NICHICON CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥80.73B
• Operating Income: ¥1.54B
• Net Income: ¥4.25B
• EPS: ¥24.12

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

Nichicon Co., Ltd. (TSE:6996) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥80.7bn, down 4.5% YoY, reflecting softer end-demand and/or pricing pressure in key capacitor and energy-related segments. Gross profit is shown as ¥13.0bn, implying a gross margin of 16.1%, while operating income declined 12.3% YoY to ¥1.54bn, indicating negative operating leverage as costs did not fully flex with revenue. Ordinary income of ¥2.35bn exceeded operating income, suggesting meaningful non-operating gains (e.g., financial income or FX), which helped cushion profit. Net income was ¥1.62bn, down 60.1% YoY, pointing to either a tough comparison with a prior-period one-off gain or elevated non-recurring costs this year; reported effective tax rate appears as 0.0% but tax expense of ¥0.65bn implies a normalizing tax burden, so the 0% should be treated as unreported. DuPont metrics indicate net margin of 2.01%, asset turnover of 0.422x, and financial leverage of 1.65x, resulting in an ROE of 1.40%, a low return profile versus typical mid-cycle levels for the sector. EBITDA was ¥5.60bn (6.9% margin), and interest coverage is strong at 25.7x, consistent with modest interest expense (¥60m) and low financial risk from debt service. Cash generation was robust with operating cash flow (OCF) of ¥7.89bn, 4.87x net income, signaling high earnings-to-cash conversion in the period. Balance sheet strength is notable: total assets ¥191.2bn, equity ¥115.8bn, liabilities ¥78.8bn; the implied equity ratio is ~60.6% (equity/assets) even though the reported equity ratio shows as 0% (unreported). Liquidity is ample with a current ratio of 210% and quick ratio of 181%, and working capital of ¥56.7bn; inventories stand at ¥14.8bn and appear manageable relative to current assets. The debt-to-equity ratio is 0.68x, reflecting a conservative capital structure for a capital goods/component manufacturer. Despite solid liquidity and cash flow, profitability has compressed, with operating margin around 1.9% and ROE at 1.4%, underscoring cyclical and pricing headwinds. The gap between ordinary and operating income highlights reliance on non-operating items this half, which may not be sustainable. Dividend data (DPS and payout) are shown as zero and should be treated as not disclosed; actual distribution policy and interim dividends were not provided. Several data points (e.g., equity ratio, cash & equivalents, investing CF, DPS, shares) appear unreported; analysis focuses on the disclosed non-zero items and provided ratios. Overall, Nichicon enters the second half with a strong balance sheet and cash generation but muted profitability, and near-term trajectory will hinge on demand normalization, pricing discipline, and cost control.

Profitability Analysis

ROE decomposes to 1.40% = 2.01% net margin × 0.422x asset turnover × 1.65x leverage, indicating the primary drag is slim margins and low asset velocity. Operating margin is ~1.9% (¥1.54bn/¥80.73bn), down YoY in line with the 12.3% decline in operating income despite only a 4.5% revenue decline, evidencing negative operating leverage. Gross margin is 16.1%, but note the arithmetic inconsistency between reported revenue and cost of sales; we rely on the provided gross margin/GP figure. EBITDA margin of 6.9% offers some buffer from depreciation, yet conversion to operating profit is modest, suggesting fixed-cost absorption pressure. Ordinary income exceeds operating income by ~¥0.81bn, implying material non-operating gains (e.g., interest income, FX), which flattered pre-tax earnings. The net margin at 2.01% is low for the sector, consistent with a cyclical trough or pricing pressure. Cost discipline appears insufficient to offset volume/mix headwinds; focus areas include manufacturing utilization and material cost pass-through. Interest burden is negligible (¥60m), so financial expenses are not a profitability constraint. Overall, profitability quality skews toward operating compression offset by non-operating items, with weak ROE as a result.

Growth Assessment

Revenue declined 4.5% YoY to ¥80.7bn, indicating softer demand in electronics/industrial end-markets. Operating income fell 12.3% YoY, outpacing the revenue decline, which implies mix or pricing deterioration and/or higher fixed-cost absorption. Net income dropped 60.1% YoY despite ordinary income exceeding operating income; this points to a tough prior-year comparison (likely one-off gains) and/or current-period extraordinary factors impacting the bottom line under JGAAP. The provided asset turnover of 0.422x suggests subdued sales efficiency versus asset base, possibly reflecting elevated working capital/invested capital or underutilized capacity. EBITDA growth is not provided, but absolute EBITDA of ¥5.60bn versus operating profit of ¥1.54bn underscores heavy depreciation tied to prior capacity/automation investments. Revenue sustainability into 2H will depend on order recovery in automotive/industrial electronics and the energy-related solutions pipeline; absent that, margins may remain pressured. Given strong OCF, the company retains capacity to fund growth initiatives; however, investing CF is unreported, limiting visibility on capex-driven growth. Outlook qualitatively hinges on normalization of customer inventory corrections, pricing discipline in commoditized capacitors, and contributions from higher-value niches (e.g., film capacitors for EV/renewables).

Financial Health

Liquidity is strong: current ratio 210%, quick ratio 181.3%, and working capital ¥56.7bn, implying ample short-term coverage of obligations. Total assets of ¥191.2bn and equity of ¥115.8bn imply an equity ratio near 60.6% (despite the equity ratio field being unreported), signaling a conservative balance sheet. Total liabilities of ¥78.8bn equate to a debt-to-equity ratio of 0.68x; with interest expense only ¥60m, leverage is manageable and interest burden minimal. Inventories are ¥14.8bn within current assets of ¥108.3bn, suggesting no overt inventory bloat from the disclosed data. Cash & equivalents are unreported; however, strong OCF reduces near-term liquidity concerns. The interest coverage ratio of 25.7x (operating income/interest) further evidences solvency strength. Overall, financial health appears solid with significant equity cushion and liquidity headroom.

Cash Flow Quality

OCF of ¥7.89bn versus net income of ¥1.62bn (OCF/NI = 4.87x) indicates strong earnings quality in the period, likely aided by working capital inflows and non-cash D&A of ¥4.06bn. EBITDA of ¥5.60bn reconciles cleanly (operating income + D&A), supporting reliability of operating profit. Free cash flow cannot be determined because investing cash flow is unreported; thus FCF shown as zero should not be interpreted as actual zero. Working capital metrics imply a release of cash in 1H (given high OCF relative to profit), but without the detailed CF statement, the drivers (receivables, inventory, payables) cannot be precisely parsed. Financing CF was -¥3.78bn, indicating net outflows (e.g., debt repayment, dividends, or buybacks), but granularity is unavailable. Overall, cash conversion appears strong and non-cash charges are significant, but the absence of investing CF and cash balance data constrains a full FCF quality assessment.

Dividend Sustainability

Dividend data (annual DPS, payout ratio, FCF coverage) are shown as zero and should be treated as not disclosed for this period. EPS is ¥24.12 for the half, and OCF was ¥7.89bn, suggesting capacity to fund distributions; however, without investing CF and actual dividend declarations, coverage analysis cannot be completed. The balance sheet (implied equity ratio ~60.6%, low interest burden) supports potential sustainability under a normalized payout, but policy and interim actions are not provided here. Conclusion: insufficient disclosed data to assess payout ratio and FCF coverage; watch for year-end guidance and board resolutions on dividends.

Risk Assessment

Business Risks:

• Cyclical demand in electronics/industrial end-markets leading to volume and pricing volatility
• Customer inventory adjustments affecting short-term orders and utilization
• Raw material cost swings (e.g., aluminum) impacting margins
• Foreign exchange fluctuations affecting both revenue mix and non-operating income
• Competitive pricing pressure in commoditized capacitor segments
• Execution risk on shifting mix toward higher-value products (EV/energy-related)

Financial Risks:

• Visibility gaps due to unreported cash & equivalents and investing cash flows
• Potential working capital rebuild in 2H reversing OCF strength
• Capex requirements for capacity/technology upgrades could compress FCF if elevated
• Exposure to interest rate/FX movements on financial income that currently supports ordinary income

Key Concerns:

• Operating margin compression with negative operating leverage (-12.3% OI vs -4.5% sales)
• Low ROE at 1.40% driven by thin net margin (2.01%) and subdued asset turnover (0.422x)
• Reliance on non-operating gains to bridge ordinary income above operating income
• Material data omissions (DPS, cash, investing CF) limiting full assessment

Investment Implications

Key Takeaways:

• Top line down 4.5% YoY with operating income down 12.3% YoY, indicating negative operating leverage
• Gross margin 16.1% and EBITDA margin 6.9% point to cost absorption pressure
• Ordinary income exceeds operating by ~¥0.81bn, highlighting non-operating support
• ROE 1.40% reflects weak profitability despite solid balance sheet
• OCF ¥7.89bn (4.87x NI) demonstrates strong cash conversion in 1H
• Balance sheet is conservative with implied equity ratio ~60.6% and interest coverage 25.7x
• Dividend data not disclosed; payout capacity appears supported by OCF but policy unknown

Metrics to Watch:

• Order backlog and book-to-bill in capacitors/energy solutions
• Gross and operating margin trajectory and utilization rates
• Working capital movements (inventories, receivables, payables) and their impact on OCF
• Non-operating income components (FX gains/losses, interest income) sustainability
• Capex level and investing cash flow once disclosed
• ROE and asset turnover recovery into 2H

Relative Positioning: Within Japanese passive component peers, Nichicon appears financially conservative with strong liquidity and coverage but currently exhibits subdued profitability and ROE; positioning likely hinges on mix shift toward higher-value applications versus peers facing similar cyclical and pricing pressures.

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