NIKKON Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥131.91B
• Operating Income: ¥10.77B
• Net Income: ¥7.21B
• EPS: ¥59.62

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: Mixed quarter with strong top-line growth and solid cash generation, but margin compression dragged operating profit and capital efficiency remains weak. Revenue rose 9.6% YoY to 1,319.12, supported by logistics demand resilience, while operating income declined 6.6% YoY to 107.72. Ordinary income edged up 1.0% YoY to 110.48 as non-operating gains (dividends and interest) offset weaker operations. Net income increased 6.8% YoY to 72.01, lifting EPS (basic) to 59.62 yen despite the operating headwind. Operating margin fell to 8.16%, down about 143 bps from an estimated 9.59% in the prior-year period. Net margin was 5.46%, modestly compressing by roughly 14 bps vs last year (≈5.60%). Gross margin printed at 15.6%, but granular SG&A drivers were not disclosed; SG&A ratio was 7.47% of sales. Ordinary margin compressed to 8.38% from roughly 9.09% YoY, as revenue outpaced ordinary income growth. Cash earnings quality was strong with OCF of 192.09 (OCF/NI 2.67x), easily covering working capital and interest needs. Capex was sizeable at 168.31, yet OCF minus capex remained positive at approximately 23.8, enabling modest buybacks of 18.84. Balance sheet strength is solid: current ratio 154.9%, quick ratio 154.6%, and interest coverage 30.3x indicate low liquidity and refinancing risk. However, ROE is low at 2.9% and ROIC is just 2.5%, highlighting weak capital efficiency versus a 7–8% target for value creation. Non-operating income accounted for 22% relative to operating profit, signaling some reliance on financial income to support ordinary profit. Effective tax rate was high at 41.5%, tempering the flow-through from ordinary income to net profit. The reported payout ratio is 142.3%, which appears elevated and may not be sustainable absent continued strong cash generation; dividend details were not disclosed. Looking ahead, margin recovery and capital efficiency improvement are the key watch points; industry wage inflation and regulatory constraints (driver hour reforms) could cap near-term operating leverage, while disciplined capex and pricing should be critical to lift ROIC.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.9% = Net Profit Margin 5.5% × Asset Turnover 0.305 × Financial Leverage 1.76x. The most notable change vs last year is margin compression at the operating level (operating margin down ~143 bps to 8.16%), while net margin slipped ~14 bps to 5.46%. Business drivers likely include wage inflation, tight driver supply (2024 workstyle reform impacts), and potentially elevated maintenance and depreciation tied to ongoing fleet/network investment, which diluted operating leverage despite higher revenue. Non-operating items (dividends and interest income) cushioned ordinary profit, but this is not a core operating driver. Sustainability: near-term margin pressure may persist until pricing resets or productivity initiatives (network optimization, automation, load factor improvements) counter cost inflation; non-operating income is inherently less controllable. Watch for any trend where SG&A or other overheads grow faster than revenue; given the data gap in SG&A breakdown, we cannot confirm the exact cost line pressure, but the decline in operating profit against +9.6% sales implies negative operating leverage in the period.

Growth Assessment

Revenue growth of +9.6% YoY to 1,319.12 appears broad-based and resilient, but quality is tempered by margin compression and lower operating profit. Ordinary income +1.0% YoY benefited from higher dividend and interest income (non-operating income 15.86 vs non-operating expenses 13.11), highlighting a mixed profit composition. Net income +6.8% YoY was helped by non-operating balance and possibly lower one-off charges; however, a 41.5% effective tax rate constrained bottom-line conversion. EBITDA of 188.33 (14.3% margin) indicates adequate cash profitability to fund maintenance needs, though depreciation of 80.61 remains a material headwind to EBIT. Near-term outlook: revenue momentum is constructive, but operating margin recovery will depend on successful pass-through of cost inflation (wages, fuel, subcontracting), network productivity, and asset utilization gains. If OCF remains >150 with capex around 160–170 per half year, growth investments are financeable internally, but ROIC uplift remains the key challenge.

Financial Health

Liquidity is strong with a current ratio of 154.9% and quick ratio of 154.6%; no warning flags (both > benchmarks). Working capital stands at 303.94, supported by cash and deposits of 366.31 and receivables of 346.11 versus current liabilities of 553.41. No maturity mismatch risk is evident: short-term loans are modest at 24.82, and the company holds ample liquid assets. Solvency profile is conservative: total equity 2,466.01 vs total liabilities 1,865.78; debt-to-equity ratio is 0.76x (no D/E > 2.0 warning). Long-term loans are 434.28, implying manageable refinancing risk given interest coverage of 30.26x and EBITDA of 188.33. Equity ratio (calculated) is approximately 56.9% (2,466.01/4,331.80), underscoring balance sheet strength. No off-balance sheet obligations were disclosed in the data provided.

Cash Flow Quality

Earnings quality is high: OCF/Net Income = 2.67x (192.09/72.01), indicating strong cash conversion and limited accrual risk. Proxy free cash flow (OCF – Capex) is about +23.8, positive even after elevated investment levels; however, full investing CF was not disclosed, so reported FCF may differ. Financing CF was -18.43, including share repurchases of -18.84; interest expense of 3.56 is well covered by EBIT/EBITDA. Working capital dynamics are not fully disclosed (no inventory or payable turnover details), but the strong OCF alongside higher sales suggests no evident working capital stretch; no signs of end-period receivable build or payables extension can be confirmed from the provided data. Sustainability: if OCF stays near the current run-rate, the company can fund maintenance capex and modest shareholder returns without levering up.

Dividend Sustainability

Dividend per share data is unreported, but the calculated payout ratio is 142.3%, implying dividends (likely annualized or including special factors) exceeded earnings in this period. With proxy FCF around 23.8 and buybacks of 18.84 already funded, room for cash dividends exists only if total shareholder returns are calibrated to OCF after capex. The absence of DPS and total dividends paid limits precision; if management targets stable or progressive dividends, sustainability hinges on maintaining OCF > capex and improving EBIT margins to lower the payout ratio toward <60% over time. Given current ROE of 2.9% and ROIC of 2.5%, a high payout could constrain reinvestment needed for productivity and margin recovery, so a balanced approach appears necessary.

Risk Assessment

Business Risks:

• Operating margin pressure from wage inflation, driver shortages, and regulatory work-hour constraints (the 2024 logistics reforms).
• Fuel and energy cost volatility impacting transportation and warehouse operations.
• Pricing power risk if cost pass-through to customers lags contract repricing cycles.
• Execution risk on network optimization and asset utilization needed to raise ROIC from 2.5%.
• Customer concentration or cyclical exposure in key shipping verticals (not disclosed).

Financial Risks:

• Low capital efficiency (ROIC 2.5%, ROE 2.9%) relative to cost of capital, risking value dilution if capex remains elevated without margin lift.
• High effective tax rate (41.5%) suppressing net income conversion.
• Potential dividend coverage strain if payout ratio remains >100% while capex stays high.
• Interest rate risk on 434.28 of long-term loans, though current coverage is strong.

Key Concerns:

• Sustained operating margin compression despite near-10% revenue growth (operating margin down ~143 bps YoY).
• Reliance on non-operating income (22% contribution vs operating profit) to support ordinary income.
• Visibility on investing CF and dividend outflows is limited due to unreported items, obscuring true FCF and payout coverage.

Investment Implications

Key Takeaways:

• Top-line growth robust (+9.6% YoY), but negative operating leverage cut operating income (-6.6% YoY).
• Cash generation strong (OCF/NI 2.67x), enabling capex and buybacks with modest surplus.
• Balance sheet conservative (current ratio 155%, interest coverage 30x, equity ratio ~57%).
• Capital efficiency weak (ROIC 2.5%, ROE 2.9%); improvement is essential for value creation.
• Payout ratio appears elevated (142.3%); sustainability depends on margin and FCF trajectory.

Metrics to Watch:

• Operating margin and EBITDA margin recovery versus cost inflation.
• OCF versus capex to gauge organic FCF and dividend capacity.
• Effective tax rate normalization closer to ~30%.
• Asset turnover and ROIC progression from productivity initiatives.
• Non-operating income reliance (dividends/interest) share of ordinary profit.

Relative Positioning: Within Japanese logistics peers, the company exhibits stronger liquidity and coverage than average but lags on capital efficiency and margin resilience; performance improvement hinges on pricing pass-through and productivity to elevate ROIC toward industry cost of capital.

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