NICHIHA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥71.08B
• Operating Income: ¥3.49B
• Net Income: ¥1.84B
• 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 Integrated Analysis

Analysis integrating XBRL data (GPT-5) and PDF earnings presentation (Claude)

Executive Summary

Nichiha Co., Ltd. (TSE: 79430) reported FY2026 Q2 consolidated results under JGAAP showing resilient profitability amid a modest top-line contraction. Revenue declined 2.7% YoY to ¥71.1bn, but operating income increased 1.7% YoY to ¥3.49bn, indicating improved cost discipline, pricing/mix, or both. Gross profit was ¥25.07bn, implying a solid gross margin of 35.3%, which helped offset softer volumes. Operating margin stood at 4.9%, supported by contained SG&A and operating efficiency gains. Ordinary income of ¥3.70bn and net income of ¥2.47bn (+34.9% YoY) reflect both stronger operations and a normalized tax burden compared with the prior year. The implied effective tax rate is roughly 28.8% (derived from pre-tax income ≈ ¥3.47bn and income tax expense ¥0.998bn), not 0% (the 0% in calculated metrics stems from missing tags, not actual rates). Cash generation was healthy with operating cash flow (OCF) of ¥3.83bn, yielding an OCF/Net Income ratio of 1.55, supportive of earnings quality. EBITDA was ¥6.18bn, an 8.7% margin, evidencing reasonable operating cash profitability versus sales. The balance sheet remains conservative: equity totals ¥119.6bn against total assets of ¥169.2bn, implying an equity ratio near 70.7% (computed), and total liabilities of ¥53.3bn (D/E ≈ 0.45x). Liquidity appears ample with a current ratio of 247% and a quick ratio of 191%, underpinned by ¥86.0bn in current assets and ¥34.8bn in current liabilities. Inventory stands at ¥19.5bn; working capital is ¥51.2bn, providing cushion amid end-market volatility. Free cash flow cannot be concluded because investing cash flows were not disclosed (reported as zero), but OCF suggests capacity to fund maintenance needs under normal capex. Financing cash outflow of ¥6.58bn likely reflects dividends, share buybacks, or debt service; however, DPS and share data are unreported in this extract. DuPont ROE is 2.06% (net margin 3.47%, asset turnover 0.42x, leverage 1.41x), indicating underutilized capital despite a robust balance sheet. The combination of stable gross margins, improving operating income, and strong liquidity suggests resilience against construction cycle softness. Key limitations include unreported cash balance, investing CF, and dividend/share details; analysis focuses strictly on available non-zero items.

From Earnings Presentation: Nichiha's Q2 FY2026 results showed revenue of 71,083 million yen (down 2.7% YoY), but achieved significant profit growth with operating income of 3,494 million yen (up 1.7%), ordinary income of 3,701 million yen (up 14.4%), and net income of 2,467 million yen (up 34.9%). Domestically, despite a challenging environment with housing starts declining 17.4% and industry siding sales volume down 2.0%, profit growth was secured through price revision effects, absorption of fixed manufacturing costs from inventory changes (+210 million yen), and fixed cost reductions (+250 million yen). U.S. operations saw operating income drop significantly (down 63.2%) due to weak residential demand, while commercial premium products remained solid. Full-year forecasts were revised to sales of 145,000 million yen (down 1.7% from initial forecast), operating income of 10,000 million yen (unchanged), and net income significantly downwardly revised from 7,200 million yen to 3,000 million yen (down 58.3%, primarily due to the absence of 7,007 million yen in fixed asset sale gains). Annual dividend maintained at 114 yen (payout ratio 128.0%). Medium-term management plan scheduled for announcement on November 18. Change in depreciation method from declining balance to straight-line resulted in a 1.33 billion yen reduction in depreciation expenses compared to previous method, also contributing to profit improvement.

Financial Analysis

Profitability

ROE decomposition: Net margin 3.47% × asset turnover 0.420 × financial leverage 1.41 = ROE 2.06%, in line with the reported DuPont result. The modest ROE primarily reflects low asset turnover (0.42x) rather than excessive leverage or anemic margins. Gross margin is healthy at 35.3% (¥25.07bn/¥71.08bn), supporting operating margin of 4.9% (¥3.49bn/¥71.08bn). EBITDA margin at 8.7% (¥6.18bn/¥71.08bn) confirms adequate operating cash profitability. YoY, revenue fell 2.7% but operating income rose 1.7%, indicating positive operating leverage from cost control and/or favorable price/mix more than offsetting volume pressure. Interest burden is minimal with interest expense ¥0.156bn and interest coverage 22.4x (EBIT/interest), insulating earnings from rate volatility. Ordinary income of ¥3.70bn vs operating income ¥3.49bn suggests modest non-operating gains (e.g., financial income) offsetting interest. The implied effective tax rate is approximately 28.8% (tax ¥0.998bn / pre-tax ≈ ¥3.465bn), consistent with statutory norms; reported 0% should be disregarded as an unreported metric artifact. Net margin of 3.47% appears achieved through improved cost efficiency; sustaining it will depend on stable raw material/energy costs and pricing discipline.

Growth

Top-line contracted 2.7% YoY to ¥71.1bn, implying softer demand in core building materials markets (likely driven by housing starts and renovation trends). Despite this, operating income grew 1.7% YoY, demonstrating improved cost structure and/or pricing resilience. Gross profit of ¥25.07bn and intact gross margin (35.3%) suggest mix/pricing actions and procurement efficiencies partly offset volume softness. Net income growth of 34.9% YoY also reflects a normalized tax burden relative to the prior year. Sustainability: near-term revenue trajectory depends on housing activity, renovation demand, and competitive dynamics; recent cost controls may continue to cushion earnings if volumes recover gradually. Profit quality appears solid with OCF exceeding net income (OCF/NI 1.55), indicating earnings backed by cash. With asset turnover at 0.42x, growth in returns will likely require either higher utilization/volumes or asset-light initiatives. Outlook: stable to cautiously improving margins provided energy/raw materials remain manageable; top-line could be volatile with macro/housing cycles. Execution on pricing, product mix (e.g., higher value-added exterior materials), and channel efficiency will be central to sustaining operating income growth.

Financial Health

Liquidity is strong: current ratio 247% and quick ratio 191% indicate ample near-term coverage. Working capital is ¥51.19bn, supported by ¥86.00bn current assets and ¥34.81bn current liabilities. Solvency is robust with a low debt load relative to equity: total liabilities of ¥53.30bn vs equity of ¥119.63bn (D/E ≈ 0.45x). Computed equity ratio is approximately 70.7% (equity/total assets), despite the reported 0.0% placeholder. Interest expense is modest at ¥0.156bn, and interest coverage of 22.4x points to comfortable debt service capacity. Asset base totals ¥169.15bn; low leverage combined with under-50% liabilities-to-assets affords balance sheet flexibility to navigate cycles or fund selective investments.

Cash Flow

Earnings quality is favorable, with OCF of ¥3.83bn exceeding net income of ¥2.47bn (OCF/NI 1.55), implying positive working capital dynamics or non-cash charges (D&A ¥2.69bn) supporting cash conversion. EBITDA of ¥6.18bn provides a buffer for maintenance investment needs, though actual capex is undisclosed. Free cash flow cannot be reliably calculated because investing cash flows were not reported (zero indicates unreported). Working capital appears well-managed given liquidity ratios, but inventory of ¥19.49bn should be monitored relative to sales to avoid obsolescence if demand softens. Financing CF was an outflow of ¥6.58bn, likely reflecting dividends, buybacks, and/or debt repayments; absent cash and investing disclosures, we cannot triangulate net cash change or period-end cash balance. Overall, cash flow quality is sound based on OCF coverage, but full assessment is constrained by missing investing CF and cash balance data.

Dividend Sustainability

Dividend per share and payout ratio show as zero due to non-disclosure in this extract; therefore, we cannot assess actual DPS or payout. From a capacity standpoint, OCF of ¥3.83bn provides a base for distributions after capex, but with investing CF unreported, FCF coverage cannot be determined. Financing cash outflow of ¥6.58bn suggests some combination of dividends, buybacks, or debt service occurred during the period, but the split is unknown. Balance sheet strength (equity ≈ ¥119.6bn, low leverage) is supportive of medium-term distribution capacity. Policy outlook remains uncertain without management guidance; sustainability will hinge on normalized capex, working capital needs, and earnings durability amid construction cycles.

Business Outlook

Full-year revenue downwardly revised to 145,000 million yen (down 1.7% from initial forecast, down 2.3% YoY). Domestically, assuming new housing starts down 2.8% YoY, ceramic exterior materials sales expected to increase slightly (up 750 million yen) through price maintenance and product mix improvement. Metal exterior materials expected to decrease (down 700 million yen) due to intensifying competition. U.S. sales significantly downwardly revised to 199.8 million USD (down 9.6% from initial forecast) anticipating continued housing market downturn. Operating income maintained at 10,000 million yen (operating margin 6.9%) for full year through domestic fixed cost reduction effects and China improvements. Net income downwardly revised to 3,000 million yen due to absence of prior year's fixed asset sale gains, but policy to maintain ROE and dividend unchanged. Raw material, energy prices, logistics costs trends, and exchange rate assumptions (USD 148 yen, 3.69 yen stronger yen YoY) are risk factors for second half.

Management Guidance

Management explained achieving profit growth in declining revenue environment through "price revision penetration, manufacturing fixed cost absorption, and SG&A efficiency improvements." Confident in achieving full-year operating income of 10,000 million yen (up 43.8%), but emphasized that significant downward revision in net income (3,000 million yen, up 10.8%) is due to absence of prior year's extraordinary income, with core profitability remaining healthy. Maintains annual dividend of 114 yen despite high payout ratio of 128.0%, demonstrating shareholder return focus. U.S. business faces short-term challenges from deteriorating housing market conditions, but aims for medium to long-term recovery through commercial premium product growth. China maintains profitability turnaround, emphasizing business restructuring achievements. Medium-term management plan scheduled for November 18 announcement will detail growth strategies (renovation demand cultivation, high value-added products, non-residential and overseas expansion) and capital policies.

Strategic Initiatives

• Continued implementation of pricing policy: promoting price pass-through for raw material and logistics cost increases, maintaining gross margin at 35.3%
• Flexible management of manufacturing fixed costs: utilizing inventory changes to achieve fixed cost absorption of +210 million yen in first half. Depreciation method change also contributes to reduced fixed cost burden
• SG&A efficiency improvements: achieved fixed cost reduction of +250 million yen (domestic), improving operating leverage
• Shift to U.S. commercial premium products: promoting strategy to supplement weak residential general-purpose products with high value-added products
• China business structural reform: achieved breakeven and rebuilding profit foundation
• Capital expenditure restraint: conservative spending of 2.17 billion yen in first half (4.93 billion yen full-year plan) following completion of major 2023 investments. Depreciation expenses also reduced through straight-line method transition
• Maintenance of shareholder returns: payout ratio of 128.0%, exceeding profit level, clearly demonstrating shareholder value emphasis
• Medium-term management plan under development: scheduled for November 18 announcement to specify growth strategy and capital policy

Risk Assessment

Business Risks:

• Cyclical exposure to new housing starts and renovation activity in Japan and overseas markets
• Raw material and energy price volatility (cement, pulp/fiber, chemicals, electricity, LNG/coal)
• Competitive pricing pressure in building materials and potential mix downgrades in downturns
• Capacity utilization risk and operating leverage in manufacturing footprint
• Supply chain disruptions and logistics/freight cost spikes
• Regulatory and environmental compliance requirements, including decarbonization costs
• Product quality, warranty, and recall risks impacting brand and costs
• Natural disaster risk impacting facilities and demand in Japan

Financial Risks:

• Low asset turnover (0.42x) limiting ROE to 2.06% despite healthy margins
• Potential working capital build if demand slows, tying up cash in inventories/receivables
• Interest rate increases modestly impacting financing costs (though coverage is currently strong)
• FX exposure on imported inputs affecting COGS and margins if not hedged

Key Concerns:

• Sustainability of operating margin (4.9%) if pricing/mix tailwinds fade
• Visibility on capex and FCF due to unreported investing cash flows
• Underwhelming capital efficiency leading to structurally low ROE
• Inventory management amid softer revenue (-2.7% YoY)

Risk Factors from Presentation:

• Significant decline in domestic new housing starts (first half down 17.4%): structural demand contraction risk from population decline and decreasing household numbers
• Continued U.S. housing market downturn: stagnant housing starts in high interest rate environment and declining residential general-purpose product sales
• Rising raw material and energy prices (first half cost increase down 180 million yen): price fluctuations in cement, pulp, and energy
• Increased logistics costs (first half down 270 million yen): rising labor costs and delayed logistics efficiency improvements
• Foreign exchange fluctuation risk: recorded foreign exchange loss of 416 million yen in first half. Full-year assumption of USD 148 yen, but risk of increased import costs if yen weakens
• Market share decline (58.4%, down 1.3 points): price and share pressure from intensifying competition
• U.S. fixed cost increases: first half fixed cost increase of down 2.5 million USD pressuring operating income
• Intensifying competition in metal exterior materials: full-year revenue decline forecast of down 700 million yen, low-price competition risk

Investment Implications

Key Takeaways:

• Revenue softened 2.7% YoY, but operating income rose 1.7%, evidencing cost/pricing resilience
• Gross margin at 35.3% and EBITDA margin at 8.7% indicate stable margin quality
• ROE is low at 2.06% due to low asset turnover (0.42x), not leverage
• Strong liquidity (current ratio 247%, quick 191%) and conservative leverage (D/E ≈ 0.45x)
• Healthy cash conversion (OCF/NI 1.55) supports earnings quality
• Inability to assess FCF and DPS due to unreported investing CF and dividend details is a key limitation

Metrics to Watch:

• Housing starts/renovation indicators and order trends
• Average selling price and product mix in exterior materials
• Raw material/energy cost indices and hedging coverage
• Inventory days and receivables days; OCF/NI sustainment
• Capex plans and disclosed investing cash flows to gauge true FCF
• EBIT margin trajectory and SG&A efficiency
• FX rates (USD/JPY) and freight costs

Relative Positioning: Within Japan-listed building materials peers, Nichiha exhibits stronger-than-average balance sheet strength and solid gross margins, but lags on capital efficiency with a low ROE driven by subdued asset turnover; earnings quality appears sound, yet full FCF/dividend visibility is constrained by data gaps this quarter.

Supplementary Insights (Key Highlights)

• Domestic business achieved 18.0% operating income growth (up 380 million yen YoY) despite slight revenue decline: price revision effects, fixed manufacturing cost absorption from inventory increases, and fixed cost reductions offset logistics cost increases and higher material costs
• U.S. business saw revenue growth (up 4.4% in local currency) but operating income down 62.4%: significant profit decline in residential general-purpose products not fully offset by commercial premium product gains. Fixed cost increases (down 2.5 million USD) also impacted results
• China business achieved significant improvement in operating income, turning profitable (up 106 million yen from prior year loss): improved market conditions and efficiency measures proved effective
• Significant downward revision in full-year net income forecast (down 4,200 million yen) primarily due to absence of prior year's fixed asset sale gains (extraordinary income of 7,007 million yen). Operating income forecast maintained, indicating core profitability outlook remains intact
• Industry market share at 58.4% (down 1.3 points YoY), slightly declining: suggests intensifying competition amid market contraction
• Change in depreciation method (declining balance to straight-line) resulted in 1.33 billion yen depreciation cost reduction effect compared to previous method. Completion of major investments in 2023 (U.S. new factory, Nagoya plant) also contributed to reduced depreciation burden
• Annual dividend maintained at 114 yen (payout ratio 128.0%): demonstrates commitment to prioritizing shareholder returns despite downward revision in full-year net income
• Medium-term management plan and supplementary materials scheduled for additional announcement on November 18: this document is a preliminary report with detailed strategy to be disclosed later

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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