Nagoya Railroad Co., Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥335.68B
• Operating Income: ¥17.17B
• Net Income: ¥9.65B
• EPS: ¥57.44

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

Verdict: FY2026 Q2 was a weaker profitability quarter for Nagoya Railroad, with sharp declines in operating, ordinary, and net income despite solid operating cash generation. Revenue was ¥3356.77 bn-equivalent (335.68 billion yen), with operating income of 171.67 (−29.0% YoY) and ordinary income of 193.17 (−32.0% YoY), leading to net income of 112.63 (−47.8% YoY). Operating margin for the period is approximately 5.1% (171.67/3356.77), ordinary margin about 5.8% (193.17/3356.77), and net margin 3.4% (112.63/3356.77). EBITDA was 398.26, implying an 11.9% EBITDA margin, but depressed net income was compounded by a high effective tax rate of 58.1%. Non-operating income of 48.71 (notably dividend income of 15.37 and interest income of 2.03) provided a material cushion; the non-operating income ratio is high at 43.2%, indicating meaningful reliance on financial and other non-core contributions. Due to missing prior-period revenue data, precise basis point margin changes cannot be computed; however, the scale of YoY profit declines strongly suggests margin compression at the operating and net levels. Earnings quality is reasonably strong this quarter with OCF/NI at 1.47x, indicating that cash conversion supported the reported profits. Liquidity is a concern: current ratio is 0.70 and quick ratio 0.67, while D/E is 2.03x and working capital is negative (−1,077.22), pointing to a reliance on short-term funding. Leverage is heavy with Debt/EBITDA at 7.84x, though interest coverage remains adequate at 7.53x. ROE is low at 2.2% (DuPont: 3.4% margin × 0.220 asset turnover × 3.03x leverage), constrained by weak margins and low capital efficiency. ROIC is 1.1%, far below a 5% warning threshold, reflecting the capital-intensive nature of rail/real estate operations and current profit pressure. The high effective tax rate appears to be a temporary drag that could normalize, providing some upside to net income if underlying operations stabilize. Forward-looking, recovery hinges on passenger volume, pricing/fare revisions, normalization of tax rate, and disciplined capex, given liquidity constraints. The balance sheet shows a sizable investment securities portfolio (1,617.17) that adds financial income but also market risk. Overall, the period underscores margin and leverage challenges offset by decent cash conversion; near-term focus should be on tightening working capital, refinancing risk management, and stabilizing operating margins.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 3.4% × 0.220 × 3.03 = ~2.2%. The principal constraint is the low net margin (3.4%) and weak asset turnover (0.22x), while leverage (3.03x) is the main positive driver. The largest adverse impact this quarter stems from net margin compression, reflected in a 29–48% YoY decline across operating, ordinary, and net income and an unusually high effective tax rate (58.1%) that disproportionately depressed NI. Business drivers include cost pressures in transportation and leisure/real estate segments, and higher non-deductible items or one-offs elevating the tax rate. The margin drag from taxes is likely non-recurring to some extent, while operating cost pressures may persist without fare/pricing support and demand recovery. Operating expense discipline warrants attention as SG&A is 307.41; without revenue YoY, we cannot validate whether SG&A grew faster than revenue, but the scale of profit declines suggests negative operating leverage. Sustainability: EBITDA margin at 11.9% indicates some cushion, but ROIC at 1.1% signals inadequate returns versus capital intensity; margin recovery would need demand/pricing normalization and cost control.

Growth Assessment

Revenue scale is solid at 3,356.77, but profit declines (OP −29%, OI −32%, NI −47.8%) indicate pressure on earnings quality and negative operating leverage. Non-operating income contributed meaningfully (48.71), partly masking operating weakness; reliance on financial income is elevated. With an effective tax rate of 58.1%, normalization could mechanically lift NI absent further operating deterioration. EBITDA of 398.26 supports near-term operations, but Debt/EBITDA of 7.84x constrains growth investments without careful capital allocation. Outlook hinges on passenger demand recovery in the Nagoya area, real estate/leisure rebound, and potential fare adjustments; visibility remains moderate given limited disclosed segment data.

Financial Health

Liquidity is weak: current ratio 0.70 and quick ratio 0.67 are clear warnings; working capital is −1,077.22. Short-term loans of 801.24 versus cash of 420.53 and receivables of 652.03 indicate maturity mismatch risk and dependence on refinancing and revolving facilities. Solvency: D/E is 2.03x (warning threshold >2.0), Debt/EBITDA 7.84x is elevated, but interest coverage at 7.53x is adequate, suggesting manageable interest burden for now. Total assets are 15,233.70 with total equity 5,034.68 (owners’ equity 4,688.11), implying high leverage for a capital-intensive railway/real estate profile. No off-balance sheet obligations were disclosed in the provided data; however, typical industry exposures may include lease/guarantee commitments not captured here.

Cash Flow Quality

OCF of 165.38 exceeds net income of 112.63 (OCF/NI 1.47x), indicating good cash conversion and acceptable earnings quality this quarter. Free cash flow cannot be calculated due to missing investing cash flow and capex, but given sector norms, maintenance and growth capex are likely material, which could pressure FCF after dividends. Working capital dynamics are not detailed; however, negative working capital and short-term debt reliance raise the risk of timing-driven OCF volatility. No clear signs of working capital manipulation are apparent from the limited data.

Dividend Sustainability

Calculated payout ratio is 67.2%, slightly above the 60% benchmark, suggesting a tight but potentially manageable level if OCF remains robust and the tax rate normalizes. FCF coverage cannot be assessed due to missing capex/investing CF data; sector capex intensity typically implies limited headroom in weaker years. With leverage elevated (D/E 2.03x) and liquidity thin (current ratio 0.70), dividend flexibility may be constrained if operating conditions deteriorate or capex needs rise. No formal dividend policy details or DPS figures were disclosed in the provided data.

Risk Assessment

Business Risks:

• Passenger demand volatility affecting transport revenue and operating leverage
• Cost inflation (energy, labor, maintenance) pressuring margins
• Leisure/real estate cyclical exposure and occupancy rate fluctuations
• Regulatory constraints on fare revisions limiting pricing flexibility
• Execution risk on capital projects and potential cost overruns

Financial Risks:

• Low liquidity: current ratio 0.70 and negative working capital
• High leverage: D/E 2.03x and Debt/EBITDA 7.84x increase refinancing risk
• Elevated effective tax rate (58.1%) depressing NI and payout capacity
• Market risk on sizeable investment securities (1,617.17)
• Interest rate and credit market conditions affecting refinancing costs

Key Concerns:

• ROIC at 1.1% well below 5% warning threshold, indicating poor capital efficiency
• High reliance on non-operating income (non-operating income ratio 43.2%) to support profits
• Maturity mismatch: short-term loans 801.24 vs limited cash 420.53
• Potential constraints on capex and dividends if FCF is tight
• Data gaps (COGS/gross margin, capex, investing CF) reduce visibility on core profitability and FCF

Investment Implications

Key Takeaways:

• Earnings weakened materially (OP −29%, OI −32%, NI −47.8%) despite adequate interest coverage
• Margins are thin (OP ~5.1%, NI 3.4%) and ROE is low at 2.2% given subdued asset turnover
• Cash conversion is solid (OCF/NI 1.47x), but liquidity and leverage are stress points
• High effective tax rate is a notable, likely transitory drag on NI
• ROIC 1.1% underscores the need for better capital discipline or margin recovery

Metrics to Watch:

• Ridership and fare yield trends by segment
• Operating margin and EBITDA margin trajectory
• Effective tax rate normalization
• Capex plans and investing cash flows (maintenance vs growth)
• Debt maturity profile, refinancing progress, and interest coverage
• Working capital movements and OCF/NI ratio
• Contribution and volatility of non-operating income

Relative Positioning: Within Japanese private railways and integrated regional transport/real estate operators, Nagoya Railroad currently exhibits weaker liquidity and higher leverage than conservative peers, mid-pack operating margins under pressure, and lower capital efficiency (ROIC) relative to sector norms; stabilization of operations and improved cash discipline are needed to close 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
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