NAGAILEBEN Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

In Q2 FY2026, Nagaileben reported Revenue of ¥78.6B (¥+0.2B YoY, +0.2%) essentially flat, while Operating Income decreased to ¥13.8B (¥-1.2B, -7.9%), Ordinary Income to ¥14.8B (¥-0.7B, -4.4%), and Net Income attributable to owners of parent to ¥10.1B (¥-0.5B, -4.5%). A rise in Cost of Sales ratio to 60.6% (prior year 60.2%) and an expansion of SG&A ratio to 21.8% (prior year 20.6%) pressured profitability, causing the Operating Margin to decline 1.5pt to 17.6% (prior year 19.1%). At the ordinary level, interest income of ¥0.6B provided some support but was insufficient to offset the core business decline, shrinking the Ordinary Income margin to 18.8% (prior year 19.7%), down 0.9pt. Progress toward the full-year forecast (Revenue ¥180.0B, Operating Income ¥40.2B, Ordinary Income ¥42.0B, Net Income ¥29.0B) stands at 44% for Revenue, 34% for Operating Income, 35% for Ordinary Income, and 35% for Net Income, below the standard 50% midpoint and suggesting a back-loaded second-half assumption. Operating Cash Flow was negative ¥-4.3B (worsened from ¥-2.3B a year earlier), with working capital expansion—Accounts Receivable +¥7.6B, Inventory +¥6.8B—impeding conversion of profits to cash. Financing Cash Flow was ¥-40.5B, reflecting large shareholder returns including dividend payments of ¥30.5B and share buybacks of ¥10.0B. Investing Cash Flow increased by ¥37.4B due to net maturities/withdrawals of time deposits, while business investment remained limited with Capital Expenditure of ¥1.2B.

Drivers of Performance

[Revenue] Revenue of ¥78.6B was essentially flat YoY (+0.2%). As a single-segment business manufacturing and selling medical wear, demand from healthcare institutions remained firm, but contributions from price revisions and volume/mix were limited. Slower-paced shipments in the first half versus the second half underlie the revenue stagnation.

[Profitability] Cost of Sales totaled ¥47.6B, raising the Cost of Sales ratio to 60.6% (prior year 60.2%), up 0.4pt, as higher raw material and logistics costs compressed gross margin. Gross Profit was ¥31.0B, with Gross Margin declining 0.4pt to 39.4% (prior year 39.8%). SG&A was ¥17.2B, up ¥1.0B YoY (+6.1%), pushing the SG&A ratio to 21.8% (prior year 20.6%), a 1.2pt increase. With Revenue roughly flat, fixed costs such as personnel and logistics rose, reversing operating leverage. Consequently, Operating Income fell to ¥13.8B (¥-1.2B, -7.9%), and Operating Margin declined 1.5pt to 17.6% (prior year 19.1%). Non-operating income totaled ¥1.2B including interest income of ¥0.6B, and non-operating expenses were ¥0.3B, leaving Ordinary Income at ¥14.8B (¥-0.7B, -4.4%) and an Ordinary Income margin of 18.8% (prior year 19.7%). Extraordinary items were immaterial (Extraordinary Income ¥0.007B, Extraordinary Loss ¥0.001B), resulting in Pre-tax Income of ¥14.8B and Net Income attributable to owners of parent of ¥10.1B after income taxes of ¥4.6B (¥-0.5B, -4.5%). The gap between Ordinary Income and Net Income is minimal, with a stable effective tax rate of 31.2% (prior year 31.2%), indicating little impact from one-off items. In summary, the business saw revenue slightly up but profit down due to higher costs.

Key Financial Metrics

[Profitability] The Operating Margin of 17.6% fell 1.5pt from 19.1% last year but remains high for a medical wear manufacturer. The modest decline in Gross Margin to 39.4% (prior year 39.8%) combined with an expanded SG&A ratio of 21.8% (prior year 20.6%) drove deterioration in operating leverage while Revenue was flat. Net Margin contracted to 12.9% (prior year 13.5%) by 0.6pt, and ROE of 2.6% is low on a first-half basis; however, assuming the full-year Net Income forecast of ¥29.0B, projected annual ROE would improve to roughly the mid-to-high single digits (around 7–8%). ROE decomposition shows Net Margin 12.9% × Total Asset Turnover 0.19 × Financial Leverage 1.08x, with low asset turnover primarily caused by large cash holdings and bloated working capital.

[Cash Quality] Operating Cash Flow of ¥-4.3B versus Net Income of ¥10.1B yields an OCF/Net Income ratio of -0.42x, indicating very weak cash conversion. Increases in Accounts Receivable of +¥7.6B and Inventory of +¥6.8B are the main drivers, producing Days Sales Outstanding (DSO) of 151 days, Days Inventory Outstanding (DIO) of 592 days, and Days Payable Outstanding (DPO) of 71 days, for a Cash Conversion Cycle (CCC) of 672 days—significantly prolonged. EBITDA was ¥15.2B (Operating Income ¥13.8B + Depreciation ¥1.4B), yielding an EBITDA margin of 19.4%, but OCF/EBITDA at -0.28x shows weak cash generation.

[Investment Efficiency] Total Asset Turnover was 0.19x (annualized 0.38x), well below the sector median of 0.45, driven by high cash balances of ¥196.2B (47% of total assets) and working capital buildup. Capital Expenditure of ¥1.2B was below Depreciation of ¥1.4B, with a CapEx/Depreciation ratio of 0.86x, indicating conservative investment.

[Financial Soundness] Equity Ratio stands at 92.5% (prior year 92.5%), exceptionally high, with effectively zero interest-bearing debt, D/E ratio of 0.08x, Current Ratio 1471%, and Quick Ratio 1125%, reflecting very strong liquidity resilience. Net cash is ¥196.2B, representing 47% of total assets, providing a substantial financial cushion.

Cash Flow Analysis

Operating Cash Flow was ¥-4.3B, showing a large gap from Pre-tax Income before income taxes of ¥14.8B. The main cause was deterioration in working capital: increase in Trade Receivables -¥7.6B, increase in Inventory -¥6.8B, and increase in Trade Payables +¥1.7B, with receivables and inventory expansion absorbing cash. Operating CF subtotal (before working capital changes) amounted to only ¥1.1B, and even after adding Depreciation of ¥1.4B, the difference from Pre-tax Income of ¥14.8B is impacted by income tax payments of -¥6.1B, among other items. Investing Cash Flow was +¥37.4B, but primarily driven by net maturities/withdrawals of time deposits (receipts ¥192.0B vs placements ¥153.0B), not business investments. Capital Expenditure was modest at ¥1.2B; purchases of investment securities ¥0.01B and sales ¥0.009B were immaterial. Financing Cash Flow was ¥-40.5B, largely due to dividend payments of ¥30.5B and share buybacks of ¥10.0B. Free Cash Flow (Operating CF -¥4.3B + Investing CF ¥37.4B) was positive at ¥33.2B, but this largely reflects temporary movements from time deposit maturities, so persistent cash generation remains weak. Ongoing negative Operating CF (OCF/Net Income -0.42x, OCF/EBITDA -0.28x) indicates that inventory reduction and accelerated receivables collection in the second half are critical to normalization.

Quality of Earnings

With Ordinary Income of ¥14.8B versus Operating Income of ¥13.8B, non-operating income contributed about 8%, though interest income of ¥0.6B (0.8% of Revenue) was a notable support. Interest income stems from investing time deposits and cash totaling ¥196.2B and can be regarded as a stable secondary revenue source from cash holdings. Non-operating expenses of ¥0.3B were minor; foreign exchange gains ¥0.05B and miscellaneous income ¥0.1B were small non-recurring items. Extraordinary items were negligible (Extraordinary Income ¥0.007B from sale of investment securities, Extraordinary Loss ¥0.001B from disposal of fixed assets), clearly separating recurring from one-off items. Comprehensive Income of ¥10.7B exceeded Net Income of ¥10.1B by ¥0.6B, mainly due to Other Comprehensive Income of ¥0.5B from valuation differences on securities. As shown by negative Operating CF, a significant portion of profits is accrual-based, with increases in receivables and inventory lacking cash backing. Earnings quality is centered on recurring core operations, but delayed cash conversion poses a near-term quality risk.

Forecasts & Guidance

Full-year guidance remains unchanged at Revenue ¥180.0B (+6.0% YoY), Operating Income ¥40.2B (+12.3%), Ordinary Income ¥42.0B (+13.3%), and Net Income attributable to owners of parent ¥29.0B. First-half progress ratios are Revenue 44%, Operating Income 34%, Ordinary Income 35%, and Net Income 35%, 10–16pts below the standard 50% progress, implying a back-loaded second-half assumption. Achievement of the second-half targets requires Revenue of ¥101.4B (H1 vs H2 +29%), Operating Income of ¥26.4B (+91% H2 vs H1), Ordinary Income of ¥27.2B (+84%), and Net Income of ¥18.9B (+87%). The plan appears to factor in seasonality of concentrated deliveries to medical institutions and inventory shipment/receivables collection, but given the first-half working capital expansion and higher SG&A ratio, operational improvements in H2 (inventory contraction, accelerated collections, cost containment) are prerequisites. No revision to guidance has been made; the company maintains a second-half recovery scenario.

Shareholder Returns

No interim dividend was paid in H1, but the full-year dividend forecast remains ¥60, unchanged from the prior year. Assuming an average number of shares outstanding of 30,249 thousand shares during the period, the total dividend payout is approximately ¥18B, implying a Payout Ratio of about 62% against the full-year Net Income forecast of ¥29.0B—mid-to-high level. Including the ¥10.0B share buyback executed in H1, the Total Return Ratio is (Dividends ¥18B + Share Buybacks ¥10B) / Net Income Forecast ¥29B = approximately 97%, a high level. Treasury stock decreased substantially from ¥81.1B in the prior year to ¥13.2B, suggesting cancellations or disposals of treasury shares. Retained earnings fell ¥97.6B from ¥454.0B to ¥356.4B, likely driven by dividend payments of ¥30.5B, current period Net Income of ¥10.1B, and impacts from treasury share cancellations and other capital policy actions. Given cash of ¥196.2B and a debt-free profile, dividend sustainability appears high, contingent on achieving the full-year profit forecast. However, persistent negative Operating CF would warrant attention regarding dividend capacity in subsequent years.

Risk Factors

1. Risk of structurally enlarged working capital: Prolonged DSO of 151 days, DIO of 592 days, and CCC of 672 days are notable. If the H1 increases in receivables +¥7.6B and inventory +¥6.8B persist, negative Operating CF could become structural and materially depress asset efficiency. Failure to compress inventory and accelerate collections in H2 raises the risk of full-year negative Operating CF and gradual erosion of liquidity cushions.
2. Risk of profitability impairment from rigid SG&A: The rise in SG&A ratio to 21.8% (prior year 20.6%) was mainly driven by higher fixed costs such as personnel and logistics. With Revenue growth of only +0.2% versus SG&A growth of +6.1%, operating leverage has reversed. If Revenue does not grow as planned, downward rigidity in SG&A could further compress Operating Margin.
3. Risk from back-loaded full-year forecast: H1 progress rates—Revenue 44%, Operating Income 34%—mean H2 must deliver Revenue +29% and Operating Income +91%. While seasonality of medical institution deliveries is a plausible assumption, delays in normalizing inventory/receivables or failure to restrain SG&A could result in missing full-year guidance and affect dividend capacity.

Industry Benchmark (Reference; Company Analysis)

[Relative Positioning] (Reference information; company analysis) Compared with the sector median for Q2 2025 within the trading classification, Nagaileben’s Equity Ratio of 92.5% far exceeds the sector median of 40.0%, placing its financial soundness among the top tier. Conversely, Total Asset Turnover of 0.19x (annualized 0.38x) trails the sector median of 0.45x, indicating inferior asset efficiency, primarily due to high cash ratios and working capital stagnation. Net Margin of 12.9% surpasses the sector median of 7.0%, reflecting strong profitability, but ROE of 2.6% (H1 basis) is well below the sector median of 6.9%, primarily because very low Financial Leverage of 1.08x (sector median 2.34x) restrains capital efficiency. DIO of 592 days greatly exceeds the sector median of 94 days, highlighting severe inventory stagnation. DSO of 151 days is close to the sector median of 160 days, but DPO of 71 days is much shorter than the sector median of 128 days, contributing to an extended CCC of 672 days (sector median 123 days). Cash conversion ratio of -0.42x is far below the sector median of 1.13x, indicating relatively weak cash generation. Revenue growth of +0.2% lags the sector median of +4.5%, showing weaker growth. Overall, while financial soundness and Operating Margin are strengths, asset efficiency, capital efficiency, growth, and cash generation are areas of concern; improving working capital management is key to enhancing competitiveness.

Earnings Highlights / Points to Watch

Key points from the results include: First, significant enlargement of working capital. Increases of Accounts Receivable +¥7.6B and Inventory +¥6.8B pushed Operating CF to ¥-4.3B, with DSO 151 days, DIO 592 days, and CCC 672 days reflecting pronounced lengthening of cycles. Progress in inventory reduction and receivables collection in H2 is a prerequisite for full-year Operating CF normalization and achieving guidance. Second, earnings deterioration from rigid cost structure. While Revenue was only slightly up, SG&A rose +6.1%, shrinking Operating Margin to 17.6% (prior year 19.1%) by 1.5pt. H2 Revenue growth and SG&A restraint are key to margin recovery. Third, maintenance of very high financial soundness and active shareholder returns. With an Equity Ratio of 92.5%, cash of ¥196.2B, and no debt, the company has implemented aggressive shareholder returns (full-year Payout Ratio ~62%, Total Return Ratio ~97%). However, ongoing negative Operating CF warrants attention for the sustainability of returns. Progress in addressing these structural issues will be a focus for future results.

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This report is an earnings analysis document automatically generated by AI based on XBRL financial statement data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information aggregated by the company from public financial statements. Investment decisions are your responsibility; please consult a professional advisor as needed.