NANYO CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥16.91B
• Operating Income: ¥1.21B
• Net Income: ¥814M
• EPS: ¥65.41

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 soft quarter with top-line contraction and margin compression leading to double-digit declines in ordinary and net income, partially cushioned by solid operating cash flow. Revenue fell 4.2% YoY to 169.1, with operating income down 9.7% to 12.14 and ordinary income down 13.4% to 12.97. Net income declined 17.2% to 8.14, implying a net margin of 4.8%. Gross profit came in at 36.51 (gross margin 21.6%), while SG&A was 24.37 (SG&A ratio 14.4%), resulting in an operating margin of 7.2%. Based on YoY changes, we estimate operating margin compressed by about 44 bps (from ~7.6% to 7.2%) and net margin compressed by roughly 76 bps (from ~5.6% to 4.8%). Non-operating income of 1.10 (dividends 0.29, interest 0.32) contributed meaningfully, with a non-operating income ratio of 13.5%, but was insufficient to offset weaker core profitability. OCF was healthy at 11.16, exceeding net income (OCF/NI 1.37x), indicating decent earnings quality this quarter. Liquidity remains strong with a current ratio of 187.7% and quick ratio of 168.5%, and interest coverage is very strong at 93x. Balance sheet resiliency is underpinned by cash and deposits of 86.8 versus short-term loans of 9.5. Capital intensity is rising modestly with CapEx of 7.84, and ROIC at 4.2% is below the 5% warning threshold, highlighting capital efficiency concerns. Leverage is conservative (D/E 0.52x), but the payout ratio is elevated at 94.3%, which looks stretched relative to profit decline. Free cash flow is not fully disclosed; however, a proxy (OCF – CapEx) suggests positive FCF of roughly 3.3, implying coverage for maintenance needs but leaving less room if dividends are maintained or raised. Strategic implication: management may need to prioritize ROIC improvement and disciplined capital allocation while navigating a softer demand backdrop in capital goods. Near term, preserving margin through cost control and mix, and sustaining cash conversion, will be key to stabilize ROE (3.1%). Medium term, improving asset turnover and lifting core operating margin are the primary levers to restore returns above the cost of capital.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.1% = Net Profit Margin (4.8%) × Asset Turnover (0.426) × Financial Leverage (1.52x). The component under the most pressure is Net Profit Margin, which we estimate fell ~76 bps YoY (to 4.8%), versus a smaller estimated decline in operating margin (~44 bps), suggesting deleveraging below the operating line (non-operating and tax) also weighed on net margin. Business drivers: softer revenue (-4.2% YoY), likely mix headwinds in higher-margin equipment/solutions, and SG&A that did not flex down enough (SG&A ratio 14.4%) compressed operating margin; a higher effective tax rate (37.2%) also dampened net margin. Sustainability: the non-operating income contribution (1.10) from dividends/interest appears recurring but modest and unlikely to offset core margin pressure if demand stays soft. Asset turnover at 0.426 reflects a relatively heavy asset base (TA 397.0) relative to revenue, consistent with a capital goods trading model; without stronger sales velocity, turnover improvement may be gradual. Concerning trends: profit is declining faster than revenue (NI -17.2% vs sales -4.2%), indicating negative operating leverage; also, ROIC at 4.2% is below the 5% warning threshold, underscoring subpar capital efficiency.

Growth Assessment

Revenue contracted 4.2% YoY to 169.1, implying softer demand or project timing delays in core machinery/equipment-related lines. Operating income fell 9.7% to 12.14, outpacing the sales decline, reflecting negative operating leverage and/or mix deterioration. Ordinary income (-13.4%) and net income (-17.2%) suggest added pressure from below-the-line or taxes (effective tax rate 37.2%). EBITDA of 23.01 (13.6% margin) indicates some cushion from depreciation, but EBITDA margin alone did not prevent overall margin compression. Non-operating income (1.10) offered support but is not a key growth engine. With ROIC at 4.2%, incremental growth without margin or turnover improvement may dilute returns; management emphasis should be on selective growth with higher ROIC projects. Outlook: near-term recovery hinges on order intake normalization, execution of higher-margin solution sales, and tighter SG&A control. Absent clear signs of demand re-acceleration, we expect cautious growth with focus on profitability restoration rather than volume push.

Financial Health

Liquidity is strong: current ratio 187.7% and quick ratio 168.5% comfortably exceed benchmarks. No warning for Current Ratio < 1.0 or D/E > 2.0 (D/E is 0.52x). Maturity mismatch risk appears low; current assets 231.8 exceed current liabilities 123.5, and cash (86.8) plus receivables (78.1) cover current liabilities 1.33x. Short-term loans are modest at 9.5, well covered by cash. Total liabilities are 136.4 against equity of 260.6, indicating a conservative capital structure. Interest coverage is very strong at 93.4x, minimizing refinancing stress. Off-balance sheet obligations are not disclosed; potential guarantees or operating lease commitments cannot be assessed with provided data.

Cash Flow Quality

Earnings quality looks sound this quarter with OCF of 11.16 exceeding net income of 8.14 (OCF/NI 1.37x > 1.0), indicating cash-generative earnings. Free cash flow is not fully reported, but using CapEx as a proxy, FCF ≈ 11.16 – 7.84 = 3.32, positive but modest relative to dividend payout expectations. Working capital levels are not fully detailed by period change, but the strong OCF suggests no aggressive working capital drawdown; no signs of manipulation are evident from the limited dataset. Financing CF of -7.96 reflects net outflows (likely dividends and buybacks), with share repurchases of 0.76 reported; dividend cash outflows are unreported, limiting full FCF coverage analysis. Sustainability: if profits stay under pressure and CapEx remains around current levels, sustaining both high payout and buybacks from internal cash could become challenging without drawing on cash balances.

Dividend Sustainability

The calculated payout ratio of 94.3% is well above the <60% benchmark for comfort, appearing stretched given declining earnings. Cash generation (OCF 11.16) and a proxy FCF of roughly 3.3 suggest basic coverage for maintenance and some shareholder returns, but room is tight if dividend levels are elevated. Balance sheet strength (cash 86.8, low leverage) provides flexibility to support dividends in the near term, but doing so would not improve ROIC or capital efficiency. With ROE at 3.1% and ROIC at 4.2%, a high payout may limit reinvestment into higher-return opportunities unless portfolio discipline improves. Policy outlook: without explicit guidance, we assume an intention to maintain dividends, but sustainability would improve if payout ratio normalizes alongside a recovery in earnings.

Risk Assessment

Business Risks:

• Demand cyclicality in capital goods and construction machinery affecting order intake and margins
• Project timing and mix risk leading to quarter-to-quarter volatility in profitability
• Supplier and customer concentration risk typical for specialized equipment trading
• Execution risk in moving toward higher-margin solutions and services
• Currency fluctuation risk on imported equipment and parts

Financial Risks:

• High calculated payout ratio (94.3%) despite profit decline may pressure cash if earnings soften further
• ROIC at 4.2% below 5% warning threshold indicates weak capital efficiency
• Potential working capital swings (receivables/inventory) could strain cash conversion in a downturn
• Exposure to non-operating income (13.5% of operating level) adds variability if financial income declines

Key Concerns:

• Negative operating leverage with operating profit down more than sales
• Margin compression at both operating and net levels
• Limited visibility on investing cash flows and dividend cash outlays due to unreported items
• Tax burden (effective rate 37.2%) limiting net profitability

Investment Implications

Key Takeaways:

• Core profitability softened: sales -4.2% YoY, OI -9.7%, NI -17.2%
• Operating margin compressed by ~44 bps; net margin by ~76 bps
• Cash conversion solid (OCF/NI 1.37x), supporting near-term flexibility
• ROIC 4.2% flags capital efficiency issue; focus should be on mix and asset turnover
• Balance sheet conservative with ample liquidity and minimal short-term refinancing risk
• High payout ratio looks stretched relative to earnings trajectory

Metrics to Watch:

• Order intake and backlog as leading indicators of revenue recovery
• Gross margin and SG&A ratio for evidence of margin stabilization
• OCF/NI and working capital days (AR and inventory turns)
• ROIC progression toward 7–8% target range
• Payout ratio and total shareholder return outflows vs FCF
• Non-operating income volatility (dividend and interest income)

Relative Positioning: Within Japan’s machinery/equipment trading peer set, Nanyo exhibits stronger-than-average liquidity and low leverage but trails on capital efficiency (ROIC 4.2%) and current profitability momentum, leaving it more defensive than high-growth peers but less compelling on returns.

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