NIHON DENKEI CO.,LTD FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥52.32B
• Operating Income: ¥1.25B
• Net Income: ¥777M
• EPS: ¥66.17

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 a mixed quarter: top-line growth was solid, but profit margins compressed and ordinary income declined, leaving ROE and ROIC at subdued levels. Revenue rose 8.1% YoY to 523.19, supported by stronger sales volumes or better mix in electronic components distribution. Gross profit reached 73.60, yielding a gross margin of 14.1%. Operating income fell 9.4% YoY to 12.46, driving operating margin down to 2.4%. Based on last year’s implied base (revenue ~483.98 and operating income ~13.75), operating margin compressed by about 46 bps (from ~2.84% to ~2.38%). Ordinary income declined 4.5% YoY to 12.20 as a small non-operating loss (net -0.26: 1.16 income vs 1.42 expenses) modestly weighed on earnings. Net income edged up 0.4% YoY to 7.48, aided by below-ordinary one-off items between ordinary income and pretax (ordinary 12.20 vs pretax 12.97) but constrained by a high effective tax rate of 40.1%. Cash generation was a bright spot: operating cash flow was 32.47, which is 4.34x net income, indicating strong earnings quality and favorable working capital dynamics in the period. Liquidity remains robust with a current ratio of 197% and quick ratio of 172%, while interest coverage of 14.1x underscores comfortable debt serviceability. Balance sheet leverage appears moderate (D/E 1.00x), and short-term loans of 66.55 are well covered by cash of 73.24 plus sizable receivables of 298. ROE is low at 2.5%, reflecting thin net margins (1.4%), modest asset turnover (0.864x), and moderate leverage (2.0x). ROIC at 2.3% is below the 5% warning threshold, signaling capital efficiency challenges in the current environment. Reported payout ratio of 137.5% implies earnings-based coverage risk, though cash-based coverage looks more comfortable given strong OCF and light capex (1.04); dividend data points are limited in the disclosure. Forward-looking, sustaining revenue growth while restoring operating leverage will be key to improving ROE/ROIC. Management focus should center on gross margin protection, SG&A control, and disciplined working capital to convert growth to durable cash flow. In sum, the company demonstrated resilient sales and cash generation, but margin compression and low capital returns remain the principal constraints on value creation near term.

Profitability Analysis

DuPont decomposition indicates ROE of 2.5% = Net Profit Margin (1.4%) × Asset Turnover (0.864x) × Financial Leverage (2.00x). The primary drag is the thin net margin at 1.4%, with operating margin at 2.4% and a ~46 bps YoY contraction (from ~2.84% to ~2.38%) based on implied prior figures. Asset turnover at 0.864x is consistent with a distributor profile but leaves limited room to offset a margin squeeze. The biggest change QoQ/YoY appears to be margin compression, not leverage or asset turnover, given revenue rose 8.1% while operating income declined 9.4%. Likely business drivers include higher SG&A intensity (SG&A ratio 11.7%) and/or gross margin pressure in components distribution, possibly due to pricing competition or mix shifts. Non-operating items were modest and did not significantly buffer operating softness; a high effective tax rate further capped net margins. Sustainability: margin headwinds could persist if pricing remains competitive and wage/logistics costs stay elevated; however, distributor gross margins can recover with improved mix and supplier terms. Operating leverage is currently negative (SG&A growth outpacing revenue, inferred from lower OI despite higher sales), which is a concern if maintained. Watch for stabilization in gross margin and better SG&A discipline to re-expand operating margin toward ~3%.

Growth Assessment

Revenue growth of 8.1% YoY to 523.19 is solid and suggests healthy demand or share gains in target categories. However, profit growth lagged: operating income declined 9.4% YoY to 12.46 and ordinary income fell 4.5% to 12.20, indicating negative operating leverage. Net income was essentially flat (+0.4% YoY), supported by non-operating/extraordinary factors between ordinary and pretax and despite a 40.1% tax rate. The quality of growth is mixed: topline is healthy, but margin compression lowers incremental profitability. With EBITDA of 14.99 and EBITDA margin of 2.9%, incremental margins are thin; any pricing or cost inflation pressure transmits quickly to earnings. Outlook hinges on inventory normalization in the electronics value chain, supplier rebate cycles, and potential mix improvement; management’s ability to restrain SG&A should determine whether growth converts to profit. Near term, expect mid-single-digit to high-single-digit sales growth scenarios to translate to modest profit growth unless margin recovers.

Financial Health

Liquidity is strong: current ratio 197.1% and quick ratio 172.2%, with working capital of 257.67 providing ample cushion. No warning on current ratio (<1.0) or excessive leverage (D/E 1.00x is within conservative ranges). Interest coverage at 14.13x indicates solid debt service capacity. Maturity profile looks manageable: short-term loans of 66.55 are covered by cash of 73.24 and substantial accounts receivable of 298, limiting near-term refinancing risk. Long-term loans are 30.33, modest relative to equity of 302.98. No off-balance sheet obligations are disclosed in the provided data. Equity ratio is unreported, but the balance sheet structure (assets 605.54 vs equity 302.98) implies equity-to-assets near 50%, consistent with a balanced capital structure. Overall solvency and liquidity positions are healthy.

Cash Flow Quality

OCF/Net Income is 4.34x, indicating high-quality earnings with strong cash conversion this half. OCF of 32.47 comfortably exceeds capex of 1.04, implying positive proxy FCF of ~31.43 even without full investing CF disclosure. Financing CF was -59.33, reflecting debt repayment and/or shareholder returns (share repurchases -1.51; dividends unreported), funded in part by the strong opening liquidity and OCF. Working capital movements likely supported OCF (receivables, payables, and inventory timing), but the exact components are undisclosed; sustainment of this conversion should be monitored as WC can reverse. No signs of aggressive working capital manipulation are evident from the limited data, but continued monitoring of DSO/DPO/DIO is warranted.

Dividend Sustainability

Reported payout ratio (calculated) is 137.5%, indicating earnings-based coverage risk for the period; however, DPS and total dividend paid are unreported, limiting precision. Cash-based coverage appears adequate for now given OCF of 32.47 and low capex of 1.04, implying ample capacity to fund ordinary dividends and modest buybacks (1.51) this half. With ROE at 2.5% and ROIC at 2.3%, elevated payout relative to earnings could constrain reinvestment returns unless operating margins recover. Policy outlook: without explicit guidance, assume a stable-to-cautious stance; sustaining a payout above earnings would rely on continued strong cash conversion, which may fluctuate with working capital. Key watchpoints: full-year DPS guidance, total shareholder return allocation between dividends and buybacks, and alignment with cash generation.

Risk Assessment

Business Risks:

• Gross margin pressure from pricing competition and mix shifts in electronic components distribution
• Inventory obsolescence risk amid product cycles and demand variability
• Supplier rebate/term changes affecting period-to-period profitability
• Customer concentration risk typical in B2B distribution (not disclosed but relevant)

Financial Risks:

• High effective tax rate (40.1%) dampening net margins
• Potential reversal of favorable working capital that boosted OCF (timing risk)
• Leverage is moderate (D/E 1.00x), but interest-bearing debt requires maintenance of cash generation
• ROIC at 2.3% below 5% threshold signals capital efficiency risk

Key Concerns:

• Operating margin contraction of ~46 bps YoY despite 8.1% revenue growth
• Low ROE (2.5%) and ROIC (2.3%) limiting value creation
• Dividend payout ratio (137.5%) above earnings points to potential coverage stress if cash conversion weakens
• Limited disclosure on SG&A components, investing CF, and dividend amounts reduces transparency

Investment Implications

Key Takeaways:

• Top-line growth robust at +8.1%, but profitability lagged with operating income -9.4%
• Operating margin compressed to 2.4%, down ~46 bps YoY on implied prior period
• Cash generation strong (OCF/NI 4.34x) supporting liquidity and shareholder returns
• ROE 2.5% and ROIC 2.3% remain below attractive levels; capital efficiency is the core challenge
• Balance sheet is sound with current ratio 197% and interest coverage 14.1x

Metrics to Watch:

• Gross margin and operating margin trajectory (target re-expansion toward ~3%)
• SG&A ratio vs revenue growth to confirm positive operating leverage
• Working capital efficiency (DSO, DPO, DIO) and OCF sustainability
• Effective tax rate normalization potential
• Capex discipline and any M&A/investment outlays influencing ROIC

Relative Positioning: Within Japanese electronics distributors, the company exhibits above-par liquidity and cash conversion this period but lags on profitability and capital efficiency; improving operating leverage and margin resilience will be necessary to close the ROE/ROIC gap with higher-performing peers.

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