NICHIMO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥67.02B
• Operating Income: ¥1.59B
• Net Income: ¥1.33B
• Earnings per Unit (EPU): ¥158.92

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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

Verdict: A mixed FY2026 Q2 print—solid top-line growth and margin expansion lifted profits, but cash flow quality deteriorated sharply on working capital build and higher short-term funding. Revenue rose 8.8% YoY to 670.22, with operating income up 29.0% to 15.86 and ordinary income up 25.5% to 18.03, signaling strong operating leverage. Net income increased 22.5% YoY to 13.27, with EPS at 158.92 JPY. Gross profit reached 62.83, implying a 9.4% gross margin. Operating margin improved to roughly 2.37% (from about 2.00% last year), an expansion of about 37 bps driven by better cost discipline relative to revenue growth. Ordinary margin improved to about 2.69% from roughly 2.33% (~36 bps expansion), reflecting incremental non-operating tailwinds (net non-operating +2.17). Net margin improved to approximately 1.98% from about 1.76% (~22 bps expansion). However, operating cash flow fell to -94.40 despite positive earnings, resulting in an OCF/NI ratio of -7.11x, a clear earnings quality red flag. The negative OCF is consistent with a substantial inventory balance (354.44) and higher receivables (152.93), necessitating increased short-term borrowing (short-term loans 209.89) as financing inflow totaled 103.29. Liquidity is adequate on a current ratio basis (166%), but the quick ratio (75%) underscores reliance on inventory conversion. Leverage is elevated with D/E at 1.89x and financial leverage at 2.89x, supporting ROE but increasing downside risk in a downturn. ROE sits at 4.1% via DuPont, constrained by thin net margins (2.0%) and modest asset turnover (0.723). ROIC at 2.1% is below the 5% warning line, indicating capital efficiency challenges even with profit growth. Non-operating income remains meaningful (non-operating income ratio 36.8%), yet equity-method contributions are unreported, limiting clarity on affiliate exposure typical for trading firms. Forward-looking, sustaining margin gains while normalizing working capital will be key to improving cash flow and de-risking the balance sheet. Absent improved cash generation, the slightly elevated payout ratio (65.9%) may face pressure, particularly if inventory stays high and short-term debt remains elevated.

Profitability Analysis

DuPont decomposition: ROE (4.1%) = Net Profit Margin (2.0%) × Asset Turnover (0.723) × Financial Leverage (2.89x). The largest positive change in the quarter appears to be margin-driven: operating income rose 29% vs revenue +8.8%, implying operating margin expansion of ~37 bps (to ~2.37%). Asset turnover is modest at 0.723 and likely compressed or stayed flat YoY due to higher asset base tied to inventory build, offsetting part of the benefit from revenue growth (exact YoY ATO not disclosed). Financial leverage remains high at 2.89x, contributing materially to ROE but elevating risk. Business driver: improved operating margin likely reflects better gross margin management and/or SG&A cost control (SG&A grew below revenue, given OI outpaced sales), while non-operating net gains (+2.17) supported ordinary income. Sustainability: margin gains could be partly sustainable if tied to mix/pricing, but reliance on non-operating items and thin base margins suggest vulnerability to input price and FX volatility. Watch-outs: with inventories elevated and quick ratio sub-1.0, future discounting or carrying costs could pressure gross margin; additionally, SG&A detail is unreported, but a risk would be SG&A re-acceleration exceeding revenue growth in H2.

Growth Assessment

Revenue growth of 8.8% YoY indicates resilient demand across core businesses (marine-related trading), with operating income up 29% reflecting favorable operating leverage. Profit growth quality is uneven: core operating profits improved, but ordinary profits also benefitted from non-operating contributions (dividends 1.58, interest 0.21; net non-op +2.17). With ROIC at 2.1%, incremental growth appears capital-intensive, relying on inventory-funded expansion, which limits value creation absent stronger margins or faster turnover. Outlook hinges on inventory normalization and sustained gross margin discipline; if inventory converts cleanly in H2, OCF should recover. However, exposure to commodity/seafood price swings and FX can swing gross profit and non-operating income, potentially narrowing margins. Baseline trajectory: modest sales growth with low-single-digit margin profile; earnings sensitivity remains high given thin margins.

Financial Health

Liquidity: Current ratio 166.3% (healthy), but quick ratio 75.4% (below 100%) indicates dependence on inventory conversion for short-term obligations. Working capital is positive at 258.67. Solvency: Debt-to-equity 1.89x—elevated but below the 2.0x warning threshold; monitor closely. Interest coverage at 6.84x is solid, providing buffer against rate moves. Maturity profile: Short-term loans 209.89 are high vs cash 63.64 and receivables 152.93 (cash+AR ≈ 216.57), leaving little cushion for other current liabilities (389.88), implying a maturity mismatch risk if inventory conversion lags. Total liabilities 606.09 vs total assets 926.61 indicate some balance sheet capacity, but leverage is doing heavy lifting for ROE. No off-balance-sheet obligations disclosed; data may omit lease or guarantees typical for trading companies.

Cash Flow Quality

OCF/Net Income is -7.11x, a significant red flag suggesting earnings not yet translating into cash due to working capital outflows (likely inventory build and receivable increases). Free cash flow is unreported, but with OCF negative and capex unknown, aggregate cash generation for the period is weak; financing CF of +103.29 (likely short-term borrowing) plugged the gap. Sustainability: negative OCF is not sustainable if persistent; near-term, inventory normalization is critical. Potential manipulation signs are not evident from disclosures; changes appear operational/seasonal rather than policy-driven, but the magnitude warrants scrutiny of inventory aging and credit terms. Dividend and buyback capacity should be considered constrained until OCF turns positive.

Dividend Sustainability

Calculated payout ratio is 65.9%, slightly above the <60% benchmark. With OCF negative this period, FCF coverage is indeterminable but likely weak for H1. Absent visibility on dividends paid, capex, and policy guidance, we assume maintenance of current DPS would depend on H2 cash recovery and/or continued reliance on debt. Given leverage at 1.89x D/E and quick ratio <1.0, a conservative stance on incremental shareholder returns is prudent until cash conversion improves. Policy outlook: if management targets stable dividends, coverage will hinge on normalizing working capital and sustaining the improved margin run-rate.

Risk Assessment

Business Risks:

• Commodity/seafood price volatility impacting gross margins
• FX fluctuations (JPY) affecting import costs and translation of non-operating income
• Inventory obsolescence/valuation risk given elevated stock levels
• Affiliate/partner performance volatility (equity-method income unreported)
• Customer credit risk tied to rising receivables

Financial Risks:

• Negative OCF requiring incremental short-term funding
• High short-term loans (209.89) vs cash and AR, creating refinancing and liquidity risks
• Elevated leverage (D/E 1.89x) increases sensitivity to earnings downturns
• ROIC at 2.1% below cost of capital proxy, risking value dilution
• Interest rate risk on floating-rate debt impacting coverage

Key Concerns:

• OCF/NI at -7.11x indicates weak earnings quality this period
• Quick ratio 75.4% highlights dependence on inventory monetization
• Non-operating income ratio 36.8% suggests profit sensitivity to non-core items
• Debt/EBITDA implied high on REIT metric proxy (13.95x) indicates leverage pressure if EBITDA weakens (note: not a REIT; interpret cautiously)
• Data gaps (SG&A breakdown, investing CF, dividend cash out) limit visibility

Investment Implications

Key Takeaways:

• Healthy top-line growth (+8.8% YoY) with clear operating margin expansion (~+37 bps)
• Profit growth broad-based but partly supported by non-operating items
• Cash conversion materially weak (OCF -94.40) due to working capital build
• Balance sheet reliance on short-term debt increased; liquidity anchored by inventories
• Capital efficiency low: ROE 4.1%, ROIC 2.1% despite leverage at 2.89x
• Dividend capacity appears stretched near-term with payout ~66% and negative OCF

Metrics to Watch:

• Inventory level and turnover days
• Receivables days and collection trends
• OCF/Net income ratio and free cash flow in H2
• Short-term loans and net debt trajectory
• Gross and operating margin resilience amid FX/commodity moves
• ROIC progress toward >5% and ROE toward mid-high single digits
• Non-operating income mix (dividends, interest, equity-method if disclosed)

Relative Positioning: Versus domestic specialized trading peers, Nichimo shows decent revenue growth and near-term margin improvement but lags on capital efficiency (ROE ~4%, ROIC ~2%) and exhibits higher dependence on working capital and short-term funding, leaving it more exposed to liquidity and margin shocks than peers with stronger cash conversion and higher ROIC.

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