NIPPON CHEMI-CON CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥64.25B
• Operating Income: ¥956M
• Net Income: ¥292M
• EPS: ¥12.63

Income Statement

Balance Sheet

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

Verdict: A mixed quarter—solid top-line growth but severe operating margin compression, rescued at the bottom line by a swing in ordinary/net results and despite sizable non-operating expenses and a high tax rate. Revenue grew 7.2% YoY to 642.46, while operating income fell 48.3% YoY to 9.56, implying meaningful pressure in the core business. Gross profit reached 112.48 with a gross margin of 17.5%, leaving a narrow cushion against SG&A of 102.91 (SG&A at 16.0% of sales), resulting in a slim operating margin of 1.5%. Ordinary income rose 161.2% YoY to 7.79 due to a weak prior-year base, even though net non-operating items were negative (non-operating income 6.18 vs expenses 7.95, including interest expense of 7.44). Net income improved to 2.69 (+244.9% YoY) but still represents a thin net margin of 0.4% and an ROE of only 0.5%. Critically, total comprehensive income was negative at -9.18, indicating sizable OCI losses (likely valuation/FX effects on investment securities and translation), which eroded equity despite positive net profit. Operating margin compressed by an estimated 160 bps YoY to 1.5%, while net margin expanded by roughly 29 bps (0.42% vs ~0.13% YoY) on the very low base. Interest coverage is weak at 1.28x, highlighting sensitivity to financing costs. Liquidity is adequate (current ratio 134%) but leverage is elevated (D/E 1.93x, close to the 2.0x warning threshold) and short-term loans are large at 382.32. ROIC is 0.4%, well below a reasonable cost of capital, underscoring inadequate capital efficiency. The absence of cash flow disclosure limits earnings quality assessment; OCF/NI cannot be verified. Forward-looking, profitability recovery requires improving gross margin via mix/price and tightening SG&A, while deleveraging is needed to mitigate interest burden. Elevated effective tax rate (62%) may normalize, but if persistent it will cap net margins. Overall, execution focus should be on margin defense, working capital discipline, and refinancing strategy to rebuild coverage and protect equity from further OCI volatility.

Profitability Analysis

DuPont (ROE = Net Margin × Asset Turnover × Leverage): 0.5% = 0.4% × 0.398 × 2.93x. The largest drag is the extremely low net margin (0.4%), compounded by sub-1x asset turnover (0.398). Leverage (2.93x) props up ROE modestly but also raises financial risk. YoY, the net margin improved versus a very low prior base (~0.13%), helping ROE stabilize, but operating margin deteriorated sharply. Business drivers: gross margin at 17.5% barely covers SG&A at 16.0% of sales, leaving operating margin at 1.5%; higher financing costs (interest 7.44) further squeeze ordinary profit. The improvement in net profit appears driven by base effects and tax mix rather than structural operating strength; sustainability is questionable without better gross margin or SG&A discipline. Concerning trend: operating deleverage—SG&A effectively consumed 92% of gross profit, leaving little buffer; operating income fell 48.3% despite revenue +7.2%, indicating unfavorable mix/pricing or cost inflation.

Growth Assessment

Top-line growth of 7.2% to 642.46 indicates some demand recovery, but quality is weak given operating income fell 48.3%. We estimate OPM compressed ~160 bps YoY to 1.5% (prior ~3.1%), implying adverse mix, price pressure, or cost headwinds (materials/energy) outweighed volume. Ordinary margin expanded by ~71 bps to 1.21% due to a low prior-year base, not structural improvement, as net non-operating remained negative. Net margin expanded ~29 bps to 0.42% on a tiny base but is still thin. With ROIC at 0.4%, incremental growth currently fails to exceed the cost of capital—profit growth will require margin restoration. Outlook: focus on gross margin improvement (pricing/mix into higher-value capacitors, yield gains), SG&A control, and interest burden reduction. Risks include FX volatility, raw material cost swings, and end-market softness in electronics/auto supply chains. Without evidence of cost-downs or pricing power, sustaining profit growth will be challenging.

Financial Health

Liquidity: Current ratio 134.3% and quick ratio 113.7% are acceptable (above 1.0), so no immediate liquidity red flag. Solvency: D/E at 1.93x is elevated (approaching the 2.0x explicit warning threshold) and interest coverage at 1.28x is weak, signaling sensitivity to financing costs. Maturity profile: Short-term loans of 382.32 are sizable versus cash of 200.77; with current liabilities at 632.44 vs current assets 849.62, coverage is present but refinancing risk exists if credit conditions tighten or if receivables are weaker than typical. Long-term loans stand at 352.50, implying total loans around 734.82. Equity is 551.84; negative comprehensive income (-9.18) suggests equity erosion risk if OCI losses persist. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Cash flow statements are unreported; OCF/Net Income cannot be assessed and FCF is not calculable. Given interest coverage of 1.28x and thin operating margin (1.5%), internal cash generation is likely modest relative to debt service needs, but this cannot be confirmed without OCF. Working capital: inventories at 130.75 are meaningful; receivables were unreported, limiting visibility into collection discipline and potential working capital-driven earnings management. With net income positive but comprehensive income negative, equity cash drain could occur if OCI losses translate into realized losses; data is insufficient to conclude.

Dividend Sustainability

Dividend data (DPS, payouts, FCF coverage) was not disclosed. With ROIC at 0.4%, weak interest coverage (1.28x), and negative comprehensive income, headroom for distributions appears limited until cash generation and leverage improve. Absent OCF and capex data, we cannot assess FCF coverage; policy prudence would suggest prioritizing deleveraging over payouts, but no official policy was provided in the data.

Risk Assessment

Business Risks:

• End-market cyclicality in electronics/automotive affecting capacitor demand and pricing
• Gross margin pressure from materials/energy cost inflation and competitive pricing
• FX volatility impacting both revenue mix and OCI via translation/valuation effects
• Product mix risk if shift toward lower-margin components persists

Financial Risks:

• High leverage (D/E 1.93x) and weak interest coverage (1.28x) expose earnings to rate and refinancing risk
• Large short-term borrowings (382.32) vs cash (200.77) increase rollover dependence
• Negative total comprehensive income (-9.18) signals equity volatility from OCI (likely securities valuation/FX)
• High effective tax rate (62%) depresses net margins and may indicate limited loss shields/valuation allowances

Key Concerns:

• ROIC at 0.4% is far below an estimated WACC, destroying value unless improved
• Operating margin compressed ~160 bps YoY to 1.5%; SG&A consumes ~92% of gross profit
• Interest expense (7.44) nearly offsets operating income (9.56), keeping ordinary profit thin
• Limited disclosure on cash flows impedes assessment of earnings quality and dividend capacity

Investment Implications

Key Takeaways:

• Revenue recovery (+7.2% YoY) did not translate into operating profit growth; OPM fell to 1.5%
• Net profit improvement (+244.9% YoY) stems from a low base; ordinary/non-operating structure remains fragile
• Leverage is elevated and interest coverage weak; deleveraging or rate relief is needed
• Negative comprehensive income indicates equity sensitivity to OCI volatility
• ROIC at 0.4% highlights urgent need for margin and asset efficiency improvements

Metrics to Watch:

• Gross margin trajectory and price/mix changes
• SG&A-to-sales ratio and operating leverage
• Interest coverage and net debt profile (especially short-term loan rollover)
• OCF and FCF once disclosed; OCF/NI ratio target >1.0
• Effective tax rate normalization and drivers
• OCI components (securities valuation, FX translation) and impact on equity

Relative Positioning: Versus domestic capacitor peers, profitability and capital efficiency appear weaker (slimmer OPM, lower ROIC, higher leverage). Recovery depends on improving product mix toward higher-value capacitors, strict cost control, and balance sheet de-risking to narrow the gap with better-capitalized 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