Nitta Gelatin (4977) FY2026 Q3 Earnings Report

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Executive Summary

Despite a decline in revenue, earnings increased due to cost improvements, with the greatest takeaway being a qualitative improvement in profitability. Revenue declined for the first time in three periods to ¥28.17B (down 5.0% YoY), while Operating Income rose significantly to ¥3.61B (up 13.2%), Ordinary Income to ¥3.70B (up 4.6%), and Net Income (consolidated net income for the period) to ¥3.42B (up 35.8%). Improvements in the gross margin and a lower corporate tax burden drove the expansion in earnings, resulting in a decline in revenue but an increase in profit.

Factors Affecting Performance

【Revenue】Revenue was ¥28.17B, down 5.0% YoY. The Company operates as a single Collagen Business segment, and the offsetting effect of its business portfolio is limited. Progress toward the full-year forecast of ¥40.00B was 70.4%, slightly below the standard progress level (approximately 75%), making a recovery in Q4 revenue a prerequisite for achieving the plan.

【Profit and Loss】Cost of sales decreased 8.8% YoY to ¥20.04B, declining at a faster pace than revenue and resulting in an increase in the gross margin to 28.8% (25.8% in the previous year). SG&A expenses were ¥4.51B, up only 1.0% YoY, indicating that costs were generally contained. The operating margin expanded to 12.8% (10.8% in the previous year). Ordinary Income increased at a slower pace than Operating Income because foreign exchange gains of ¥0.308B in the same period of the previous year turned into foreign exchange losses of ¥0.052B in the current period. Net Income increased significantly, also benefiting from a decline in the effective tax rate (7.4%). In conclusion, the Company achieved an increase in profit despite a decline in revenue.

Segment Analysis

The Group operates as a single Collagen Business segment and does not disclose information by segment.

Key Financial Indicators

【Profitability】The operating margin was 12.8%, improving from 10.8% in the same period of the previous year, while the gross margin also increased to 28.8% (25.8% in the previous year). The net profit margin attributable to owners of the parent improved significantly to 9.9% from 6.3% in the previous year.【Cash Quality】Accounts receivable were ¥8.40B and inventories were ¥7.22B. Both represented high proportions of total assets, and DSO and DIO were at warning levels, indicating a continued buildup of funds in working capital.【Investment Efficiency】Annualized ROE was high at 15.9% (calculated based on equity), and interest coverage was also at a sufficient level relative to interest expense of ¥0.056B.【Financial Soundness】The Equity Ratio was 67.3% (up from an equivalent 63.0% in the previous year). Interest-bearing debt consisted primarily of long-term borrowings of ¥3.85B, while short-term borrowings declined significantly YoY, improving liquidity and refinancing resilience.

Cash Flow Analysis

As the cash flow statement is not disclosed separately, this analysis is based on funding trends indicated by the balance sheet. Cash and deposits declined slightly to ¥4.84B from ¥5.01B in the same period of the previous year, while short-term borrowings decreased by ¥0.858B YoY, significantly reducing dependence on short-term funding. Accounts receivable of ¥8.40B and inventories of ¥7.22B both remained at high levels, indicating that a significant amount of funds continues to be tied up in working capital despite improvements in accounting profits. Retained earnings increased by ¥2.28B YoY to ¥14.46B, with the retention of net income contributing to the expansion of equity. Overall, conservative financial management is evident, while the reduction of accounts receivable and inventories will determine future cash-generation capacity.

Quality of Earnings

The increase in net income reflects both an improvement in recurring earning power—namely, the increase in Operating Income resulting from the higher gross margin—and temporary factors, including the lower corporate tax burden and fluctuations in foreign exchange gains and losses. Extraordinary income of ¥0.02B and extraordinary losses of ¥0.02B largely offset each other, resulting in a negligible net impact. In non-operating income and expenses, the foreign exchange gain of ¥0.308B recorded in the same period of the previous year turned into a foreign exchange loss of ¥0.052B in the current period, serving as the primary reason why Ordinary Income growth (+4.6%) fell below Operating Income growth (+13.2%). The effective tax rate declined to 7.4%, meaning that the growth rate in Net Income (+35.8%) includes the contribution from the lower tax burden. Accordingly, while the improvement in the operating margin indicates a structural enhancement in earning power, caution is warranted in interpreting the growth rate in Net Income as an unchanged indication of the underlying earnings trend. Comprehensive income was ¥3.87B, exceeding Net Income of ¥3.42B, with other comprehensive income, including foreign currency translation adjustments and valuation differences on securities, making a positive contribution.

Earnings Forecast and Guidance

The full-year earnings forecast remains unchanged. Progress through Q3 toward the revenue forecast of ¥40.00B was 70.4%, slightly below the standard progress rate (approximately 75%). In contrast, progress toward the Operating Income forecast of ¥4.00B was 90.4%, while progress toward the Ordinary Income forecast of ¥4.10B was 90.2% and progress toward the Net Income forecast (¥3.10B attributable to owners of the parent) was 89.9%; all significantly exceeded standard progress levels. The Company’s full-year plan assumes revenue growth of +3.2% and Operating Income growth of +1.8%. Given the declining revenue trend through Q3, a recovery in Q4 revenue will be the key to achieving the plan. Earnings are already progressing ahead of plan.

Shareholder Returns

The Q2 dividend was ¥12.00 per share, and the full-year dividend forecast is ¥30.00. Based on forecast EPS of ¥170.63, the forecast Payout Ratio is approximately 17.6%, which is relatively low when measured solely against dividends. Based on the Q2 dividend paid, the year-end dividend is expected to be ¥18.00 per share if the forecast is achieved. An Equity Ratio of 67.3% and cash and deposits of ¥4.84B provide a financial foundation sufficient to support continued dividend payments. No disclosure regarding share repurchases has been identified.

Risk Factors

1. Business concentration risk: The Company operates as a single Collagen Business segment, meaning that fluctuations in demand or deterioration in the raw-material procurement environment directly affect consolidated performance. Cumulative Q3 revenue was down 5.0% YoY, and a recovery in Q4 revenue is required to achieve the full-year plan.

2. Working capital efficiency risk: Accounts receivable of ¥8.40B and inventories of ¥7.22B represent high proportions of the asset base, and prolonged collection periods and inventory turnover are putting pressure on funding efficiency. If the sales plan is not achieved, the risks of inventory accumulation and valuation losses will increase.

3. Foreign exchange risk: The Company recorded a foreign exchange loss of ¥0.052B in the current period, compared with a foreign exchange gain of ¥0.308B in the same period of the previous year, making foreign exchange a factor affecting fluctuations in Ordinary Income. Going forward, foreign exchange trends may continue to affect non-operating income and expenses.

Industry Benchmark (For Reference; Based on Company Research)

Profitability and Returns

Both the operating margin and net profit margin exceed the industry median, placing the Company’s profitability among the higher levels within the industry.

Growth and Capital Efficiency

The revenue growth rate is significantly below the industry median, positioning the Company behind its peers in terms of top-line growth.

※Source: Company research

Key Takeaways from the Results

1. Despite the decline in revenue, the gross margin improved by approximately 3.0pt and the operating margin by approximately 2.1pt, confirming a strengthening of the earnings structure centered on cost improvements.

2. Progress toward the full-year forecast diverged, with revenue at 70.4% versus Operating Income at 90.4%. While the earnings plan is progressing ahead of schedule, a recovery in Q4 revenue is a prerequisite for achieving the plan.

3. Working capital indicators such as DSO and DIO have lengthened relative to industry peers. From the perspective of converting improvements in accounting profits into cash-generation capacity, reducing accounts receivable and inventories will be a key focus going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,582–¥1,676 at a ±1% change in the cost of equity, and ¥1,627–¥1,630 at a ±0.1 change in ω.

Notes:

• Because Net Income progress toward the full-year forecast (90%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of plan tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the end of the quarter are used (there is a timing difference relative to 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 solely from publicly disclosed data; this 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 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 discretion and responsibility, after consulting with a professional adviser as necessary.

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