Quick View
| Metric | Current Period | Prior-year Period | YoY |
|---|---|---|---|
| Revenue | ¥46.8B | ¥46.5B | +0.6% |
| Operating Income | ¥5.5B | ¥5.0B | +9.7% |
| Ordinary Income | ¥6.4B | ¥5.6B | +15.3% |
| Net Income | ¥4.3B | ¥3.9B | +12.0% |
| ROE | 2.7% | 2.4% | - |
Executive Summary
For FY2026 Q3 (9-month cumulative), Nihon Decolux reported Revenue of ¥46.8B (YoY +¥0.3B +0.6%), Operating Income of ¥5.5B (YoY +¥0.5B +9.7%), Ordinary Income of ¥6.4B (YoY +¥0.9B +15.3%), and Net Income of ¥4.3B (YoY +¥0.5B +12.0%). While revenue was flat, operating leverage materialized through maintaining a 32.5% gross margin and controlling SG&A, resulting in profit growth. By segment, the Building Materials Business booked Revenue of ¥43.8B and Operating Income of ¥6.7B, while the Real Estate Business booked Revenue of ¥3.0B and Operating Income of ¥1.6B. On the non-operating side, financial income—dividend income of ¥0.5B and interest income of ¥0.4B—boosted Ordinary Income.
Key Financial Metrics
[Profitability] ROE 2.7% (composed of Net Profit Margin 9.2% × Total Asset Turnover 0.252 × Financial Leverage 1.15x), Operating Margin 11.8% (YoY +1.0pt improvement), Gross Margin 32.5%, ROIC 2.9%. Non-operating income of ¥0.98B (dividend income ¥0.54B, interest income ¥0.37B) underpins Ordinary Income; with Ordinary Income at ¥6.4B versus Operating Income at ¥5.5B, the net non-operating increase is approximately ¥0.9B. The effective tax rate against Profit Before Tax of ¥6.3B is approximately 30.8%. [Cash Quality] Cash and deposits of ¥31.6B and investment securities of ¥38.7B together total financial assets of ¥70.3B, accounting for 37.8% of total assets. Cash coverage of short-term liabilities of ¥14.9B is 2.1x, indicating ample liquidity. [Investment Efficiency] Total asset turnover 0.252x; Revenue of ¥46.8B against total assets of ¥185.8B indicates low asset efficiency. Non-current assets of ¥121.1B (including land ¥51.0B and investment securities ¥38.7B) suppress asset turnover. [Financial Soundness] Equity Ratio 87.1% (Net Assets ¥161.8B / Total Assets ¥185.8B), Current Ratio 434.3%, Quick Ratio 410.3%, Debt-to-Equity ratio 0.15x—an extremely conservative financial structure.
Cash Flow Analysis
Cash and deposits remained flat YoY at ¥31.6B, with cash-like assets accounting for 17.0% of total assets of ¥185.8B. While higher operating profit is estimated to have contributed to cash accumulation, dividend payments (annual forecast ¥370/share, calculated Payout Ratio 76.7%) are a source of cash outflows. Regarding working capital efficiency, with current assets of ¥64.7B and current liabilities of ¥14.9B, working capital remains positive at ¥49.8B; accounts receivable of ¥8.7B and inventories of ¥3.6B are appropriately managed. Cash coverage of short-term liabilities is 2.1x, indicating low liquidity risk. Investment securities at ¥38.7B are in line with the prior-year period, with no significant trading observed; additions to non-current assets are also limited. Intangible assets decreased by 25.6% from ¥0.4B to ¥0.3B YoY, suggesting amortization or partial disposal. In financing activities, dividend payments driven by a high Payout Ratio appear to be the main cash outflow, while borrowings stand at ¥9.1B, flat YoY.
Quality of Earnings
With Ordinary Income of ¥6.4B versus Operating Income of ¥5.5B, the net non-operating increase is approximately ¥0.9B. The breakdown is primarily financial income comprising dividend income of ¥0.54B and interest income of ¥0.37B; there is no disclosure of equity in earnings of affiliates or foreign exchange gains/losses. Non-operating income of ¥0.98B accounts for 2.1% of Revenue and is equivalent to 17.8% of Operating Income. Non-operating expenses of ¥0.1B consist of interest expense and other items, with financial costs being minor. There is no disclosure of extraordinary gains/losses, and the reduction from Ordinary Income to Profit Before Tax is limited to ¥0.1B. Net Income of ¥4.3B is equivalent to 67% of Ordinary Income of ¥6.4B, with an effective tax rate of approximately 30.8% compressing profits. As OCF is not disclosed, the cash conversion of earnings cannot be directly assessed; however, with Cash and deposits stable at ¥31.6B and a certain level of cash retained after dividend payments, it is inferred that the increase in operating profit is reasonably backed by cash. Given some dependence on financial income, fluctuations in dividends and interest income from investment securities pose a risk to Ordinary Income.
Risk Factors
Stagnant revenue growth risk: Revenue is flat YoY at +0.6%, with the full-year forecast at only +1.4%. Growth drivers are not clearly identified, and the momentum for business expansion is limited. Asset efficiency risk: Investment securities of ¥38.7B and land of ¥51.0B make up the majority of non-current assets; with total asset turnover at 0.252x and ROIC at 2.9%, capital efficiency is low. Improvement is difficult without revenue expansion or asset rationalization. Dividend sustainability risk: The calculated Payout Ratio is 76.7% (annual dividend forecast ¥370/share), and with no OCF disclosure, the cash backing of dividends is unverified. There are concerns about pressure on retained earnings and potential impact on the capacity for future growth investments. Investment securities valuation risk: Changes in the valuation difference of investment securities of ¥38.7B may affect net assets. Mark-to-market valuation introduces a mechanism whereby unrealized gains/losses increase or decrease net assets. Intangible asset decline factors: Intangible assets decreased 25.6% YoY (¥0.4B → ¥0.3B); it is necessary to confirm whether there were impairments or disposals and the impact on future earnings contributions.
Industry Benchmark (Reference; Our Research)
(Reference information; our research) Comparing the company’s financial metrics with industry medians (2025-Q3, N=6 companies) confirms the following characteristics. Profitability: Operating Margin of 11.8% significantly exceeds the industry median of 4.5% (IQR 1.8% to 4.8%), ranking in the upper tier within the industry. Net Profit Margin of 9.2% also exceeds the industry median of 4.7% (IQR 3.6% to 12.0%), indicating solid profitability. ROE of 2.7% is well below the industry median of 10.4% (IQR 9.2% to 11.8%), with capital efficiency lagging within the industry. Soundness: Equity Ratio of 87.1% far exceeds the industry median of 52.3% (IQR 27.1% to 54.7%), representing top-tier financial soundness within the industry. The Current Ratio of 434.3% also far exceeds the industry median of 225% (IQR 195% to 305%), indicating extremely high liquidity. The Net debt/EBITDA multiple is negative (net cash position), similar to the industry median of -0.27 (IQR -2.51 to 26.20), and the company’s difference between Cash and deposits of ¥31.6B and interest-bearing debt of ¥9.1B is conservative even within the industry. Growth: Revenue growth of +0.6% is far below the industry median of 8.3% (IQR 2.1% to 14.0%), indicating low growth within the industry. Return on Assets (ROA) is approximately 2.3%, calculated as Net Income of ¥4.3B / Total Assets of ¥185.8B, below the industry median of 5.7% (IQR 1.8% to 8.9%). In summary, while the company boasts high profitability and strong financial soundness within the industry, capital efficiency (ROE/ROA) and growth are below industry averages, reflecting a structure in which a conservative financial strategy suppresses capital efficiency. (Industry: Building Materials and Supplies, comparison set: 2025-Q3, source: our compilation)
Earnings Highlights
Key takeaways from the results are as follows. Margin improvement and realization of operating leverage: Despite flat revenue, Operating Income increased by +9.7%, and the Operating Margin remains high at 11.8% (industry median 4.5%), driven by sustained gross margin and SG&A control. In the near term, the trend of improving profitability may continue. Balance between capital efficiency and high Payout Ratio: ROE at 2.7% (industry median 10.4%) is low, and ROIC at 2.9% is below the cost of capital. The calculated Payout Ratio of 76.7% (annual forecast ¥370/share) pressures retained earnings and constrains the capacity for growth investments or capital efficiency improvements. As OCF is not disclosed, the cash backing of dividends is unverified, necessitating an assessment of dividend sustainability upon future disclosures. Conservative financial structure and low asset efficiency: With an Equity Ratio of 87.1%, Cash and deposits of ¥31.6B and investment securities of ¥38.7B bring financial assets to ¥70.3B, accounting for 37.8% of total assets. Total asset turnover is low at 0.252x, and without asset rationalization or revenue expansion through business investment, improving capital efficiency will be difficult.
This report is an earnings analysis automatically generated by AI based on XBRL earnings release data. It does not constitute a recommendation to invest in any specific security. The industry benchmark is reference information compiled by our firm based on publicly available financial statements. Investment decisions are your own responsibility; consult a professional as necessary before making any investment.
AI Financial Analysis
Executive Summary
FY2026 Q3 performance was solid, with modest sales growth translating into materially faster operating and net-profit growth. Revenue rose 0.6% year on year to ¥4.677bn. Operating income increased 9.7% to ¥551m, materially outperforming sales growth. Ordinary income rose 15.3% to ¥642m, supported by a stronger contribution from investment-related income. Net income grew 12.0% to ¥431m despite a ¥18.9m extraordinary loss on disposal of fixed assets. Gross profit increased 3.1% to ¥1.522bn while cost of sales declined 0.5% to ¥3.155bn. The gross margin expanded by approximately 76bp year on year to 32.5%. SG&A expenses declined 0.4% to ¥970m, producing positive operating leverage. The operating margin expanded by approximately 98bp to 11.8%, placing profitability within the good 8-15% benchmark range. The net margin improved by approximately 93bp to 9.2%, close to the 10% excellent threshold. Non-operating income of ¥98.5m, equivalent to 2.1% of sales, included ¥54.4m of dividend income and ¥37.4m of interest income. This investment-income contribution lifted ordinary income above operating income by ¥91m, although it is less directly tied to the core manufacturing operation. The balance sheet remains highly conservative, with a 434.3% current ratio, a 0.15x debt-to-equity ratio, and equity representing 87.1% of total assets. Q3 operating income has already reached 98.4% of the full-year forecast, while net income has reached 93.7%, indicating that the company is positioned to meet its plan if Q4 profitability remains positive. The key forward issue is whether margin expansion can be sustained amid only 0.6% revenue growth, particularly given the company’s sizable investment-securities portfolio and low reported ROIC of 3.9%.
Profitability Analysis
Annualized DuPont ROE is 3.5%, comprising a 9.2% net profit margin, 0.336x asset turnover, and 1.15x financial leverage. The low ROE is therefore primarily attributable to low asset turnover and conservative leverage rather than weak margins. Annualized ROA is approximately 3.1%, calculated using annualized nine-month net income and average total assets, and is also constrained by the large asset base. Financial leverage of 1.15x is low, reflecting a balance sheet funded predominantly by equity rather than debt. The strongest year-on-year profitability change was operating-margin expansion: operating margin rose to 11.8% from approximately 10.8%, a 98bp improvement. Gross margin improved to 32.5% from approximately 31.8%, or 76bp, because gross profit increased 3.1% while sales grew only 0.6%. SG&A declined marginally by 0.4%, versus positive revenue growth, providing further operating leverage. The resulting 9.7% growth in operating income indicates disciplined cost control and an improved sales mix and/or manufacturing cost absorption. Ordinary income growth of 15.3% exceeded operating-income growth because dividend income rose to ¥54.4m from ¥27.7m and interest income reached ¥37.4m. The extended DuPont tax burden was 0.691, consistent with an effective tax rate of 30.8%. The interest burden was 1.132x because non-operating income exceeded the minimal interest expense, confirming that financing costs do not constrain earnings. The reported EBIT margin of 11.8% is healthy for a manufacturing business, but the 3.9% ROIC quality alert indicates that operating returns remain modest relative to the capital employed. In particular, ¥3.870bn of investment securities and ¥7.890bn of PPE together represent 63.3% of total assets, making improved asset productivity important for a sustained improvement in shareholder returns.
Growth Assessment
Revenue growth of 0.6% was subdued, but profit growth was substantially stronger: operating income rose 9.7%, ordinary income 15.3%, and net income 12.0%. The divergence reflects gross-margin improvement, restrained SG&A, and higher investment income rather than a significant acceleration in top-line demand. Sales reached 74.2% of the ¥6.300bn full-year forecast at Q3, broadly consistent with the standard 75% seasonal progress rate. Operating income reached 98.4% of the ¥560m full-year forecast, 23.4 percentage points above the standard Q3 progress rate. Ordinary income reached 97.3% of the ¥660m forecast, 22.3 percentage points above the standard rate. Net income reached 93.7% of the ¥460m forecast, 18.7 percentage points above the standard rate. The substantial profit outperformance versus forecast provides an earnings cushion for Q4, although it also implies that the planned Q4 operating-income contribution is limited. Full-year forecast sales growth is 1.4%, indicating that management expects only modest demand expansion. Full-year operating-income growth is forecast at 0.8%, materially below the Q3 year-to-date growth rate, suggesting conservative guidance or an expectation of lower Q4 margins. Investment income remains a relevant earnings contributor, with dividend and interest income totaling ¥91.8m, equal to 14.3% of ordinary income. Core earnings sustainability should therefore be assessed primarily through the continuation of gross-margin and SG&A discipline rather than the investment-income contribution.
Financial Health
Financial health is exceptionally strong. The current ratio of 434.3% and quick ratio of 410.3% demonstrate ample liquid-asset coverage of short-term obligations. Current assets of ¥6.470bn exceed current liabilities of ¥1.490bn by ¥4.980bn. Cash and deposits of ¥3.155bn alone represent more than twice current liabilities. The debt-to-equity ratio of 0.15x is conservative and well below the 1.0x benchmark. Total liabilities account for only 12.9% of total assets, while total equity accounts for 87.1%. There is no maturity-mismatch concern evident from the relationship between current assets and current liabilities. Interest expense was negligible at ¥28 thousand, and interest coverage was 19,678.57x, confirming minimal financial-burden risk. Noncurrent liabilities increased to ¥905m from ¥768m, principally alongside an increase in other noncurrent liabilities to ¥495m from ¥369m. The provision for directors' retirement benefits increased to ¥410m from ¥399m and represents a notable long-term obligation, though it remains manageable relative to equity. Investment securities totaled ¥3.870bn, or 20.8% of assets, and valuation differences on securities increased to ¥687m from ¥396m. This strengthens reported equity but also exposes capital to market-value movements. Intangible assets were only 0.1% of total assets, limiting intangible-asset and acquisition-accounting risk. The 25.6% decline in intangible assets to ¥27m is immaterial to overall financial capacity.
Notable B/S Changes
Intangible assets: -¥9m (-25.6%) to ¥27m - quantitatively immaterial at 0.1% of total assets and does not create material intangible-asset risk. Investment securities: +¥508m (+15.1%) to ¥3.870bn - the portfolio equals 20.8% of total assets and increases exposure to market valuation and investee dividend movements. Valuation difference on securities: +¥291m (+73.5%) to ¥687m - a significant contributor to the ¥434m increase in total equity, but also heightens sensitivity of book value to securities-market fluctuations. Noncurrent liabilities: +¥137m (+17.8%) to ¥905m - mainly associated with an increase in other noncurrent liabilities; manageable given ¥16.183bn of equity and substantial liquidity. Total equity: +¥434m (+2.8%) to ¥16.183bn - supported by retained earnings growth and the increase in valuation differences on securities.
Cash Flow Quality
Profit quality is supported by operating-income growth exceeding revenue growth and by a 9.2% net margin. Gross-profit growth of 3.1% and the 0.4% reduction in SG&A expenses demonstrate that the improvement in operating profit was not solely generated by non-operating items. However, ordinary income benefited from ¥91.8m of dividend and interest income, representing 14.3% of ordinary income; this contribution is economically meaningful but is not equivalent to manufacturing operating profit. Net income included a ¥18.9m extraordinary loss on disposal of fixed assets, which reduced reported profit by approximately 4.4% of net income and appears non-recurring in nature. The effective tax rate of 30.8% is broadly consistent with a normal Japanese corporate tax burden. Working-capital balances appear controlled: trade receivables declined 3.8% to ¥874m, while electronically recorded monetary claims increased 14.4% to ¥1.148bn. Combined trade and electronic receivables increased approximately 6.7%, exceeding revenue growth and warranting monitoring, though the absolute balance remains well supported by liquidity. Inventories increased 10.1% to ¥357m, while raw materials declined 10.3% to ¥492m and work in process declined 9.8% to ¥81m. The increase in finished goods alongside lower raw materials and work in process may reflect production completion, inventory mix changes, or a need to support shipments. Electronically recorded obligations declined 9.1% to ¥635m and trade payables fell 9.2% to ¥314m, indicating less supplier financing. Cash and deposits declined ¥139m year on year to ¥3.155bn, but remain substantial relative to the operating scale and current liabilities.
Dividend Sustainability
The interim dividend was ¥150 per share. The full-year dividend forecast is ¥370 per share, implying a planned year-end dividend of ¥220 per share. Based on forecast EPS of ¥590.02, the forecast dividend payout ratio is approximately 62.7%. This is slightly above the 60% sustainability benchmark but remains below a level that would ordinarily signal an immediate payout-risk concern. The calculated Q3 payout ratio of 31.1% reflects the ¥150 interim dividend relative to nine-month net income and should not be interpreted as the expected full-year payout ratio. FY2026 Q3 EPS of ¥553.61 has reached 93.8% of full-year forecast EPS, providing substantial coverage for the planned annual dividend if forecast earnings are achieved. Retained earnings were ¥11.259bn, providing a sizeable accumulated earnings base. The very low debt burden, strong cash position, and ¥3.870bn investment-securities portfolio further support financial flexibility for dividends. The main sustainability consideration is the company’s low 3.9% ROIC: a dividend policy above the benchmark payout level should be weighed against opportunities to improve returns on its large capital base. No buyback activity is reflected in the provided period data; therefore, the analysis uses dividend payout ratio rather than total return ratio.
Risk Assessment
Business risks include Demand and pricing risk: revenue grew only 0.6% year on year, making continued margin expansion dependent on product mix, pricing discipline, and manufacturing cost control rather than volume growth., Manufacturing cost risk: the operating-margin improvement could reverse if raw-material, energy, labor, or logistics costs rise faster than selling prices., Inventory risk: finished goods increased 10.1% year on year to ¥357m while revenue was broadly flat, requiring monitoring for slower customer demand or inventory valuation pressure., Investment-income volatility: dividend income and interest income totaled ¥91.8m and made a meaningful contribution to ordinary income; changes in investee distributions, interest rates, or portfolio conditions could affect reported earnings., Market-value risk on securities: investment securities represent 20.8% of total assets, and valuation differences on securities are ¥687m, exposing equity and comprehensive income to financial-market movements..
Financial risks include Capital-efficiency risk: the ROIC quality alert of 3.9% is below the 5% warning threshold, indicating that the sizable asset and equity base is generating modest operating returns., Low-return balance-sheet structure: annualized asset turnover of 0.336x is the principal constraint on the 3.5% annualized ROE despite healthy operating margins., Long-term obligation risk: the directors' retirement benefit provision is ¥410m and should be monitored as part of noncurrent liabilities, although liquidity coverage is ample., Dividend allocation risk: the implied full-year payout ratio of approximately 62.7% is slightly above the 60% benchmark while ROIC remains below 5%..
Key concerns include The most material issue is capital efficiency rather than liquidity or leverage. A 3.9% ROIC suggests the company needs either higher operating earnings, improved asset turnover, or more active portfolio optimization to enhance returns., Q3 earnings materially outperformed the full-year operating-profit plan, with 98.4% of forecast already achieved; the sustainability of this outperformance depends on Q4 margin conditions and the recurring nature of investment income., The investment-securities portfolio is large relative to the operating business and contributed to both earnings and equity movements, increasing sensitivity to capital-market conditions., The manufacturing-industry-specific risk is a potential mismatch between inventory build and end-market demand, particularly as finished-goods inventory rose faster than sales..
Investment Implications
Key takeaways include Operating execution improved meaningfully: operating income increased 9.7% on revenue growth of only 0.6%, with a 98bp operating-margin expansion to 11.8%., The company has a highly resilient balance sheet, characterized by 87.1% equity capitalization, a 434.3% current ratio, and only 0.15x debt-to-equity., Year-to-date profits are well ahead of the pace implied by guidance, with operating income at 98.4% and net income at 93.7% of full-year forecasts., Low capital efficiency is the central analytical issue: annualized ROE is 3.5% and reported ROIC is 3.9%, despite healthy operating margins and minimal financing risk., Investment securities are strategically important, representing 20.8% of assets and contributing dividend, interest, and valuation effects to earnings and equity..
Metrics to watch include Revenue growth and quarterly sales volume, to determine whether margin improvement can persist without stronger top-line growth., Gross margin and SG&A-to-sales ratio, which were the primary drivers of Q3 operating-profit growth., ROIC and annualized asset turnover, as the key metrics for judging improvement in capital efficiency., Finished-goods inventory relative to sales and order trends., Investment-securities valuation differences, dividend income, and interest income., Q4 operating income relative to the limited residual amount implied by the full-year forecast., The relationship between the ¥370 full-year dividend forecast and final EPS, retained earnings growth, and capital-efficiency initiatives..
Regarding relative positioning, 日本デコラックス combines good operating profitability and exceptional balance-sheet conservatism with below-benchmark returns on capital. Its 11.8% operating margin compares favorably with the stated good profitability range, while the 3.5% annualized ROE and 3.9% ROIC indicate that the large equity, property, and investment-securities base is not yet translating into commensurate shareholder returns.