NIPPON COKE & ENGINEERING COMPANY,LIMITED FY2027 Q1 Earnings Report

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Executive Summary

The Q1 of the fiscal year ending March 2027 saw a decline in revenue but a substantial reduction in the size of losses, indicating an improving profitability trend; however, the earnings results also revealed residual risk from the back-loaded nature of the full-year plan. Revenue was ¥201.9B (¥242.4B in the same period last year, YoY -16.7%), affected by a decline in external revenue from the core Coke Business (-23.7%). Operating income was ¥-2.6B (¥-7.4B in the same period last year), an improvement of ¥4.8B; Ordinary Income was ¥-6.4B (¥-8.1B in the same period last year), while Net Income was ¥-7.0B (¥-11.6B in the same period last year). The gross margin improved to 6.8% (4.0% in the same period last year), and the operating margin improved to -1.3% (-3.0% in the same period last year). Nevertheless, the Company remains loss-making, and a full-scale recovery of its earnings structure has yet to be achieved.

Factors Affecting Earnings

【Revenue】Revenue was ¥201.9B, down -16.7% year on year. The primary factor was a decline in external revenue from the Coke Business (¥120.8B, -23.7%), with the contraction of this core business, which accounts for 58.5% of Company-wide revenue, weighing on overall results. Revenue from the Fuel and Resource Recycling Business was ¥52.7B (-0.3%), remaining virtually flat, while revenue from the Comprehensive Engineering Business declined to ¥22.8B (-8.0%). Other businesses also declined to ¥10.2B (-25.2%).

【Earnings】Operating loss was ¥2.6B (¥-7.4B in the same period last year), an improvement of ¥4.8B, supported by cost controls in selling, general and administrative expenses (¥16.4B, -3.3% year on year) and a recovery in the gross margin (6.8%, compared with 4.0% in the same period last year). By segment, the Coke Business remained loss-making but narrowed its loss substantially to ¥-7.0B (¥-14.1B in the same period last year), while the Comprehensive Engineering Business drove Company-wide earnings with Operating Income of ¥4.1B (+14.2%) and a margin of 18.1%. Ordinary Income was ¥-6.4B, weighed down by an increase in interest expenses (¥2.98B, compared with ¥2.16B in the same period last year), while Net Income was ¥-7.0B, including extraordinary gains and losses (gain of ¥2.5B and loss of ¥2.8B). Although revenue and earnings declined, the size of the loss narrowed; the key feature was an improvement in earnings despite lower revenue.

Segment Analysis

By segment, the Comprehensive Engineering Business demonstrated the highest profitability, with revenue of ¥22.8B (-8.0% year on year), Operating Income of ¥4.1B (+14.2%), and a margin of 18.1%, making the largest contribution to Company-wide earnings. The Fuel and Resource Recycling Business generated revenue of ¥52.7B (-0.3%), almost in line with the previous year, but Operating Income declined by -39.7% to ¥3.9B, reducing its margin to 7.5% and indicating pressure on profitability. The core Coke Business continued to experience a substantial decline in revenue to ¥120.8B (-23.7%), but its Operating Loss narrowed to ¥-7.0B (+50.4% improvement year on year), with its margin improving to -5.8% despite remaining negative. The Coke Business accounts for 58.5% of the revenue mix, and the structure whereby market conditions and operating trends in this business determine Company-wide performance remains in place.

Key Financial Indicators

【Profitability】The operating margin improved to -1.3% (-3.0% in the same period last year), while the net margin improved to -3.5% (-4.8% in the same period last year); both remain in loss territory but are trending upward. The gross margin improved by +287bp from 4.0% in the same period last year to 6.8%. The SG&A ratio rose slightly to 8.1% (7.0% in the same period last year), but the decline in the cost-of-sales ratio contributed to the overall improvement in profitability.【Cash Quality】Inventories increased to ¥138.3B (+31.8% year on year), while accounts payable increased to ¥127.9B (+33.2%), indicating a structure in which inventory is financed through trade payables. Accounts receivable also increased to ¥105.7B (+7.2%), suggesting that the expansion of working capital may be delaying the timing of cash conversion.【Investment Efficiency】ROE was -2.0% (improved from the estimated figure for the same period last year), while total asset turnover remained low, leaving issues in terms of capital efficiency. EPS was ¥-2.39 (¥-3.98 in the same period last year), indicating a narrower loss.【Financial Soundness】The equity ratio declined slightly to 26.5% (27.5% in the same period last year). Current assets of ¥474.5B versus current liabilities of ¥573.5B put the current ratio below 1. The level of interest-bearing debt, including long-term borrowings of ¥293.5B, remains high, and increased interest expenses (¥2.98B, compared with ¥2.16B in the same period last year) are weighing on Ordinary Income.

Cash Flow Analysis

As the Company does not provide detailed disclosure of its statement of cash flows in these results, cash flow trends are analyzed based on changes in the balance sheet. Inventories increased to ¥138.3B (+31.8% year on year), while accounts payable also increased to ¥127.9B (+33.2%), suggesting that inventory accumulation is being financed through trade payables. Accounts receivable increased to ¥105.7B (+7.2%); thus, while operating earnings are improving, working capital is expanding, and the improvement in earnings may not be immediately translating into cash generation. Cash and deposits declined to ¥56.7B (¥63.9B in the same period last year), providing limited cash backing relative to short-term borrowings of ¥387.4B. Property, plant and equipment stood at ¥763.5B, maintaining a highly capital-intensive business structure. Attention should be paid to the possibility that the scale of investment may affect flexibility in cash management.

Quality of Earnings

The difference between Ordinary Income and Net Income for the current period reflects the impact of extraordinary gains and losses. Extraordinary gains of ¥2.5B (including a ¥0.3B gain on the sale of fixed assets) and extraordinary losses of ¥2.8B (including a ¥2.1B loss on the disposal of fixed assets) were nearly offsetting, limiting their impact on net loss. However, their lack of recurrence is a consideration when assessing earnings quality. In non-operating income and expenses, interest expenses of ¥3.0B were incurred against dividend income of ¥0.4B, while total non-operating expenses of ¥4.9B were the primary factor depressing Ordinary Income. Non-operating income was small, at approximately 0.5% of revenue, and non-operating expenses had a greater impact on earnings at the Ordinary Income level. In addition, accounting accrual items, including increases in inventories and accounts receivable, have expanded. The possibility that the improvement shown in the income statement has not matched cash-based collection should be considered when assessing earnings quality.

Earnings Forecast and Guidance

The full-year earnings forecast calls for revenue of ¥1,016.0B (+11.2% year on year), Operating Income of ¥36.0B (+493.1%), Ordinary Income of ¥20.0B, and forecast EPS of ¥1.72; no revision was made during the current quarter. Q1 progress was 19.9% for revenue, below the simple progress benchmark of 25%, while operating earnings were reported as a loss, indicating a plan premised on a back-loaded second half. Achieving the full-year targets will depend on the normalization of market conditions and operating rates in the Coke Business, as well as the planned progress of high-margin projects in the Comprehensive Engineering Business. Although an improving trend in earnings was confirmed as of Q1, the gap versus the full-year plan remains substantial, making the business environment in the second half the decisive factor in achieving the plan.

Shareholder Returns

The dividend for the fiscal year ending March 2027 remains undecided, and the Company states that it will promptly disclose its dividend forecast once disclosure becomes possible. The dividend per share for the same period last year was also ¥0, and given that the Company remains loss-making as of Q1, the available information for assessing the direction of its dividend policy is limited.

Risk Factors

1. Business concentration risk: The Coke Business, which accounts for 58.5% of the revenue mix, continues to report an Operating Loss of ¥-7.0B, leaving Company-wide performance dependent on market conditions and operating trends in this business.

2. Liquidity and cash management risk: Current liabilities of ¥573.5B exceed current assets of ¥474.5B, resulting in a current ratio below 1. Against short-term borrowings of ¥387.4B, cash and deposits stand at only ¥56.7B.

3. Working capital expansion risk: Inventories increased to ¥138.3B (+31.8% year on year), while accounts payable increased to ¥127.9B (+33.2%), and the accumulation of inventories and trade payables may affect flexibility in cash management.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

The Company’s profitability is substantially below the industry median, indicating significant room for improvement in its earnings structure compared with the manufacturing industry average.

Growth and Capital Efficiency

While peer companies are generally recording revenue growth, the Company experienced a substantial decline in revenue due to the contraction of its core business and is lagging its industry in terms of growth.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Earnings are improving but losses continue: The gross margin improved from 4.0% in the same period last year to 6.8%, while the operating margin improved from -3.0% to -1.3%. However, Operating Income, Ordinary Income, and Net Income all remain in loss territory.

2. Concentration of earnings contributions: The Comprehensive Engineering Business is driving Company-wide earnings with Operating Income of ¥4.1B and a margin of 18.1%, while the core Coke Business remains loss-making, leaving concentration risk in the earnings structure.

3. Expansion of working capital: Inventories, accounts payable, and accounts receivable all increased. The fact that the improvement in earnings is not directly translating into cash generation is an important point to monitor when assessing future cash flow trends.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥89–¥94 at ±1% for the cost of equity, and ¥91–¥92 at ±0.1 for ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burden, acquisition-related expenses, non-controlling interests, and other factors (Net Income ÷ Operating Income 14%). This value reflects that compression at face value; if the factors are temporary, normalized earnings may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing mismatch with the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value is not a forecast or guarantee of future share prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, and you should consult a professional as necessary.

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