Nishi-Nippon Railroad Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥222.26B
• Operating Income: ¥13.06B
• Net Income: ¥16.92B
• EPS: ¥216.25

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

FY2026 Q2 was solid on an operating basis with ordinary profit growth, but headline net income was flattered by sizable one-off gains below the ordinary line. Revenue was 2,222.6, operating income was 130.6 (+3.0% YoY), and ordinary income rose to 143.8 (+8.8% YoY). Profit before tax jumped to 242.5, implying approximately 98.7 of extraordinary gains, and net income surged to 165.3 (+78.6% YoY). Operating margin stands at about 5.9% and ordinary margin at about 6.5%, while EBITDA margin is 11.0%. Non-operating income was 31.1 (1.4% of revenue), offset by non-operating expenses of 17.9, underpinning the ordinary profit uplift. Interest expense was well covered (interest coverage 8.42x), indicating manageable financing costs despite leverage. Cash generation tracked earnings closely with operating cash flow of 159.7 (OCF/NI 0.97x), suggesting acceptable earnings quality this quarter. Liquidity is adequate with a current ratio of 151% and quick ratio of 148%, and working capital of 741.9. Balance sheet leverage is elevated (D/E 1.94x; Debt/EBITDA 7.61x), typical for rail/real estate-heavy models but a point to monitor against interest rate risk. ROE is 6.2% on a DuPont basis (margin 7.4% × asset turnover 0.286 × leverage 2.94x), while ROIC is weak at 2.3%, reflecting capital intensity and modest asset productivity. Equity stands at 2,642.6 (equity-to-asset ratio roughly 34%), supporting solvency but leaving limited buffer for adverse shocks if capex ramps. Dividend payout looks conservative at a calculated 19.2%, though FCF coverage is unknown due to unreported investing cash flows. With revenue mix details and YoY revenue unavailable, margin expansion/compression vs last year cannot be precisely quantified. Forward-looking, normalization of extraordinary gains would likely reduce net income run-rate, so sustaining profit growth will depend on underlying transport, real estate, and lifestyle segment performance and cost discipline.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 7.4% × Asset turnover 0.286 × Financial leverage 2.94x = ROE 6.2%. In level terms, the largest driver of ROE is financial leverage (2.94x), while margin benefits this quarter include one-off gains below the ordinary line that lifted net margin above operating margin (5.9%). Asset turnover is low (0.286), consistent with rail and real estate asset intensity, and is the structural drag on ROE. Given the spike in profit before tax versus ordinary income (~+98.7 in extraordinary gains), the margin component likely improved the most versus a normalized base, though we cannot quantify changes due to missing prior-period revenue/mix. Business drivers: ordinary income growth (+8.8% YoY) reflects better core operations (transport recovery, real estate contributions) and stable non-operating income (dividends 8.8, interest 2.7). Sustainability: the uplift from extraordinary gains is one-time; normalized net margin would likely be closer to ordinary margin after tax, reducing ROE absent further operating improvements. Watch for SG&A containment: SG&A is 158.1; without disclosed revenue YoY or SG&A YoY, we cannot confirm operating leverage, but maintaining operating margin near 6% will require cost control as energy and wage pressures persist.

Growth Assessment

Top-line sustainability cannot be assessed YoY due to missing revenue growth data; however, ordinary income growth (+8.8% YoY) signals underlying earnings momentum. Operating income growth (+3.0% YoY) suggests modest operating leverage, with non-operating income providing an additional lift. The net income surge (+78.6% YoY) is not likely recurring given the ~98.7 in extraordinary gains implied between ordinary and pretax. EBITDA of 244.2 (11.0% margin) indicates capacity to absorb cost inflation, but maintaining growth will hinge on passenger traffic trends, fare revisions, and real estate leasing/sales cadence. Interest income (2.7) and dividends (8.8) provide steady non-operating contributions, but are insufficient to replace one-offs. With ROIC at 2.3%, incremental growth must be disciplined and returns-focused to avoid further capital efficiency dilution. Outlook: expect normalized earnings to track ordinary income trends rather than headline net income; investment plan and cost trajectory (energy, maintenance, wages) will shape H2. Absent segment disclosures, we assume continued recovery in mobility and stable property operations underpin a mid-single digit operating profit growth run-rate.

Financial Health

Liquidity: Current ratio 151.3% and quick ratio 148.0% indicate adequate short-term coverage; no warning (both >1.0; current ratio ≈ healthy threshold). Working capital is 741.9, and cash plus receivables (~1,133.7) comfortably covers short-term loans (448.8). Solvency: Debt-to-equity is 1.94x (elevated but below the 2.0 explicit warning threshold); Debt/EBITDA is 7.61x, above the <6.0x benchmark, signaling higher leverage risk for a capex-intensive model. Interest coverage at 8.42x is strong, mitigating near-term refinancing risk. Maturity profile: short-term loans (448.8) vs current assets (2,189.4) suggests limited near-term mismatch; however, sizable noncurrent liabilities (3,684.8) and long-term loans (1,409.1) underscore sensitivity to interest rate moves. Equity base of 2,642.6 (~34% of assets) provides a moderate buffer. Off-balance sheet: none disclosed in the provided data.

Cash Flow Quality

OCF was 159.7 versus net income of 165.3, yielding OCF/NI of 0.97x (acceptable; above the 0.8 caution threshold and near 1.0). The close alignment suggests limited accrual-driven earnings this quarter, but we lack working capital detail to rule out timing effects. Free cash flow cannot be assessed due to unreported investing CF and capex; thus, sustainability of cash distributions and deleveraging is uncertain. Financing CF was -100.9, including share repurchases of -40.6, implying net debt service or dividend outflows, but total dividends paid were not disclosed. No clear signs of working capital manipulation can be inferred given data gaps; receivables and inventories are reported levels only, without change data.

Dividend Sustainability

The calculated payout ratio is 19.2%, which appears conservative relative to earnings. OCF coverage of net income (0.97x) is supportive, but FCF coverage cannot be evaluated as investing cash flows and capex are unreported. Given leverage (D/E 1.94x; Debt/EBITDA 7.61x) and low ROIC (2.3%), management may prioritize balance sheet flexibility and disciplined capex over aggressive payouts. Policy outlook likely remains stable with a focus on steady dividends; upside depends on sustained ordinary income and capex intensity. Absent DPS and total dividends paid, we cannot benchmark against historical policy or DOE.

Risk Assessment

Business Risks:

• Passenger demand and mobility recovery volatility affecting transport revenues
• Real estate market risk (leasing demand, sales timing, valuation swings)
• Energy and electricity cost inflation impacting operating margin
• Labor cost pressures (wage increases) raising SG&A and operating costs
• Execution risk on capital projects with long paybacks driving low ROIC (2.3%)

Financial Risks:

• Elevated leverage (D/E 1.94x; Debt/EBITDA 7.61x) increasing sensitivity to rate hikes
• Refinancing and interest rate risk given large noncurrent liabilities
• Potential normalization of one-off gains reducing cash available for debt reduction
• Limited FCF visibility due to unreported investing cash flows and capex

Key Concerns:

• Earnings quality reliance on extraordinary gains this quarter (~98.7 between ordinary and PBT)
• Structural low asset turnover (0.286) constraining ROE and ROIC
• Need for sustained cost control to defend ~6% operating margin amid inflationary inputs
• Data limitations (no revenue YoY, no capex/FCF, no segment detail) obscuring trends

Investment Implications

Key Takeaways:

• Core performance improved: operating income +3.0% YoY; ordinary income +8.8% YoY
• Headline net income inflated by ~98.7 of extraordinary gains; normalization expected
• Operating margin ~5.9%, EBITDA margin 11.0%; ordinary margin ~6.5%
• Leverage elevated (D/E 1.94x; Debt/EBITDA 7.61x) but interest coverage strong at 8.42x
• Cash earnings quality acceptable (OCF/NI 0.97x), yet FCF unassessable
• ROE 6.2% supported by leverage; ROIC weak at 2.3%, flagging capital efficiency challenge
• Liquidity adequate (current ratio 151%; quick 148%; working capital 741.9)

Metrics to Watch:

• Ordinary income trajectory vs one-off gains (gap between ordinary and pretax)
• Operating margin and SG&A trend relative to revenue
• Capex and investing CF (to gauge FCF and deleveraging capacity)
• Debt/EBITDA and interest coverage as rates evolve
• Passenger volumes/fare revisions and real estate occupancy/sales
• ROIC versus WACC and project-level returns

Relative Positioning: Within Japanese transport and urban development peers, profitability is mid-pack on an operating basis but capital efficiency (ROIC 2.3%) is on the weak side; leverage is on the higher end though liquidity and interest coverage remain adequate. Near-term earnings optics are strong due to extraordinary gains, but normalized performance should be benchmarked to ordinary income growth.

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