NIRECO CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥5.05B
• Operating Income: ¥728M
• Net Income: ¥554M
• EPS: ¥67.81

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

Nireco (6863) reported FY2026 Q2 consolidated results under JGAAP showing steady top-line growth but some margin pressure at the operating profit level. Revenue was ¥5,051 million (+2.9% YoY), while operating income declined to ¥728 million (-7.5% YoY), indicating negative operating leverage or rising cost intensity. Gross profit of ¥2,018.9 million implies a solid gross margin of 40.0%, but the operating margin settled at 14.4%, down versus last year given the operating income contraction. Ordinary income of ¥758 million outpaced operating income, suggesting positive non-operating balance of roughly ¥30 million. Net income was ¥502 million (-8.8% YoY), translating to a net margin of 9.94% and EPS of ¥67.81. The DuPont breakdown shows ROE of 3.00%, driven by a modest net margin (9.94%), low asset turnover (0.267x, reflecting a H1 period and a large asset base), and minimal financial leverage (1.13x). Balance sheet quality remains a key strength: total assets were ¥18,940 million versus total liabilities of ¥2,679.7 million, implying a conservative capital structure and the reported debt-to-equity ratio of 0.16x. Liquidity is ample, with current and quick ratios of 679% and 608% respectively, and working capital of ¥11,314.6 million. Operating cash flow was ¥374.0 million, below net income, implying a working capital outflow (estimated at roughly ¥260 million) despite healthy profitability. EBITDA was ¥863.6 million with a margin of 17.1%, and interest coverage is extremely strong at 481.5x given very low interest expense (¥1.5 million). Inventory stood at ¥1,393.8 million (about 10.5% of current assets), suggesting manageable inventory exposure for a project/system-oriented business. The cash and cash equivalents, investing cash flow, and several shareholder metrics were not disclosed in the dataset (zeros indicate unreported items), limiting precision on free cash flow and per-share balance metrics. Dividend information is also unreported here (annual DPS shows as zero), so payout policy cannot be concluded from this extract. Overall, the company demonstrates resilient gross profitability and a fortress-like balance sheet, but near-term operating margin softness and working capital usage diluted cash conversion in the half. Outlook hinges on project timing, product mix, and cost control through the back half, with ROE improvements likely requiring either higher asset turns or margin expansion given the low leverage posture.

Profitability Analysis

ROE_decomposition: - Net profit margin: 9.94%; Asset turnover: 0.267x; Financial leverage: 1.13x; Calculated ROE: 3.00%. The low leverage and subdued asset turns (partly reflecting an H1 reporting period and a large asset base) constrain ROE despite decent net margins. margin_quality: - Gross margin: 40.0% (¥2,018.9m/¥5,051.0m), indicating healthy value-add in inspection/measurement systems. - Operating margin: 14.4% (¥728.0m/¥5,051.0m), down YoY given operating income declined while sales grew. - Ordinary margin: 15.0% (¥758.0m/¥5,051.0m), benefitting from net non-operating gains. - Net margin: 9.94% (¥502.0m/¥5,051.0m). Tax expense of ¥291.2m suggests an implied effective tax rate in the mid-30% range if we approximate pretax profit near ¥790m (data caveat noted). operating_leverage: Revenue grew 2.9% YoY while operating income fell 7.5% YoY, implying negative operating leverage during the half, likely from higher SG&A, mix, or cost inflation that outweighed modest sales growth. EBITDA margin of 17.1% versus operating margin of 14.4% shows limited D&A drag (D&A: ¥135.6m), so the margin pressure is primarily in gross/SG&A rather than depreciation.

Growth Assessment

revenue_sustainability: Top-line growth of +2.9% YoY suggests steady demand, consistent with ongoing investment in inspection/measurement solutions, but below typical mid-single-digit aspirations for secular growth niches. profit_quality: Ordinary income exceeded operating income by ~¥30m, indicating healthy non-operating contributions; however, the YoY decline in operating income points to core margin headwinds. Net margin remains respectable at ~10%. outlook: Second-half performance will hinge on order timing, backlog conversion, and cost pass-through. Mix toward higher value-added systems/services could support gross margin, while tighter SG&A control is needed to restore operating leverage. FX, supply chain normalization, and customer capex cycles in manufacturing end-markets are key external variables.

Financial Health

liquidity: Current ratio: 679.2%; Quick ratio: 607.9%; Working capital: ¥11,314.6m. These indicate very strong short-term solvency. Cash and equivalents were not disclosed in this dataset (zero indicates unreported). solvency: Total liabilities: ¥2,679.7m versus total assets: ¥18,940.0m underscores low leverage. Interest expense is minimal at ¥1.5m with interest coverage of 481.5x. Equity ratio is not disclosed here (reported as 0.0%), but leverage metrics imply an equity-heavy balance sheet. capital_structure: Debt-to-equity at 0.16x indicates conservative funding. The DuPont financial leverage of 1.13x further corroborates a low-gearing, equity-funded profile.

Cash Flow Quality

earnings_quality: OCF of ¥374.0m versus net income of ¥502.0m yields OCF/NI of 0.75, pointing to weaker cash conversion this half. With D&A at ¥135.6m, the implied working capital outflow is roughly ¥260m. FCF_analysis: Free cash flow cannot be reliably assessed because investing cash flow (and specifically capex) is unreported in this dataset (shown as zero). Therefore, any FCF figure inferred here would be incomplete. working_capital: Inventories were ¥1,393.8m (~10.5% of current assets). The OCF shortfall versus earnings suggests increased receivables and/or inventory build typical of project deliveries; monitoring collection cycles and inventory turns in H2 is important.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are shown as zero in this dataset, indicating non-disclosure rather than confirmed zero. With EPS at ¥67.81, a payout view cannot be concluded from the provided figures. FCF_coverage: Unavailable due to unreported investing cash flows/capex; OCF was positive at ¥374.0m, but without capex we cannot judge dividend coverage by FCF. policy_outlook: Given the strong balance sheet and low leverage, the company appears positioned to sustain dividends when/if declared, but actual policy, cadence, and payout targets are not discernible from the current data.

Risk Assessment

Business Risks:

• Cyclical end-market and customer capex sensitivity in manufacturing/inspection segments
• Project timing and mix risk affecting quarterly/half-year margins and cash flows
• Pricing power and cost pass-through amid input cost fluctuations
• Supply chain and component availability potentially affecting deliveries and gross margin
• FX exposure where exports or imported components are material
• Competition and technology shifts in inspection/measurement solutions

Financial Risks:

• Working capital swings impacting cash conversion (OCF/NI at 0.75 this half)
• Concentration risk if large projects or customers dominate receivables
• Potential inventory obsolescence risk inherent to specialized systems
• Limited leverage reduces risk, but also constrains ROE if asset turns remain low

Key Concerns:

• Operating income down 7.5% YoY despite revenue growth, indicating near-term margin pressure
• OCF below net income suggests a working capital outflow in H1
• Limited visibility on cash balance, capex, and dividends due to non-disclosed items in the dataset

Investment Implications

Key Takeaways:

• Top line grew modestly (+2.9% YoY) but operating income declined (-7.5% YoY), implying negative operating leverage in H1
• Gross margin remained strong at 40.0%, but operating margin compressed to 14.4%
• ROE at 3.0% is constrained by low asset turnover and minimal financial leverage
• Balance sheet strength is significant with very low leverage (D/E 0.16x) and ample liquidity (current ratio 679%)
• Cash conversion lagged earnings (OCF/NI 0.75) due to working capital build
• Dividend details are not disclosed here; policy and payout remain unclear based on this dataset

Metrics to Watch:

• Order intake, backlog, and book-to-bill for revenue visibility
• Gross margin trajectory and SG&A-to-sales ratio for operating leverage recovery
• OCF/NI, receivable days, and inventory turns for cash conversion
• Capex and R&D intensity to gauge growth investments and future differentiation
• Ordinary vs operating income gap to assess sustainability of non-operating gains
• FX impacts and pricing actions on margins

Relative Positioning: Versus domestic peers in industrial measurement/inspection, Nireco exhibits superior balance sheet strength and liquidity, solid gross profitability, but modest growth and compressed operating leverage in the half; ROE trails peers that combine higher asset turns and moderate leverage.

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