NAKABAYASHI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥28.22B
• Operating Income: ¥1.02B
• Net Income: ¥-309M
• Earnings per Unit (EPU): ¥8.34

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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

FY2026 Q2 was a mixed quarter: strong operating recovery but headline net profit was depressed by large extraordinary losses and an unusually high effective tax rate. Revenue fell 3.2% YoY to 282.16, but operating income surged 127.6% YoY to 10.19, demonstrating solid cost control and pricing/mix improvement. Gross profit was 75.72 with a gross margin of 26.8%, and SG&A of 65.52 implies an SG&A ratio of 23.2%, yielding an operating margin of 3.6%. Ordinary income rose 106.1% YoY to 12.06, helped by positive net non-operating items (+1.86, with dividend income of 0.52). Profit before tax dropped to 1.87, implying sizable extraordinary losses of roughly 10.19 that offset the strong ordinary profit. Net income fell 35.6% YoY to 2.29, and the effective tax rate printed an anomalous 265.8%, consistent with a distortion from extraordinary items rather than underlying profitability. Operating margin expanded an estimated ~207 bps YoY (from ~1.5% to 3.6%) despite the top-line decline, highlighting improved operating leverage. Interest coverage is strong at 20.38x (10.19/0.50), and leverage is moderate with D/E at 0.87x. Liquidity remains healthy with a current ratio of 195% and quick ratio of 143.3%, and working capital of 137.45 provides cushion against short-term volatility. ROE is low at 0.8% (NPM 0.8%, asset turnover 0.521x, financial leverage 1.87x), weighed down by the one-time losses; ROIC is 1.5%, well below the 7–8% target range and flagged as a capital efficiency concern. The divergence between operating performance and bottom-line/net comprehensive loss (total comprehensive income of -1.39) signals non-recurring headwinds this quarter. Cash flow data were not disclosed, so we cannot corroborate earnings quality via OCF/NI; this is a key data gap. Dividend metrics are largely unreported, but the calculated payout ratio of 276.6% suggests potential unsustainability if maintained against depressed earnings and without FCF support. Looking ahead, if extraordinary losses abate, the improved operating margin profile and benign interest burden could support earnings normalization. However, near-term investor focus will likely center on the nature, magnitude, and recurrence risk of the extraordinary losses and the path to improving ROIC.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 0.8% × Asset Turnover 0.521 × Financial Leverage 1.87x = ROE ~0.8%. The largest driver of change is the net profit margin, which is depressed by extraordinary losses (≈ -10.19 vs ordinary income) and a distorted 265.8% effective tax rate despite strong operating income growth. Business reason: one-off extraordinary losses (likely impairments, restructuring, or disaster-related costs) dragged profit before tax far below ordinary income, overwhelming operating progress; non-operating income (+1.86) modestly helped ordinary earnings but could not offset the extraordinary items. Sustainability: the operating margin rebound (3.6%) appears more sustainable than the bottom-line compression, whereas the extraordinary losses are likely one-time; confirmation requires management disclosure. Asset turnover at 0.521x is modest and consistent with a mid-year balance sheet; structural improvement would require either revenue growth or tighter asset utilization (AR/inventory turns). Operating leverage appears favorable this quarter as operating margin expanded roughly 207 bps YoY on a 3.2% revenue decline, indicating SG&A efficiency gains and/or improved gross margin. Watch for any sign that SG&A growth begins to outpace revenue; with current data, SG&A ratio is 23.2%, but prior-year SG&A is not disclosed to confirm trend. Ordinary income margin (ordinary/revenue) is 4.3%, exceeding operating margin due to non-operating gains, but the reliance on non-operating items should not be extrapolated. Overall profitability quality is mixed: core operations improved, but capital efficiency (ROIC 1.5%) and after-tax profitability remain weak due to one-off losses.

Growth Assessment

Revenue declined 3.2% YoY to 282.16, likely reflecting softer demand in core stationery/office-related categories or timing/mix effects. Operating income rose 127.6% YoY to 10.19 as the operating margin improved to 3.6%, indicating successful cost actions and/or pricing. Ordinary income increased 106.1% to 12.06 with support from non-operating income (+2.78), including 0.52 in dividends. Bottom-line growth was negative: net income fell 35.6% YoY to 2.29 due to extraordinary losses that reduced PBT to 1.87 and pushed the effective tax rate to 265.8%. The growth profile is therefore bifurcated: underlying operations are strengthening, but reported earnings are constrained by non-recurring items. Without cash flow data, sustainability of the margin improvement cannot be fully validated; still, the magnitude of operating margin expansion (~+207 bps YoY) suggests genuine efficiency gains. Near-term growth outlook hinges on normalization of extraordinary items, stabilization of top-line trends, and continued SG&A discipline. If extraordinary losses dissipate, ordinary income trajectory and strong interest coverage point to earnings recovery potential, albeit from a low ROIC base.

Financial Health

Liquidity is solid: current ratio 195% and quick ratio 143.3% exceed healthy thresholds, indicating comfortable coverage of 144.71 in current liabilities with 282.16 in current assets. No warning triggers (Current Ratio is not <1.0, D/E is not >2.0). Maturity profile appears manageable: short-term loans of 45.08 are well covered by cash and deposits of 73.91 plus accounts receivable of 78.62; inventories of 74.74 add further cushion against total current liabilities. Total liabilities are 252.16 vs total equity of 289.18, for a D/E of 0.87x—moderate and within conservative bounds. Long-term loans are 70.79, so refinancing risk exists but is mitigated by strong interest coverage (20.38x). No off-balance sheet obligations were disclosed in the dataset; absence of disclosure does not confirm absence of such obligations.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow were not disclosed, so OCF/Net Income and FCF coverage cannot be calculated. Consequently, we cannot validate earnings quality via cash conversion or assess working capital cash impacts. That said, the divergence between strong operating/ordinary profit and weak net income primarily reflects extraordinary losses and tax effects rather than core cash generation. Interest coverage at 20.38x implies manageable cash interest burden. Without OCF and capex data, we cannot judge whether maintenance and growth capex are being funded internally or whether working capital released/consumed cash; monitoring inventory and receivables turns will be important once cash flow statements are available. No clear signs of working capital manipulation can be inferred from the limited data.

Dividend Sustainability

Dividend data are largely unreported; however, the calculated payout ratio of 276.6% suggests dividends exceed current period earnings, which would be unsustainable if repeated. With OCF and FCF unreported, coverage of dividends from free cash flow cannot be assessed. Given the temporary nature of the extraordinary losses implied this quarter, management may frame dividends against normalized earnings; still, without clear FCF support and visibility on extraordinary items, prudence is warranted. Balance sheet flexibility (D/E 0.87x, ample liquidity) provides some buffer, but sustaining a payout above earnings for multiple periods would likely pressure capital allocation and ROIC.

Risk Assessment

Business Risks:

• Top-line softness (-3.2% YoY), potentially reflecting demand weakness in stationery/office products or channel dynamics
• Margin volatility despite improvement this quarter; reliance on continued SG&A discipline and pricing
• Product/input cost pressures (e.g., paper, logistics) that could compress gross margins
• Execution risk in reducing extraordinary losses and preventing recurrence

Financial Risks:

• Extraordinary losses (~10.19) drove PBT down to 1.87, creating bottom-line volatility
• Very high effective tax rate (265.8%) distorts net income and could recur if further one-off items arise
• Low ROIC (1.5%) indicates weak capital efficiency and potential value dilution if not addressed
• Moderate leverage (D/E 0.87x) with refinancing needs over time, albeit manageable given coverage

Key Concerns:

• Earnings dependence on normalization of non-recurring items rather than purely on operational momentum
• Data gaps: lack of OCF/FCF and dividend details impede assessment of earnings quality and payout sustainability
• Total comprehensive income was negative (-1.39), suggesting valuation changes or other OCI losses that weigh on equity

Investment Implications

Key Takeaways:

• Core operations improved materially: operating income +127.6% YoY and operating margin ~3.6% (+~207 bps YoY)
• Headline net income fell 35.6% YoY due to extraordinary losses (≈ -10.19) and a 265.8% tax rate
• Liquidity is strong (CR 195%, QR 143.3%); interest coverage robust at 20.38x
• Capital efficiency remains a concern: ROE 0.8%, ROIC 1.5% flagged
• Non-operating income contributed positively (+1.86), but sustainability is uncertain
• Comprehensive income negative (-1.39), indicating additional equity headwinds beyond net income

Metrics to Watch:

• Disclosure and recurrence risk of extraordinary items driving the PBT drop
• Operating cash flow, free cash flow, and working capital turns (AR and inventory)
• Gross margin trajectory vs input cost inflation; SG&A ratio discipline
• ROIC improvement plan and capex intensity
• Dividend policy guidance versus normalized earnings and FCF
• Leverage trend and debt maturity schedule

Relative Positioning: Within the Japanese stationery/office supplies peer set, Nakabayashi shows improved operating execution and healthy liquidity but lags on capital efficiency (ROIC 1.5%) and bottom-line stability due to one-off losses; peers with steadier ROIC and fewer extraordinary items may screen better on quality until earnings normalization is demonstrated.

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