥44.1bn is healthy and indicative of firm demand in core segments (e.g., signaling systems), likely supported by backlog execution. The decline in operating income (-1.9% YoY) despite higher revenue signals negative operating leverage in the period, potentially from cost pass-through lags, project timing, and/or less favorable mix. Net income fell more sharply (-14.5% YoY), implying additional below-OP impacts (e.g., taxes) alongside the softer OPM. Revenue sustainability appears reasonable given project-based visibility, but confirmation would require backlog/order intake data (not provided). Profit quality is mixed: gross margin is adequate, but operating efficiency weakened; ordinary income exceeded OP, suggesting some dependence on non-operating tailwinds. Outlook hinges on margin normalization in 2H, delivery schedules, and cost control; if costs stabilize and execution improves, operating leverage should reassert with the existing revenue base.

Financial Health

Liquidity is strong with a current ratio of 2.04x and a quick ratio of 1.92x, reflecting substantial current assets (¥110.2bn) versus current liabilities (¥54.0bn). Working capital is solid at ¥56.18bn, providing operational flexibility for project execution. Total liabilities are ¥63.62bn against equity of ¥104.58bn; we estimate an equity ratio of ~67% (equity/total assets), despite the metric appearing as 0% in the dataset due to non-disclosure. Leverage is conservative with debt-to-equity at 0.61x (using total liabilities as a proxy here), and interest coverage is very strong at 62.9x. The capital structure supports resilience, with minimal exposure to interest rate risk given low interest expense. Solvency risk appears low based on the disclosed figures.

Cash Flow Quality

Operating cash flow of ¥4.39bn exceeds net income (¥1.39bn), yielding an OCF/NI ratio of 3.15x, a favorable sign for earnings quality and working capital discipline in the period. Free cash flow cannot be assessed precisely because investing cash flow (and thus capex) is not disclosed in this extract (shown as zero). Depreciation of ¥1.18bn indicates ongoing replacement and maintenance needs; however, without capex detail, the trajectory of asset reinvestment is unclear. Working capital appears well managed given strong liquidity and modest inventories (¥6.73bn), though receivables and unbilled balances—common in project businesses—are not detailed here. Financing cash flow of -¥4.30bn suggests outflows (e.g., debt reduction, dividends, or share repurchases), but the components are not itemized. Overall, cash conversion looks solid, but full FCF quality assessment awaits capex disclosure.

Dividend Sustainability

Dividend per share and payout ratio appear as zero in the dataset, indicating non-disclosure in this snapshot rather than an actual zero. Without DPS and capex information, we cannot determine payout sustainability or FCF coverage. Earnings capacity (EPS ¥22.36) and positive OCF suggest potential capacity to fund distributions, but this is contingent on actual capex needs, working capital swings, and any policy targets (e.g., payout ratio, DOE). Policy outlook cannot be inferred from the provided data; reference to company guidance and historical dividend policy would be necessary.

Risk Assessment

Business Risks:

• Project execution and acceptance timing risk affecting revenue recognition and margins
• Cost inflation and supply chain constraints impacting gross-to-operating margin conversion
• Fixed-price contract exposure leading to margin slippage if costs overrun
• Dependence on order backlog and public-sector budgets for transportation and signaling projects
• Possible FX exposure on overseas projects and procurement
• Competition and pricing pressure in signaling and industrial systems markets

Financial Risks:

• Working capital volatility inherent in long-cycle projects
• Potential tax rate volatility (implied high effective tax in this period)
• Non-operating income dependence to support ordinary income
• Limited visibility on capex and cash balances in this dataset
• Pension or other long-term obligations not detailed here

Key Concerns:

• Operating margin compression despite +9.3% revenue growth
• Net income decline (-14.5% YoY) and sensitivity to tax burden
• Incomplete disclosure of investing cash flows and cash position in this snapshot
• Low interim asset turnover (interpretation complicated by half-year metrics)

Investment Implications

Key Takeaways:

• Revenue growth is solid, but operating margins compressed, indicating cost/mix headwinds
• Ordinary income benefited from non-operating items, cushioning weaker core profit
• Balance sheet strength is a key support (estimated equity ratio ~67%, low interest burden)
• Cash generation appears healthy with OCF/NI at 3.15x
• Visibility on capex, cash, and dividend policy is limited in this extract

Metrics to Watch:

• Order intake and backlog/book-to-bill for revenue visibility
• Gross and operating margins, and project cost pass-through dynamics
• Capex and investing cash flows to assess true FCF
• Receivable days and inventory turns for working capital efficiency
• Effective tax rate trajectory and drivers
• Composition of non-operating income (FX, investment income) relative to OP

Relative Positioning: Within Japanese electrical equipment and transport-related systems peers, the company exhibits stronger-than-average balance sheet resilience and healthy liquidity, coupled with moderate growth but softer operating margins in the period; sustained improvement depends on margin normalization and execution on backlog.

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