Nitta Corporation FY2027 Q1 Earnings Report

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Executive Summary

A strong set of results, with Revenue growth, improved gross margins, and increased equity-method investment gains combining to generate substantial increases in Operating Income, Ordinary Income, and Net Income. Revenue was ¥243.6B (¥216.2B in the same period of the previous year, +12.7%), Operating Income was ¥20.1B (¥10.9B, +83.7%), Ordinary Income was ¥49.8B (¥31.7B, +56.9%), and Net Income was ¥41.8B (¥27.8B, +50.5%). Improvements in volume and pricing in the core Hose and Tube Products Business, together with growth in equity-method investment gains (¥26.6B, ¥19.1B in the same period of the previous year), drove performance.

Factors Affecting Earnings

【Revenue】Revenue was ¥243.6B, representing a 12.7% year-on-year increase. The core Hose and Tube Products Business generated ¥93.1B (+18.5%), accounting for approximately 38% of company-wide Revenue and driving growth, while the Management Guidance Business continued to achieve strong growth at ¥8.4B (+24.4%). Conversely, the Chemical Products Business declined to ¥26.0B (-5.3%), indicating variability in the segment mix.

【Profit and Loss】The gross margin improved by +0.8pt year on year to 29.7%, while the SG&A expense ratio declined by -1.4pt to 21.5%. As a result, Operating Income increased substantially to ¥20.1B (+83.7%), and the Operating Income margin improved by 3.2pt to 8.3% (5.1% in the same period of the previous year). Ordinary Income was ¥49.8B (+56.9%), with equity-method investment gains of ¥26.6B representing the primary contributor among non-operating income of ¥30.6B. Net Income was ¥41.8B (+50.5%), while the effective tax rate remained low at approximately 16.0%. This was a period of both Revenue and profit growth, with improved profitability in the core business and increased equity-method gains providing a dual benefit.

Segment Analysis

The core Hose and Tube Products Business generated Revenue of ¥93.1B (+18.5%) and Operating Income of ¥7.3B, a sharp recovery in profitability from ¥0.04B in the same period of the previous year, resulting in a profit margin of 7.8%. The Management Guidance Business generated Revenue of ¥8.4B (+24.4%), Operating Income of ¥6.1B, and an exceptionally high profit margin of 72.4%, making a substantial contribution to company-wide profits. The Real Estate Business also maintained high profitability, with a profit margin of 35.9%. Conversely, the Other Industrial Products Business generated Revenue of ¥29.5B (+8.5%), but recorded an Operating Loss of ¥-0.8B (-389.3% year on year), while the Chemical Products Business generated Revenue of ¥26.0B (-5.3%) and Operating Income of ¥1.2B (-44.3%), both acting as drags on company-wide profits. Profit margins vary significantly among segments, with the earnings structure driven by the Management Guidance, Real Estate, and Hose and Tube businesses, while the Other Industrial Products and Chemical Products businesses weigh on performance.

Key Financial Indicators

【Profitability】The Operating Income margin improved by 3.2pt to 8.3% from 5.1% in the same period of the previous year, while the Net Income margin rose to 17.1% (12.7% in the same period of the previous year). The gross margin was 29.7%, up +0.8pt year on year, and the SG&A expense ratio was 21.5%, down -1.4pt, indicating that the slower pace of expense growth relative to Revenue growth contributed to improved margins.【Cash Flow Quality】Equity-method investment gains of ¥26.6B account for a high proportion of Ordinary Income, indicating that the quality of Ordinary Income is dependent to some extent on non-operating factors.【Investment Efficiency】ROE was 2.5%, while investment securities accounted for ¥768.0B (approximately 39.0%) of total assets of ¥1968.7B, creating a structure in which the turnover of operating assets is constrained.【Financial Soundness】The Equity Ratio was extremely high at 86.0%, while current assets of ¥843.1B and current liabilities of ¥178.6B indicate substantial short-term financial capacity.

Cash Flow Analysis

As no cash flow statement has been disclosed, an examination based on the movement of funds on the balance sheet shows that cash and deposits declined slightly to ¥320.6B (¥335.1B in the same period of the previous year), while investment securities increased to ¥768.0B (¥714.2B), suggesting that some funds may have been allocated to investment securities. Inventories were ¥161.2B (¥154.7B), and accounts receivable and notes receivable were ¥175.5B (¥176.8B), remaining at broadly similar levels, although the increase in inventories is somewhat notable. Because equity-method investment gains of ¥26.6B account for a high proportion of Ordinary Income, it should be noted that actual cash inflows relative to the level of Ordinary Income are structurally prone to depend on the timing of dividend receipts from affiliated companies.

Quality of Earnings

Recurring earnings comprised Operating Income of ¥20.1B from the core business plus equity-method investment gains of ¥26.6B, which constituted more than half of Ordinary Income of ¥49.8B. Non-operating income was also high at approximately 12.6% of Revenue. Extraordinary gains and losses were effectively zero both in the current period and the same period of the previous year, indicating limited impact from one-time factors. Interest expense was negligible at ¥0.1B, while total non-operating income, including interest income of ¥0.8B and dividend income of ¥2.4B, boosted profits. The Net Income margin of 17.1% was approximately twice the Operating Income margin of 8.3%, with this divergence primarily attributable to the magnitude of equity-method investment gains. Equity-method gains are susceptible to the performance of affiliated companies and market conditions, and the levels of Ordinary Income and Net Income may therefore exhibit relatively higher volatility than the underlying strength of the core business.

Earnings Forecast and Guidance

Q1 progress against the full-year plan was 25.4% for Revenue (plan: ¥960.0B), 25.2% for Operating Income (plan: ¥80.0B), and 27.7% for Ordinary Income (plan: ¥180.0B), tracking at or above the standard 25% pace. The relatively front-loaded progress in Ordinary Income reflects the strength of equity-method investment gains in Q1. Although the earnings forecast was revised during the current quarter, there was no revision to the dividend forecast. Going forward, demand trends in the core Hose and Tube Products Business and profitability improvements in the loss-making Other Industrial Products Business will be key to achieving the plan.

Shareholder Returns

The full-year dividend forecast is ¥170, implying a Payout Ratio of approximately 31.3% based on the company’s planned EPS of ¥543.77. The dividend in the previous year was ¥72, and the full-year plan therefore indicates an increase in the dividend. Given the strong financial foundation, including an Equity Ratio of 86.0% and cash and deposits of ¥320.6B, the safety of the dividend funding base is high. There is no disclosure regarding the Total Return Ratio (share repurchase results), and the return situation can therefore be assessed only through the Payout Ratio.

Risk Factors

1. Revenue dependence on the core business: The Hose and Tube Products Business accounts for approximately 38% of Revenue (¥93.1B), creating a structure in which demand and pricing trends in this business have a significant impact on company-wide performance.

2. Profitability gap among segments: The Other Industrial Products Business recorded an Operating Loss of ¥-0.8B, while the Chemical Products Business also posted lower Operating Income of ¥1.2B (-44.3%). Delays in correcting the profitability of these businesses could lead to dilution of the company-wide profit margin.

3. Dependence on equity-method investment gains: Equity-method investment gains of ¥26.6B account for more than half of Ordinary Income of ¥49.8B, and fluctuations in the performance and market conditions of affiliated companies could increase the volatility of Ordinary Income and Net Income.

Industry Benchmark (For Reference; Prepared by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income margin is slightly below the industry median, while the Net Income margin is substantially above the industry median, reflecting the contribution of non-operating equity-method investment gains to the Net Income level.

Growth and Capital Efficiency

The Revenue growth rate is above the industry median and is positioned at a level near the upper end of the IQR.

※Source: Prepared by the Company

Key Takeaways from the Results

1. The Operating Income margin improved by 3.2pt year on year to 8.3%, confirming positive operating leverage from Revenue growth and improved SG&A efficiency. The recovery in profitability of the Hose and Tube Products Business was the primary factor behind the improvement in the company-wide profit margin.

2. The Net Income margin of 17.1% was approximately twice the Operating Income margin of 8.3%, with equity-method investment gains (¥26.6B) accounting for more than half of Ordinary Income. It is necessary to distinguish between improvement in the core business and the contribution of non-operating factors.

3. The Other Industrial Products Business recorded an Operating Loss of ¥-0.8B, and the profitability gap among segments can be observed as a structural issue in the company-wide earnings structure.

Theoretical Stock Price (Reference Value)

This is a reference range mechanically calculated solely from 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 price or a recommendation of any specific investment action.

Sensitivity: ¥5,935–¥6,282 at ±1% for the cost of equity, and ¥6,102–¥6,106 at ±0.1 for ω.

Notes:

• Normalized EPS calculated from Ordinary Income and other figures is used to exclude the impact of temporary profit and loss items (the company’s forecast EPS is ¥543.8).
• Because 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 (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

（Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value does not forecast or guarantee the future stock 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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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