NITCHITSU CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.79B
• Operating Income: ¥149M
• Net Income: ¥95M
• EPS: ¥48.16

Income Statement

Balance Sheet

Cash Flow Statement

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 FY2026 Q2—core operations were broadly stable with slight operating margin compression, ordinary income rose on stronger non-operating gains, but bottom-line plunged due to extraordinary losses, while cash flow was exceptionally strong. Revenue grew 1.7% YoY to 47.92, with operating income down 0.9% YoY to 1.49, and ordinary income up 32.4% YoY to 1.58. Net income declined sharply by 55.2% YoY to 0.94, implying material extraordinary losses (profit before tax of 1.16 vs ordinary income of 1.58 suggests roughly 0.42 in net special losses). Gross margin printed at 13.1%, and operating margin was 3.1% (1.49/47.92). Using prior-period derivations, operating margin compressed by about 8 bps (from ~3.19% to ~3.11%). Ordinary income margin expanded by about 78 bps (from ~2.52% to ~3.30%) on higher non-operating income, with dividend income of 0.48 a notable tailwind. Net margin compressed by about 250 bps (from ~4.46% to ~1.96%) due to the extraordinary loss headwind. Earnings quality was very strong: operating cash flow of 7.91 was 8.4x net income, suggesting conservative accruals and/or working capital release. Balance sheet strength is solid with current ratio 221% and debt-to-equity 0.45x; cash (28.82) exceeds total borrowings (11.64), indicating a net cash position. ROE calculated at 0.8% is subdued, with ROIC at 1.2% signaling low capital efficiency despite the strong liquidity. Comprehensive income surged to 5.64, driven by valuation gains in other comprehensive income (likely investment securities), highlighting sensitivity to market prices. Interest coverage was robust at 18.1x and effective tax rate benign at ~18.6%. Non-operating contribution remains meaningful; ordinary income outperformed despite slightly softer core operations. Capex of 4.32 was covered by OCF, implying positive pre-acquisition FCF of about 3.59. Forward-looking, stabilization of core margins and normalization of extraordinary items are key to restoring EPS momentum. Dividend sustainability is adequate near-term given cash generation, but the high payout ratio (79.3%) leaves limited cushion if earnings volatility persists. Overall, the quarter underscores resilient cash flow and balance sheet but highlights profitability headwinds and low capital efficiency that need strategic improvement.

Profitability Analysis

ROE decomposition (DuPont): ROE 0.8% = Net Profit Margin 2.0% × Asset Turnover 0.282 × Financial Leverage 1.45x. The largest detractor this quarter was the net profit margin, which fell sharply on extraordinary losses (ordinary income improved, but PBT and NI were hit by ~0.42 in special losses). Asset turnover at 0.282 remains low for an industrial name, reflecting a relatively heavy asset base (noncurrent assets 96.95 vs total assets 170.00) and modest revenue scale. Financial leverage at 1.45x is moderate and not a key driver of ROE swings. Business drivers: operating margin softened slightly (about -8 bps YoY) on mild cost pressure/limited gross margin expansion, while ordinary income benefited from non-operating items—particularly dividend income (0.48) and a favorable net non-operating balance (+0.09). The margin drag at the net level is not structural if the extraordinary losses are one-time; however, reliance on non-operating income to lift ordinary earnings is not a durable earnings quality enhancer. Sustainability: ordinary income uplift from dividends is likely recurring but market-dependent; the extraordinary loss appears one-off but bears monitoring. Concerning trends: capital efficiency is weak (ROIC 1.2% < 5% warning), and SG&A efficiency cannot be assessed due to unavailable breakdown; we note that SG&A at 4.77 against gross profit 6.27 leaves a thin operating profit buffer.

Growth Assessment

Top-line growth was modest at +1.7% YoY, suggesting stable demand but limited pricing or volume acceleration. Operating income declined slightly (-0.9% YoY), indicating mild operating deleverage as costs kept pace with or slightly outstripped gross profit improvement. Ordinary income growth (+32.4%) was driven by non-operating contributions (notably dividend income), not purely by core business momentum. Net income fell 55.2% due to extraordinary losses, masking otherwise steady fundamentals at the ordinary level. EBITDA of 4.36 (9.1% margin) indicates reasonable cash earnings capacity relative to revenue scale. Revenue sustainability appears stable near-term but lacks catalysts for acceleration based on current disclosures; no R&D or segment detail was reported to evidence structural growth drivers. The strong comprehensive income suggests positive equity market conditions benefiting securities valuations, but this is volatile and non-cash. Outlook hinges on margin discipline, avoidance of further extraordinary losses, and continued dividend inflows; absent operational catalysts, profit growth may track incremental cost control rather than top-line expansion.

Financial Health

Liquidity is strong: current ratio 221.2% and quick ratio 214.0% indicate ample short-term coverage; no warning thresholds breached. Solvency is conservative: D/E 0.45x, interest coverage 18.08x; net cash position as cash (28.82) exceeds total borrowings (short-term 11.14 + long-term 0.50 = 11.64). Maturity profile risk is low with current assets 73.05 comfortably covering current liabilities 33.02; short-term loans are well covered by cash and receivables. Equity stands at 117.54, representing a high equity buffer (equity ratio cannot be confirmed from XBRL but implied at ~69% using provided balances). No off-balance sheet obligations were disclosed in the provided data; absence of disclosure does not imply absence of such commitments.

Cash Flow Quality

OCF/Net Income at 8.41x signals very high earnings quality and likely working capital inflows and/or non-cash charges (depreciation 2.87) supporting cash generation. With capex at 4.32, implied pre-acquisition free cash flow is approximately 3.59 (7.91 - 4.32), indicating healthy internal funding capacity for dividends and modest investment. Financing cash flow of -1.41 suggests net debt reduction and/or dividend payments, though dividend cash out is unreported. No signs of adverse working capital manipulation are evident from the summary figures; the strong OCF vs. modest profit indicates conservative revenue recognition or inventory/receivables collection improvements. Sustainability: OCF strength appears adequate given EBITDA and low leverage, but OCF may normalize if working capital tailwinds reverse.

Dividend Sustainability

The calculated payout ratio is 79.3%, which is elevated relative to a prudential benchmark (<60%), implying limited buffer if earnings remain volatile. Coverage from cash generation appears adequate near-term: implied FCF of ~3.59 exceeds net income (0.94), though exact dividend cash out is unreported. With net cash on the balance sheet and strong liquidity, the company can sustain dividends tactically; however, low ROE/ROIC and earnings volatility (extraordinary losses) argue for cautious payout progression. Policy outlook depends on stabilizing net profit and avoiding special losses; maintaining or modestly adjusting DPS would align with preserving balance sheet strength while capital efficiency initiatives are pursued.

Risk Assessment

Business Risks:

• Low capital efficiency (ROIC 1.2%) limiting value creation despite liquidity.
• Margin sensitivity given thin operating margin (~3.1%) and SG&A intensity relative to gross profit.
• Dependence on non-operating income (notably dividend income) to lift ordinary earnings.
• Potential demand cyclicality in industrial end-markets affecting orders and utilization.

Financial Risks:

• Extraordinary loss volatility impacting bottom-line (PBT below ordinary income by ~0.42).
• Market valuation risk on investment securities affecting comprehensive income and equity.
• Refinancing/interest rate risk on short-term loans (11.14), albeit mitigated by cash on hand.
• Concentration risk if dividend income sources are not well diversified (details unreported).

Key Concerns:

• Net income decline (-55.2% YoY) despite ordinary income growth points to non-recurring loss exposure.
• Persistent low asset turnover (0.282) suggesting structural efficiency challenges.
• High payout ratio (79.3%) versus subdued ROE (0.8%) may constrain reinvestment flexibility.
• Limited disclosure on SG&A and segmental drivers reduces visibility into margin levers.

Investment Implications

Key Takeaways:

• Core operations were stable but slightly margin-dilutive; operating margin compressed ~8 bps YoY.
• Ordinary income strength was driven by non-operating items; dividend income was a key contributor.
• Net income weakness stems from extraordinary losses, not operating deterioration.
• Cash generation was strong (OCF 7.91), comfortably covering capex (4.32).
• Balance sheet is robust with net cash and conservative leverage, but ROIC is sub-scale at 1.2%.

Metrics to Watch:

• Extraordinary gains/losses trajectory and disclosures explaining the ~0.42 hit.
• Operating margin and gross margin trends versus cost inflation.
• OCF sustainability and working capital movements (AR and inventory turns).
• Dividend income stability and exposure concentration in investment securities.
• ROIC and asset turnover improvements from portfolio or operational actions.
• Capex discipline versus growth returns; alignment with capital efficiency targets.

Relative Positioning: Within small-cap Japanese industrials, the company exhibits superior liquidity and low leverage but trails on profitability metrics (ROE/ROIC). Earnings are more sensitive to non-operating and extraordinary items than peers focused on pure operating leverage, while cash flow resilience is a relative strength.

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