DaikyoNishikawa (4246) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for the first three quarters reflected lower revenue but higher earnings, with improved profitability being the key highlight. Revenue declined slightly to ¥1237.0B (-1.3% YoY), while Operating Income rose significantly to ¥79.5B (+16.0%), Ordinary Income to ¥85.0B (+28.2%), and Net Income to ¥65.2B (+63.1%). The increase in earnings despite lower revenue was supported by cost management and non-operating factors, including foreign exchange gains.

Factors Affecting Results

【Revenue】Revenue was ¥1237.0B, a decrease of -1.3% YoY. By segment, Japan was the core business at ¥768.2B (62.1% of total), although it is on a declining trend; ASEAN at ¥81.8B and China and Korea at ¥57.8B were relatively small. Sales to North America, which are outside the segment classification, increased, resulting in divergent performance across regions.

【Profit and Loss】Cost of sales was ¥1066.7B, equivalent to 86.2% of revenue, while the gross profit margin was 13.8%, broadly unchanged from the previous year. SG&A expenses were ¥90.8B (SG&A ratio of 7.3%), controlled at approximately the same level as the previous year. Consequently, the Operating Income margin improved to 6.4% from 5.5% in the previous year. Among non-operating income, foreign exchange gains of ¥5.3B contributed to an increase in Ordinary Income, while extraordinary losses of ¥0.7B (losses on disposal and sale of fixed assets) were minor as a temporary factor. Net Income was ¥65.2B, of which ¥64.0B was attributable to owners of the parent, representing an increase of +67.0% YoY. Overall, the results reflected lower revenue but higher earnings, with cost management and non-operating income driving the increase in profit.

Segment Analysis

Segment profit was ¥24.4B in Japan (profit margin of 3.2%), ¥4.7B in ASEAN (profit margin of 5.7%), and ¥0.4B in China and Korea (profit margin of 0.7%). While ASEAN secured the highest profit margin, Japan had a relatively low profit margin despite its large revenue scale. China and Korea remained at approximately breakeven. Due to adjustments including the elimination of intersegment transactions, consolidated Operating Income for the quarter was ¥79.47B, compared with ¥73.95B for the total of the reportable segments, with the adjustment contributing positively.

Key Financial Metrics

【Profitability】The Operating Income margin of 6.4% and Net Income margin of 5.3% improved from the previous year, although the gross profit margin remained low at 13.8%. 【Cash Quality】Since Operating Cash Flow (OCF) has not been disclosed, assessment of profit conversion into cash is limited; however, cash and deposits increased to ¥419.1B from ¥309.2B in the previous year, while the current ratio was 188.8% (current assets of ¥866.8B/current liabilities of ¥459.2B), indicating sufficient short-term financial capacity. 【Investment Efficiency】ROE (annualized) was 9.7%, and the total asset turnover ratio was approximately 0.76x, indicating a moderate level of asset efficiency. 【Financial Soundness】The Equity Ratio declined slightly to 54.8% from 56.5% in the previous year but remained high. Long-term borrowings increased to ¥242.1B (+33.7% YoY), making the use of funds an item requiring monitoring.

Cash Flow Analysis

This disclosure does not provide details of the statement of cash flows (Operating CF, Investing CF, and Financing CF); therefore, funding trends are assessed based on changes in the balance sheet. Cash and deposits increased by +35.6% to ¥419.1B from ¥309.2B in the previous year, strengthening the cash position. Meanwhile, long-term borrowings increased to ¥242.1B (+33.7% YoY), indicating that part of the increase in cash may have resulted from financing. Inventories declined significantly to ¥14.2B from ¥24.4B in the previous year, indicating improved capital efficiency through inventory reduction. Accounts receivable were on an increasing trend at ¥302.3B, and trends in the collection cycle will be monitored as a factor affecting future funding efficiency.

Earnings Quality

The increase in Ordinary Income was driven not only by improved Operating Income but also by non-operating income of ¥11.9B, including foreign exchange gains of ¥5.3B. Accordingly, it should be noted that a portion of earnings depended on market-related factors. Non-operating expenses were ¥6.4B, with interest expenses declining to ¥5.8B from ¥10.4B in the previous year; the reduced interest burden contributed to the improvement in Ordinary Income. Extraordinary gains and losses consisted solely of extraordinary losses of ¥0.7B (losses on disposal and sale of fixed assets), which were small and had a limited impact on full-year earnings. Comprehensive income was ¥42.1B, below Net Income of ¥65.2B, primarily due to foreign currency translation adjustments of -¥24.3B. The divergence between Net Income and Comprehensive Income resulted from translation differences on overseas assets and should be evaluated separately from the underlying earnings power of the business.

Earnings Forecast and Guidance

The full-year company forecasts are Revenue of ¥1648.0B (-2.2% YoY), Operating Income of ¥88.0B (-12.0% YoY), and Ordinary Income of ¥93.0B (-4.0% YoY). Cumulative Revenue for the first three quarters of ¥1237.0B represents 75.1% of the full-year forecast, while Operating Income of ¥79.5B represents 90.3% of the full-year forecast. Operating Income had reached a high 90.3% progress rate against the full-year forecast as of Q3. This may indicate that the company’s full-year forecast is conservative, although it is also consistent with a plan assuming lower earnings in Q4 compared with the same period of the previous year.

Shareholder Returns

The company’s forecast indicates an interim dividend of ¥17 and a year-end dividend of ¥19, equivalent to an annual amount of ¥36 (the company forecast indicates an annual amount of ¥38). The Payout Ratio calculated from the forecast dividend of ¥38.0 against the company’s forecast EPS of ¥100.6 is approximately 37.8%, which is considered sustainable based on the current earnings level. Treasury shares decreased year on year (-¥39.96B → -¥27.85B), suggesting a change in the capital policy regarding shareholder returns; however, no specific amount of share repurchases has been disclosed.

Risk Factors

1. Structural profitability issues: The gross profit margin of 13.8% is reflected in an Operating Income margin of 6.4%, below the industry median of 8.6% (based on Operating Income margin). Potential improvements in pricing competitiveness and the cost structure will be key monitoring points.

2. Changes in the financing structure: Long-term borrowings increased by +33.7% YoY to ¥242.1B, and it is necessary to assess the impact of increased interest-bearing debt on future interest expenses and the capital structure.

3. Dependence on foreign exchange and non-operating factors: The increase in Ordinary Income included foreign exchange gains of ¥5.3B, while foreign currency translation adjustments reduced Comprehensive Income by -¥24.3B, indicating foreign exchange sensitivity associated with the high proportion of overseas business.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

Both the Operating Income margin and Net Income margin were below the industry median, placing the company at a relatively low level within the industry.

Growth and Capital Efficiency

The Revenue growth rate was also below the industry median, indicating that top-line growth is lagging within the industry.

※Source: Compiled by the Company

Key Points in the Results

1. Despite Revenue declining by -1.3% YoY, Operating Income, Ordinary Income, and Net Income all increased. The key feature of the results was that cost management and improved non-operating income supported the profit structure.

2. The gross profit margin of 13.8% continued to remain below the industry median, and the sustainability of earnings growth will depend on future cost improvements and changes in the product mix.

3. The progress rate for cumulative Q3 results against the full-year forecast was high at 90.3% for Operating Income. Consistency between the company forecast and actual results, as well as demand trends in Q4, will be key areas of focus.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,227–¥1,298 at ±1% for the cost of equity, and ¥1,260–¥1,263 at ±0.1 for ω.

Notes:

• Since progress of Net Income against the full-year forecast (93%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to exceed forecasts. For businesses with strong seasonality, the adjustment may be excessive).
• 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 are used (there is a timing difference relative to 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 / 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 future share prices.)

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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 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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