Naikai Zosen Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥21.65B
• Operating Income: ¥1.39B
• Net Income: ¥357M
• 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

Utsumi Shipbuilding (7018) reported FY2026 Q2 consolidated results under JGAAP showing resilient profitability despite a modest topline contraction. Revenue declined 5.0% YoY to ¥21.652bn, but operating income surged 118.7% YoY to ¥1.391bn, driving a sharp improvement in margins and returns. Net income rose 203.2% YoY to ¥1.083bn, translating to a 5.0% net margin. DuPont analysis indicates ROE of 9.07%, driven by a modest asset turnover of 0.518x and high financial leverage of 3.50x, with profitability improvement the key contributor. Gross profit was ¥1.210bn (5.6% margin), yet operating income exceeded gross profit, implying material contributions from net other operating income and/or unusually low reported SG&A—suggesting non-recurring or project-specific factors that may not be repeatable. Interest coverage is healthy at 31.6x, reflecting manageable financing costs relative to earnings. The balance sheet shows total assets of ¥41.836bn and total equity of ¥11.944bn, implying an equity ratio around 28.6% (the disclosed 0.0% equity ratio appears to be a non-disclosure artifact rather than an actual value). Liquidity is adequate with a current ratio of 107.8% and working capital of ¥2.053bn, though the quick ratio is likely overstated because inventories are unreported (listed as zero). The company’s leverage (liabilities-to-equity of 2.65x) is significant and remains a central determinant of ROE and risk. Cash flow data (OCF/FCF) and depreciation are unreported, limiting assessment of earnings quality and reinvestment needs; consequently, EBITDA-based metrics shown as zero should not be interpreted as actual values. Tax expense is reported at ¥14m, implying a very low effective tax rate—likely influenced by loss carryforwards or timing effects under JGAAP—further boosting bottom-line results this period. Overall, results highlight positive operating momentum and potentially favorable mix or ancillary income, but also underscore the need to verify sustainability given limited disclosure on cash flows and cost structure. The order environment, progress accounting on long-lead shipbuilding projects, and materials cost pass-through will be critical to forward stability. Given the limited reported cash flow and dividend data, capital allocation and payout visibility remain unclear. Investors should focus on backlog quality, cost discipline, and the normalization of operating items that elevated operating income above gross profit.

Profitability Analysis

ROE is 9.07%, decomposed as net margin (5.00%) × asset turnover (0.518x) × financial leverage (3.50x). The margin uplift is the main driver this quarter, as asset turnover remains modest for a shipbuilder with a large balance sheet tied to work-in-process. Gross margin is 5.6%, but operating margin is higher at 6.4% (¥1,391m / ¥21,652m), indicating substantial net other operating income and/or lower-than-typical SG&A; this gap is a red flag for sustainability and demands reconciliation in detailed notes. Ordinary income (¥1,357m) is close to operating income despite interest expense (¥44m), suggesting limited non-operating losses and/or some non-operating gains. Interest coverage at 31.6x indicates strong near-term capacity to service financing costs. The effective tax burden is unusually low (tax expense ¥14m), supporting net margin; this may normalize as loss carryforwards or tax credits are utilized. Operating leverage appears high given the strong YoY swing in operating income on a declining revenue base—a sign of mix benefits, milestone recognition timing, and potentially lower period SG&A—yet this also raises volatility risk if volumes or mix revert.

Growth Assessment

Revenue decreased 5.0% YoY to ¥21.652bn, indicating near-term softness or delivery timing effects common in project-based shipbuilding. Profit growth (OP +118.7% YoY; NP +203.2% YoY) is outsized relative to revenue, implying mix/timing gains, improved pricing, cost containment, and/or recognition of other operating income. Sustainability depends on backlog execution, materials cost pass-through, and avoidance of cost overruns on under-construction vessels. The positive margin trajectory suggests improved project economics, but the fact that operating income exceeds gross profit points to non-core or non-recurring items that may not repeat. Without OCF and depreciation data, it is difficult to judge whether profit growth is supported by cash conversion or deferral of costs. Near-term outlook hinges on delivery schedules in 2H, FX-linked component costs, and steel and equipment price trends. If the company can maintain current pricing discipline and secure a high-quality backlog, revenue should stabilize with normalized margins; conversely, a weaker order intake or cost inflation could pressure both top line and profitability.

Financial Health

Total assets are ¥41.836bn and total equity is ¥11.944bn, implying an equity ratio of approximately 28.6% (vs. disclosed 0.0% which appears unreported). Total liabilities are ¥31.629bn, producing a liabilities-to-equity ratio of 2.65x, indicative of meaningful leverage typical of shipbuilding balance sheets. Current assets of ¥28.451bn and current liabilities of ¥26.398bn yield a current ratio of 1.08x and working capital of ¥2.053bn, supporting near-term liquidity but with limited cushion. The quick ratio is shown as 1.08x because inventories are unreported (0); in reality, including inventories would reduce quick liquidity, so the true quick ratio is likely below this. Interest expense is modest at ¥44m relative to operating income, and interest coverage is strong at 31.6x. The capital structure is geared, and solvency is acceptable provided profitability remains positive and project execution stable. Absent cash and marketable securities data (cash and equivalents reported as 0), short-term liquidity buffers cannot be verified, increasing reliance on operating cash inflows and committed credit lines.

Cash Flow Quality

Operating cash flow, investing cash flow, and financing cash flow are unreported for the period, so OCF/NI of 0.00 and FCF of 0 should not be interpreted literally. Earnings quality cannot be reliably assessed without OCF and working capital detail (especially progress billings, advances from customers, and work-in-process typical for shipbuilding). The fact that operating income exceeds gross profit suggests material contributions from other operating income, which can be less repeatable than core gross margins. Depreciation is unreported, preventing analysis of maintenance capex needs or the gap between EBIT and OCF. Working capital reported at ¥2.053bn is positive; however, inventories and contract assets/liabilities are not disclosed here, obscuring cash conversion. Until OCF and capex are available, FCF coverage and earnings-to-cash conversion remain key unknowns.

Dividend Sustainability

Dividend-related data are unreported: DPS is shown as ¥0.00 and payout ratio 0.0%, which should not be taken as actual policy or payments. With net income of ¥1.083bn and leverage at 2.65x liabilities-to-equity, the capacity to pay dividends depends on operating cash generation, capex commitments, and working capital swings tied to project milestones. FCF coverage cannot be assessed due to missing OCF and capex data. If the low effective tax and other operating income are non-recurring, distributable earnings could be overstated for payout setting. Policy visibility is therefore limited; monitoring guidance, backlog-driven cash profiles, and capital expenditure plans is essential before judging sustainability.

Risk Assessment

Business Risks:

• Project execution risk on long-lead shipbuilding contracts (schedule delays and cost overruns).
• Margin volatility from input cost inflation (steel, equipment) and subcontracting rates.
• Revenue timing risk due to milestone recognition and delivery schedules.
• Customer concentration and credit risk common in shipbuilding markets.
• Potential non-recurring nature of other operating income inflating operating profit.
• FX exposure on imported components and export contracts (if applicable).

Financial Risks:

• Leverage of 2.65x liabilities-to-equity increases sensitivity to earnings downturns.
• Liquidity buffer uncertainty due to unreported cash and equivalents and inventories.
• Cash flow visibility risk: OCF, capex, and FCF unreported, hindering coverage analysis.
• Low reported tax expense may normalize, reducing net income and ROE.
• Refinancing and covenant risk if project cash flows underperform.

Key Concerns:

• Operating income exceeds gross profit, implying reliance on other operating items.
• Absent cash flow and depreciation data limits assessment of earnings quality and maintenance needs.
• Equity ratio disclosed as 0.0% conflicts with balance sheet math, indicating data field non-disclosure.
• Inventories reported as zero, overstating quick liquidity and obscuring working capital dynamics.

Investment Implications

Key Takeaways:

• Strong profit rebound (OP +118.7% YoY, NP +203.2% YoY) despite a 5.0% revenue decline.
• ROE at 9.07% underpinned by improved margins and high leverage (3.50x assets/equity).
• Interest coverage robust at 31.6x, supporting near-term financial resilience.
• Liquidity adequate (current ratio 1.08x), but true quick liquidity is likely lower due to unreported inventories.
• Quality-of-earnings requires scrutiny as operating income exceeds gross profit and tax expense is unusually low.

Metrics to Watch:

• Order backlog size, margin, and delivery schedule.
• OCF, capex, and FCF once disclosed; OCF/NI conversion rate.
• Gross vs operating margin gap (magnitude and drivers of other operating income).
• Materials cost trends and pass-through mechanisms.
• Leverage and equity ratio trajectory; interest coverage stability.
• Effective tax rate normalization.

Relative Positioning: Within shipbuilding peers, the company shows near-term profitability strength and solid interest coverage, but with higher reliance on leverage and greater uncertainty around cash generation due to missing OCF/capex disclosures. Margin quality appears less robust given the gap between gross and operating profit, warranting caution versus peers with cleaner core margin profiles and disclosed cash conversion.

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