Nippon Tungsten Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.05B
• Operating Income: ¥297M
• Net Income: ¥304M
• EPS: ¥62.69

Income Statement

Balance Sheet

Cash Flow Statement

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

Verdict: A softer Q2 with revenue and profits down YoY, but cash generation was solid and liquidity remains strong. Revenue was 60.50, down 4.1% YoY, with operating income of 2.97 (-25.1% YoY) and ordinary income of 4.40 (-15.9% YoY). Net income was 3.04, declining 14.2% YoY, implying a current net margin of about 5.0%. Operating margin compressed to 4.9% from an estimated 6.3% a year ago (≈ -139 bps), reflecting weaker operating leverage. Ordinary income margin compressed to 7.3% from ~8.3% (≈ -102 bps), while net margin compressed to ~5.0% from ~5.6% (≈ -61 bps). Non-operating factors provided a meaningful lift: net non-operating income of 1.42 (2.66 income minus 1.24 expenses) contributed roughly 32% of pretax profit. Gross profit was 14.52 (gross margin 24.0%), and EBITDA was 6.26 (margin 10.3%), indicating profitability is intact but pressured. Cash flow quality was strong: operating cash flow of 8.49 was 2.79x net income, suggesting earnings were well-backed by cash, likely aided by working capital movements. Balance sheet resilience is a positive: current ratio 230.2%, quick ratio 223.0%, and interest coverage 18.6x; D/E of 0.40x remains conservative. However, capital efficiency is weak with ROE at 2.4% and ROIC at 1.8% (below the 5% warning threshold). Short-term loans total 24.30, but are well-covered by cash (38.02) and receivables (26.26), mitigating near-term refinancing risk. The payout ratio is elevated at 84.8% against a low ROE/ROIC backdrop, raising medium-term dividend sustainability questions despite ample OCF. Forward-looking, the key is restoring operating margin via mix, pricing, and cost control, while maintaining cash discipline; reliance on non-operating gains is not a durable earnings strategy. Commodity (tungsten) price and end-demand cycles (electronics, tooling) will be key external drivers. FX sensitivity also matters given potential export exposure. Overall, a mixed quarter: weaker P/L metrics but strong cash conversion and solid liquidity, with clear need to lift ROIC.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.4% = Net Profit Margin (~5.0%) × Asset Turnover (0.336) × Financial Leverage (1.40x). The most material drag YoY was net profit margin, given operating income fell 25.1% vs revenue -4.1%, implying operating margin compression of ~139 bps to 4.9%. Ordinary and net margins also compressed (~102 bps and ~61 bps, respectively), despite a notable lift from non-operating income (net +1.42). Business drivers likely include softer demand/pricing in end markets and/or unfavorable input costs (tungsten/energy), while SG&A at 11.55 (up vs gross profit weakness) compressed operating leverage. Asset turnover at 0.336 is low and likely little changed QoQ, reflecting a capital-intensive base relative to sales. Financial leverage at 1.40x is modest, offering limited ROE amplification. The margin pressure appears more cyclical than structural, but sustainability hinges on pricing power and cost pass-through—non-operating boosts are unlikely to be repeatable at this magnitude. Watch for SG&A discipline; any SG&A growth outpacing revenue would further erode operating margin.

Growth Assessment

Top line contracted 4.1% YoY to 60.50, indicating softer demand/mix. Operating income fell 25.1% to 2.97, ordinary income declined 15.9% to 4.40, and net income fell 14.2% to 3.04, signaling negative operating leverage. Current margins: gross 24.0%, operating 4.9%, ordinary 7.3%, net 5.0%. Estimated YoY margin changes: operating -139 bps, ordinary -102 bps, net -61 bps. Profit composition tilted toward non-operating items: net non-operating income of 1.42 accounted for ~32% of pretax profit, which is not a reliable growth driver. EBITDA of 6.26 (10.3% margin) indicates underlying earnings capacity remains, but cost of sales pressure is evident versus sales contraction. Outlook hinges on end-market recovery (electronics/tooling), tungsten price normalization, and cost pass-through; without these, growth may remain subdued. Near term, focus is on stabilizing operating margin rather than top-line expansion.

Financial Health

Liquidity is strong: current ratio 230.2% and quick ratio 223.0% comfortably exceed benchmarks. No warning on current ratio or D/E; D/E is 0.40x, conservative. Short-term loans of 24.30 are covered by cash (38.02) and receivables (26.26), limiting maturity mismatch risk. Total liabilities are 51.60 versus total equity of 128.39, underscoring solvency strength. Interest coverage is 18.56x, indicating ample buffer. No explicit off-balance sheet obligations were reported. Equity ratio is not disclosed in XBRL, but implied equity/asset ratio is ~71% (128.39/180.00), further supporting balance sheet health.

Cash Flow Quality

OCF of 8.49 is 2.79x net income (3.04), indicating high earnings quality this quarter, likely aided by working capital inflows (details unreported). Capex was 2.36, yielding a proxy FCF of ~6.13 (OCF minus Capex), suggesting adequate capacity to fund maintenance capex and potential dividends. Financing CF was -1.32, implying modest net debt reduction or dividends (dividend details unreported). No clear signs of working capital manipulation can be assessed without CF detail; however, the strong OCF versus NI is a positive. Sustainability depends on maintaining margin and avoiding a reversal of working capital benefits in H2.

Dividend Sustainability

Annual DPS is unreported, but the calculated payout ratio of 84.8% is elevated relative to the <60% benchmark, especially given ROE of 2.4% and ROIC of 1.8%. On a cash basis, proxy FCF of ~6.13 appears to cover typical dividend needs, but the sustainability of such a high payout is questionable if margins remain under pressure or if working capital inflows reverse. Policy visibility is limited due to unreported dividend details; we assume the payout ratio is based on management guidance or interim distributions incorporated in EPS. Near-term coverage looks acceptable given strong OCF, but medium-term prudence would suggest aligning payout with durable earnings and ROIC improvement.

Risk Assessment

Business Risks:

• Commodity price volatility (tungsten and related inputs) impacting cost of sales and margins
• End-demand cyclicality in electronics, tooling, and industrial customers leading to volume and mix fluctuations
• Potential pricing power limitations if competitive intensity rises
• Reliance on non-operating gains to support ordinary income (~32% of pretax), which may not recur

Financial Risks:

• Low capital efficiency (ROIC 1.8%, ROE 2.4%) increases risk of value dilution if capex/investments do not earn their cost of capital
• Short-term debt concentration (24.30) requires ongoing rollover, albeit mitigated by strong cash and receivables
• Elevated payout ratio (84.8%) could pressure balance sheet if cash conversion weakens

Key Concerns:

• Operating margin compression of ~139 bps YoY to 4.9%
• Dependence on non-operating income to bridge earnings amid weaker core operations
• Visibility limited by unreported segment data and lack of dividend detail

Investment Implications

Key Takeaways:

• Core profitability weakened with notable operating margin compression despite modest sales decline
• Cash conversion was strong (OCF/NI 2.79x), supporting near-term financial flexibility
• Balance sheet is robust with low leverage and ample liquidity
• Earnings quality is mixed: strong cash, but significant non-operating contribution to pretax profit
• Capital efficiency is a clear improvement area (ROIC 1.8% vs >5% threshold)

Metrics to Watch:

• Operating margin trajectory and SG&A discipline
• Gross margin versus tungsten/raw material and energy price movements
• Order trends in electronics/tooling end markets
• OCF/NI ratio and working capital movements (AR and inventory turns)
• ROIC progression versus cost of capital
• FX sensitivity (JPY volatility) and any hedging disclosures
• Debt mix and rollover profile for short-term borrowings

Relative Positioning: Within Japanese precision materials/components peers, the company shows superior liquidity and low leverage but lags on capital efficiency (ROIC/ROE). Earnings reliance on non-operating items and a high payout ratio contrast with peers prioritizing reinvestment and ROIC improvement.

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