NICHIHA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥71.08B
• Operating Income: ¥3.49B
• Net Income: ¥2.46B
• EPS: ¥73.27

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: A resilient but low-return quarter—Nichihacompensation preserved operating profit growth despite softer demand, but capital efficiency remains weak. Revenue declined 2.7% year over year to 710.8, while operating income inched up 1.7% to 34.9, indicating effective cost control. Ordinary income rose a stronger 14.4% to 37.0, aided by net non-operating gains (dividends and interest income offsetting interest expense). Net income jumped 34.9% to 24.7, supported by improved margins and a manageable tax rate of 29.1%. Gross margin stands at 35.1%, and operating margin is approximately 4.9%. Based on last year’s implied figures, operating margin expanded by roughly 21 bps (to ~4.91% from ~4.70%), despite lower revenues. EBITDA was 61.4 with an EBITDA margin of 8.6%, and interest coverage was solid at 18.3x. Cash flow quality was healthy: operating cash flow of 32.3 exceeded net income (OCF/NI 1.31x). Free cash flow (OCF minus reported capex) appears positive at about 10.2, although full investing cash flows were not disclosed. Total comprehensive income was negative (-4.9), likely reflecting valuation losses in other comprehensive income (e.g., investment securities), which is a watch-item for equity market sensitivity. The balance sheet is strong with a current ratio of 270% and debt-to-equity of 0.41x, underpinned by cash and deposits of 228.7. However, capital efficiency is weak: ROE is only 2.1% and ROIC is 2.2% (below the 5% warning threshold), reflecting low asset turnover (0.42x) and modest margins. Working capital remains heavy (inventories 185.9, receivables 199.6), tying up capital and depressing ROIC. Shareholder returns included buybacks of 21.8, exceeding estimated FCF and implying partial funding from cash or debt. With housing-related demand soft and cost pressures fluid (energy/raw materials), sustaining margin gains will require continued pricing/efficiency. Near-term outlook: stable profitability supported by cost control and non-operating income, but structurally low returns signal the need for further efficiency and portfolio measures to lift ROIC.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 3.5% × 0.420 × 1.41 ≈ 2.1%. Component changes: Operating margin improved modestly (~+21 bps YoY to ~4.9%) while revenue fell 2.7%, implying net margin likely improved slightly; asset turnover likely dipped due to lower revenue against a relatively stable/large asset base; leverage (1.41x) remains conservative and likely little changed. Business drivers: Cost discipline and perhaps pricing/mix supported operating profit in the face of softer topline; non-operating income (dividends 1.62, interest 0.69) more than offset non-operating expenses (interest expense 1.91), amplifying ordinary income growth. Sustainability: Incremental operating margin gains appear achievable if cost control continues, but dependence on non-operating items is inherently variable; with asset turnover at 0.42x and heavy working capital, structural ROE uplift requires inventory/receivable efficiency or asset-light growth. Flags: SG&A was reported in aggregate at 214.7 (no YoY breakdown), but given revenue contraction and flat-to-up OI, SG&A discipline appears adequate; nonetheless, any SG&A growth exceeding revenue would pressure margins given the low starting OPM.

Growth Assessment

Topline declined 2.7% YoY to 710.8 amid likely weaker housing-related demand. Operating income grew 1.7% to 34.9 on efficiency and cost control, evidencing some operating leverage discipline despite negative sales growth. Ordinary income rose 14.4% thanks to net non-operating gains; this element is less predictable quarter to quarter. Net income increased 34.9% to 24.7 with an effective tax rate of 29.1%. Gross margin at 35.1% and EBITDA margin at 8.6% point to stabilized cost structures versus last year. However, ROIC of 2.2% underscores low intrinsic growth returns on capital. Revenue sustainability near term looks challenged by domestic housing starts softness and potential price competition; offsetting levers include product mix, pricing, and energy/transport cost normalization. Profit quality is acceptable (OCF > NI), but total comprehensive loss points to equity market sensitivity through investment securities. Outlook: expect flattish-to-modest profit progression if cost control persists; structural growth likely requires working capital efficiency and possibly higher value-added product penetration to lift ROIC/AT.

Financial Health

Liquidity is strong: current ratio 270.5% and quick ratio 207.5%, with cash and deposits of 228.7 against current liabilities of 295.0. Solvency is conservative: debt-to-equity 0.41x; long-term loans 130.2 and short-term loans 26.8 are comfortably covered by cash and EBITDA (Debt/EBITDA 2.56x; interest coverage 18.29x). No explicit red flags: Current Ratio well above 1.0 and D/E far below 2.0. Maturity mismatch risk appears low: cash plus receivables (428.3) exceed short-term obligations (294.9); inventories (185.9) provide additional buffer. Off-balance sheet obligations were not disclosed; given industry norms, lease and purchase commitments may exist but are unreported here.

Cash Flow Quality

OCF of 32.3 exceeds net income of 24.7 (OCF/NI 1.31x), indicating decent earnings quality. Working capital movements are not disclosed, but positive OCF alongside declining revenue suggests no aggressive working capital release; if anything, cash conversion appears adequate. Capex was 22.1, implying approximate FCF of 10.2 (OCF minus capex) before other investing flows (full investing CF unreported). Financing CF was -43.1, including share repurchases of -21.8; absent dividend disclosure, aggregate shareholder returns likely exceeded FCF, funded by cash and/or incremental debt. No signs of manipulation are evident from the limited data, but elevated inventories relative to sales warrant monitoring for cash conversion risk.

Dividend Sustainability

Dividend data (DPS, total dividends) were not disclosed; the reported payout ratio (calculated) of 172.5% suggests potential unsustainability if accurate, but underlying inputs are unclear. With estimated FCF of ~10.2 and buybacks of 21.8 already exceeding FCF, total shareholder returns likely surpassed internally generated cash this period. Balance sheet strength (cash 228.7, low leverage) provides flexibility to maintain distributions temporarily, but sustainable policy would require either higher OCF or moderated distributions. Until clearer DPS and total dividend figures are available, treat payout metrics as provisional and monitor FCF coverage closely.

Risk Assessment

Business Risks:

• Domestic housing demand softness pressuring volumes (revenue -2.7% YoY).
• Raw material and energy cost volatility (cement, pulp/silica, fuel, logistics) impacting margins.
• Competitive pricing in exterior building materials limiting pricing power.
• Inventory risk given sizable inventories (185.9) vs sales, with potential obsolescence/discounting.

Financial Risks:

• Low capital efficiency (ROIC 2.2%, ROE 2.1%) reducing value creation and resilience.
• Shareholder returns exceeding FCF (buybacks 21.8 > est. FCF ~10.2) increasing reliance on cash balances.
• Market valuation exposure via investment securities (OCI loss driving total comprehensive income to -4.9).
• Interest rate risk on 157.0 of loans (26.8 short-term, 130.2 long-term), though coverage is currently strong.

Key Concerns:

• Sustainability of margin gains with declining revenue.
• Working capital intensity depressing asset turnover (0.42x) and ROIC.
• Visibility on dividends and total shareholder return policy due to unreported DPS/total dividends.

Investment Implications

Key Takeaways:

• Operational resilience: OI +1.7% despite revenue -2.7% and OPM expanded ~21 bps.
• Healthy cash generation: OCF/NI 1.31x; estimated positive FCF after capex.
• Balance sheet strength: current ratio 270%, D/E 0.41x, ample cash.
• Capital efficiency weak: ROIC 2.2% and ROE 2.1% driven by low asset turnover.
• Non-operating items supportive this quarter but inherently volatile; OCI swing delivered negative comprehensive income.
• Shareholder returns (buybacks) exceeded FCF, implying draw on balance sheet.

Metrics to Watch:

• Order trends and revenue trajectory vs domestic housing starts.
• Operating margin and gross margin durability amid input cost changes.
• Working capital turns (inventory days, receivable days) to lift asset turnover.
• ROIC progression (target >5% medium-term) and capex discipline.
• OCI sensitivity via investment securities and market conditions.
• Cash conversion (OCF/NI) and FCF coverage of dividends/buybacks.

Relative Positioning: Within Japan building materials/exterior siding peers, Nichiha exhibits stronger balance sheet liquidity and conservative leverage but lags on capital efficiency and growth, relying more on cost control and non-operating income to sustain earnings in a soft demand environment.

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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