NIHON KOHDEN CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥108.12B
• Operating Income: ¥6.74B
• Net Income: ¥4.58B
• EPS: ¥27.74

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: Solid Q2 FY2026 with clear operating margin improvement and strong cash generation, albeit still low capital efficiency (ROE/ROIC) versus med-tech peers. Revenue grew 5.2% YoY to 1,081.2, while operating income rose 31.8% YoY to 67.41, evidencing positive operating leverage. Ordinary income surged 214.7% YoY to 67.32 and net income jumped 876.7% YoY to 45.24, reflecting cleaner non-operating lines and a normalized tax burden versus a weak base. Gross margin printed at 52.5%, and operating margin reached 6.24%. By inferring the prior-year base, operating margin expanded approximately 126 bps YoY (from ~4.98% to 6.24%). Net margin expanded by roughly 374 bps YoY (from ~0.45% to 4.19%), aided by improved operating performance and lighter non-operating drag. SG&A intensity remains high at 46.3% of sales (500.56), but absolute SG&A appears well contained relative to revenue growth, enabling margin expansion. Earnings quality is strong: operating cash flow of 117.4 is 2.60x net income, indicating profits are well supported by cash conversion. Liquidity is robust with a current ratio of 253.5% and quick ratio of 199.8%, and interest coverage is very strong at 46.2x. Capital efficiency remains the main weakness: ROE is 2.6% and ROIC is 2.8%, both below typical med-tech cost of capital benchmarks, driven by low asset turnover (0.438x) and modest margins. Balance sheet conservatism persists with low leverage (D/E 0.42x) and cash and deposits of 348.41 exceeding short-term loans of 256.69. The implied payout ratio of 117.1% appears elevated, but dividend data are incomplete; cash flow suggests capacity to fund shareholder returns near term. Forward-looking, continued SG&A discipline and product mix upgrades are key to sustain margin gains, while inventory optimization and acceleration in overseas growth are needed to lift asset turnover and ROIC. Currency, pricing, and regulatory dynamics remain external swing factors. Overall, the quarter improves earnings momentum and cash quality, but unlocking capital efficiency remains the strategic imperative.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.6% = Net Profit Margin 4.2% × Asset Turnover 0.438 × Financial Leverage 1.42x. The biggest positive change vs last year stems from margin improvement: operating income +31.8% outpaced revenue +5.2%, implying operating margin expansion of ~126 bps to 6.24%; net margin improved ~374 bps to 4.19%. Asset turnover remains low at 0.438x, reflecting a sizable asset base (particularly working capital and intangibles of 252.12 plus goodwill 113.31) relative to sales. Financial leverage is modest at 1.42x, limiting ROE magnification—appropriate for risk, but it caps returns. Business drivers: better gross-to-operating conversion (SG&A discipline and likely favorable mix/pricing) boosted margins; non-operating drag was minimal (net -0.09) and tax rate normalized at 32.0%. Sustainability: margin gains look partly structural (cost control) but could face headwinds from input costs, FX, and pricing pressure; we view the full 374 bps net margin expansion as unlikely to repeat at the same pace. Watchpoints: SG&A at 46.3% is still heavy—if SG&A growth re-accelerates above revenue growth, operating leverage could reverse. Overall, improving margins are the key contributor to ROE, while low asset turnover and conservative leverage continue to suppress capital efficiency.

Growth Assessment

Top-line growth of 5.2% YoY is modest but consistent with stable demand in hospital equipment and monitoring solutions. Operating income growth of 31.8% demonstrates healthy operating leverage from cost control and mix improvements. Ordinary and net income growth rates are amplified by a weak prior-year base and cleaner non-operating items; these rates will likely normalize. Gross margin at 52.5% provides headroom for investment but requires SG&A control to translate into operating margin. EBITDA of 89.05 (8.2% margin) supports continued reinvestment in R&D and commercialization despite R&D being unreported this quarter. Outlook: sustaining mid-single-digit revenue growth with continued SG&A efficiency could push operating margin toward the mid-6% range or higher; upside depends on overseas expansion and premium product mix. Risks to growth include procurement constraints, hospital capex cycles, and FX. Net, growth quality is improving as profits are increasingly driven by core operations rather than non-operating items.

Financial Health

Liquidity is strong: current ratio 253.5% and quick ratio 199.8%. No warning on leverage: D/E 0.42x and interest coverage 46.2x indicate conservative solvency. Short-term loans of 256.69 are covered by cash and deposits of 348.41, with ample current assets of 1,733.24—limited maturity mismatch risk. Total liabilities are 727.64 versus total equity of 1,738.15, reflecting a solid equity cushion. While interest-bearing debt is not fully disclosed, observable short-term borrowings are modest relative to cash and equity. Off-balance-sheet obligations are not reported; no evidence provided in the data. Inventory of 367.03 and receivables of 586.51 are sizable components of current assets; managing these will be key to maintaining working capital efficiency.

Cash Flow Quality

OCF of 117.4 is 2.60x net income (45.24), indicating high earnings quality and strong cash conversion. With reported capex of 11.16, implied FCF before other investing flows is approximately 106.2, suggesting ample internal funding capacity; full investing CF is unreported, so this is a proxy. Working capital appears to have been a source of cash this period, consistent with strong OCF relative to NI, though detailed drivers are not disclosed. No signs of aggressive working capital manipulation are evident in the limited data (e.g., no surge in payables reported); however, receivables remain high versus semiannual sales, a normal pattern in hospital markets but worth monitoring for collection risk. Financing CF of -31.79 reflects shareholder returns (share repurchases -16.16) and possibly debt movements; details are limited.

Dividend Sustainability

Dividend data are unreported, but the calculated payout ratio of 117.1% implies elevated distributions relative to current-period earnings. Given OCF of 117.4 and modest capex of 11.16, cash generation appears sufficient to fund ordinary dividends near term; however, without reported total dividends and investing CF, FCF coverage cannot be confirmed. If the 117% payout reflects an interim/trailing mismatch or prior-year base effects, sustainability may be better than the ratio suggests. Policy outlook likely remains focused on stable to progressive dividends supported by cash flow, with share repurchases (16.16 this period) indicating a balanced return framework. We would reassess payout sustainability once full-year earnings and total investing CF are disclosed.

Risk Assessment

Business Risks:

• Pricing and reimbursement pressure in core hospital markets
• Component procurement and supply-chain disruptions affecting cost and delivery
• Product quality/regulatory/recall risks inherent to medical devices
• Competition from global med-tech peers potentially compressing margins
• FX volatility impacting export sales and imported component costs

Financial Risks:

• Low capital efficiency (ROIC 2.8%, ROE 2.6%) relative to cost of capital
• High working capital intensity (AR 586.51, inventory 367.03) tying up cash
• Potential dividend overdistribution indicated by a 117.1% payout ratio (data incomplete)
• Concentration of borrowings in short-term loans (256.69), though largely offset by cash

Key Concerns:

• Sustainability of SG&A discipline with SG&A still at 46.3% of sales
• Asset turnover at 0.438x limiting ROE despite margin gains
• Sensitivity to hospital capex cycles and macro conditions
• Data gaps in investing cash flows and dividend disclosure that could mask cash commitments

Investment Implications

Key Takeaways:

• Margin inflection: operating margin up ~126 bps YoY to 6.24% on 5.2% revenue growth
• Cash-backed earnings: OCF/NI at 2.60x with implied positive FCF after modest capex
• Robust balance sheet with current ratio 253.5% and interest coverage 46.2x
• Capital efficiency remains the Achilles heel: ROIC 2.8%, ROE 2.6%
• Dividend optics mixed: implied 117% payout vs strong cash generation; disclosure incomplete

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales (currently 46.3%)
• Asset turnover improvements via inventory and receivable turns
• OCF sustainability and full FCF once investing CF is disclosed
• FX sensitivity on gross margin and pricing
• R&D intensity and product mix upgrades (R&D not disclosed this period)

Relative Positioning: Within Japan med-tech peers, the company shows improving operating leverage and strong cash/liquidity but lags on capital efficiency (low ROIC/ROE). Continued mix enhancement and working capital optimization are needed to close the gap versus higher-ROIC competitors.

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