NEPON Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.11B
• Operating Income: ¥-199M
• Net Income: ¥-148M
• EPS: ¥-215.23

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

Nepcon Co., Ltd. (NepOn) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥3,111 million, down 1.4% year over year, indicating a mild top-line contraction. Gross profit was ¥1,037.5 million, translating to a solid gross margin of 33.4%, which appears resilient despite the revenue decline. Operating income was a loss of ¥199 million, though this represents a 28.8% YoY improvement in operating performance, suggesting progress on cost control or mix. Ordinary income and net income were losses of ¥203 million and ¥206 million, respectively, implying limited non-operating swings and a small tax benefit. The DuPont profile shows a net margin of -6.62%, asset turnover of 0.545x, and financial leverage of 2.67x, yielding a calculated ROE of -9.64%, consistent with the reported figure. Despite the net loss, operating cash flow was positive at ¥229.7 million, signaling favorable working capital movements and helping liquidity. Liquidity appears comfortable with a current ratio of 171.8% and a quick ratio of 156.4%, supported by sizeable current assets of ¥4,533.8 million versus current liabilities of ¥2,638.3 million. Solvency is moderate with total liabilities of ¥3,691.1 million and equity of ¥2,136.0 million, implying a debt-to-equity of 1.73x and financial leverage of 2.67x. EBITDA was negative at ¥-120.7 million, reflecting continued operating headwinds despite depreciation of ¥78.3 million being relatively modest. Interest expense of ¥10.4 million is manageable in absolute terms, but coverage is negative given operating losses. Working capital remains strong at ¥1,895.5 million, providing a buffer for ongoing operations amid earnings volatility. Dividends are currently suspended (DPS ¥0), consistent with a net loss and a prudent capital preservation stance. The reported equity ratio is shown as 0.0%, but the balance sheet clearly indicates equity of ¥2,136.0 million; the 0.0% should be treated as an unreported metric rather than an absence of equity. Several line items such as cash and equivalents, investing cash flows, free cash flow, and share counts are shown as zero, which here indicates non-disclosure or reporting under different labels rather than true zero values. Overall, the company exhibits improved but still negative profitability, solid gross margins, positive operating cash generation, and adequate liquidity, with solvency within a manageable range but sensitive to sustained losses. Near-term priorities likely include stabilizing revenue, protecting gross margin, and maintaining tight working capital discipline to support self-funded operations.

Profitability Analysis

ROE_decomposition: ROE of -9.64% is driven by a negative net margin (-6.62%), moderate asset turnover (0.545x), and financial leverage (2.67x). The loss-making margin is the principal drag; leverage modestly amplifies the negative return. margin_quality: Gross margin stands at 33.4% (¥1,037.5m GP on ¥3,111.0m sales), indicating pricing and cost of goods resilience. However, operating margin is approximately -6.4% (¥-199m OI), implying elevated SG&A and/or insufficient scale to absorb fixed costs. operating_leverage: Revenue fell 1.4% YoY, yet operating loss improved by 28.8% YoY, suggesting cost actions and some operating leverage benefits despite a soft top line. EBITDA at ¥-120.7m points to ongoing fixed-cost drag, but the trajectory is improving. additional_notes: Ordinary loss (¥-203m) is close to operating loss (¥-199m), signaling minimal reliance on non-operating income/expenses this period; tax benefit (¥-68.4m) partly offsets the bottom line.

Growth Assessment

revenue_sustainability: Top-line contraction of 1.4% YoY indicates modest demand softness. Asset turnover at 0.545x suggests a relatively low throughput business model, typical of equipment-heavy or project-based sales. profit_quality: Gross margin is healthy, but negative operating income highlights an imbalance between gross profit and operating costs. The improvement in operating loss YoY suggests underlying efficiency gains or mix improvement. outlook: Stabilization in revenue and continued cost containment could bring breakeven closer if gross margin is sustained around the low-30% level. Positive operating cash flow despite losses supports near-term execution; however, visibility on order backlog, pipeline, and segment mix is not available in the provided data.

Financial Health

liquidity: Current assets ¥4,533.8m vs current liabilities ¥2,638.3m yields a current ratio of 171.8% and quick ratio of 156.4%, indicating comfortable short-term liquidity. Working capital is ¥1,895.5m, providing operational flexibility. solvency: Total liabilities ¥3,691.1m vs equity ¥2,136.0m results in debt-to-equity of 1.73x and financial leverage of 2.67x—manageable but sensitive to sustained losses. Interest expense is modest at ¥10.4m, yet interest coverage is negative due to operating losses. capital_structure: Equity base of ¥2,136.0m underpins operations. The reported equity ratio of 0.0% is a disclosure artifact; based on balance sheet figures, the implied equity ratio is approximately 37.4% (¥2,136.0m / ¥5,709.0m), though we defer to official disclosures for precise calculation.

Cash Flow Quality

earnings_quality: Operating CF of ¥229.7m versus net income of ¥-206.0m (OCF/NI = -1.11) indicates cash generation despite accounting losses, likely from favorable working capital movements and non-cash charges (e.g., ¥78.3m depreciation). FCF_analysis: Investing CF is shown as 0 and FCF is shown as 0, which we treat as non-disclosed rather than true zero; thus, we cannot calculate FCF precisely. If maintenance capex is modest, OCF could cover it, but data is insufficient to confirm. working_capital: Inventories at ¥407.9m are relatively modest versus current assets, implying receivables and other current items dominate. Positive OCF amid losses suggests receivable collections and/or inventory normalization supported cash.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0.00 and payout ratio is 0.0%, consistent with a net loss (EPS -¥215.23). With negative earnings, a suspension is prudent from a coverage perspective. FCF_coverage: FCF coverage is shown as 0.00x, but FCF is unreported; given positive OCF and unknown capex, we cannot assert sustainable coverage. Near-term reinstatement would depend on a return to positive EBITDA/EBIT and demonstrably positive FCF. policy_outlook: Given ongoing operating losses and emphasis on liquidity preservation, dividend normalization likely requires earnings recovery and clearer FCF visibility. No policy details are provided in the data.

Risk Assessment

Business Risks:

• Demand cyclicality in key end-markets leading to revenue volatility
• Pricing pressure and competitive intensity potentially compressing gross margins
• Project timing/mix risk affecting quarterly profitability and cash flow
• Supply chain and input cost variability impacting cost of sales
• Execution risk in cost reduction and fixed-cost absorption

Financial Risks:

• Continued operating losses eroding equity and weakening leverage metrics
• Negative interest coverage despite modest interest expense
• Working capital swings impacting cash generation and liquidity
• Potential refinancing or covenant pressure if losses persist (no covenants disclosed)
• Limited visibility on capex and cash balances due to non-disclosed items

Key Concerns:

• Sustained negative EBITDA and operating income
• Reliance on working capital releases to fund operations
• Lack of disclosed cash balance and investing cash flows, obscuring FCF profile

Investment Implications

Key Takeaways:

• Revenue down 1.4% YoY with resilient gross margin at 33.4%
• Operating loss of ¥199m improved by 28.8% YoY, indicating cost progress
• Positive OCF of ¥229.7m despite net loss reflects supportive working capital
• Liquidity is comfortable (current ratio 171.8%, quick ratio 156.4%)
• Solvency moderate (D/E 1.73x; leverage 2.67x) but sensitive to persistent losses
• EBITDA remains negative (¥-120.7m); interest coverage negative
• Dividend suspended (DPS ¥0), appropriate given losses and cash visibility

Metrics to Watch:

• Order intake/backlog and quarterly revenue trajectory
• Gross margin sustainability and SG&A efficiency
• EBITDA progression toward breakeven
• Operating cash flow versus capex (to assess true FCF)
• Receivables days and inventory turns (working capital discipline)
• Leverage (liabilities/equity) and interest coverage
• Equity ratio as reported in subsequent filings

Relative Positioning: Within small-cap industrial/machinery peers on the TSE, the company shows weaker operating profitability and negative EBITDA, offset by comparatively sound liquidity and moderate leverage; sustained gross margin and cash discipline will be key to narrowing the gap.

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