NICHIRYOKU CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥962M
• Operating Income: ¥-194M
• Net Income: ¥720M
• EPS: ¥42.57

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: Weak core performance with a surprise bottom-line profit driven by non-recurring items and poor cash conversion. Revenue was 9.62 (−14.0% YoY), with gross profit of 7.86 (GP margin 81.7%), but SG&A of 8.55 exceeded gross profit, resulting in operating loss of −1.94 (operating margin −20.2%). Non-operating items netted to a loss (0.18 income vs 0.30 expense), taking ordinary income to −2.22. Despite this, Net Income was reported at +7.20, implying large below-the-line gains or special factors not visible in the dataset. Profit before tax is shown at −0.81 and tax at −0.07, which does not reconcile with the positive net income, pointing to extraordinary gains or accounting items (e.g., extraordinary gains, reversal of valuation allowances, or discontinued operations) not detailed in the XBRL fields. Cash flow quality was weak: Operating CF was −0.86, yielding an OCF/NI ratio of −0.12x, far below the 0.8x threshold. Liquidity is a major concern: current assets of 6.33 vs current liabilities of 22.71 produce a current ratio of 0.28 and negative working capital of −16.38. Debt service capacity is stretched with interest coverage at −8.81x and short-term loans at 5.38 against cash of only 1.07. Balance sheet leverage (D/E 0.53x) is moderate, but the maturity profile is unfavorable, increasing refinancing risk. ROE prints at 13.2% per DuPont, but it is inflated by a one-off net margin of 74.8%; ROIC at −2.8% shows value destruction at the core. With revenue down double digits and SG&A sticky, operating leverage is negative. The reported EPS is 42.57 JPY, but earnings quality is low due to the gap between NI and OCF. Forward-looking, stabilization hinges on cost discipline, restoring positive operating margin, and securing liquidity; reliance on non-recurring gains is not a sustainable strategy. Data gaps (extraordinary items, investing cash flows, SG&A breakdown) limit visibility and add uncertainty to the outlook.

Profitability Analysis

ROE decomposition (DuPont): ROE 13.2% = Net Profit Margin 74.8% × Asset Turnover 0.118 × Financial Leverage 1.50x. The component that changed the most versus a normal run-rate is the Net Profit Margin, which is anomalously high given operating loss and ordinary loss; this reflects non-recurring items below the operating line. Business driver: extraordinary gains and/or tax-related effects likely boosted net income despite weak core operations. Sustainability: low—such below-the-line support is typically non-recurring; without operating profit recovery, ROE will normalize downward. Concerning trend: SG&A (8.55) exceeded gross profit (7.86), indicating negative operating leverage; with revenue down 14% YoY and no disclosed SG&A cuts, cost growth/stickiness is outpacing revenue. Operating margin was −20.2%, and interest expense (0.22) further widened losses at the ordinary income level.

Growth Assessment

Top line contracted 14.0% YoY to 9.62, signaling demand softness and/or lower project/lot sales. Gross margin remained high at 81.7%, implying mix/pricing resilience or a model with low cost of sales, but this was insufficient to offset SG&A burden. Operating income deteriorated to −1.94, with non-operating net loss of −0.12 and ordinary loss of −2.22. The jump to Net Income of 7.20 is likely driven by extraordinary items; therefore, profit growth is not indicative of underlying momentum. With ROIC at −2.8%, invested capital is not generating adequate returns, suggesting structural profitability challenges. Near-term outlook depends on cost rationalization and revenue stabilization; without these, ordinary profit is likely to remain negative. No segment data are available, limiting visibility into where the revenue decline is concentrated. Absent clear recurring profit drivers, current earnings power appears below normalized potential, and reliance on non-operating/extraordinary gains is not a repeatable growth strategy.

Financial Health

Liquidity is weak: current ratio 0.28 (<1.0 warning) and quick ratio 0.28, with current assets 6.33 vs current liabilities 22.71, yielding negative working capital of −16.38. Cash is 1.07 against short-term loans of 5.38 and total current liabilities of 22.71, implying elevated near-term refinancing and liquidity risk. Solvency is moderate by leverage metrics (D/E 0.53x; total liabilities 28.90 vs equity 54.57), but the maturity structure is unfavorable. Interest-bearing debt split shows short-term 5.38 and long-term 3.61; interest coverage is −8.81x (warning), indicating poor debt service capacity from operations. No off-balance sheet obligations are disclosed in the dataset; data limitations may hide lease commitments or guarantees. Equity base of 54.57 (BVPS ~314 JPY) provides cushioning, but liquidity, not solvency, is the binding constraint.

Cash Flow Quality

OCF was −0.86 versus Net Income 7.20, resulting in OCF/NI of −0.12x, a clear quality red flag (<0.8). Financing CF was −0.88, suggesting debt repayment or reduced borrowings amid negative OCF, pressuring cash. Capex was minimal at −0.01, but full investing CF is unreported, limiting FCF analysis. On a simple proxy basis (OCF − Capex), free cash flow appears around −0.87, indicating internal cash generation does not cover even small reinvestment needs, let alone dividends or debt service. Working capital drivers are not disclosed; however, given the large current liability position and negative OCF, outflows could be tied to payables and other accrued items or lower collections. No clear signs of working capital manipulation can be confirmed from available data, but the OCF/NI gap suggests the reported net profit is not cash-backed.

Dividend Sustainability

Dividend data (DPS, total dividends) are unreported, so payout metrics cannot be calculated. Given negative OCF (~−0.86), operating loss (−1.94), and a very low current ratio (0.28), internal cash generation is insufficient to support distributions without drawing on cash or financing. Retained earnings stand at 12.06, but liquidity constraints and debt service needs (interest expense 0.22; short-term loans 5.38) suggest a conservative stance would be warranted to preserve cash. Without recurring positive FCF, dividend coverage appears weak on current fundamentals; policy outlook is uncertain due to lack of disclosures and the reliance on non-recurring items in net profit.

Risk Assessment

Business Risks:

• Demand softness leading to 14% YoY revenue decline
• Negative operating leverage as SG&A exceeds gross profit
• Dependence on non-recurring gains to achieve profitability
• Potential pricing pressure or mix shifts not visible due to data gaps
• Execution risk in cost restructuring to restore operating margin

Financial Risks:

• Liquidity risk: current ratio 0.28 and cash 1.07 vs current liabilities 22.71
• Refinancing risk: short-term loans 5.38 amid negative OCF
• Debt service risk: interest coverage −8.81x
• Earnings quality risk: OCF/NI −0.12x indicates low cash backing
• ROIC −2.8% implies ongoing value destruction if sustained

Key Concerns:

• Inconsistency between profit before tax (−0.81) and net income (+7.20), implying undisclosed extraordinary effects
• Working capital deficit (−16.38) constraining operations
• Sensitivity to any tightening in credit availability given weak cash generation
• Limited disclosure (SG&A breakdown, investing CF, extraordinary items) reduces transparency

Investment Implications

Key Takeaways:

• Core business loss-making: operating margin −20.2% on 9.62 revenue
• Headline ROE 13.2% is not reflective of core earnings power due to one-off net margin
• Liquidity is the primary near-term constraint (current ratio 0.28; cash 1.07)
• OCF negative and below NI indicates low-quality earnings
• ROIC −2.8% highlights need for restructuring or mix improvement

Metrics to Watch:

• Operating margin and SG&A trajectory vs revenue
• Operating cash flow and working capital movements
• Details of extraordinary income/tax effects driving net income
• Refinancing schedule and cost of short-term borrowings
• Cash balance relative to upcoming obligations
• Interest coverage and covenant headroom (if disclosed)

Relative Positioning: Versus small-cap domestic peers, the company exhibits weaker liquidity, worse cash conversion, and higher dependence on non-recurring items to sustain net profit; balance sheet leverage is moderate, but the short-term maturity profile heightens near-term risk.

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