NKK SWITCHES CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.87B
• Operating Income: ¥-20M
• Net Income: ¥52M
• EPS: ¥38.72

Income Statement

Balance Sheet

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

NKK Switches (TSE: 69430) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥3,868m, down 2.5% YoY, indicating modest top-line softness in the first half. Gross profit was ¥1,721m, translating to a robust gross margin of 44.5%, suggesting pricing power and/or favorable mix, despite the revenue decline. Operating income was a slight loss of ¥20m (operating margin approximately -0.5%), implying elevated SG&A or fixed-cost drag offsetting strong gross margins. Ordinary income improved to a profit of ¥58m, indicating support from non-operating items (e.g., financial income or FX), given interest expense was modest at ¥3.5m. Net income was ¥31m (YoY -38.6%), reflecting weaker operating performance and the limited size of non-operating gains relative to costs. DuPont metrics show a thin net profit margin of 0.80%, asset turnover of 0.260x, and low financial leverage of 1.17x, yielding a very low ROE of 0.24%. This profile indicates that margin compression, not leverage or asset intensity, is the principal drag on returns. The balance sheet is very strong: total assets ¥14,858m, total liabilities ¥2,272m, and total equity ¥12,735m imply an equity ratio around 85.7% (versus the 0.0% shown, which appears undisclosed rather than actually zero). Liquidity is ample with a current ratio of 621.5% and quick ratio of 546.2%, backed by working capital of ¥7,899m. Inventory of ¥1,142m against H1 COGS of ¥2,246m implies an inventory turnover of roughly 1.97x for the half, broadly consistent with normal industrial lead times. Cash flow statements are undisclosed this period (OCF/FCF listed as 0 reflect non-disclosure), so earnings-to-cash conversion cannot be assessed from the provided data. Dividend information is also undisclosed (DPS and payout ratio shown as 0.00 reflect non-disclosure), hence dividend policy developments cannot be inferred from this dataset. With operating income negative but ordinary income positive, earnings quality appears reliant on non-operating items in the near term. Given the strong gross margin but negative operating margin, cost discipline and operating leverage normalization will be key to restoring profitability. The company’s low leverage and large equity cushion mitigate financial risk and provide flexibility to navigate cyclical demand. Overall, near-term profitability is weak but balance sheet strength is high, and top-line pressure appears modest rather than structural at this stage. Data limitations (notably cash flows, DPS, and certain per-share items) constrain depth of analysis, so subsequent disclosures will be important for confirming trends.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 0.80%
• asset_turnover: 0.260x
• financial_leverage: 1.17x
• calculated_ROE: 0.24%
• diagnosis: Low ROE is driven primarily by slim net margins; leverage is intentionally low and asset turnover is modest. margin_quality:
• gross_margin: 44.5% (¥1,720.8m GP on ¥3,868.0m revenue) indicates healthy pricing/mix and manufacturing efficiency.
• operating_margin: -0.5% (¥-20m OI) suggests SG&A/fixed costs outweighed gross profits; scope for operating leverage recovery.
• ordinary_vs_operating: Ordinary income ¥58m > operating income, implying reliance on non-operating gains (e.g., FX/interest).
• net_margin: 0.80% (¥31m NI), compressed versus gross margin, indicating overhead and potentially other below-GP factors. operating_leverage: Revenue declined 2.5% YoY but operating income swung to a small loss, evidencing high fixed-cost sensitivity. Improving utilization and SG&A control should have outsized impact on margins as demand normalizes.

Growth Assessment

revenue_sustainability: Top line declined modestly by 2.5% YoY to ¥3,868m in H1, suggesting soft but not collapsing demand in end-markets such as industrial equipment, electronics, and automotive components. profit_quality: Strong gross margin but negative operating income indicates current profit quality is weak at the operating level and supported by non-operating income. Interest expense is low (¥3.5m), so ordinary income resilience likely stems from financial income/FX rather than leverage. outlook: If revenue stabilizes and fixed costs are contained, operating leverage could restore positive OI in H2. Monitoring order intake, backlog, and pricing will be critical. Macro sensitivity (capex cycles, electronics demand) remains a headwind, but the benign revenue decline suggests pressures are manageable.

Financial Health

liquidity:

• current_ratio: 621.5% (CA ¥9,413.9m / CL ¥1,514.6m)
• quick_ratio: 546.2%
• working_capital: ¥7,899.3m
• commentary: Substantial liquidity headroom, indicating low refinancing risk and strong capacity to absorb working capital swings. solvency:
• equity_ratio_inferred: ≈85.7% (TE ¥12,735m / TA ¥14,858m), much higher than the 0.0% disclosed placeholder.
• debt_to_equity: 0.18x (as provided; likely low interest-bearing debt burden).
• interest_coverage: -5.7x on an EBIT basis (¥-20m / ¥3.5m), reflecting temporary operating loss; coverage based on ordinary income would be positive.
• commentary: Balance sheet conservatism materially reduces solvency risk even amidst operating softness. capital_structure: Low leverage with significant equity base supports strategic flexibility for investment and potential shareholder returns, subject to cash flow.

Cash Flow Quality

earnings_quality: OCF and FCF are undisclosed this period (zeros reflect non-disclosure). As such, accrual intensity and cash conversion cannot be assessed from provided data. FCF_analysis: Unavailable due to missing OCF and capex disclosure. Given negative operating income but positive ordinary income, cash generation will depend on working capital movements and non-operating cash items. working_capital_dynamics: Inventories ¥1,142m vs H1 COGS ¥2,246m implies an approximate half-year inventory turnover of ~1.97x (≈92 days). Receivables/payables data not provided; overall WC appears ample given large current assets.

Dividend Sustainability

payout_ratio_assessment: Payout ratio shown as 0.0% and DPS 0.00 are undisclosed, not necessarily zero payments. With EPS ¥38.72 in H1, capacity exists but depends on full-year earnings and cash flows. FCF_coverage: FCF coverage cannot be evaluated due to missing OCF/capex. Balance sheet strength suggests potential capacity, but sustainability should be judged after full FY cash data. policy_outlook: No dividend policy detail provided. Given low leverage and high equity ratio, the company has structural flexibility; however, near-term operating weakness may bias toward cautious distributions until profitability normalizes.

Risk Assessment

Business Risks:

• Demand cyclicality in industrial, electronics, and automotive end-markets.
• Operating leverage risk given fixed-cost base; small revenue declines can push OI negative.
• Pricing/mix risk despite high gross margin if competitive intensity rises.
• Supply chain and component availability potentially impacting lead times and costs.
• FX volatility affecting non-operating income and export competitiveness.

Financial Risks:

• Near-term negative operating income reduces interest coverage on an EBIT basis.
• Cash flow visibility is low due to undisclosed OCF/FCF; working capital swings could impact liquidity needs.
• Potential mismatch between accounting profit and cash generation if inventories/receivables rise.

Key Concerns:

• Reliance on non-operating items to sustain ordinary income.
• SG&A and fixed-cost intensity depressing operating margins.
• Limited disclosure this period on cash flows and dividends constrains assessment of earnings quality and capital returns.

Investment Implications

Key Takeaways:

• Revenue decline was modest (-2.5% YoY), suggesting demand resilience.
• Gross margin is strong (44.5%), but operating income was slightly negative due to cost pressures.
• Ordinary income positive (¥58m) indicates support from non-operating items amid low interest burden.
• Balance sheet is very strong with inferred equity ratio ≈85.7% and current ratio 621.5%.
• ROE is very low at 0.24%, constrained by thin net margins rather than leverage.
• Cash flow and dividend data are undisclosed, limiting assessment of cash conversion and shareholder return capacity.

Metrics to Watch:

• Operating income margin trajectory and SG&A ratio in H2.
• Order intake/backlog and book-to-bill for core switch products.
• OCF and capex once disclosed; FCF conversion versus net income.
• Inventory levels and turnover; receivables/payables trends.
• Non-operating income composition (FX, interest) and sustainability.
• Equity ratio (reported) and interest-bearing debt levels.

Relative Positioning: Within industrial component peers, NKK exhibits above-average balance sheet strength and gross margin quality, but currently lags on operating profitability and ROE due to cost absorption and limited operating leverage at H1.

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