NIPPON CHEMI-CON CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥64.25B
• Operating Income: ¥956M
• Net Income: ¥79M
• 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

Nippon Chemi-Con (6997) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥64.246bn, up 7.2% YoY, but profitability weakened materially as operating income fell 48.3% YoY to ¥0.956bn. Gross profit was ¥12.137bn, implying a gross margin of 18.9%, while operating margin compressed to 1.5%, indicating higher cost pressure and/or elevated SG&A relative to sales. Ordinary income was ¥0.779bn, below operating income, reflecting net non-operating expenses, with interest expense alone at ¥0.79bn weighing significantly on earnings. Net income came in at ¥0.269bn (EPS: ¥12.63), up 244.9% YoY, but the improvement stems from a low base rather than robust underlying profitability. The DuPont decomposition shows a low net margin of 0.42%, modest asset turnover of 0.398x, and relatively high financial leverage of 2.93x, culminating in a subdued ROE of 0.49%. Liquidity appears adequate with a current ratio of 142.9% and a quick ratio of 121.7%, supported by working capital of ¥25.989bn. The balance sheet shows total assets of ¥161.57bn and equity of ¥55.184bn, implying an equity ratio of roughly 34% and liabilities-to-assets of about 66%. Interest coverage is thin at 1.2x (operating income/interest), highlighting sensitivity to borrowing costs and operating variance. Inventories are ¥12.807bn (about 15% of revenue for the period and roughly 15% of current assets), which looks manageable but merits monitoring given industry cyclicality. Cash flow statement items were not disclosed in the provided dataset; consequently, OCF, FCF, and EBITDA-based assessments cannot be verified here. Annual DPS is reported as zero, consistent with a cautious capital return stance amid thin margins and leverage. Despite top-line growth, the combination of margin compression and debt service burden limits earnings conversion and ROE. Below-the-line items (taxes and other adjustments) further reduced profit from ordinary income to net income, indicating additional headwinds not visible in operating results alone. Overall, revenue resilience contrasts with pressured profitability, modest capital efficiency, and elevated financial leverage, leaving the near-term outlook dependent on margin recovery and interest burden management. Data limitations (unreported cash flows, D&A, share count, and equity ratio metric) constrain certain analyses; conclusions are based on the disclosed non-zero items and implied calculations.

Profitability Analysis

ROE_decomposition: ROE 0.49% = Net margin 0.42% × Asset turnover 0.398 × Financial leverage 2.93. The primary drag is the very low net margin, while asset turnover is modest and leverage is relatively high. margin_quality: Gross margin is 18.9% and operating margin is 1.5% (¥0.956bn operating income on ¥64.246bn sales), indicating heavy SG&A and/or cost inflation; SG&A is implied at ~¥11.181bn (~17.4% of sales). Ordinary income of ¥0.779bn versus operating income of ¥0.956bn reflects net non-operating expense pressure, chiefly interest (¥0.79bn). Net margin is 0.42%, further reduced by taxes and below-the-line items. operating_leverage: Revenue grew 7.2% YoY but operating income fell 48.3% YoY, evidencing negative operating leverage in the period. This suggests that fixed costs and/or input cost pressures outpaced pricing and mix benefits, and that incremental volume did not translate into proportional profit growth.

Growth Assessment

revenue_sustainability: Top-line growth of 7.2% YoY is constructive and suggests demand resilience across key end-markets. However, without segment or regional detail, sustainability cannot be disaggregated by driver (pricing, mix, or volume). profit_quality: Profitability deteriorated despite higher sales, implying weaker conversion due to cost pressures (materials, logistics, labor) and elevated SG&A. Ordinary income below operating income points to non-operating burdens (notably interest). The step-down from ordinary to net income also indicates additional below-the-line items (e.g., extraordinary losses or minority interests). outlook: Near-term earnings trajectory hinges on gross margin recovery, cost pass-through, and utilization improvements. If demand normalizes positively and cost pressures ease, operating leverage could turn favorable; conversely, continued cost inflation and high interest expense would cap earnings growth. Absent visibility on cash flows and D&A, we assume cautious progress with emphasis on cost control.

Financial Health

liquidity: Current ratio 142.9% and quick ratio 121.7% indicate adequate near-term liquidity. Working capital stands at ¥25.989bn, with inventories of ¥12.807bn representing a manageable portion of current assets. solvency: Total assets ¥161.57bn, liabilities ¥106.034bn, and equity ¥55.184bn imply an equity ratio of roughly 34% and liabilities-to-equity of ~1.92x (debt-to-equity metric provided at 1.92x). Financial leverage is elevated at 2.93x assets/equity. capital_structure: Interest expense of ¥0.79bn against operating income of ¥0.956bn results in thin interest coverage (1.2x). This capital structure leaves earnings sensitive to rate conditions and operating volatility. Reducing interest-bearing debt or improving operating profit is key to strengthening coverage.

Cash Flow Quality

earnings_quality: Cash flow data (OCF, investing, financing) were not disclosed in the provided dataset, limiting assessment. With net margin at 0.42% and interest coverage at 1.2x, the risk of low cash conversion exists if working capital absorbs cash. FCF_analysis: Free cash flow could not be computed due to unreported OCF and capex/D&A. Given thin operating margin, sustaining positive FCF would likely require disciplined capex and tight working capital management. working_capital: Working capital is ¥25.989bn; inventories are ¥12.807bn. Without cash flow details, we cannot infer inventory turns or the period’s working capital delta. Monitoring receivables and inventories versus sales will be important for cash conversion.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is reported as ¥0 and payout ratio 0.0%, consistent with retaining earnings amid weak profitability and leverage. With EPS at ¥12.63 for the period, a distribution would meaningfully strain coverage given low margins. FCF_coverage: FCF coverage cannot be assessed due to unreported OCF and capex; conservatively, dividend capacity appears constrained by interest burden and thin operating margin. policy_outlook: Given the leverage and interest coverage profile, a conservative dividend stance is prudent until margin and cash generation improve. Future resumption or increases would likely depend on clearer, sustained FCF visibility.

Risk Assessment

Business Risks:

• Input cost volatility (metals, energy) compressing gross margins
• Demand cyclicality in key end-markets (industrial, automotive, electronics)
• Pricing pressure and competitive intensity in capacitors and related components
• FX fluctuations affecting export competitiveness and cost base
• Supply chain and logistics disruptions impacting delivery and costs

Financial Risks:

• Thin interest coverage (1.2x) and elevated leverage (assets/equity 2.93x)
• Potential cash conversion risk if working capital builds alongside growth
• Exposure to interest rate increases raising financing costs
• Limited buffer to absorb shocks given low net margin (0.42%)

Key Concerns:

• Negative operating leverage despite revenue growth
• High interest burden relative to operating income
• Lack of disclosed cash flow data limiting visibility on FCF and liquidity dynamics
• Below-the-line items reducing net income from ordinary income levels

Investment Implications

Key Takeaways:

• Revenue growth of 7.2% YoY contrasts with a 48.3% YoY drop in operating income, indicating margin pressure
• Gross margin 18.9% and operating margin 1.5% signal limited pricing power and/or elevated costs
• Leverage is meaningful (assets/equity 2.93x), with interest coverage only 1.2x
• Liquidity is adequate (current ratio 143%, quick ratio 122%) but sustained by working capital
• ROE is low at 0.49%, driven by compressed net margins despite leverage
• Dividend remains suspended (DPS ¥0), consistent with balance sheet preservation
• Non-operating expenses, especially interest, significantly weigh on ordinary income

Metrics to Watch:

• Gross margin trajectory and SG&A ratio to sales
• Operating income and interest coverage recovery
• Working capital turns (inventories and receivables) and OCF once disclosed
• Leverage (net debt/EBITDA when available) and refinancing costs
• Order trends and backlog as indicators of demand sustainability

Relative Positioning: Within Japanese passive components manufacturers, the company shows resilient top-line but relatively weaker profitability and interest coverage, implying a need for margin recovery and deleveraging to close the gap with peers exhibiting stronger operating leverage and cash generation.

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