Nippon Felt (3512) FY2026 Q3 Earnings Report

Quick View

Executive Summary

Despite lower revenue, the Company secured higher profit through SG&A expense control, although it should be noted that earnings quality includes reliance on investment income. Revenue was ¥7.10B (-3.1% YoY), Operating Income was ¥0.34B (+12.2%), Ordinary Income was ¥0.62B (+11.4%), and Net Income was ¥0.46B (¥0.39B in the same period last year). The increase in Operating Income resulted from SG&A expense reductions (¥2.04B in the previous year → ¥1.84B) that exceeded the decline in gross profit (¥2.34B in the previous year → ¥2.18B), while dividend income of ¥0.30B contributed to growth in Ordinary Income and Net Income.

Factors Affecting Performance

【Revenue】Revenue was ¥7.10B, representing a 3.1% decline YoY. By segment, Felt accounted for ¥6.63B (93.4% of total) and RealEstateLeasing accounted for ¥0.47B (6.6%), indicating that the performance of the core Felt segment determines overall results. The gross margin declined to 30.7% from 32.0% in the previous year, suggesting cost pressure.

【Profit and Loss】Operating Income was ¥0.34B (+12.2% YoY), and the Operating Margin improved to 4.8% from 4.1% in the previous year. While the gross margin declined, SG&A expenses decreased 9.7% YoY to ¥1.84B, with cost control serving as the primary driver of higher profit. Ordinary Income was ¥0.62B (+11.4% YoY), with dividend income of ¥0.30B accounting for the majority of non-operating income of ¥0.35B. Net Income increased to ¥0.46B from ¥0.39B in the previous year, also benefiting from extraordinary income, including a gain on the sale of investment securities of ¥0.03B. Although the Company achieved higher profit despite lower revenue, the underlying increase in profit was driven more by cost control and investment income than by improved earnings power in the core business.

Segment Analysis

The Felt segment constitutes the core business, with Revenue of ¥6.63B, Operating Income of ¥0.56B, and a profit margin of 8.5%. Although the RealEstateLeasing segment is small, with Revenue of ¥0.47B, it generated Operating Income of ¥0.27B and a high profit margin of 57.6%, contributing to the increase in consolidated Operating Income (¥0.34B). The simple aggregate Operating Income of the two segments was ¥0.83B, and the difference from consolidated Operating Income is presumed to result from adjustments such as corporate expenses.

Key Financial Metrics

【Profitability】The Operating Margin was 4.8%, improving from 4.1% in the same period last year, while the gross margin declined to 30.7% from 32.0% in the previous year. The Net Profit Margin rose to 6.5% from 5.2% in the previous year, although this includes the contribution of non-operating income, including dividend income of ¥0.30B.【Cash Flow Quality】Cash and deposits were ¥2.32B, down from ¥3.30B in the previous year, while accounts receivable of ¥4.00B and inventories of ¥1.57B were high relative to the scale of Revenue.【Investment Efficiency】ROE was 2.8%, and asset turnover efficiency relative to total assets of ¥27.33B was low, making improvement in asset efficiency a key issue.【Financial Soundness】The Equity Ratio was extremely high at 81.0%, and the Company maintained a conservative financial base, with cash and deposits of ¥2.32B against current liabilities of ¥2.47B.

Cash Flow Analysis

Although disclosure of the cash flow statement is limited, an analysis of funding trends based on changes in the balance sheet shows that cash and deposits declined by ¥0.98B, from ¥3.30B in the previous year to ¥2.32B, while investment securities increased by ¥2.53B, from ¥8.23B to ¥10.77B, suggesting that surplus funds were being directed toward securities investments. Accounts receivable increased from ¥3.64B to ¥4.00B, and inventories also rose slightly, potentially indicating an accumulation of working capital that pressured cash levels. Treasury shares increased from ¥0.29B to ¥0.56B, suggesting that part of the capital allocation was directed toward share repurchases. Net assets increased from ¥20.72B to ¥22.14B, largely due to an increase in the valuation difference on securities.

Earnings Quality

Of Ordinary Income of ¥0.62B, the majority of non-operating income of ¥0.35B—¥0.30B—was dividend income. Thus, income with a strongly non-recurring nature, comparable in scale to the core business’s Operating Income of ¥0.34B, boosted earnings. Extraordinary gains and losses included a gain on the sale of investment securities of ¥0.03B and a loss on the disposal and sale of fixed assets of ¥0.02B, contributing a slight net positive. Comprehensive income was ¥2.10B, substantially exceeding Net Income of ¥0.46B, primarily due to a ¥1.74B increase in the valuation difference on other securities. This divergence resulted from market-driven changes in the market value of held shares and should be evaluated separately from recurring earnings power generated by business activities. Overall, the factors boosting current-period profit relied more heavily on the holding gains from investment assets than on the earning power of the core business.

Earnings Forecast and Guidance

Progress toward the Full-Year earnings forecast was 74.0% for Revenue (forecast: ¥9.60B) and 75.1% for Operating Income (forecast: ¥0.45B), representing approximately standard progress, while progress was high for Ordinary Income at 88.9% (forecast: ¥0.70B) and Net Income at 92.4% (forecast: ¥0.50B). The outperformance in progress for Ordinary Income and Net Income includes non-operating and extraordinary factors such as dividend income and gains on the sale of investment securities; therefore, achievement on a core-business basis is considered closer to the progress of Revenue and Operating Income. The Full-Year Operating Income forecast calls for a substantial 124.7% YoY increase, but this may include a rebound from the temporarily low level in the previous Full Year, and the difference from the Q3 cumulative growth rate (+12.2%) should be noted.

Shareholder Returns

The Q2 dividend was ¥10.00 per share, and the Full-Year dividend forecast is ¥20.00 annually. Based on the Full-Year EPS forecast of ¥28.36, the Payout Ratio is approximately 70.5%, above the general benchmark of 60%. Dividend funding is supported not only by Operating Income but also by investment income, including dividend income of ¥0.30B, while cash and deposits of ¥2.32B and low interest-bearing debt of ¥0.80B support the Company’s payment capacity. Treasury shares increased from ¥0.29B in the previous year to ¥0.56B, drawing attention to the role of share repurchases in capital allocation.

Risk Factors

1. Working capital tied up in funds: Accounts receivable of ¥4.00B and inventories of ¥1.57B are large relative to Revenue of ¥7.10B, and the efficiency of collection and inventory management affects capital efficiency. Finished goods, at ¥1.57B, represent the largest component of inventory, and the risk of inventory valuation losses during demand fluctuations should be noted.

2. Reliance on investment income: Dividend income of ¥0.30B is a major component of Ordinary Income of ¥0.62B, creating a structure in which Ordinary Income is susceptible to changes in the dividend policies of investee companies and market conditions. Investment securities of ¥10.77B account for 39.4% of total assets.

3. Low core-business profitability: Although the Operating Margin of 4.8% is improving, the gross margin declined from 32.0% in the previous year to 30.7%, and higher profit relies on SG&A expense reductions. Continued cost increases or delays in passing through higher costs to prices could affect the sustainability of the profit growth trend.

Industry Benchmark (Reference; Company Research)

Profitability and Returns

Growth and Capital Efficiency

※Source: Company research

Key Earnings Highlights

1. The Operating Margin improved YoY through SG&A expense reductions, but the gross margin declined. The sustainability of higher profit will depend on whether the Company can transition from improvements in the cost structure to improvements in the earnings structure.

2. The growth in Ordinary Income and Net Income was significantly supported by non-operating and extraordinary factors such as dividend income and gains on the sale of investment securities. The substance of the earnings should therefore be assessed separately from the earning power of the core business.

3. Although the Company has a conservative financial base, with an Equity Ratio of 81.0% and a high Current Ratio, ROE remained at 2.8%. The efficiency with which its substantial equity base and investment securities balance are converted into earnings will be a key area to monitor.

Theoretical Share Price (Reference Value)

Sensitivity: ¥959–¥1,011 at ±1% for the cost of equity, and ¥977–¥990 at ±0.1 for ω.

Notes:

• Because Net Income progress against the Full-Year forecast (92%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with leading progress tend to exceed their forecasts. Adjustments may be excessive for businesses with strong seasonality).
• 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).

(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; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee the future share price.)

---

This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings release 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.

---End of Report---