NIPPON SEIKI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥156.24B
• Operating Income: ¥5.25B
• Net Income: ¥3.85B
• EPS: ¥65.13

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

Nippon Seiki (7287) delivered a solid FY2026 Q2 (cumulative) under IFRS with modest topline growth but strong profit recovery. Revenue rose 2.5% YoY to 1,562.42, while operating income jumped 52.3% YoY to 52.47, indicating meaningful operating leverage. Gross profit was 214.20, translating to a gross margin of 13.7%; SG&A was 182.94, implying that other operating income/expense items (IFRS classification) contributed positively, as operating income exceeds gross profit minus SG&A by roughly 21.21. Profit before tax reached 61.63, and net income surged to 37.35 (+397.9% YoY), lifting the net margin to 2.4%. EBITDA was 116.77 with a 7.5% margin, underlining improving profitability versus prior-year levels. DuPont metrics show ROE at 1.7% driven by a 2.4% net margin, asset turnover of 0.469, and financial leverage of 1.48x; while improved, ROE remains below typical cost-of-equity thresholds. The balance sheet is conservative with total assets of 3,328.32, equity of 2,253.48, and an equity ratio of 66.6%, while reported debt-to-equity is 0.50x. Short-term loans are 184.40 and long-term loans 138.38, indicating moderate leverage and ample solvency headroom. Operating cash flow was 42.02, 1.13x net income, evidencing acceptable earnings-to-cash conversion this half. Free cash flow was negative at -57.69 due to heavier investing cash outflows (-99.71), suggesting front-loaded capex or growth/maintenance investments. Cash and equivalents stand at 353.05, providing liquidity cushioning despite negative FCF. Inventories are sizable at 995.67 relative to accounts receivable of 527.80 and accounts payable of 460.65, pointing to working capital intensity typical for automotive suppliers. The effective tax rate was 23.8%, broadly in line with structural rates. Dividend payout ratio is calculated at 78.3%; however, FCF coverage was -1.97x this period, implying reliance on balance sheet capacity for distribution coverage in the half. Overall, the company is demonstrating margin recovery and disciplined cost control on low single-digit sales growth, supported by a strong balance sheet, yet ROE and FCF trends warrant close monitoring. Data limitations (several unreported XBRL items) constrain full ratio analysis, but the available figures are sufficient to assess profitability traction and financial resilience.

Profitability Analysis

ROE decomposition: Net profit margin 2.4% x asset turnover 0.469 x financial leverage 1.48x yields 1.7% ROE, consistent with the reported figure. The improvement in operating income (+52.3% YoY) against modest revenue growth (+2.5% YoY) signals operating leverage, likely from mix, pricing, and/or cost optimization. Gross margin is 13.7% (gross profit 214.20 on revenue 1,562.42), and EBITDA margin is 7.5% (116.77/1,562.42), supporting a recovery narrative from a low base. The relationship of gross profit (214.20) and SG&A (182.94) versus operating income (52.47) implies roughly 21.21 of net other operating income under IFRS classification, a tailwind to operating margin. Operating margin is approximately 3.4% (52.47/1,562.42), up YoY given the large OP increase; this reflects better cost absorption and likely reduced temporary disruptions. Profit before tax (61.63) exceeded operating income, suggesting net financial/other income of about 9.16, further aiding bottom-line expansion. The net margin of 2.4% remains thin for the sector, but the scale of YoY net income growth (+397.9%) indicates normalization from prior-year headwinds. Effective tax rate of 23.8% appears sustainable and not unusually low, implying quality in reported earnings. Overall, profitability is improving but still constrained by the structurally low margin nature of the automotive supply chain; further margin gains will depend on mix (HUDs, high-value HMI), productivity, and disciplined SG&A.

Growth Assessment

Revenue grew 2.5% YoY to 1,562.42, a modest pace consistent with the broader auto components cycle and gradual normalization in OEM production schedules. The outsized improvement in operating income (+52.3% YoY) versus sales reflects positive operating leverage, indicating that current growth is translating efficiently into profits. Net income surged 397.9% YoY, helped by margin recovery and supportive below-OP items; however, the YoY comp likely benefited from an unusually weak base. Given the sizable inventories (995.67), some growth may be supported by stock positioning for program launches or supply chain buffers; sustainability will hinge on inventory turnover improving without discounting. The EBITDA increase to 116.77 (7.5% margin) signals healthier underlying operations, which, if sustained, could support medium-term growth investments. The outlook is cautiously constructive: steady OEM demand, product content gains (e.g., digital clusters, HUDs), and cost initiatives can support low-to-mid single-digit revenue growth with incremental margin expansion. FX effects, material cost pass-through, and program ramps will influence sustainability; unreported R&D data limits assessment of future product pipeline intensity. Near-term, we expect management to focus on inventory normalization and capex execution to underpin future capacity and technology requirements.

Financial Health

Liquidity appears adequate with cash and equivalents of 353.05 and positive operating cash flow of 42.02; current liabilities are unreported, so standard current/quick ratios cannot be calculated from XBRL. The balance sheet is strong: equity 2,253.48, total assets 3,328.32, equity ratio 66.6%, and reported debt-to-equity of 0.50x underscore conservative leverage. Short-term loans of 184.40 and long-term loans of 138.38 indicate manageable refinancing needs; the maturity ladder seems balanced given the modest absolute levels. Accounts receivable are 527.80 and accounts payable 460.65; together with inventories of 995.67, this indicates working capital intensity typical of the sector but not excessive relative to scale. Solvency is sound given ample equity buffer and tangible operating cash generation; interest coverage is unreported, but EBITDA of 116.77 suggests comfortable coverage under reasonable interest assumptions. There are no signs of financial distress; however, negative FCF this period reduces cash flexibility and should be monitored if capex remains elevated.

Cash Flow Quality

OCF of 42.02 versus net income of 37.35 yields an OCF/NI of 1.13x, indicating acceptable earnings quality with cash conversion above 1.0x. Free cash flow was -57.69, driven by investing outflows (-99.71), implying accelerated capex or strategic investments; capital expenditures are unreported, but the CF profile suggests front-loaded spending. Working capital dynamics likely weighed on OCF, given high inventories (995.67) relative to payables (460.65), though detailed movements are not disclosed. Depreciation and amortization totaled 64.30, providing a non-cash cushion to earnings and supporting EBITDA. Financing cash flow was +31.50, including dividends paid of -14.89; residual financing inflows likely relate to debt drawdowns or other financing activities. Overall, cash earnings quality is reasonable, but sustainability of FCF will depend on moderating capex and normalizing inventory in the coming quarters.

Dividend Sustainability

The calculated payout ratio is 78.3%, which is elevated relative to current earnings momentum and low ROE (1.7%), though it may reflect interim timing. FCF coverage of dividends was -1.97x this period due to negative FCF, indicating dividends were not covered by internally generated free cash during the half. However, balance sheet strength (equity ratio 66.6%, cash 353.05) and moderate leverage (D/E 0.50x) provide capacity to maintain distributions near term if policy prioritizes stability. Dividends paid in CF were -14.89, but annual DPS and quarterly DPS are unreported, limiting precise policy assessment. Medium-term sustainability hinges on sustaining OCF growth, improving ROE, and bringing capex toward maintenance levels after current investment wave. Absent visibility on R&D and capital allocation targets, we assume a conservative stance: distributions are supportable by the balance sheet, but FCF coverage needs to improve for long-run durability.

Risk Assessment

Business Risks:

• Automotive cycle exposure and OEM production volatility impacting volumes and pricing
• Program concentration and price-down pressures typical of Tier-1 suppliers
• Product mix risk amid transition to digital clusters/HUDs and evolving HMI standards
• Supply chain disruptions (semiconductors, logistics) affecting costs and deliveries
• Raw material and energy price fluctuations with imperfect pass-through
• FX volatility (USD/JPY, EUR/JPY, CNY/JPY) affecting translation and transaction margins
• Inventory obsolescence risk tied to fast-evolving electronics specifications
• Geopolitical and China demand risks for global auto supply chains

Financial Risks:

• Negative free cash flow due to elevated investing outflows
• Working capital intensity, particularly high inventories, constraining cash conversion
• Refinancing and interest rate risk on short-term loans (184.40), though currently moderate
• Potential mismatch between dividend outflows and internally generated FCF

Key Concerns:

• Sustainability of margin recovery given thin 2.4% net margin
• Low ROE (1.7%) relative to likely cost of equity
• FCF shortfall this period and need for capex payback
• High inventory levels requiring normalization to support OCF

Investment Implications

Key Takeaways:

• Revenue up 2.5% YoY to 1,562.42 with pronounced operating leverage
• Operating income up 52.3% YoY; operating margin circa 3.4%
• Net income 37.35 (+397.9% YoY) with 2.4% net margin; effective tax 23.8%
• EBITDA 116.77 (7.5% margin) evidences improving core profitability
• Strong balance sheet: equity ratio 66.6%, D/E 0.50x, cash 353.05
• OCF/NI at 1.13x supports reasonable earnings quality
• FCF -57.69 due to investing CF -99.71; dividend FCF coverage negative
• Inventories 995.67 highlight working capital intensity and potential OCF lever
• ROE 1.7% remains low; further improvement needed for capital efficiency
• IFRS classification effects add other operating income (~21.21) to bridge OP

Metrics to Watch:

• Operating margin progression and gross margin resilience
• Inventory levels and OCF conversion (OCF/NI, OCF/EBITDA)
• Capex intensity and timing (proxy via investing CF) and resulting FCF
• Debt mix and interest coverage as rates evolve
• Order pipeline/program ramps for digital clusters and HUDs
• FX sensitivity and hedging effectiveness
• ROE trajectory and capital allocation (dividends vs. reinvestment)

Relative Positioning: Within Japanese auto components, Nippon Seiki shows improving profitability on modest growth, supported by a conservatively capitalized balance sheet. Versus larger diversified peers, margins and ROE remain lower, but niche positioning in instrumentation/HMI offers mix-upside potential. Execution on inventory normalization and capex payback will be key to closing the profitability and cash flow gap.

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