Naikai Zosen Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥21.65B
• Operating Income: ¥1.39B
• Net Income: ¥1.08B
• EPS: ¥639.54

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

FY2026 Q2 was a solid earnings beat on profitability despite modest top-line softness. Revenue declined 5.0% YoY to 216.5, but operating income more than doubled (+118.7% YoY) to 13.9, driving a sharp improvement in operating margin. Ordinary income surged 259.2% YoY to 13.6, and net income rose 203.2% YoY to 10.8, lifting the calculated net margin to 5.0%. Gross margin stood at 9.5%, with SG&A discipline evident at 3.0% of sales, enabling operating leverage. Operating margin expanded by approximately 364 bps YoY to 6.4%, while net margin expanded by about 343 bps YoY to 5.0%. Ordinary income margin improved by roughly 461 bps YoY to 6.3%, even with a minor non-operating drag (net non-operating loss of 0.34). Interest coverage is strong at 39.7x, reflecting healthy operating profits relative to interest burden. On balance sheet, equity represents 28.6% of assets, and leverage is elevated (D/E 2.50x), warranting attention despite the current strong coverage. Liquidity is adequate but not robust: current ratio is 111%, supported by cash (133.2) and receivables (119.4) nearly matching current liabilities (255.3). Cash flow data are unreported, limiting assessment of earnings quality and free cash flow sustainability. ROE is calculated at 9.1%, driven primarily by improved profitability (net margin) rather than asset turnover or leverage changes. The divergence risk between accounting earnings and cash generation cannot be ruled out given stage-of-completion dynamics typical in shipbuilding and the lack of reported OCF. Forward-looking, better margins indicate successful cost control and/or improved pricing, but sustaining gains will depend on backlog quality, cost pass-through, and delivery mix. Elevated leverage and a modest current ratio temper the otherwise strong profitability improvements. With a low calculated payout ratio (8.3%), the dividend burden appears light, although coverage by FCF cannot be confirmed. Net, the quarter signals operational turnaround momentum, but validation via cash flow and backlog visibility is needed to underwrite durability.

Profitability Analysis

ROE (9.1%) decomposes into Net Profit Margin (5.0%) × Asset Turnover (0.518) × Financial Leverage (3.50x). The dominant driver of improvement versus last year is the net profit margin, given revenue declined 5% while operating income rose 119% and net income rose 203%. Operating margin expanded about 364 bps YoY (to 6.4%) on SG&A discipline (3.0% of sales) and improved gross profit capture (gross margin 9.5%), indicating positive operating leverage. Non-operating items were a slight headwind (net −0.34), but not enough to offset core profit gains; interest expense remains modest (0.35) relative to operating income. Asset turnover at 0.518 is subdued, reflecting a capital-intensive, project-based business, and likely did not materially improve YoY given the revenue decline against a largely stable asset base. Financial leverage stands high at 3.50x assets/equity (D/E 2.50x), so incremental profitability flows efficiently to ROE but also adds risk. Business reasons for margin improvement likely include better project mix/delivery timing, cost pass-through, and tight SG&A control; steel and components cost relief and yen dynamics could have contributed. Sustainability: margin gains are partially sustainable if order backlog quality and pricing hold; however, shipbuilding margins can be volatile due to project timing and input costs, so some improvement may be timing-related. Watch for any sign that SG&A growth outpaces revenue—this quarter SG&A ratio looks contained; no evidence of SG&A growth exceeding revenue growth is visible from available data.

Growth Assessment

Revenue contracted 5.0% YoY to 216.5, suggesting softer delivery timing or a less favorable shipment schedule. Profit growth was strong: operating income +118.7% YoY to 13.9, ordinary income +259.2% to 13.6, and net income +203.2% to 10.8, indicating material margin uplift. Quality of profit growth appears driven by core operations (operating margin +364 bps), not by non-operating gains (non-operating net was a small loss). With cash flow unreported, we cannot validate whether earnings are matched by cash conversion; stage-of-completion accounting can create timing gaps. Outlook hinges on backlog execution, cost trends (steel, equipment), and FX; current profitability momentum is encouraging, but sustaining >6% operating margin may require continued cost discipline and favorable mix. Near-term growth visibility is data-limited (no backlog disclosed here), but interest coverage strength provides buffer for ongoing operations.

Financial Health

Liquidity: current ratio 1.11x (adequate but below the >1.5x comfort threshold), quick ratio 1.11x supported by cash (133.2) and receivables (119.4) totaling ~252.7, nearly covering current liabilities (255.3). No explicit warning for current ratio <1.0 is triggered, but cushion is thin. Solvency: D/E 2.50x (warning: above 2.0), equity ratio 28.6% (119.4/418.4), indicating elevated leverage. Interest coverage is robust at 39.7x, mitigating near-term solvency concerns despite higher leverage. Maturity profile: short-term loans are modest (8.0) versus cash on hand (133.2), but overall current liabilities are sizable (255.3), implying reliance on efficient working capital turnover; accounts payable of 51.7 align with the project-based nature. Noncurrent liabilities are 43.6, including long-term loans of 17.4; no detailed debt maturity schedule available. Off-balance sheet obligations are not disclosed here; large project guarantees or performance bonds common in shipbuilding may exist but are unreported in this dataset.

Cash Flow Quality

Operating cash flow is unreported; OCF/Net Income cannot be calculated, preventing a direct assessment of earnings quality. Free cash flow is unreported; thus, we cannot evaluate coverage of capex and dividends. Working capital indicators: high receivables (119.4) and no inventory disclosure suggest potential timing risk; collection discipline and delivery milestones drive cash conversion in this sector. With stage-of-completion accounting typical in shipbuilding, revenue recognition can precede or lag cash, so without OCF we cannot rule out a divergence. No signs of working capital manipulation can be inferred from the limited data, but the thin current ratio indicates sensitivity to collection timing.

Dividend Sustainability

The calculated payout ratio is low at 8.3%, implying ample headroom relative to accounting earnings. However, DPS and total dividends paid are unreported, and FCF coverage cannot be assessed without OCF and capex data. Given the strong interest coverage and improved profitability, dividend capacity appears supported by earnings, but sustainability ultimately depends on cash generation consistency and capex needs for yard upgrades or compliance investments. Company policy is not disclosed here; absent policy guidance, assume a conservative approach aligned with cyclical earnings.

Risk Assessment

Business Risks:

• Project execution and delivery timing risk inherent in shipbuilding (milestone slippage impacting revenue and cash)
• Input cost volatility (steel, engines, equipment) affecting margins
• FX exposure (JPY vs USD/EUR) on imported components and export pricing
• Customer concentration/order backlog dependency with long lead times
• Supply chain disruptions and labor availability impacting schedules

Financial Risks:

• High leverage (D/E 2.50x) increasing sensitivity to profit downturns
• Thin liquidity buffer (current ratio 1.11x) reliant on receivables collection
• Refinancing and interest rate risk despite current strong coverage
• Potential off-balance sheet guarantees typical for shipbuilding projects (not disclosed)

Key Concerns:

• Unreported operating cash flow obscures earnings quality and FCF
• Inventory data unreported, limiting visibility into work-in-process and cost absorption
• Non-operating items slightly negative; a turn to higher financing costs could pressure ordinary income
• Margin sustainability depends on backlog pricing and cost control amid commodity and currency swings

Investment Implications

Key Takeaways:

• Profitability inflection: operating margin expanded ~364 bps YoY to 6.4% on SG&A discipline and better gross profit
• Net margin improved to 5.0%, driving ROE to 9.1% despite a 5% revenue decline
• Interest coverage is strong (39.7x), but capital structure is leveraged (D/E 2.50x)
• Liquidity is adequate but tight (current ratio 1.11x), reliant on cash and receivables
• Cash flow unreported; validation of earnings quality and dividend coverage pending

Metrics to Watch:

• Order backlog size, mix, and pricing (not disclosed here)
• Operating cash flow and working capital swings (receivables collection, advances from customers)
• Input cost trends (steel) and FX impact on margins
• Debt maturity schedule and interest rate exposure
• SG&A trajectory versus revenue and sustained operating margin >6%

Relative Positioning: Within Japanese mid/small-cap shipbuilders, the company shows stronger near-term margin recovery and interest coverage but operates with higher financial leverage than conservative peers; visibility is constrained by absent cash flow and backlog disclosures.

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