Nippon Carbide Industries Company (4064) FY2026 Q3

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Executive Summary

This earnings report shows improved profit margins accompanying revenue growth, with double-digit increases in Operating Income, Ordinary Income, and Net Income. Revenue was ¥374.8B (+4.5% YoY), Operating Income was ¥32.1B (+28.6%), Ordinary Income was ¥36.6B (+27.5%), and Net Income was ¥27.4B (+21.1%). Profit growth substantially exceeding revenue growth was primarily attributable to the realization of operating leverage driven by higher revenue from Film and Sheet Products and improved profitability in Electronic and Functional Products.

Factors Affecting Performance

【Revenue】Revenue of ¥374.8B increased +4.5% YoY. By segment, Film and Sheet Products, at ¥166.4B (44.4% of the total, +11.0% YoY), led the overall growth, while Engineering, at ¥31.5B (+15.9%), also achieved strong growth. In contrast, Electronic and Functional Products declined 4.4% YoY to ¥126.7B, while Building Materials-related Products increased only +3.5% to ¥53.9B.

【Profit and Loss】Operating Income of ¥32.1B (+28.6% YoY) substantially exceeded the revenue growth rate, and the Operating Income margin improved to 8.6%. Film and Sheet Products maintained the highest segment profit margin at 12.9%. Although revenue declined in Electronic and Functional Products, profit increased +37.3%, with the profit margin improving from the previous year. Ordinary Income of ¥36.6B (+27.5% YoY) was boosted not only by Operating Income but also by ¥6.7B in non-operating income, including ¥2.9B in foreign exchange gains. Net Income of ¥27.4B (+21.1% YoY) reflects deductions from Ordinary Income of ¥9.2B in income taxes and other taxes and ¥2.9B attributable to non-controlling interests. The company achieved both revenue and profit growth, with operating leverage clearly evident as the profit growth rate exceeded the revenue growth rate.

Segment Analysis

Film and Sheet Products is the core business, generating segment profit of ¥21.5B and accounting for 58.7% of total segment profit company-wide; its profit margin of 12.9% is also the highest. Electronic and Functional Products generated revenue of ¥126.7B (△4.4% YoY) but profit of ¥11.0B (+37.3%), with profitability improving substantially to a margin of 8.6%. The contribution of pricing and product mix is considered to have been greater than that of volume expansion. Building Materials-related Products generated revenue of ¥53.9B (+3.5% YoY) and profit of ¥0.7B (more than double the previous year), but its profit margin of 1.2% was the lowest among the four businesses, indicating relatively weaker cost resilience compared with the other businesses. Engineering generated revenue of ¥31.5B (+15.9% YoY) and profit of ¥3.5B (+36.8%), achieving both revenue and profit growth, with its profit margin improving to 11.0%.

Key Financial Indicators

【Profitability】The Operating Income margin of 8.6% improved from approximately 7.0% in the same period of the previous year, while the Net Income margin was 7.3% (6.5% based on Net Income attributable to owners of the parent). Gross profit margin was 33.1% and the SG&A expense ratio was 24.5%; SG&A expenses were relatively contained versus revenue growth, contributing to the increase in Operating Income.【Cash Quality】Cash and deposits were ¥150.7B, increasing from the previous fiscal year-end. Accounts receivable of ¥149.3B and inventories of ¥49.0B accounted for a certain proportion of total assets, creating a structure in which the level of working capital affects the efficiency of converting profit into cash.【Investment Efficiency】ROE of 7.0% can be explained by the product of total asset turnover and financial leverage. Given the asset composition, including ¥222.3B in property, plant and equipment, there remains room to improve asset efficiency.【Financial Soundness】The Equity Ratio rose to 60.8% from 56.4% in the same period of the previous year, indicating a conservative financial base. Although the company has ¥2.87B in long-term borrowings and ¥3.36B in liabilities related to retirement benefits, cash and deposits of ¥150.7B exceed these amounts, indicating sound liquidity.

Cash Flow Analysis

Although individual disclosures for the cash flow statement are not available, analysis of funding trends based on changes in the balance sheet indicates that cash and deposits increased to ¥150.7B from ¥145.4B in the same period of the previous year, reflecting the accumulation of funds accompanying profit growth. Accounts receivable of ¥149.3B and inventories of ¥49.0B both increased from the previous year, and the expansion of working capital during a period of revenue growth could constrain the pace of cash generation. Accounts payable increased to ¥62.3B from ¥58.9B in the previous year, with the growth in trade payables absorbing part of the increase in working capital. Long-term borrowings declined to ¥28.7B from ¥38.9B in the previous year, indicating progress in reducing interest-bearing debt. Meanwhile, the Equity Ratio rose to 60.8%, suggesting that the financial base is being strengthened through retained earnings.

Quality of Earnings

The increase from Operating Income of ¥32.1B to Ordinary Income of ¥36.6B was primarily attributable to ¥6.7B in non-operating income, including ¥2.9B in foreign exchange gains and ¥1.6B in interest income. As these items are subject to market conditions, recurring earnings power should be assessed primarily based on the improvement in Operating Income and segment profit margins. The difference between Ordinary Income and Net Income of ¥27.4B resulted from the deduction of ¥9.2B in income taxes and other taxes, implying an effective tax rate of approximately 25%, which is not excessive. Comprehensive income was ¥21.6B, below Net Income, while other comprehensive income was negative ¥5.8B. The primary factor was negative ¥5.9B in foreign currency translation adjustments. Although foreign exchange gains boosted profit on the income statement, foreign currency translation adjustments had a negative impact on comprehensive income. The fact that the impact of foreign exchange appeared in different directions in profit and comprehensive income is an important consideration in assessing earnings quality.

Earnings Forecast and Guidance

Progress rates against the full-year forecast were 76.5% for Revenue, 86.9% for Operating Income, and 89.3% for Ordinary Income, all exceeding the standard Q3 cumulative progress rate of 75%. The upside in Operating Income and Ordinary Income reflects not only improved profit margins but also the contribution of non-operating income and expenses, including foreign exchange gains. Operating Income of ¥4.86B is required in Q4 to achieve the company’s plan. The implied Operating Income margin is 4.2%, substantially below the 8.6% recorded for the Q3 cumulative period, indicating that conservative earnings assumptions have been applied toward the fiscal year-end.

Shareholder Returns

The Q2 dividend was ¥41.00 per share, and the full-year forecast dividend is ¥92.00. Based on the difference from the interim actual dividend, the year-end dividend is expected to be ¥51.00. The payout ratio for the forecast dividend of ¥92.00 against forecast EPS of ¥278.94 is approximately 33.0%, which is within a reasonable range relative to the earnings level. The financial capacity represented by cash and deposits of ¥150.7B also provides support for dividend sustainability. As the implementation of share repurchases cannot be confirmed from the disclosed data, this report evaluates only the payout ratio as a shareholder return indicator.

Risk Factors

1. Working capital accumulation: Accounts receivable of ¥149.3B and inventories of ¥49.0B suggest relatively long turnover periods for sales and inventory, which could constrain the pace of cash generation during a period of revenue growth.

2. Declining revenue trend in Electronic and Functional Products: Revenue in this segment was ¥126.7B, down △4.4% YoY. If the improvement in the profit margin is overly dependent on pricing and product mix, the sustainability of a recovery in sales volume will be a key issue.

3. Dependence on foreign exchange gains: Foreign exchange gains of ¥2.9B included in non-operating income were equivalent to approximately 9% of Operating Income of ¥32.1B. The boost to Ordinary Income could diminish if foreign exchange conditions change.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income margin is at the same level as the industry median, while the Net Income margin exceeds the median by +0.9pt.

Growth and Capital Efficiency

The Revenue growth rate exceeds the industry median by +1.2pt, indicating relatively strong growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Report

1. The Operating Income margin improved to 8.6%, and the Operating Income growth rate of +28.6% substantially exceeded the Revenue growth rate of +4.5%. As symbolized by the combination of declining revenue and increasing profit in Electronic and Functional Products, improved profitability rather than volume expansion was the primary driver of profit growth.

2. The core Film and Sheet Products business accounted for 58.7% of segment profit and had a profit margin of 12.9%, making it the central business supporting company-wide earnings. The ability of this business to maintain its profit margin will determine the company-wide profitability outlook.

3. The Equity Ratio rose to 60.8%, indicating a conservative financial base. At the same time, the levels of accounts receivable and inventories will remain important areas for ongoing monitoring when assessing working capital management.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥3,810–¥4,031 at ±1% for the cost of equity, and ¥3,908–¥3,924 at ±0.1 for ω.

Notes:

• Because the progress of Net Income against the full-year forecast is 94%, exceeding the standard level of 75%, forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule 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 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 (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market stock price or a recommendation of any specific investment action, and does not predict or guarantee future stock prices.)

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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. 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 professionals as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q3 cumulative performance was strong, with profit growth materially outpacing a 4.5% increase in revenue. Revenue reached ¥37.48bn, while operating income increased 28.6% year on year to ¥3.21bn. Ordinary income rose 27.5% to ¥3.66bn and profit attributable to owners increased 18.3% to ¥2.46bn. The operating margin expanded to 8.6% from 7.0% in the prior-year period, an improvement of approximately 160bp. Gross margin rose to 33.1% from 31.6%, up approximately 148bp, indicating improved production profitability and/or product mix. Net margin attributable to owners improved to 6.5% from 5.8%, an expansion of approximately 76bp. SG&A expenses increased about 4.0%, slightly below revenue growth, supporting positive operating leverage. Film and sheet products remained the core business by segment profit contribution, generating ¥2.15bn of segment profit. This segment combined double-digit revenue growth with a segment margin above 12%, making it the principal driver of group earnings. Electronic and functional products recorded lower revenue but substantially higher segment profit, suggesting a favorable mix and margin recovery. Engineering also delivered double-digit revenue growth and improved profitability. Building materials remained profitable but represented the lowest-margin segment despite a notable earnings increase. Non-operating income included ¥0.29bn of foreign-exchange gains, equivalent to approximately 8.9% of operating income, which provided a modest boost to ordinary profit. The effective tax rate was 25.1%, resulting in a tax burden factor of 0.671 and moderating the conversion of pre-tax profit into net income. Total comprehensive income of ¥2.16bn was below net income, reflecting negative foreign-currency translation effects. The balance sheet remains conservatively capitalized, with a 256.9% current ratio, 0.64x debt-to-equity ratio, and 37.4x interest coverage. However, working-capital efficiency requires close attention, as DSO of 109 days, DIO of 108 days, and a 149-day cash conversion cycle are elevated for a manufacturing company. Q3 progress against full-year guidance is ahead of the normal 75% seasonal benchmark for operating, ordinary, and net income, implying that the outlook currently embeds a sharply lower Q4 profit contribution. The full-year dividend forecast of ¥92 per share implies a forecast dividend payout ratio of approximately 33.0%, which appears conservative relative to earnings guidance and balance-sheet capacity.

Profitability Analysis

The reported annualized ROE is 8.3%, decomposed into a 6.5% net profit margin, 0.775x asset turnover, and 1.64x financial leverage. Profit margin was the most important contributor to return improvement, supported by a 148bp gross-margin expansion and a 160bp operating-margin expansion. Annualized asset turnover of 0.775x indicates moderate utilization of the asset base, which includes substantial manufacturing PPE of ¥22.23bn, or 34.5% of total assets. Financial leverage is restrained at 1.64x, so the company is not relying on aggressive balance-sheet leverage to generate its ROE. The 8.3% annualized ROE is above the 8% threshold but remains below the 10-15% range generally associated with stronger capital efficiency. EBIT margin was 8.6%, placing operating profitability in the good benchmark range. The interest burden factor of 1.139 reflects the positive net non-operating contribution, including interest income and FX gains, rather than a financing drag. Interest coverage of 37.37x confirms that interest expense of ¥0.86bn is readily covered by operating income. SG&A grew more slowly than revenue, indicating favorable operating leverage rather than cost inflation absorbing the gross-profit improvement. Segment profitability was led by film and sheet products, with ¥16.64bn of external revenue, up 11.0% year on year, and ¥2.15bn of segment profit, up 17.5%; its segment margin was approximately 12.9% versus 12.2% a year earlier. Electronic and functional products generated ¥12.63bn of revenue, down 4.5%, but segment profit increased 37.3% to ¥1.10bn, lifting its margin to approximately 8.7% from 6.0%. Engineering revenue rose 15.9% to ¥2.83bn and segment profit increased 36.8% to ¥0.35bn, with margin improving to approximately 11.0%. Building materials revenue increased 3.5% to ¥5.39bn and segment profit more than doubled to ¥0.66bn, though its approximately 1.2% segment margin remains structurally below other businesses. The current improvement appears primarily operating in nature, but the contribution from foreign-exchange gains means ordinary-income growth is modestly more favorable than underlying operating performance.

Growth Assessment

Revenue growth of 4.5% was driven by film and sheet products, engineering, and building materials, offsetting a 4.5% decline in electronic and functional products revenue. The group generated substantially stronger operating-income growth of 28.6%, demonstrating that growth quality improved through margin expansion rather than volume alone. Film and sheet products are the clearest source of sustainable momentum because they combined the largest revenue base, double-digit sales growth, and the largest segment-profit contribution. Engineering also showed favorable growth, although its smaller revenue base limits its absolute contribution to consolidated earnings. Electronic and functional products require monitoring because the segment's profit recovery occurred despite lower sales, making the durability of its margin improvement important. Building materials posted a strong percentage increase in segment profit from a low prior base, but its low absolute margin leaves it more sensitive to input costs and demand fluctuations. Full-year revenue guidance is ¥49.0bn, and Q3 cumulative revenue progress is 76.5%, only 1.5 percentage points above the standard 75% Q3 pace. Operating-income progress is 86.9% against the ¥3.70bn full-year forecast, 11.9 percentage points above the standard pace. Ordinary-income progress is 89.3% against ¥4.10bn, 14.3 percentage points ahead of the standard pace. Profit attributable to owners has reached 94.4% of the ¥2.60bn full-year forecast, 19.4 percentage points above the standard pace. The guidance therefore implies only ¥0.49bn of operating income, ¥0.44bn of ordinary income, and ¥0.15bn of profit attributable to owners in Q4. This conservative implied Q4 profile may reflect seasonality, anticipated costs, or prudence around demand and currency conditions. The ¥0.29bn FX gain recorded through Q3 should not be assumed to recur at the same level in Q4.

Financial Health

Liquidity is strong, with current assets of ¥40.48bn against current liabilities of ¥15.76bn, producing a 256.9% current ratio. The 225.8% quick ratio also indicates that short-term obligations can be covered without relying on inventory liquidation. Working capital totals ¥24.72bn, supported by ¥15.07bn of cash and deposits and ¥14.93bn of trade receivables. Interest-bearing debt is ¥8.75bn, comprising ¥5.88bn of short-term loans and ¥2.87bn of long-term loans. Debt-to-equity of 0.64x and debt-to-capital of 18.2% indicate a conservative solvency profile, with no leverage warning under the stated benchmarks. Long-term loans declined by ¥1.02bn, or 26.2% year on year, to ¥2.87bn, reducing long-dated refinancing exposure. Total debt declined overall as the reduction in long-term loans exceeded the ¥0.17bn rise in short-term loans. The principal maturity-structure concern is that 67.2% of interest-bearing debt is short term. This refinancing-risk flag is mitigated by cash-to-short-term debt coverage of 2.56x, substantial liquidity, and a very strong interest coverage ratio. Nevertheless, the company should preserve access to committed bank facilities and avoid allowing short-term borrowing to become structurally dependent on rolling renewals. Total equity increased to ¥39.25bn from ¥37.91bn, while owners' equity reached ¥36.90bn. Retained earnings increased ¥1.70bn to ¥16.37bn, reinforcing internal funding capacity. Net defined benefit liability of ¥3.36bn is a meaningful non-debt obligation and should be monitored alongside financial borrowings. The company has a PPE-intensive manufacturing balance sheet, with property, plant and equipment representing 34.5% of total assets, making asset productivity and maintenance discipline relevant to capital efficiency.

Notable B/S Changes

Long-term loans: -¥1.02bn (-26.2%) to ¥2.87bn - deleveraging reduced long-dated debt, though the remaining debt structure is more weighted toward short-term funding and requires refinancing discipline.

Cash Flow Quality

Dividend Sustainability

The paid Q2 dividend was ¥41 per share. The calculated payout ratio for this interim dividend is 15.7%, indicating that the interim distribution consumed only a limited portion of cumulative earnings. Full-year dividend guidance is ¥92 per share, implying a ¥51 per share year-end dividend if the interim payment is maintained. Based on forecast EPS of ¥278.94, the full-year dividend payout ratio is approximately 33.0%. This is comfortably below the 60% sustainability benchmark and leaves material earnings retention capacity. The projected dividend is also supported by strong liquidity, a 0.64x debt-to-equity ratio, and the reduction in long-term loans. The implied payout remains prudent even though the full-year earnings forecast assumes a much weaker Q4 than the cumulative Q3 run rate. Dividend continuity will depend primarily on maintaining operating profitability in film and sheet products and controlling the working-capital burden.

Risk Assessment

Business risks include Working-capital efficiency is the most immediate operating risk: annualized DSO of 109 days exceeds the 60-day warning level. Slow collections can tie up liquidity, raise counterparty exposure, and reduce the conversion of reported revenue into cash., Annualized DIO of 108 days exceeds the 90-day warning level. In a chemical and manufacturing business, extended inventory holding periods increase exposure to demand revisions, price declines, obsolescence, and raw-material or finished-goods valuation pressure., The annualized cash conversion cycle is 149 days, above the 120-day warning threshold. The combination of slow receivable collection and high inventory days makes the operating model more cash-intensive despite currently strong reported liquidity., Film and sheet products are the core business, contributing ¥2.15bn, or about 58.7%, of aggregate segment profit before corporate-cost adjustments. This concentration makes consolidated earnings sensitive to demand, pricing, and input-cost conditions in this segment., Chemical and materials operations remain exposed to energy and feedstock-price volatility, environmental regulation, product-quality issues, and cyclical industrial demand., Foreign-exchange gains of ¥0.29bn contributed approximately 8.9% of operating income to non-operating profit. The current contribution is not excessive, but currency moves can affect ordinary income and export competitiveness..

Financial risks include REFINANCING_RISK: short-term debt represents 67.2% of interest-bearing debt, above the 40% alert threshold. The root cause is a borrowing structure weighted toward short-term loans rather than long-term funding. Liquidity materially offsets the risk because cash covers short-term debt by 2.56x, but a tighter credit environment could raise rollover costs or constrain flexibility., HIGH_RECEIVABLE_DAYS: DSO of 109 days is well above the manufacturing warning range. The root cause is a large receivables balance of ¥14.93bn relative to annualized sales. Its impact is lower cash conversion and greater exposure to collection delays, particularly if customer demand conditions weaken., HIGH_INVENTORY_DAYS: DIO of 108 days indicates elevated inventory intensity. The root cause is inventory held through production and finished-goods cycles. The impact is higher funding needs and vulnerability to inventory write-downs if sales mix or demand deteriorates., LONG_CCC: the 149-day cash conversion cycle reflects the combined effect of extended receivable and inventory periods. This is materially above the 120-day warning level and could erode free-cash-flow resilience during a downturn, notwithstanding the present strong current ratio., Short-term loans increased while long-term loans declined, increasing the importance of maintaining cash balances and banking relationships even as aggregate debt has fallen..

Key concerns include Priority one is reducing the cash conversion cycle through tighter collections, inventory planning, and production scheduling., Priority two is assessing whether the electronic and functional-products margin recovery can be sustained despite lower segment revenue., Priority three is the conservative full-year profit guidance: Q3 cumulative profit attributable to owners already represents 94.4% of the full-year forecast., Priority four is preserving the favorable gross-margin trajectory against raw-material, energy, currency, and competitive-pricing volatility..

Investment Implications

Key takeaways include Operating profit grew 28.6% year on year, substantially faster than 4.5% revenue growth, driven by a 160bp operating-margin expansion., Film and sheet products are the core earnings engine, with ¥2.15bn of segment profit and a 12.9% segment margin., Balance-sheet liquidity and solvency are strong, with a 256.9% current ratio, 37.37x interest coverage, and 18.2% debt-to-capital., Working-capital efficiency is the central counterweight to the strong earnings result, given 109-day DSO, 108-day DIO, and a 149-day annualized cash conversion cycle., Full-year operating and net-profit guidance appears conservative relative to Q3 cumulative progress, while the ¥92 full-year DPS implies a manageable approximately 33.0% forecast payout ratio..

Metrics to watch include Film and sheet revenue growth and segment margin, Electronic and functional-products revenue recovery and margin durability, Annualized DSO, DIO, and cash conversion cycle, Short-term debt ratio and cash-to-short-term-debt coverage, Gross margin, particularly sensitivity to raw-material and energy costs, Q4 operating profit versus the ¥0.49bn implied by full-year guidance, Foreign-exchange gains or losses relative to operating income.

Regarding relative positioning, The company combines good operating-margin performance and conservative leverage with a capital-intensive manufacturing asset base. Its 8.3% annualized ROE is acceptable but not yet indicative of top-tier capital efficiency, and its extended working-capital cycle is weaker than efficient manufacturing benchmarks. Relative operating strength is concentrated in film and sheet products, while liquidity provides a meaningful buffer against the elevated cash-conversion burden.