NISSO HOLDINGS Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥53.16B
• Operating Income: ¥981M
• Net Income: ¥522M
• EPS: ¥15.52

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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 mixed quarter—solid top-line growth but sharp margin compression drove a material decline in earnings, with cash conversion only modestly supportive. Revenue rose 6.0% YoY to 531.7, but operating income fell 33.6% to 9.8 and net income declined 40.2% to 5.2. Gross profit was 85.7, implying a gross margin of 16.1%, while operating margin fell to 1.8–1.9%. Based on prior-period reconstruction, operating margin likely compressed by roughly 110 bps YoY (from ~2.95% to ~1.85%). Net margin compressed by roughly 75–80 bps YoY (from ~1.74% to ~0.98%). SG&A intensity is elevated at 14.3% of sales, leaving a narrow operating spread over gross margin and indicating negative operating leverage. Ordinary income dropped 33.8% to 9.7, with a small non-operating net expense (non-op income 1.01 vs non-op expenses 1.12) offering no cushion. The effective tax rate was high at 45.2%, further pressuring net income. ROE stands at 3.0% via DuPont (NPM 1.0% × asset turnover 1.523 × leverage 2.03x), underscoring weak profitability as the principal constraint. ROIC is 4.3% (below the 5% warning line), signaling sub-par capital efficiency relative to typical targets. Cash conversion was adequate but not strong: operating cash flow of 4.45 covers only 0.85x of net income. Liquidity remains serviceable with a current ratio of 138% and cash of 73.6 versus short-term loans of 20.0, supporting near-term funding needs. Leverage appears moderate (liabilities-to-equity 1.03x), and interest coverage is robust at 81.8x, indicating low immediate financial stress. Balance sheet intangibles (intangible assets 35.9, including goodwill 24.7) introduce potential medium-term impairment risk if margins do not recover. Forward-looking, the company must re-establish operating leverage via pricing, mix shift, or SG&A control to lift ROIC above the cost of capital; otherwise, dividend capacity (payout ratio calculated at 144%) could tighten against earnings and cash flow.

Profitability Analysis

ROE decomposition: ROE 3.0% = Net Profit Margin ~1.0% × Asset Turnover 1.523 × Financial Leverage 2.03x. The weakest (and most impactful) component is the net margin, which compressed by roughly 75–80 bps YoY as operating margin fell about 110 bps despite 6% revenue growth. Business driver: higher SG&A intensity (14.3% of sales) and limited gross margin expansion left little room for operating leverage; moreover, a high effective tax rate (45%) further squeezed net margins. Asset turnover at 1.52x is solid for a human-capital/service-heavy model and likely stable YoY, suggesting utilization remained reasonable. Financial leverage around 2.0x (liabilities/equity) is moderate and not the key ROE driver. Sustainability: the margin pressure looks cyclical/operational rather than structural, but absent swift cost discipline or price pass-through, near-term recovery may be gradual. Concerning trends: operating expenses appear to have grown faster than revenue (implied from OI falling while revenue rose), signaling negative operating leverage and potential wage inflation or hiring ahead of demand.

Growth Assessment

Top-line growth of 6.0% indicates healthy demand or better utilization, but the quality of growth was low given margin compression and a 33–40% earnings decline. Operating income fell faster than revenue due to elevated SG&A and limited gross margin improvement. Non-operating items were roughly neutral, and taxation (45.2% effective rate) amplified the net decline. Revenue sustainability depends on client activity in core end-markets (likely autos/electronics/manufacturing staffing), pricing power to pass through wage inflation, and mix shift toward higher-margin solutions (e.g., outsourced/contracting). Outlook: with ROIC at 4.3% and OPM ~1.9%, profitability must improve to meet typical sector hurdles; focus areas include utilization, bill rate increases, and disciplined headcount additions. Near-term growth may be constrained by cost inflation and the need to optimize SG&A before accelerating volumes.

Financial Health

Liquidity is adequate: current ratio 137.9% (above 1.0 but below the >150% comfort benchmark), quick ratio 137.9%, and working capital of 57.6. Cash and deposits 73.6 comfortably cover short-term loans of 20.0; current assets 209.5 exceed current liabilities 151.9, limiting maturity mismatch risk. Solvency is moderate: total liabilities-to-equity is 1.03x (below the 2.0 warning) and long-term loans are modest at 7.93. Interest coverage is very strong at 81.8x, indicating low refinancing stress. Computed equity ratio (equity/total assets) is ~49.2%, supportive of resilience. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF/Net income is 0.85x—below 1.0 but above the 0.8 warning threshold—signaling acceptable but not robust cash conversion. Operating cash flow of 4.45 versus capex of 1.53 implies an indicative FCF of ~2.9 for the period, though total FCF is unreported and other investing flows are unknown. Working capital appears manageable given positive OCF alongside rising sales; there is no clear evidence of aggressive working capital tactics from the limited data. With financing cash outflows of -8.10, cash resources likely funded debt reduction and/or shareholder returns; dividend details are unreported, limiting precision on coverage. Overall, earnings quality is fair but sensitive to working capital and margin execution.

Dividend Sustainability

The calculated payout ratio is 143.7%, which is elevated versus standard sustainability benchmarks (<60%) and not covered by earnings. Cash coverage is unclear due to unreported dividend amounts and incomplete investing cash flows; however, indicative FCF (~2.9) appears modest relative to potential dividends implied by the payout ratio, suggesting limited headroom. With ROIC at 4.3% and margins under pressure, sustaining a high payout could constrain reinvestment capacity. Unless profitability and OCF improve, the dividend policy may need recalibration toward a lower payout or a stronger link to FCF.

Risk Assessment

Business Risks:

• Margin pressure from wage inflation and recruitment costs in a tight labor market
• Limited pricing power and delayed pass-through to client bill rates
• Utilization risk if headcount additions outpace demand
• High effective tax rate (45.2%) depressing net margins
• Potential goodwill/intangible impairment (goodwill 24.7; intangibles 35.9) if performance deteriorates

Financial Risks:

• ROIC at 4.3% (<5% warning), indicating sub-par capital efficiency
• Moderate liquidity cushion (current ratio 138%) below ideal >150% benchmark
• Dividend coverage risk given 144% payout ratio vs earnings
• Dependence on operating cash flow; OCF/NI 0.85x leaves limited buffer if margins slip

Key Concerns:

• Operating margin compressed ~110 bps YoY despite 6% revenue growth
• Net margin compressed ~75–80 bps YoY; ROE low at 3.0%
• SG&A intensity at 14.3% constrains operating leverage
• Tax rate volatility and possible non-deductible items inflate ETR

Investment Implications

Key Takeaways:

• Top-line growth (+6%) offset by sharp margin compression; earnings down ~34–40%
• ROIC 4.3% and ROE 3.0% highlight need for profitability recovery
• Cash conversion is acceptable but not strong (OCF/NI 0.85x); liquidity adequate
• Dividend sustainability looks stretched versus earnings without margin recovery
• Balance sheet strength (equity ratio ~49%; interest coverage ~82x) reduces near-term financial stress

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio
• Gross margin trends and pricing pass-through to offset wage inflation
• OCF/Net income and working capital (receivables and payables days)
• ROIC trajectory and capex discipline
• Effective tax rate normalization
• Headcount utilization and order backlog in core client sectors

Relative Positioning: Versus domestic staffing peers, the company exhibits lower margins and ROIC with a modest but adequate liquidity profile; balance sheet conservatism is a positive, but earnings quality and operating leverage need to improve to close the gap with higher-ROIC competitors.

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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