Nippi,Incorporated FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥24.02B
• Operating Income: ¥2.06B
• Net Income: ¥1.40B
• EPS: ¥470.15

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: Solid profitability outperformance despite a modest top-line decline, with healthier cash conversion and strong liquidity, but capital efficiency (ROIC/ROE) remains subdued. Revenue fell 3.9% YoY to 240.2, yet operating income rose 24.9% YoY to 20.56 and ordinary income rose 37.7% to 21.46, driving net income up 21.9% to 13.51. Gross profit was 68.64, implying a gross margin of 28.6%, while operating margin expanded to 8.6%. Based on YoY changes, we estimate prior operating income at about 16.46, indicating operating margin expansion of roughly 197 bps (from ~6.6% to ~8.6%). Net margin improved to 5.6%, about a 118 bps expansion versus an estimated prior ~4.4%. Earnings quality was strong: operating cash flow (21.84) exceeded net income (13.51), with OCF/NI at 1.62x. Balance sheet remains solid: current ratio is 185%, quick ratio 134%, and interest coverage 28.6x, with D/E at a moderate 0.73x. Working capital is ample (128.56), and short-term borrowings (47.57) are well covered by cash and receivables. Non-operating income (1.85) contributed but did not dominate earnings; operating drivers led the improvement. However, ROIC at 4.0% (warning level <5%) and ROE at 3.3% indicate capital efficiency remains below desirable thresholds, limiting valuation re-rating catalysts absent structural improvements. The reported (calculated) payout ratio of 128.3% suggests potential mismatch with earnings, though dividend data are otherwise unreported and may include special factors. Assuming capex of 2.00, implied FCF approximates 19.84 (OCF − capex), indicating room to fund dividends and deleveraging if policy permits. Forward-looking, sustaining margin gains against a softer revenue base will hinge on cost control, product mix (collagen/gelatin and specialty materials), and input cost/FX trends. Near-term focus should be on maintaining OCF strength, improving ROIC through disciplined capex and asset efficiency, and clarifying dividend policy to align with free cash generation.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 5.6% × Asset Turnover 0.341 × Financial Leverage 1.73x = ROE 3.3% (matches reported). The largest positive change came from margin expansion: operating income rose 24.9% despite a 3.9% revenue decline, lifting estimated operating margin by ~197 bps (from ~6.6% to ~8.6%) and net margin by ~118 bps (to 5.6%). Business drivers likely include better product mix/pricing and tighter SG&A control (SG&A grew slower than operating profit), and possibly easing input costs. Asset turnover at 0.341 is modest, reflecting a relatively asset-heavy base versus the revenue scale, which depresses ROE alongside low ROIC. Financial leverage at 1.73x is moderate and not a primary ROE driver. Sustainability: cost/mix-driven margin gains can persist if input costs and FX remain stable; however, with revenue down YoY, operating leverage tailwinds may diminish if volumes soften further. Watch for SG&A discipline: current SG&A of 48.07 against gross profit of 68.64 implies a healthy operating spread, but a re-acceleration in SG&A would pressure margins. No red flags from non-operating items; ordinary income improvement tracks operating gains, suggesting quality is acceptable.

Growth Assessment

Top-line declined 3.9% YoY to 240.2, but profit growth was strong (OP +24.9%, NI +21.9%), indicating effective margin management and mix. Operating margin improved to 8.6% and net margin to 5.6%, partially offsetting revenue softness. Revenue sustainability hinges on end-market demand in food, cosmetics, healthcare materials, and industrial segments; the current decline signals some volume/price pressure. Profit quality is supported by OCF > NI (1.62x), limited reliance on non-operating gains, and manageable interest burden. Near-term outlook: stable-to-moderate margin resilience is plausible if input costs and FX remain benign; any raw material or energy cost spike could compress margins. Medium-term, improving asset turnover (inventory and receivable turns) and disciplined capex are needed to lift ROIC above 5–7% thresholds.

Financial Health

Liquidity is strong: current ratio 185.2% and quick ratio 134.1% well above benchmarks; no warning for CR < 1.0. Solvency is comfortable with D/E at 0.73x (below 1.5x benchmark) and interest coverage of 28.56x (very strong). Maturity profile appears manageable: short-term loans 47.57 are covered by cash 92.61 and receivables 87.35; working capital of 128.56 provides additional cushion. Total liabilities 297.83 vs equity 406.09 indicates a conservative capital structure. No disclosed off-balance sheet obligations; none identified in provided data. No explicit warning triggers (D/E > 2.0 not breached).

Cash Flow Quality

OCF/Net Income is 1.62x (>1.0), indicating high-quality earnings with positive working capital dynamics. With capex reported at 2.00, an implied FCF of approximately 19.84 (OCF − capex) suggests internal funding capacity for dividends and debt reduction; however, total investing CF is unreported, so FCF is an approximation. Financing CF of -15.83 indicates outflows (likely debt repayment and a minor share buyback of -0.01). No signs of aggressive working capital manipulation in the limited data; profitability and cash conversion improved concurrently. Sustainability: maintaining OCF > NI will require stable receivable collections and inventory discipline amid lower sales.

Dividend Sustainability

The calculated payout ratio is shown as 128.3%, which would be unsustainably high if based on recurring dividends; however, DPS and total dividends paid are unreported, so this figure may reflect timing or special items. On a cash basis, implied FCF of ~19.84 could cover ordinary dividends if the payout level is moderate; absent DPS disclosure, coverage cannot be fully verified. Policy outlook: with ROIC at 4.0% and ROE at 3.3%, management may prioritize reinvestment to lift capital efficiency or debt reduction over aggressive payouts. Dividend sustainability improves if FCF remains > NI and capex stays disciplined; clarity on dividend policy and cadence is needed.

Risk Assessment

Business Risks:

• Revenue softness (-3.9% YoY) may signal demand or pricing pressure in core end-markets.
• Input cost volatility (raw hides/collagen/gelatin materials and energy) could compress margins.
• FX fluctuations affecting imported inputs and export competitiveness.
• Product mix shifts; reliance on specialty materials could amplify volatility if customer pipelines slow.

Financial Risks:

• Low capital efficiency (ROIC 4.0%, ROE 3.3%) constrains value creation.
• Potential dividend-policy mismatch (calculated payout 128.3%) if recurring, risking cash leakage.
• Moderate leverage (D/E 0.73x) could become less comfortable if OCF weakens, though current coverage is strong.

Key Concerns:

• Sustaining margin gains with declining sales.
• Asset turnover at 0.341 indicates underutilized asset base; inventory and receivable turns warrant monitoring.
• Data gaps (investing CF, DPS, equity-method income) limit full assessment of recurring cash commitments and affiliate contributions.

Investment Implications

Key Takeaways:

• Quality beat on profitability: OP +24.9% and NI +21.9% despite -3.9% revenue, driven by margin expansion.
• Cash conversion robust (OCF/NI 1.62x) and liquidity strong (CR 185%, IC 28.6x).
• Capital efficiency remains the core constraint (ROIC 4.0%, ROE 3.3%).
• Balance sheet flexibility allows continued deleveraging or select investments.
• Dividend stance needs clarification given a calculated payout ratio above 100% amid data gaps.

Metrics to Watch:

• Operating margin trajectory and SG&A growth vs revenue.
• ROIC and ROE progression, including asset turnover improvements.
• OCF/NI ratio and working capital turns (AR and inventory).
• Capex intensity and project returns.
• Input cost and FX trends impacting gross margin.
• Debt mix and short-term loan rollovers vs cash position.

Relative Positioning: Versus peers in materials/ingredients and specialty industrials, the company exhibits stronger near-term margin execution and cash conversion but lags on capital efficiency (ROIC <5%). Leverage and liquidity are conservative, offering resilience, yet sustained re-rating likely requires demonstrable improvements in asset turns and structurally higher ROIC.

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