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

Nichiryoku (75780) reported FY2026 Q2 standalone results under JGAAP showing material top-line contraction and operating losses offset by large below-the-line gains. Revenue was ¥962.0m, down 14.0% YoY, reflecting demand softness and/or a lower project mix. Operating income was a loss of ¥194.0m (flat YoY per disclosure), indicating that core operations remain in the red. Ordinary income deteriorated further to a loss of ¥222.0m, pressured by non-operating costs including ¥22.0m of interest expense. Despite these losses, net income printed a sizable ¥720.0m profit, implying large extraordinary gains and a tax credit (income tax: -¥7.1m). The calculated net margin is an unusually high 74.84%, confirming that bottom-line strength is non-recurring and not representative of underlying profitability. Asset turnover was 0.118x (Revenue/Assets), and financial leverage 1.50x (Assets/Equity), yielding a DuPont ROE of 13.19%—again driven by one-off gains rather than operating efficiency. Liquidity is tight: current ratio and quick ratio are 0.28x, with negative working capital of -¥1.64bn, pointing to near-term refinancing and cash conversion risks. Solvency appears adequate on a balance-sheet basis with total equity of ¥5.457bn and debt-to-equity of 0.53x, implying moderate leverage. Cash generation is weak; operating cash flow was -¥86.1m, and OCF/NI was -0.12x, indicating low earnings quality given net profits arose outside of operations. Gross profit was disclosed at ¥786.0m, producing an 81.7% gross margin; however, this is internally inconsistent with the reported cost of sales (¥333.2m) and revenue (¥962.0m). We therefore rely on the provided gross profit and margin data but note the inconsistency as a data limitation. No dividends were declared (DPS ¥0), which is prudent given negative OCF and operating losses. Equity ratio was reported as 0.0% (likely not disclosed in XBRL); computed equity ratio based on the balance sheet is approximately 66.7%. With investing cash flows undisclosed and cash/equivalents not reported, liquidity evaluation relies primarily on current assets and liabilities. Overall, the quarter reflects weak core profitability, reliance on extraordinary items to support ROE, and constrained near-term liquidity, tempered by a solid equity base.

Profitability Analysis

ROE decomposition (DuPont) indicates a 13.19% ROE driven by a very high net margin of 74.84%, low asset turnover of 0.118x, and moderate leverage of 1.50x. The net margin is inflated by extraordinary gains, as operating income was -¥194.0m and ordinary income -¥222.0m; hence, ROE is not indicative of recurring earning power. The disclosed gross margin is 81.7% (gross profit ¥786.0m on revenue ¥962.0m), suggesting high value-add/service content, but there is an internal inconsistency with the reported cost of sales figure—interpret margin quality with caution. Operating leverage remains unfavorable: revenue declined 14.0% YoY while operating loss persisted, indicating limited cost flexibility and/or fixed-cost pressure. Interest coverage was -8.8x (operating income/interest expense), underscoring insufficient operating profits to service interest from earnings. EBITDA is undisclosed (0 indicates not reported), restricting analysis of cash-based operating profitability. Overall, core profitability is weak and dependent on extraordinary items to achieve positive net income and ROE.

Growth Assessment

Revenue fell 14.0% YoY to ¥962.0m, pointing to demand headwinds or a weaker project/mix environment. Operating income remained at a loss of ¥194.0m (flat YoY per disclosure), indicating no visible improvement in cost structure or scale efficiency. Ordinary income deteriorated to -¥222.0m, reflecting rising non-operating drag (e.g., interest and other non-operating items). Net income surged to ¥720.0m due to extraordinary gains and a tax credit, which are unlikely to be repeatable and do not reflect fundamental growth. Asset turnover at 0.118x is low, consistent with underutilized assets and/or slow sales velocity. Given negative OCF (-¥86.1m) despite reported net profit, the quality of earnings is weak, and growth is not supported by cash generation. Outlook hinges on stabilizing revenue trends and executing cost control to move operating income toward break-even and positive territory. Without evidence of recurring margin expansion or OCF improvement, near-term growth quality remains fragile.

Financial Health

Liquidity is strained: current assets of ¥632.6m versus current liabilities of ¥2,270.8m produce a current ratio and quick ratio of 0.28x, with negative working capital of -¥1.64bn. Cash and equivalents are not disclosed (reported as 0), limiting visibility on immediate liquidity buffers. Solvency is comparatively robust with total equity of ¥5.457bn against total liabilities of ¥2.890bn, implying a debt-to-equity ratio of 0.53x and a computed equity ratio of roughly 66.7% (despite a reported 0.0%, which appears to be an undisclosed metric). Interest expense was ¥22.0m, and coverage from operations is negative given operating losses, elevating refinancing risk if access to funding tightens. Capital structure is equity-heavy, providing loss-absorption capacity, but near-term cash demands from negative OCF and short-term liabilities require active liquidity management.

Cash Flow Quality

Operating cash flow was -¥86.1m, yielding an OCF/Net Income ratio of -0.12x, signaling low earnings quality as accounting profits were driven by extraordinary items rather than cash-generative operations. Investing cash flow is undisclosed (0 indicates not reported), preventing a robust Free Cash Flow calculation; the provided FCF of 0 likely reflects data unavailability rather than actual breakeven. Working capital dynamics appear adverse given negative working capital of -¥1.64bn and a current ratio of 0.28x; this likely contributed to negative OCF. With EBITDA and depreciation not disclosed, assessing non-cash components of earnings is constrained. Overall, cash conversion is weak, and sustainability of earnings is questionable absent improvement in core OCF.

Dividend Sustainability

The company paid no dividend (DPS ¥0; payout ratio 0.0%), which is consistent with operating losses and negative OCF. Given net income was driven by extraordinary gains and OCF was negative, any resumption of dividends would require a turnaround in recurring profitability and cash generation. FCF coverage is not meaningfully assessable due to undisclosed investing cash flows; the reported 0.00x coverage is data-driven rather than an economic measure. Policy outlook likely remains conservative, prioritizing liquidity and balance sheet resilience over distributions until OCF is sustainably positive and operating income turns positive.

Risk Assessment

Business Risks:

• Revenue decline of 14.0% YoY indicates demand or mix pressure in core operations.
• Persistent operating losses (-¥194.0m) point to inadequate cost flexibility and fixed-cost absorption risk.
• Low asset turnover (0.118x) reflects underutilization and potential project timing risk.
• Dependence on extraordinary gains to deliver net profit undermines earnings visibility.
• Potential pricing pressure and competitive intensity in core service lines.

Financial Risks:

• Tight liquidity with current ratio 0.28x and negative working capital of -¥1.64bn.
• Negative OCF (-¥86.1m) despite reported net profit, indicating weak cash conversion.
• Negative interest coverage (-8.8x), increasing refinancing and covenant risk if debt terms tighten.
• Data limitations on cash, capex, and investing flows hinder forward cash planning.
• Potential volatility in non-operating/extraordinary items impacting bottom-line and equity.

Key Concerns:

• Quality of earnings: net income driven by non-recurring items while core operations lose money.
• Near-term liquidity gap given large short-term liabilities vs. current assets.
• Inconsistency in gross profit vs. cost of sales figures complicates margin assessment.

Investment Implications

Key Takeaways:

• Core profitability remains weak with operating and ordinary losses despite reported net profit.
• ROE of 13.19% is not sustainable without recurring operating earnings and OCF improvement.
• Liquidity is the key near-term constraint; current ratio 0.28x and negative working capital require attention.
• Balance sheet solvency is adequate (equity ratio ~66.7%, D/E 0.53x), providing cushion.
• Data gaps (cash, capex, investing CF) limit precision; monitor disclosures for updates.

Metrics to Watch:

• Quarterly operating income trajectory and break-even timing.
• Operating cash flow and working capital movements (receivables/payables, advances).
• Revenue stabilization and mix (service vs. product) impacting gross margins.
• Non-operating/extraordinary items and their recurrence.
• Interest expense trends and refinancing profile of short-term liabilities.

Relative Positioning: Within domestic service-oriented peers, Nichiryoku shows weaker near-term operating profitability and liquidity but stronger equity capitalization, implying higher execution risk in the short run and moderate balance-sheet resilience compared to more cash-generative competitors.

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