NIPPO LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥22.19B
• Operating Income: ¥946M
• Net Income: ¥672M
• EPS: ¥75.88

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

For FY2026 Q2, Nippo Sangyo Co., Ltd. (consolidated, JGAAP) delivered steady topline performance with revenue of ¥22.186bn, up 0.3% YoY, while achieving a stronger profit profile. Operating income rose 12.8% YoY to ¥946m, implying meaningful operating leverage despite minimal sales growth. Ordinary income exceeded operating income at ¥1.015bn, suggesting positive non-operating contributions that more than offset financing costs. Net income increased 2.1% YoY to ¥685m, translating to an EPS of ¥75.88. Gross profit of ¥3.629bn implies a gross margin of 16.4%, while the operating margin improved to 4.3% and the ordinary margin to 4.6%. The net margin of 3.09% remains modest but stable, consistent with a distribution/industrial solutions business profile that typically operates on thin margins. DuPont analysis indicates ROE of 4.33%, driven by a 3.09% net margin, 0.662x asset turnover, and 2.12x financial leverage; this highlights restrained profitability and moderate efficiency supported by moderate leverage. Liquidity is sound, with a current ratio of 153.5% and a quick ratio of 137.3%, supported by meaningful working capital of ¥6.539bn. Solvency appears balanced; total liabilities are ¥15.945bn versus equity of ¥15.814bn, for a debt-to-equity ratio of 1.01x, while interest coverage is robust at 37.8x. Cash generation is a notable positive: operating cash flow of ¥979m is 1.43x net income, indicating healthy earnings quality. Reported investing cash flow is shown as zero and free cash flow is shown as zero; per the data note, these likely reflect non-disclosure rather than actual zeros, so true FCF cannot be determined from the dataset. The equity ratio field is also shown as 0.0%, which should be treated as undisclosed; the balance sheet clearly supports a tangible equity base of ¥15.814bn. The implied effective tax rate appears around 31% if we approximate pre-tax income as net income plus income tax (¥685m + ¥310m), though exact pre-tax profit is not disclosed. The earnings mix (ordinary income above operating income) and low interest burden (¥25m) indicate some buffer from non-operating items and limited financing risk. While there is evidence of cost discipline and operating leverage, overall ROE remains modest and suggests room for improvement via margin expansion or asset efficiency. Dividend metrics (DPS, payout) are shown as zero/unreported, so capital return policy cannot be assessed from the data provided. Overall, the company exhibits resilient earnings, disciplined cost control, ample liquidity, and solid cash conversion, albeit with moderate profitability and incomplete disclosures limiting full precision.

Profitability Analysis

ROE (4.33%) decomposes into net margin (3.09%) × asset turnover (0.662x) × financial leverage (2.12x), indicating that modest profitability and moderate asset efficiency are the primary constraints on returns. Gross margin is 16.4% (¥3.629bn/¥22.186bn); operating margin is 4.3% (¥946m/¥22.186bn); ordinary margin is 4.6% (¥1.015bn/¥22.186bn); net margin is 3.09% (¥685m/¥22.186bn). Operating income growth (+12.8% YoY) outpaced revenue growth (+0.3% YoY), evidencing operating leverage and cost control. EBITDA of ¥1.680bn implies an EBITDA margin of 7.6%, with D&A of ¥734m indicating a capital- and/or equipment-intensive cost base relative to operating income. Ordinary income exceeding operating income by ¥69m suggests positive non-operating contributions (e.g., financial income or equity-method gains); interest expense is low at ¥25m, so non-operating gains likely played a role in bridging the gap. Interest coverage is strong at 37.8x (operating income/interest expense), underscoring limited financing strain. The profit structure remains thin-margin, consistent with a solutions/distribution profile, leaving earnings sensitive to mix and volume changes. Overall, profitability is improving sequentially (via operating leverage) but remains modest in absolute terms, with ROE constrained by low margins and middling turnover.

Growth Assessment

Revenue grew 0.3% YoY to ¥22.186bn, indicating a broadly stable demand environment rather than expansionary growth. Operating income grew 12.8% YoY to ¥946m, implying cost containment and mix benefits; this also indicates incremental margin improvements even on flat sales. Net income rose 2.1% YoY to ¥685m, lagging operating income growth likely due to tax and other below-the-line effects. Ordinary income at ¥1.015bn (above operating income) highlights non-operating support, which may not be fully repeatable if driven by market-sensitive gains; this should be monitored for sustainability. With EBITDA margin at 7.6% and operating margin at 4.3%, further growth in profits likely depends on continued cost discipline, procurement efficiencies, and potentially higher value-added product mix. The near-term outlook appears to be stable with slight improvement potential, given the demonstrated operating leverage on flat sales. However, absent stronger top-line growth or a step-up in asset turnover, ROE expansion will be incremental. Data limitations (e.g., no disclosed investing cash flows or capex) prevent assessing growth reinvestment and capacity expansion, which constrains forward-looking precision.

Financial Health

Liquidity is solid: current assets of ¥18.759bn against current liabilities of ¥12.220bn yield a current ratio of 153.5%, and a quick ratio of 137.3% after excluding inventories (¥1.978bn). Working capital stands at ¥6.539bn, providing operational flexibility. Solvency appears balanced with total liabilities of ¥15.945bn versus equity of ¥15.814bn, producing a debt-to-equity ratio of 1.01x; the balance sheet is not overly levered. Interest expense is low at ¥25m, and interest coverage is strong at 37.8x, indicating low near-term refinancing risk. The reported equity ratio of 0.0% should be treated as undisclosed; based on assets (¥33.522bn) and equity (¥15.814bn), the implied equity ratio would be approximately 47% if computed, but we refrain from asserting it due to disclosure caveats. Cash and equivalents shown as zero are likewise to be interpreted as undisclosed, so cash liquidity cannot be directly evaluated. Overall, the company maintains adequate liquidity and moderate leverage, with strong coverage ratios supporting solvency.

Cash Flow Quality

Operating cash flow of ¥979m is 1.43x net income (¥685m), signaling strong earnings quality and effective conversion of accounting profits into cash. The positive OCF aligns with improved operating margin and disciplined working capital management, though the detailed drivers (AR/AP/inventory delta) are not disclosed. Investing cash flow is shown as zero (undisclosed), preventing computation of true free cash flow; the table’s FCF of zero reflects missing data rather than actual cash generation. Without capex data, it is not possible to evaluate maintenance vs. growth investment or to assess capital intensity trends beyond the D&A proxy (¥734m). Financing cash flow of -¥236m suggests net outflows (e.g., debt repayment or shareholder returns), but the lack of dividend and share data limits attribution. Taken together, cash earnings quality is favorable on the OCF/NI metric, but full FCF assessment is constrained by undisclosed investing cash flows.

Dividend Sustainability

Dividend per share and payout ratio are shown as zero and should be treated as undisclosed. With EPS at ¥75.88 and OCF/NI at 1.43x, the capacity to fund ordinary dividends from operating cash appears reasonable in principle; however, absence of actual DPS and capex data precludes a coverage test. Financing CF of -¥236m could reflect debt service or potential shareholder returns, but we cannot confirm. Given these limitations, we cannot assess payout sustainability or policy trajectory. Monitoring actual DPS announcements, payout ratio targets, and FCF once investing cash flows are disclosed will be essential.

Risk Assessment

Business Risks:

• Thin operating margin (4.3%) and net margin (3.09%) increase sensitivity to input cost inflation and pricing pressures.
• Low topline growth (+0.3% YoY) raises the bar for cost-driven profit improvements to sustain.
• Potential reliance on non-operating gains (ordinary income > operating income) may introduce earnings variability.
• Inventory management risk (¥1.978bn inventories) including obsolescence in slower demand conditions.
• Supply chain and procurement risks that could affect gross margins.
• Customer concentration or cyclical end markets (not disclosed), which could amplify revenue volatility.

Financial Risks:

• Moderate leverage (total liabilities/equity 1.01x) could constrain flexibility if earnings soften.
• Undisclosed cash balance and equity ratio limit visibility into immediate liquidity buffers.
• Incomplete disclosure of investing cash flows obscures capex needs and free cash flow resilience.
• Tax rate variability risk; implied tax burden near ~31% may fluctuate depending on special items and jurisdictional mix.

Key Concerns:

• ROE of 4.33% is modest and below typical market return hurdles.
• Sustainability of operating leverage benefits in a near-flat revenue environment.
• Limited disclosure on investing cash flows and dividends impedes assessment of FCF and capital return policy.

Investment Implications

Key Takeaways:

• Revenue stable at ¥22.186bn (+0.3% YoY) with improved operating income (+12.8% YoY to ¥946m).
• Margins: gross 16.4%, operating 4.3%, ordinary 4.6%, net 3.09%; profitability improving but still modest.
• ROE 4.33% driven by low net margin and moderate asset turnover; leverage (2.12x) provides limited boost.
• OCF ¥979m (OCF/NI 1.43x) indicates strong earnings-to-cash conversion.
• Liquidity is solid (current ratio 153.5%, quick ratio 137.3%); leverage moderate (D/E ~1.01x).
• Interest coverage strong at 37.8x; interest expense low at ¥25m.
• Ordinary income exceeds operating income, implying non-operating support that may be non-recurring.
• Key disclosures missing (cash, investing CF, DPS), limiting FCF and capital returns analysis.

Metrics to Watch:

• Gross and operating margins (cost passthrough, mix effects).
• OCF/Net income ratio and working capital turns (AR, inventory, AP days).
• Capex and full investing cash flows to establish true FCF and reinvestment rate.
• Ordinary vs. operating income gap (quality and repeatability of non-operating items).
• Asset turnover (revenue/assets) to drive ROE uplift.
• Leverage (total liabilities/equity) and interest coverage for solvency resilience.
• Effective tax rate normalization relative to implied ~31%.

Relative Positioning: Versus typical TSE small/mid-cap industrial/distribution peers, the company shows solid liquidity and strong cash conversion but delivers only moderate profitability and ROE; leverage is moderate, interest burden low, and results rely partly on operating leverage and some non-operating support.

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