Naigai Tec (3374) FY2026 Q3 Earnings Report

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Executive Summary

The Company recorded a decline in both revenue and earnings, primarily due to lower revenue in the Sales Business, although this was contrary to the increase in revenue and decrease in earnings trend, while net income remained relatively resilient owing to a lower tax burden. Revenue was ¥23.01B (¥26.23B in the same period of the previous year, YoY -12.3%), Operating Income was ¥0.78B (¥1.00B, YoY -21.7%), Ordinary Income was ¥0.78B (¥0.99B, YoY -20.8%), and Net Income was ¥0.51B (¥0.58B, YoY -11.4%). The decline in Operating Income exceeding the rate of revenue decline was attributable to an increase in the SG&A expense ratio, while the relatively smaller decline in Net Income was due to a lower effective tax rate.

Factors Affecting Results

【Revenue】Revenue was ¥23.01B, down 12.3% year on year. The Sales Business (external revenue of ¥19.67B, accounting for 85.5% of total revenue) declined 14.2% year on year and was the primary cause of the consolidated revenue decline, while the Contract Manufacturing Business (¥3.34B, accounting for 14.5%) secured a modest 1.1% increase in revenue. However, the scale of the Contract Manufacturing Business remained just over one-tenth of the consolidated business and was insufficient to offset the decline in the Sales Business.

【Profit and Loss】Gross profit was ¥2.97B (gross margin of 12.9%, improving from 12.6% in the previous year), but the SG&A expense ratio increased to 9.5% from 8.7%, causing the Operating Income margin to contract to 3.4% from 3.8%. Non-operating income and expenses were broadly in line with the previous year, and Ordinary Income therefore declined at a similar rate. Net Income declined less than Operating Income and Ordinary Income because the effective tax rate decreased from approximately 41.5% in the previous year to 34.4%. Extraordinary income and expenses were immaterial, including a gain on the sale of fixed assets of ¥0.00B, and the divergence between Ordinary Income and Net Income was primarily attributable to changes in the tax rate. Overall, the Company recorded declines in both revenue and earnings.

Segment Analysis

The Sales Business generated external revenue of ¥19.67B (down 14.2% year on year) and segment profit of ¥0.31B (up 4.0%), securing profit despite the revenue decline. Its profit margin improved to 1.6% from 1.3%, suggesting cost control or improved profitability. The Contract Manufacturing Business increased external revenue by 1.1% to ¥3.34B, but segment profit declined substantially by 39.7% to ¥0.35B, with its profit margin falling approximately 7.1pt to 10.6% from 17.7%. Although the Contract Manufacturing Business continues to make the larger contribution to consolidated Operating Income, the earnings decline in the current period was primarily centered on deteriorating profitability in that business.

Key Financial Indicators

【Profitability】The Operating Income margin was 3.4% (3.8% in the previous year), the Net Income margin was 2.2% (2.2%), and ROE was 5.6% (annualized), indicating that profitability remained at a limited level. 【Cash Quality】Inventories decreased to ¥1.59B (down 28.2% year on year), indicating progress in inventory reduction, while investment securities increased to ¥0.87B (up 34.4%). 【Investment Efficiency】Total asset turnover was approximately 1.28x on a rough estimate, indicating a certain level of asset utilization, but this was insufficient to offset the low margins. 【Financial Soundness】The Equity Ratio improved to 51.2% from 48.5%, while cash and deposits of ¥8.61B exceeded long-term borrowings of ¥2.51B, indicating a stable financial foundation.

Cash Flow Analysis

Although direct data from the cash flow statement are unavailable, cash trends can be inferred from changes in the balance sheet. Cash and deposits increased to ¥8.61B from ¥8.29B in the same period of the previous year. The 28.2% year-on-year decrease in inventories to ¥1.59B indicates progress in inventory reduction, which is believed to have contributed to maintaining cash levels through improved working capital. Meanwhile, investment securities increased to ¥0.87B, and long-term borrowings also increased to ¥2.51B, indicating that a portion of the funds was directed toward investment and financing activities. Overall, cash levels remained stable despite the revenue decline, and concerns regarding short-term liquidity are limited.

Quality of Earnings

Recurring operating profit was centered on Operating Income of ¥0.78B, while extraordinary income and expenses were extremely small, including a gain on the sale of fixed assets of ¥0.00B. No temporary factors that materially distorted earnings were identified. Non-operating income of ¥0.04B primarily consisted of dividend income of ¥0.02B, while non-operating expenses of ¥0.05B primarily consisted of interest expense of ¥0.04B. Both were small relative to revenue, and Ordinary Income was therefore broadly aligned with Operating Income. The divergence between Net Income and Ordinary Income was primarily attributable to the decline in the effective tax rate from approximately 41.5% in the previous year to 34.4%, suggesting that a non-recurring tax-effect factor may have contributed. Comprehensive income was ¥0.66B, exceeding Net Income of ¥0.51B, mainly due to a ¥0.15B increase in valuation difference on available-for-sale securities. This divergence resulted from market price fluctuations and does not directly reflect the Company’s recurring earnings power, which should be noted.

Earnings Forecast and Guidance

Progress against the full-year forecast was 78.0% for Revenue, 96.9% for Operating Income, 100.0% for Ordinary Income, and 135.4% for Net Income. Revenue slightly exceeded the standard 75% Q3 progress benchmark, while Operating Income and Ordinary Income showed strong progress, having nearly reached the full-year forecasts. Net Income had already reached ¥0.51B, exceeding the full-year forecast of ¥0.38B, but no revision to the earnings forecast had been made. Operating Income was ¥0.78B against a full-year forecast of ¥0.81B, leaving limited upside potential; profitability and the tax burden in Q4 will determine the full-year outcome.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year dividend forecast is ¥100 per share. Based on forecast full-year EPS of ¥108.61, the forecast Payout Ratio is approximately 92.1%; using cumulative Q3 EPS of ¥147.05, the Payout Ratio declines to approximately 68.0%. There has been no revision to the dividend forecast. The financial foundation, including cash and deposits of ¥8.61B and an Equity Ratio of 51.2%, supports the continuation of dividends financially. However, if the Operating Income margin remains at 3.4%, the forecast full-year Payout Ratio is relatively high, making a recovery in profitability important from the perspective of dividend capacity.

Risk Factors

1. Declining demand in the Sales Business: External revenue declined 14.2% year on year, putting pressure on consolidated revenue and fixed-cost absorption. Because this business accounts for 85.5% of consolidated revenue, a delayed recovery would have a significant impact on results.

2. Deteriorating profitability in the Contract Manufacturing Business: While external revenue increased 1.1% year on year, segment profit declined 39.7%, and the profit margin fell approximately 7.1pt from 17.7% to 10.6%. If revenue growth continues not to translate into earnings growth, this business will weigh on consolidated profit.

3. Low-margin structure: The gross margin of 12.9% and Operating Income margin of 3.4% leave room for improvement even compared with the industry median. If fluctuations in costs such as raw materials, logistics, and labor cannot be passed through to prices, the impact on earnings is likely to be amplified.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

The Operating Income margin was at the same level as the industry median, while the Net Income margin was below the median, indicating somewhat weaker profitability after taxes.

Growth and Capital Efficiency

The Revenue growth rate was substantially below the industry median, with the Company’s revenue decline standing out even within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Sales Business increased segment profit despite a revenue decline, whereas the Contract Manufacturing Business experienced an increase in revenue but a decrease in earnings. The differing directions of profitability trends between the two businesses are a notable feature of the earnings data.

2. Progress toward full-year Operating Income and Ordinary Income was high at 96.9% and 100.0%, respectively, while Net Income had exceeded the full-year forecast by 135.4%. However, no forecast revision had been made. The composition of Q4 earnings will determine the full-year outcome.

3. The Equity Ratio improved to 51.2% from the previous year, and cash and deposits exceeded long-term borrowings. The stability of the financial foundation can be confirmed from the earnings data even though profitability indicators remained relatively weak.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,773–¥2,922 for ±1% in the cost of equity, and ¥2,827–¥2,858 for ±0.1 in ω.

Notes:

• Because progress in Net Income against the full-year forecast (135%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies whose progress is ahead of schedule tend to outperform their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net Income is substantially compressed relative to Operating Income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (Net Income ÷ Operating Income: 47%). This figure reflects that compression at face value; if the factors are temporary, underlying earnings power 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 difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated at a somewhat higher level.

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 responsibility, after consulting with professionals as necessary.

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