NIPPON KODOSHI (3891) FY2026 Q3 Earnings Report

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Executive Summary

In addition to higher revenue and profits, this earnings result featured profit growth exceeding revenue growth, with improved profitability being the most important factor. Revenue was ¥13.89B (up +14.0% YoY), Operating Income was ¥2.65B (up +24.3%), Ordinary Income was ¥2.79B (up +30.6%), and Net Income (Net Income attributable to owners of the parent) was ¥2.01B (up +28.9%). Both the gross margin, at 30.6%, and the Operating Income margin, at 19.0%, improved from the previous year. Operating leverage, driven by the containment of SG&A expense growth accompanying revenue expansion, was the primary factor behind the increase in profits.

Factors Affecting Business Performance

【Revenue】Revenue was ¥13.89B, representing an increase of +14.0% YoY. Progress against the full-year forecast of ¥18.10B was 76.7%, approximately meeting the standard Q3 progress rate of 75%. As segment-level disclosure is not available, the factors behind revenue growth are examined on a company-wide basis.

【Profit and Loss】Operating Income was ¥2.65B (up +24.3% YoY), Ordinary Income was ¥2.79B (up +30.6%), and Net Income was ¥2.01B (up +28.9%), with all three exceeding the revenue growth rate. Cost of sales was ¥9.64B, and the gross margin improved from the previous year to 30.6%. SG&A expenses were ¥1.60B, with the rate of increase below the revenue growth rate, resulting in an expansion of the Operating Income margin to 19.0%. Ordinary Income exceeded Operating Income due to the recognition of ¥0.20B in non-operating income, including a foreign exchange gain of ¥0.05B; this should be viewed separately from recurring earnings power. Extraordinary losses consisted solely of a loss on disposal of fixed assets and were immaterial, so the impact of temporary factors on Net Income was limited. In conclusion, this was an earnings result featuring higher revenue and profits, primarily due to improved profitability in the core business.

Key Financial Metrics

【Profitability】The Operating Income margin of 19.0% and Net Income margin of 14.4% both improved from the previous year, reflecting profit growth exceeding revenue growth. The gross margin also rose to 30.6%, confirming improved manufacturing profitability.【Cash Quality】Although Operating Cash Flow has not been disclosed, accounts receivable increased to ¥6.10B, up +47.5% YoY, significantly exceeding the revenue growth rate. Inventories also showed an increasing trend at ¥2.91B, making the extent to which profit growth is translating into cash generation an item for further monitoring.【Investment Efficiency】ROE was 10.6% (annualized), primarily attributable to the high Net Income margin, while total asset turnover was 0.516x, reflecting a capital-intensive business structure.【Financial Soundness】The Equity Ratio was high at 70.3%. Interest-bearing debt was ¥5.77B compared with net assets of ¥25.20B, indicating low financial leverage. The current ratio was calculated at over 281%, indicating substantial short-term financial flexibility.

Cash Flow Analysis

As the cash flow statement has not been disclosed, cash trends are analyzed based on movements in the balance sheet. Cash and deposits were ¥4.35B, increasing from the previous year, while accounts receivable increased by ¥1.96B (+47.5%) and inventories also rose, suggesting that funds may be increasingly tied up in operating activities. Accounts payable were ¥0.40B, representing only a modest increase of approximately +1.5% YoY, so the offsetting effect of increased trade payables on the cash burden was limited. Interest-bearing debt consisted of long-term borrowings of ¥4.07B and short-term borrowings of ¥1.70B, with dependence on interest-bearing debt low at approximately 16.1% of total assets. Property, plant and equipment, which serves as a source of capital investment, was ¥15.82B, accounting for 44.1% of total assets and reflecting a capital-intensive business structure. The extent to which revenue and profit growth translates into cash generation will depend on future trends in accounts receivable and inventory levels.

Quality of Earnings

The primary driver of profit growth was improved profitability in recurring business activities, with higher gross margins and restrained SG&A expense growth supporting the expansion of the Operating Income margin. Ordinary Income exceeded Operating Income, primarily due to ¥0.20B in non-operating income, including a foreign exchange gain of ¥0.05B. Since this component is affected by market conditions, it should be evaluated separately from recurring earnings power. Extraordinary gains and losses consisted solely of a minor loss on disposal of fixed assets, with almost no temporary impact on Net Income. Meanwhile, the fact that accounts receivable increased at a pace exceeding revenue growth indicates that the profit growth reported in the income statement may not have translated directly into improved cash flow; attention is therefore warranted from an accrual perspective, namely the difference between accounting profit and cash. Comprehensive Income was ¥2.06B, broadly in line with Net Income of ¥2.01B, with no significant divergence attributable to other comprehensive income items such as valuation differences on securities or foreign currency translation adjustments.

Earnings Forecast and Guidance

The full-year forecasts are Revenue of ¥18.10B (up +12.9% YoY), Operating Income of ¥3.10B (up +26.0%), and Ordinary Income of ¥3.10B (up +26.8%). Cumulative Q3 progress rates were 76.7% for Revenue, 85.4% for Operating Income, 89.9% for Ordinary Income, and 95.6% for Net Income (against the company forecast of ¥2.10B). Profit progress is therefore exceeding revenue progress. This suggests that the company’s forecast assumes a more conservative Q4 profit margin than the cumulative actual Operating Income margin of 19.0%. The levels required to achieve the forecast in Q4 are approximately ¥4.21B in Revenue, ¥0.45B in Operating Income, and ¥0.09B in Net Income. Compared with the quarterly pace to date, profit progress appears to have relative upside potential.

Shareholder Returns

The Q2 dividend was ¥40.00 per share, and the full-year forecast dividend is ¥80.00 per share. Based on cumulative nine-month Net Income of ¥2.01B, calculating total dividends through the fiscal year-end on the basis of the full-year forecast results in a Payout Ratio of approximately 40% against the full-year forecast Net Income of ¥2.10B. Since no share repurchases are included in the disclosed data, shareholder returns are evaluated using the Payout Ratio. Retained earnings were ¥18.49B, and cash and deposits were ¥4.35B, indicating that dividend funding is secured on the balance sheet. Monitoring the sustainability of dividends in light of the funds tied up in increased accounts receivable and inventories would be appropriate.

Risk Factors

1. Accounts receivable collection risk: Accounts receivable were ¥6.10B, increasing +47.5% YoY and significantly exceeding the +14.0% revenue growth rate. If extended collection terms or a concentration of shipments toward the fiscal year-end continues, profit growth may be less likely to translate into cash flow.

2. Inventory accumulation and supply-demand fluctuation risk: Inventories were ¥2.91B, increasing from the previous year, and consisted of raw materials of ¥4.74B and finished products of ¥2.91B. Production adjustments and inventory valuation losses during periods of demand fluctuation could affect the gross margin.

3. Foreign exchange fluctuation risk: A foreign exchange gain of ¥0.05B was recorded in non-operating income, meaning that part of Ordinary Income depends on changes in the foreign exchange environment. This component needs to be evaluated separately from the recurring earnings power of the business.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s Operating Income margin and Net Income margin both significantly exceed the industry median, placing its profitability at a high level within the industry.

Growth and Capital Efficiency

The revenue growth rate also significantly exceeds the industry median, indicating high growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The Operating Income margin of 19.0% and Net Income margin of 14.4% both improved from the previous year. Profit growth exceeding the +14.0% revenue growth rate confirms the emergence of operating leverage.

2. Progress against the full-year forecast was 85.4% for Operating Income and 95.6% for Net Income, substantially exceeding the standard progress rate of 75%. The Q4 profit margin assumptions in the full-year plan are therefore more conservative than the cumulative actual results.

3. The Equity Ratio of 70.3% and low leverage relative to interest-bearing debt of ¥5.77B indicate strong financial soundness. Meanwhile, the pace of increase in accounts receivable and inventories warrants attention when evaluating the relationship between accounting profit growth and cash-generating capacity.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,223–¥2,349 at ±1% for the cost of equity, and ¥2,281–¥2,287 at ±0.1 for ω.

Notes:

• Since Net Income progress against the full-year forecast (96%) exceeds the standard rate (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies running ahead of forecast progress tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end have been used (there is a timing difference from the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(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 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 discretion and responsibility, in consultation with a professional adviser as necessary.

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