NEXON Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

The results featured higher revenue and profit, with net income more than doubling year on year. The most notable characteristic was that net income grew faster than operating income. Revenue was ¥2,733.1B (+17.4% YoY), operating income was ¥894.5B (+12.8%), and net income was ¥863.1B (+104.5%). The main driver of revenue growth was the rapid expansion of both the Europe and North America segments, while the substantial increase in net income was largely attributable to financial income of ¥292.9B (10.7% of revenue); this should be evaluated separately from core business growth. The operating margin was 32.7%, down from 34.1% in the previous year, reflecting the advance increase in SG&A expenses accompanying revenue growth.

Factors Affecting Performance

【Revenue】Revenue was ¥2,733.1B, up +17.4% year on year. By segment, Korea, which accounted for 68.4% of revenue, declined -12.0%, while Europe and North America surged +2033.8% and +58.9%, respectively, driving company-wide revenue growth. The revenue mix is gradually diversifying away from a Korea-centered structure toward Europe and North America.

【Profit and Loss】Operating income was ¥894.5B (+12.8%), and the operating margin declined to 32.7% from 34.1% in the previous year. The gross margin improved by +80bp year on year to 63.7%, but SG&A expenses increased 20.9% year on year to ¥826.1B, putting pressure on the operating margin. Net income surged to ¥863.1B (+104.5%), but this was largely attributable to the contribution of ¥292.9B in financial income. Profit before tax (¥1,158.0B) expanded to 1.29 times EBIT (¥894.5B). In conclusion, although revenue and operating income increased, most of the increase in final profit was attributable to non-operating factors, resulting in an asymmetric earnings profile characterized by higher revenue, higher operating income, and a sharp increase in net income.

Segment Analysis

Korea was the largest profit-contributing segment, with revenue of ¥186.6B and operating income of ¥573.5B (30.7% margin), but both revenue and profit decelerated, declining -12.0% and -31.5% year on year, respectively. Europe reached company-wide highs with revenue of ¥60.5B (+2033.8%), operating income of ¥31.1B (+978.4%), and a margin of 51.3%, becoming the primary driver of margin improvement. North America also recovered, with revenue of ¥22.4B (+58.9%) and operating income of ¥5.1B (+342.3%). Japan continued to post a loss, with revenue of ¥2.3B (-13.3%) and an operating loss of ¥1.7B (margin of -74.8%), diluting the company-wide margin. China secured a profit despite its small scale, with revenue of ¥1.1B (+31.3%) and operating income of ¥0.2B.

Key Financial Metrics

【Profitability】The operating margin and net profit margin remained high at 32.7% and 31.6%, respectively. However, the operating margin declined from 34.1% in the previous year, indicating that the improvement in gross margin (63.7%, +80bp year on year) was offset by the increase in SG&A expenses.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥375.1B, representing a low ratio of approximately 0.43 times net income of ¥863.1B. The primary factors were ¥497.1B in tax payments and deterioration in working capital accompanied by an increase in accounts receivable.【Investment Efficiency】ROE of 8.0% can be decomposed into net profit margin of 31.6% × total asset turnover of 0.201 × financial leverage of 1.25. While the higher net profit margin contributed positively, the cash-heavy balance-sheet structure suppressed total asset turnover, creating a bottleneck in capital efficiency.【Financial Soundness】The equity ratio was extremely high at 79.4%, improving from 75.0% in the previous year. Cash and cash equivalents reached ¥5,461.0B, indicating low dependence on interest-bearing debt.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥375.1B, a significant decline of -57.4% year on year, and remained at 0.43 times net income. The primary factors were the high burden of ¥497.1B in income tax and other payments and deterioration in working capital accompanied by the accumulation of accounts receivable. Investing Cash Flow was positive at ¥593.5B. Capital expenditures of ¥24.7B and intangible asset acquisitions of ¥182.2B were selective, while the sale and collection of securities and other assets boosted investing cash flow. Financing Cash Flow was -¥459.9B, primarily consisting of dividend payments of ¥229.6B and share repurchases of ¥270.7B. Free cash flow (OCF + investing cash flow) was substantial at ¥968.6B, confirming sufficient cash-generation capacity to exceed shareholder returns of ¥500.3B, comprising dividends and share repurchases. Going forward, the normalization of accounts receivable collections will be a key focus for the recovery of OCF.

Earnings Quality

Earnings power derived from the core business remained strong, with an operating margin of 32.7%, indicating sound recurring profitability from an operational perspective. However, the sharp increase in net income (+104.5%) was driven primarily by the non-operating factor of financial income of ¥292.9B (10.7% of revenue), and profit before tax (¥1,158.0B) reached approximately 1.29 times EBIT (¥894.5B). Financial income appears to have been generated by interest income and foreign-exchange valuation gains. It is susceptible to changes in interest rates and foreign-exchange markets and should be viewed as having a temporary component in terms of repeatability. In addition, because OCF was below net income (ratio of 0.43 times), accruals—the difference between accounting profit and cash—were somewhat large, with discrepancies between profit and cash arising from tax payments and the timing of accounts receivable collections. Comprehensive income was ¥636.1B, below net income of ¥863.1B, due to other comprehensive income, including foreign-currency translation losses, being recorded at negative ¥226.98B. This indicates a certain divergence between final profit for the period and comprehensive changes in asset value.

Earnings Forecast and Guidance

During the quarter, the dividend forecast was revised, and the annual dividend forecast for the fiscal year ending December 2026 was set at ¥475.00. A special dividend of ¥415.00 is scheduled to be recorded in Q3, representing a temporary increase in addition to the regular dividend. Although disclosure of the earnings forecast figures themselves is limited, the upward revision to the dividend forecast can be interpreted as reflecting profit growth and cash-generation capacity through the current period.

Shareholder Returns

The Q2 dividend was ¥30 per share, and the Payout Ratio calculated based on the weighted-average number of shares outstanding during the period (789,994 thousand shares) and net income of ¥863.1B remained conservative. Share repurchases of ¥270.7B were conducted, and the Total Return Ratio (dividends + share repurchases / net income), including dividends of ¥229.6B, was approximately 58%. Free cash flow of ¥968.6B substantially exceeded total shareholder returns, and, given the substantial cash and cash equivalents balance of ¥5,461.0B, the current level of returns is financially sustainable. The company plans to pay a special dividend of ¥415.00 in Q3 of the fiscal year ending December 2026, and the annual dividend forecast has been revised to ¥475.00.

Risk Factors

1. Geographic Concentration Risk: The Korea segment accounts for 68.4% of revenue, while revenue and profit in the segment have decelerated by -12.0% and -31.5% year on year, respectively. The high degree of dependence on a particular region and titles could contribute to earnings volatility.

2. Working Capital and Cash Collection Risk: OCF was low at 0.43 times net income, while income tax and other payments of ¥497.1B coincided with an increase in accounts receivable. Trends in the collection cycle will be key to the normalization of OCF going forward.

3. Dependence on Financial Income Risk: Financial income of ¥292.9B (10.7% of revenue), the primary driver of the sharp increase in net income, is susceptible to interest-rate and foreign-exchange conditions. Changes in the operating environment could increase volatility in final profit.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin significantly exceeded the industry median, placing profitability among the highest in the industry.

Growth and Capital Efficiency

The revenue growth rate was slightly below the industry median, placing the company in the middle to slightly lower range in terms of growth momentum.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Operating income grew alongside higher revenue, but the sharp increase in net income (+104.5%) was primarily attributable to financial income. Accordingly, the earnings data should distinguish this factor from growth in the profitability of the core business.

2. OCF was weak at 0.43 times net income, due to income tax and other payments and an increase in accounts receivable. Trends in working capital from the next period onward will be an important observation point for assessing cash flow quality.

3. High-margin growth in Europe and North America improved the segment mix, while declining revenue in Korea and continued losses in Japan partially offset the company-wide margin. The changing regional earnings structure can therefore be identified.

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This report is an earnings analysis document automatically generated by AI based on 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, and, where necessary, after consulting with a professional advisor.

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