NANYO CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥16.91B
• Operating Income: ¥1.21B
• Net Income: ¥984M
• 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 Integrated Analysis

Analysis integrating XBRL data (GPT-5) and PDF earnings presentation (Claude)

Executive Summary

Nanyo Co., Ltd. (TSE:7417) reported FY2026 Q2 consolidated results under JGAAP showing a modest top-line decline and sharper profit contraction, alongside solid liquidity and very strong interest coverage. Revenue was ¥16.91bn, down 4.2% YoY, with gross profit of ¥3.739bn and a gross margin of 22.1%, indicating stable but not expanding pricing/spread dynamics. Operating income fell 9.7% YoY to ¥1.214bn as operating margin compressed to roughly 7.2%, implying some operating deleverage and/or cost inflation not fully passed through. Ordinary income was ¥1.297bn, aided by low interest expense (¥11m), and net income declined 17.2% YoY to ¥814m as tax expense normalized higher. EPS was ¥65.41 for the half-year. The DuPont breakdown yields a calculated ROE of 3.12% based on a 4.81% net margin, 0.426x asset turnover, and 1.52x financial leverage; this highlights modest profitability and asset intensity as the key ROE drivers rather than leverage. EBITDA was ¥2.257bn, with a 13.3% margin, underpinned by sizable depreciation and amortization of ¥1.043bn, suggesting a relatively asset-heavy business (likely equipment-related or lease/installation assets). Cash generation was weaker than earnings: operating cash flow (OCF) of ¥406m implies OCF/net income of 0.50, pointing to working capital consumption or timing effects in collections and payables. The balance sheet remains conservative: total assets of ¥39.7bn against liabilities of ¥15.5bn (debt-to-equity 0.60x by total liabilities/equity) and current ratio of 175%, with quick ratio at 157%, supporting liquidity resilience. Interest coverage is very strong at 110x, indicating minimal refinancing or interest-rate risk under current conditions. Reported effective tax rate is shown as 0.0% in the metrics table, but based on disclosed income tax of ¥517m and net income of ¥814m, the implied effective tax rate is about 38.9%, suggesting a more normalized tax burden as a factor in the larger YoY decline in net income. Free cash flow cannot be assessed precisely because investing cash flow and capex data are not disclosed (zeros likely represent non-disclosure rather than true zero). Dividend data (DPS and payout ratio) are not disclosed in this dataset; financing cash outflow of ¥675m may reflect dividends, share repurchases, or debt reduction. Overall, Nanyo exhibits defensible margins and strong solvency but faces near-term growth softness and cash conversion challenges, resulting in a subdued interim ROE. Data limitations (notably cash, investing flows, DPS, and share counts) temper precision of certain conclusions.

From Earnings Presentation: Nanyo's Q2 FY March 2026 results showed revenue of 16,910 million yen (down 4.2% YoY) and operating income of 1,214 million yen (down 9.7%) due to weakened purchasing appetite from price inflation and corporate capital investment restraint. The construction machinery business achieved revenue and profit growth (up 4.4%/up 10.5%) driven by improved rental utilization rates, but the industrial equipment business saw revenue and profit decline (down 8.6%/down 21.1%) due to capital investment restraint, and the aggregate business also experienced significant profit decline (down 34.8%/down 55.6%) due to the loss of special demand from the previous year. The balance sheet showed decreased current assets from reduced trade receivables, while current liabilities were also compressed through reduced trade payables, maintaining financial soundness with an equity ratio of 65.6% (up 3.3pt). Operating cash flow improved significantly to 1,116 million yen (from 406 million yen in the previous year), with investments in rental machinery of 659 million yen and dividend payments of 796 million yen. Full-year forecasts project revenue of 37,000 million yen (up 1.3%), operating income of 2,750 million yen (down 3.6%), and net income of 2,050 million yen (up 0.6%) due to gains on sales of investment securities. The dividend will be increased to 58 yen (up 10 yen), maintaining a dividend payout ratio of 35.2%.

Financial Analysis

Profitability

ROE of 3.12% (DuPont) reflects: Net Profit Margin 4.81% × Asset Turnover 0.426 × Financial Leverage 1.52. Margin quality: gross margin at 22.1% appears stable, while operating margin around 7.2% indicates that SG&A and other operating costs grew faster than sales, driving a larger YoY decline in operating income than in revenue. The net margin compressed more sharply, influenced by a normalized tax burden (implied ~38.9% effective rate) and limited non-operating drag (interest expense only ¥11m). EBITDA margin of 13.3% underscores meaningful non-cash D&A (¥1.043bn), consistent with asset intensity; this cushions cash earnings but does not offset the YoY operating compression. Operating leverage: With revenue down 4.2% and operating income down 9.7%, incremental margins were negative in the period, evidencing operating deleverage and/or cost inflation in personnel/logistics/components. Interest coverage of 110x demonstrates that profitability is not constrained by financing costs. Overall profitability is adequate but not robust, and asset turnover below 0.5x constrains ROE absent higher margins.

Growth

Top-line contracted 4.2% YoY to ¥16.91bn, indicating softer demand or slower project timing. Profit growth was weaker: operating income -9.7% YoY and net income -17.2% YoY, signaling margin pressure and a higher effective tax rate. Revenue sustainability depends on order intake and backlog conversion (not disclosed); the stable gross margin suggests pricing discipline, but the drop in operating margin points to elevated overhead or project mix headwinds. Profit quality is mixed: EBITDA remained healthy, but OCF lagged net income (0.50x), implying working capital investment or slower collections that could persist if sales mix skews toward longer-cycle projects. Outlook near term: without backlog or segment detail, base-case implies modest recovery contingent on demand normalization in core industrial/equipment markets and improved cost pass-through; sustained gross margin stability with tighter SG&A control would be required to re-expand operating margin. Medium term, ROE enhancement hinges on improving asset turnover (faster project cycles, better inventory/AR turns) and maintaining margin discipline.

Financial Health

Liquidity is sound: current ratio 174.9% and quick ratio 157.2%, supported by sizeable current assets (¥25.18bn) relative to current liabilities (¥14.40bn). Working capital stands at ¥10.78bn, offering a buffer to support project execution and receivables. Solvency is conservative: total liabilities/ equity at ~0.60x and financial leverage at 1.52x (assets/equity), indicating moderate balance sheet risk. Interest burden is minimal (¥11m), and interest coverage of 110x provides strong headroom against rate increases. Equity ratio is shown as 0.0% in the dataset but should be interpreted as undisclosed; based on totals, the equity ratio would approximate 65.7% (¥26.06bn equity/¥39.70bn assets), reinforcing balance sheet strength. Cash and equivalents are shown as zero but are likely undisclosed; liquidity conclusions rely on current assets and ratios rather than cash alone.

Cash Flow

Earnings quality is tempered by weaker cash conversion: OCF of ¥406m vs net income of ¥814m (OCF/NI = 0.50) suggests working capital outflows, potentially higher receivables given the business model and timing of project deliveries. Free cash flow cannot be reliably calculated because investing cash flow (and capex) are not disclosed in this dataset; the reported 0 should be treated as non-disclosure. EBITDA of ¥2.257bn provides a cushion for cash generation, but the divergence between EBITDA and OCF indicates material working capital swings. With inventories at ¥2.545bn, the larger driver is likely receivables and/or unbilled work rather than inventory build, though detailed components are not provided. Financing cash outflow of ¥675m suggests uses of cash (dividends, buybacks, or debt repayments) despite modest OCF; absent cash balance detail, coverage cannot be precisely assessed. Monitoring OCF/NI normalization in subsequent quarters will be key to validating earnings quality.

Dividend Sustainability

Dividend data (annual DPS and payout ratio) are not disclosed in this dataset; the zeros should not be interpreted as actual zero dividends. Financing CF of -¥675m may include dividend payments, but the split is not provided. Payout sustainability assessment is therefore constrained. From a capacity standpoint, the company’s strong balance sheet (low leverage, ample working capital) and high interest coverage indicate flexibility to maintain shareholder returns, contingent on cash generation. However, with OCF/NI at 0.50 in the half-year and FCF not observable (investing CF undisclosed), near-term dividend coverage from free cash is uncertain. Policy outlook cannot be inferred without management guidance; historically, similar firms target stable dividends with earnings-linked adjustments. Key will be the trajectory of working capital release in H2 and the visibility of capex requirements.

Business Outlook

Full-year forecast projects revenue of 37,000 million yen (up 1.3% YoY), operating income of 2,750 million yen (down 3.6%), and ordinary income of 2,900 million yen (down 6.9%). While expecting strong performance from the rental division of the construction machinery business and steady performance from manufacturing subsidiaries in the industrial equipment business, the challenging business environment is expected to continue. The medium-term plan through March 2028 aims to expand product and merchandise lineups in growth markets (semiconductors, AI, labor-saving, environment) for the industrial equipment business, and to return to a growth trajectory by demonstrating comprehensive capabilities in sales, rental, and service for the construction machinery business. The company will promote expansion into new domains through M&A and strengthen organizational capabilities (management talent development, dispatching managers and accounting personnel to subsidiaries), establishing a local subsidiary in Vietnam in April 2025 to strengthen ASEAN expansion. Through sustainability management (identifying 11 material issues), the company will focus on expanding sales of environmentally-friendly products, talent development, and governance improvement, while maintaining a dividend payout ratio of 35% and implementing growth investments through internal reserves.

Management Guidance

Management identifies 'weakened purchasing appetite due to price inflation and corporate capital investment restraint' as the primary cause of current conditions, clarifying their commitment to 'invest in human capital and focus on strengthening business foundations' even in challenging environments. The medium-term plan presents a two-stage strategy with a basic policy of 'securing stable earnings from existing businesses and strengthening business foundations for future growth,' positioning FY March 2026 as a period of 'upfront investment in business foundation strengthening' and aiming to 'materialize the results of business foundation strengthening' by FY March 2028. M&A criteria are explicitly stated: 'companies with distinctive technologies and know-how that can create synergies with existing businesses,' 'companies where management integration and corporate culture fusion can be achieved,' and 'acquiring companies with sound financial standing at appropriate prices.' The company is considering expanding products for semiconductor front-end processes, in-house maintenance for construction machinery business, and acquiring rental and parts manufacturers. Management has demonstrated a policy of strengthening shareholder returns through gains on sales of investment securities and dividend increases, while maintaining a medium-term dividend payout ratio of 35%.

Strategic Initiatives

• Industrial Equipment Business: Expand product and merchandise lineups in growth markets (next-generation semiconductors, AI, labor-saving, environment) and actively develop sales through collaboration with partner manufacturers
• Industrial Equipment Business: Strengthen ASEAN expansion by establishing Vietnam local subsidiary in April 2025, address China risks and provide local support to companies relocating to Japan
• Industrial Equipment Business: Strengthen technical proposal capabilities as an engineering trading company through joint development with manufacturing subsidiaries and venture companies
• Construction Machinery Business: Reconstruct sales structure and develop customers in vacant territories by reopening Kitakyushu branch in April 2025
• Construction Machinery Business: Increase awareness of sewer rehabilitation pipe drilling machine 'Nanyo Mole e-bi' and promote development of proprietary new products
• Construction Machinery Business: Launch project team from fiscal 2025 to accelerate development of new markets and products related to ICT and environment
• M&A Strategy: Consider acquisitions of semiconductor front-end process products, distinctive construction machinery trading companies, rental companies, and parts manufacturers
• M&A Framework: Strengthen group management structure by developing management talent and dispatching managers and accounting personnel to subsidiaries
• Sustainability: Identify 11 material issues (climate change response, circular economy, talent development, governance, etc.) and promote sales of environmentally-friendly products and building sound corporate structure

Risk Assessment

Business Risks:

• Demand cyclicality in industrial equipment and project businesses affecting order intake and utilization
• Margin pressure from input cost inflation and limited pass-through in the short term
• Project execution timing leading to revenue recognition lumpiness and working capital swings
• Customer concentration or industry exposure risk (not disclosed) potentially amplifying volatility
• Competitive pricing in specialized trading/equipment markets constraining gross margin expansion

Financial Risks:

• Cash conversion risk as evidenced by OCF/NI of 0.50 in the period
• Potential receivable collection delays increasing credit risk and funding needs
• Visibility on capex/investing flows is limited; asset intensity (high D&A) may imply ongoing cash needs
• Dividend/buyback commitments (if any) could pressure cash if working capital remains elevated
• Tax rate normalization (~39% implied) reduces net margin sensitivity to earnings downdrafts

Key Concerns:

• Operating deleverage with revenue down 4.2% but operating income down 9.7%
• Net income decline of 17.2% YoY, exacerbated by higher effective tax burden
• Subpar cash conversion during the half, indicating working capital absorption
• Limited disclosure on investing cash flows, cash balance, and dividend specifics constrains visibility

Risk Factors from Presentation:

• Risk of continued weakened purchasing appetite due to price inflation (primary cause for industrial equipment business)
• Risk of prolonged corporate capital investment restraint (negative factor for industrial equipment business)
• Continuing challenges in construction industry including product price increases, long lead times, labor shortages, and management risks for small and medium enterprises
• Risk of capital investment deferral due to low factory utilization rates in semiconductors and industrial equipment
• Variability and timing shifts of large projects in aggregate business (impact of loss of special demand from previous year)
• Impact of cost increases causing capital investment restraint among small and medium enterprises
• Risk of profitability deterioration due to foreign exchange fluctuations, supply chain delays, and procurement price fluctuations
• Difficulty of management integration and corporate culture fusion post-M&A (being addressed through talent development and dispatch framework)

Investment Implications

Key Takeaways:

• Revenue softness and operating deleverage led to sharper profit contraction than sales decline
• ROE of 3.12% is constrained by modest margins and low asset turnover, not leverage
• Liquidity and solvency are strong, with conservative leverage and high interest coverage
• Cash conversion lagged earnings (OCF/NI 0.50), pointing to near-term working capital headwinds
• Data gaps (cash, investing flows, DPS) limit precision on FCF and shareholder return capacity

Metrics to Watch:

• Order intake and backlog progression
• OCF/Net income and working capital days (DSO/DIO/DPO)
• Gross and operating margin trajectory, particularly SG&A efficiency
• Capex and investing cash flows (including lease asset additions)
• Effective tax rate normalization path
• Asset turnover improvement and inventory/receivable turns

Relative Positioning: Relative to domestic specialized trading/equipment peers, Nanyo exhibits stronger-than-average balance sheet strength and interest coverage, but lower ROE due to modest margins and asset intensity; near-term underperformance in cash conversion and revenue growth places it in a more defensive, quality-balance-sheet cohort rather than a high-ROE growth peer group.

Supplementary Insights (Key Highlights)

• The rental division of the construction machinery business captured strong private sector demand, becoming the only segment with profit growth at operating income of 979 million yen (up 10.5% YoY)
• The industrial equipment business showed significant negative operating leverage effects, with operating income down 21.1% against an 8.6% revenue decline, highlighting the challenge of reduced fixed cost absorption capacity
• Operating cash flow improved by 710 million yen from 406 million yen to 1,116 million yen, resolving the weak cash generation capability pointed out by GPT analysis in the first half results
• As of November 10, 2025, full-year earnings forecast was revised with operating income downwardly adjusted to 2,750 million yen, while net income maintained at 2,050 million yen due to gains on sales of investment securities
• Dividend increased to 58 yen total (interim 10 yen, year-end 48 yen), up 14.9% from 50.5 yen in the previous year, strengthening shareholder returns
• Personnel expenses increased by 45 million yen, with investment in human capital contributing to the operating income decline
• Current ratio of 187.7% and equity ratio of 65.6% demonstrate top-tier financial safety, consistent with GPT analysis evaluation of 'solid balance sheet'
• Medium-term management plan NANYO2025-2027 targets revenue of 45,000 million yen and ordinary income of 3,500 million yen (ROE 8.0%) for fiscal year ending March 2028, prioritizing business foundation strengthening

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
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