Nippon Carbide Industries Company,Incorporated FY2027 Q1 Earnings Report

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Executive Summary

Revenue and operating income increased this quarter, driven by the core Film and Sheet Products. However, net income attributable to owners of the parent declined due to higher tax expenses and an increase in net income attributable to non-controlling interests. Revenue was ¥124.6B (+5.8% YoY), operating income was ¥10.4B (+7.7%), and ordinary income was ¥10.5B (+1.6%). Consolidated net income, including the portion attributable to non-controlling interests, increased 9.0% to ¥7.7B, but net income attributable to owners of the parent decreased 3.1% to ¥5.2B, as the increase in net income attributable to non-controlling interests to ¥2.5B and corporate tax expenses weighed on overall growth. The operating margin improved to 8.3% from 8.2% a year earlier, supported by more efficient selling, general and administrative expenses.

Factors Affecting Performance

【Revenue】Revenue was ¥124.6B (+5.8% YoY). By segment, Film and Sheet Products increased 15.8% to ¥58.3B, accounting for 46.8% of total company revenue and representing the largest growth driver. Engineering also grew substantially, up 46.2% to ¥11.6B, while Electronics and Functional Products declined 3.2% to ¥40.4B and Construction Materials-Related Products decreased 13.5% to ¥15.9B, reflecting a demand-adjustment phase.

【Profit and Loss】Operating income was ¥10.4B (+7.7%), and the operating margin improved to 8.3% from 8.2% a year earlier. The gross margin was essentially flat at 33.6%, while the SG&A ratio declined to 25.2% from 25.5%, indicating effective fixed-cost control. By segment, profit from Film and Sheet Products surged 62.7% to ¥9.8B, driving an increase in total company profit. In contrast, Engineering fell into a loss of ¥1.0B despite higher revenue, weighing on total company operating income. Ordinary income increased only 1.6% to ¥10.5B, as a foreign-exchange loss of ¥0.2B restrained growth below operating income. Consolidated net income was ¥7.7B (+9.0%), but net income attributable to owners of the parent was ¥5.2B (-3.1%). Corporate tax expenses, equivalent to approximately 26.7% of pretax income, and the increase in net income attributable to non-controlling interests to ¥2.5B from ¥1.8B diluted profit attributable to owners. The conclusion is that revenue and operating income increased, while net income attributable to owners of the parent declined.

Segment Analysis

Film and Sheet Products became the company’s primary earnings driver, with revenue of ¥58.3B (+15.8%), segment profit of ¥9.8B (+62.7%), and a margin of 16.8%, substantially improved from approximately 12.4% a year earlier. Electronics and Functional Products recorded revenue of ¥40.4B (-3.2%), profit of ¥3.4B (-14.2%), and a margin of 8.4%, indicating declining profitability. Construction Materials-Related Products posted revenue of ¥15.9B (-13.5%) and profit of ¥0.1B (-68.3%), with the margin falling to 0.8%, highlighting the impact of softer demand. Engineering revenue increased substantially to ¥11.6B (+46.2%), but the segment fell into a loss of ¥1.0B, as deteriorating project profitability reduced total company profit. The segment mix is characterized by increased dependence on Film and Sheet Products for earnings.

Key Financial Indicators

【Profitability】The operating margin was 8.3%, slightly improved from 8.2% a year earlier, while the gross margin was broadly flat at 33.6%. The consolidated net margin was 6.2%, equivalent to approximately 4.2% based on net income attributable to owners of the parent.【Cash Flow Quality】Accounts receivable were ¥117.6B (+1.7%), growing more slowly than revenue (+5.8%), which is healthy. However, inventories increased 7.8% to ¥50.8B, outpacing revenue growth, and changes in inventory efficiency could affect cash conversion.【Investment Efficiency】ROE, based on net income attributable to owners of the parent, was approximately 1.9%, while total asset turnover remained low.【Financial Soundness】The equity ratio remained high at 65.3%. Against cash and deposits of ¥146.4B, long-term borrowings were ¥32.8B, and the current ratio was approximately 329% (current assets of ¥392.1B ÷ current liabilities of ¥119.3B), an extremely high level.

Cash Flow Analysis

Cash flow statement figures were outside the scope of disclosure, but funding trends can be assessed from balance sheet movements. Accounts receivable increased 1.7% YoY to ¥117.6B, below the 5.8% growth in revenue, indicating generally healthy collections. In contrast, inventories—products of ¥50.8B, raw materials of ¥32.5B, and work in process of ¥20.8B—increased 7.8% YoY, accumulating faster than revenue growth and suggesting that funds are being tied up in working capital. Cash and deposits were ¥146.4B, slightly below the ¥150B range recorded a year earlier, while short-term borrowings declined YoY to ¥26.8B, indicating progress in reducing interest-bearing debt. Overall, the company has a robust funding base, but the impact of rising inventories on future cash-generation capacity warrants monitoring.

Earnings Quality

The change from operating income to ordinary income was limited (+1.6%), with non-operating income of ¥1.1B, including dividend income of ¥0.1B, and non-operating expenses of ¥1.0B, including interest expenses of ¥0.3B and a foreign-exchange loss of ¥0.2B, broadly offsetting each other. The foreign-exchange loss of ¥0.2B can be viewed as a temporary fluctuation factor and should reasonably be excluded when assessing recurring earnings power. The gap between net income attributable to owners of the parent and consolidated net income—¥5.2B versus ¥7.7B—resulted from net income attributable to non-controlling interests of ¥2.5B. Thus, subsidiary performance boosted consolidated net income while reducing the portion attributable to owners of the parent. Comprehensive income was ¥10.1B, exceeding net income of ¥7.7B, primarily due to an increase of ¥3.2B in foreign currency translation adjustments, representing an uplift from factors separate from the earning power of the underlying businesses.

Earnings Forecast and Guidance

Progress against the full-year plan was 24.0% for revenue, at ¥124.6B / ¥520.0B, and 23.1% for operating income, at ¥10.4B / ¥45.0B. Both were close to the standard quarterly progress rate of approximately 25%. Ordinary income was ¥10.5B / ¥47.0B, or 22.3%, while EPS was ¥55.58 / ¥332.55, or 16.7%, indicating that progress on net-income-related metrics is lagging behind revenue and operating income. This reflects the structural impact of the increased weighting of tax expenses and net income attributable to non-controlling interests. Progress toward the full-year revenue and operating income plans, which imply YoY growth of +4.2% and +9.9%, respectively, can therefore be viewed as generally on track. No revisions were made to the earnings or dividend forecasts during the quarter.

Shareholder Returns

The company’s published full-year dividend forecast is ¥134 per share, representing an increase from the previous year’s annual dividend in the ¥41 range. The payout ratio against the full-year EPS forecast of ¥332.55 is approximately 40.3% (¥134 ÷ ¥332.55), which is not excessive. No revision was made to the dividend forecast as of the current quarter. There was no new disclosure regarding share repurchases, and the shareholder return policy remains centered on dividends.

Risk Factors

1. Segment profitability risk: Engineering revenue increased to ¥11.6B (+46.2%), while the segment fell into a loss of ¥1.0B. Deteriorating project profitability is weighing on total company operating income, and continued losses could impede improvement in the overall profit margin.

2. Cash efficiency risk from inventory buildup: Inventories increased 7.8% YoY to ¥50.8B, outpacing revenue growth of +5.8%. The increase in accounts receivable of +1.7% was below revenue growth and is therefore healthy, but the accumulation of inventory could affect working capital efficiency.

3. Dilution risk from net income attributable to non-controlling interests and tax expenses: While consolidated net income increased 9.0% to ¥7.7B, net income attributable to owners of the parent was limited to ¥5.2B (-3.1%), and net income attributable to non-controlling interests increased to ¥2.5B from ¥1.8B a year earlier. The burden on pretax income, including corporate tax expenses of ¥2.8B, is high and is structurally constraining growth in the portion attributable to owners of the parent.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability is slightly below the industry median but remains within the industry IQR (4.2%–14.2%).

Growth and Capital Efficiency

The revenue growth rate is also slightly below the industry median but remains within the industry’s range of dispersion.

※Source: Company compilation

Key Points from the Financial Results

1. The core Film and Sheet Products segment improved its profit margin to 16.8% and is driving growth in total company operating income. Meanwhile, performance divergence among segments has widened, with Engineering falling into a loss despite higher revenue.

2. Consolidated net income increased (+9.0%), but net income attributable to owners of the parent declined (-3.1%) due to the increase in net income attributable to non-controlling interests and tax expenses. Attention should therefore be paid to the differing trends in consolidated net income and net income attributable to owners of the parent.

3. Inventories are increasing faster than revenue, and changes in the balance sheet in subsequent periods will be a key focus in assessing how working capital trends affect future cash-generation capacity.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥4,109–¥4,346 at ±1% for the cost of equity, and ¥4,218–¥4,230 at ±0.1 for ω.

Notes:

• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used, creating a timing mismatch with the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value is not intended to forecast or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI based on 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 available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional advisor as necessary.

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