NARASAKI SANGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥53.47B
• Operating Income: ¥922M
• Net Income: ¥681M
• EPS: ¥126.31

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

Narasaki Sangyo (8085) reported FY2026 Q2 consolidated results under JGAAP with solid top-line growth but weaker operating leverage. Revenue rose 8.3% year over year to 53,472 million yen, while operating income declined 5.0% to 922 million yen, indicating margin compression. Gross profit was 5,357 million yen, translating to a gross margin of 10.0%, consistent with a thin-margin distribution and equipment trading profile. Operating margin fell to 1.7% (operating income/revenue), and ordinary income of 1,026 million yen exceeded operating income due to net non-operating gains, with low interest expense of 22 million yen. Net income reached 643 million yen, implying a net margin of 1.20% and signaling below-the-line items and taxes reduced profitability from the ordinary line. DuPont metrics indicate ROE of 2.36%, driven by a 1.20% net margin, 0.93x asset turnover, and 2.11x financial leverage; the low ROE reflects modest profitability despite reasonable balance sheet efficiency. Liquidity is sound with a current ratio of 154.1% and working capital of 13,687 million yen, supported by low inventory intensity (inventories 1,795 million yen). Solvency looks manageable, with total liabilities/equity of 1.09x and robust interest coverage of 41.9x, benefiting from low financing costs. Operating cash flow was 383 million yen, or 0.60x of net income, indicating weaker cash conversion this half, likely from working capital outflows. EBITDA was 1,236 million yen (2.3% margin), highlighting limited operating buffer given the business’s low margin structure. Financing cash flow was a net outflow of 752 million yen, implying debt repayment and/or shareholder returns, though specific dividend data was not disclosed. Several line items are unreported in XBRL (e.g., equity ratio, cash and equivalents, investing cash flows, DPS), constraining full analysis of capital allocation and cash coverage. Overall, the company demonstrates resilient sales growth, conservative leverage, and strong interest coverage, but faces pressure from SG&A and/or mix that diluted operating margin. The low OCF-to-NI ratio and negative operating leverage are key areas to monitor for the second half. Sustaining revenue momentum while improving gross-to-operating conversion will be critical for enhancing ROE. Absent disclosure on dividends and cash balances, we focus on operating execution, working capital discipline, and ordinary-income stability as the near-term drivers.

Profitability Analysis

ROE stands at 2.36% per DuPont, comprised of a 1.20% net margin, 0.93x asset turnover, and 2.11x financial leverage. Operating margin of 1.72% (922/53,472) declined despite an 8.3% revenue increase, evidencing negative operating leverage in the half, likely due to higher SG&A or less favorable mix. Gross margin is 10.0%; the spread from gross to operating (approx. 8.3 ppt) suggests elevated overhead burden relative to contribution growth. EBITDA margin of 2.3% (1,236/53,472) indicates a thin operating buffer; depreciation is modest at 314 million yen, so the gap from EBITDA to operating income is limited and cost controls at the SG&A level are key. Ordinary income exceeded operating income by 104 million yen, implying net non-operating gains (e.g., investment income, subsidies) offsetting low interest expense, but sustainability of such gains is uncertain. Net margin at 1.20% highlights limited pricing power or scale benefits typical of trading/distribution models. Interest burden is low, with an interest coverage ratio of 41.9x, so financial expenses are not a profitability constraint. Overall profitability quality is mixed: resilient gross profit but deterioration at the operating level and reliance on non-operating items to support ordinary income.

Growth Assessment

Revenue grew 8.3% YoY to 53,472 million yen, indicating healthy top-line momentum. However, operating income declined 5.0% YoY, suggesting that revenue growth did not convert to profit growth, likely due to higher SG&A, project timing, or mix effects pressuring gross-to-operating conversion. Ordinary income of 1,026 million yen provides some stability, but it relies partly on non-operating items; sustainable growth should be driven by core operating profit. Net income fell 2.1% YoY to 643 million yen, with a net margin of 1.20%, reflecting margin headwinds. Given the low margin profile, incremental volume growth without margin recovery may not lift earnings meaningfully. Outlook hinges on second-half operating leverage: if gross margin stabilizes and SG&A growth moderates, full-year ordinary income can track revenue growth more closely. We note data limitations (no segment detail or order/backlog information), so sustainability of growth by end-market cannot be assessed. Key watch items are gross margin trajectory, SG&A ratio, and ordinary-income composition (recurrence of non-operating gains).

Financial Health

Total assets were 57,504 million yen and total equity 27,201 million yen, implying financial leverage (assets/equity) of 2.11x and liabilities/equity of 1.09x—moderate gearing. Liquidity is comfortable with current assets of 39,001 million yen vs. current liabilities of 25,314 million yen (current ratio 154.1%) and quick ratio of 147.0%, supported by low inventories (1,795 million yen). Working capital stands at 13,687 million yen, offering a buffer for operations and project execution. Interest expense is low at 22 million yen, and interest coverage is strong at 41.9x, indicating minimal refinancing risk under current conditions. The reported equity ratio is unreported (0.0% placeholder), and cash and equivalents are also unreported; thus, precise net debt cannot be determined. Financing cash flows were a net outflow of 752 million yen, likely reflecting debt repayments and/or shareholder returns, but details are not disclosed. Overall, the balance sheet appears conservative with ample short-term liquidity and manageable leverage.

Cash Flow Quality

Operating cash flow of 383 million yen equates to 0.60x of net income (643 million yen), signposting weaker cash conversion in the half—likely driven by working capital build (receivables/unbilled or payables timing), given thin inventories. EBITDA of 1,236 million yen supports the view that cash generation lagged earnings rather than reflecting weak underlying operations. Investing cash flows are unreported (0 placeholder), so capital expenditure cannot be assessed; consequently, free cash flow cannot be reliably derived from the provided data. Working capital remains sizable (13,687 million yen), emphasizing the importance of collection and project billing discipline to normalize OCF. Overall earnings quality is fair but not strong this half, given sub-1x OCF/NI and dependence on working capital timing.

Dividend Sustainability

Dividend data (DPS, payout ratio) are unreported (0 placeholders), and cash balance is also unreported, limiting conclusions on cash coverage. Financing cash outflow of 752 million yen suggests potential shareholder returns and/or debt repayment, but the mix is unclear. With net income of 643 million yen and unknown capex, free cash flow coverage of dividends cannot be computed. From a capacity standpoint, low leverage and strong interest coverage suggest room for distributions if OCF normalizes; however, the current half’s OCF/NI of 0.60 argues for prudence until working capital releases materialize. The company’s dividend policy outlook cannot be inferred from the provided data.

Risk Assessment

Business Risks:

• Margin pressure and negative operating leverage despite revenue growth
• Dependence on non-operating gains to lift ordinary income above operating income
• Working capital intensity and cash conversion risk (OCF/NI at 0.60)
• Exposure to project timing and mix effects typical of low-margin distribution businesses
• Competitive pricing pressure limiting gross margin expansion

Financial Risks:

• Potential cash flow strain if receivable collections or billing milestones are delayed
• Limited operating buffer given 2.3% EBITDA margin
• Visibility constraints due to unreported cash, investing cash flows, and equity ratio
• Refinancing or liquidity risk would rise if working capital needs spike (though current ratios are sound)

Key Concerns:

• Sustained decline in operating margin despite top-line growth
• OCF lagging earnings and reliance on working capital release in H2
• Uncertainty around dividend outflows and capex due to missing disclosures

Investment Implications

Key Takeaways:

• Top-line growth (+8.3% YoY) offset by operating income decline (-5.0% YoY), indicating negative operating leverage
• ROE of 2.36% constrained by a 1.20% net margin despite reasonable asset turnover and moderate leverage
• Strong liquidity (current ratio 154.1%) and interest coverage (41.9x) mitigate balance sheet risk
• OCF/NI of 0.60 highlights weaker cash conversion; working capital management is pivotal for H2
• Ordinary income supported by non-operating items; sustainability needs validation

Metrics to Watch:

• Gross margin and SG&A ratio trends
• Operating margin recovery and EBITDA margin progression
• OCF/NI and changes in receivables, unbilled balances, and payables
• Ordinary vs. operating income gap (recurrence of non-operating gains)
• Leverage metrics (liabilities/equity) and any changes in financing cash flows

Relative Positioning: Within low-margin industrial trading/distribution peers, the company demonstrates solid revenue growth and conservative leverage but underperforms on operating leverage and cash conversion this half; sustaining growth while improving gross-to-operating conversion will be key to strengthening ROE.

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