Nippon Sheet Glass (5202) FY2026 FY Earnings Report

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Executive Summary

Although the Company reported higher revenue and earnings for the current period, the structure in which finance costs continue to exceed operating income remains in place, and the quality of net income requires careful assessment. Revenue was ¥8,794.6B (+4.6% year on year), while operating income was ¥288.2B (+74.7% year on year), resulting in an operating margin of 3.3%, an improvement from 2.0% in the previous year. The primary driver of the earnings increase was an improvement in the gross margin through the absorption of cost of sales (22.3% versus 20.0% in the previous year). However, as finance costs of ¥329.7B exceeded operating income, profit before tax was compressed to ¥3.8B. Net income attributable to owners of the parent of ¥44.2B was driven by a ¥51.3B tax benefit, and the return to profitability from the ¥138.3B loss in the previous year is noteworthy.

Factors Driving Performance Changes

【Revenue】Revenue increased 4.6% year on year to ¥8,794.6B. The growth rate was slightly above the industry median of 3.4%, although detailed disclosures by region and segment are not available.

【Profit and Loss】Operating income increased 74.7% year on year to ¥288.2B, significantly outpacing revenue growth, and the operating margin improved to 3.3% from 2.0% in the previous year (+1.3pt). The gross margin also rose to 22.3% from 20.0%, primarily due to the absorption of cost of sales. Meanwhile, selling expenses (+12.8%) and administrative expenses (+8.2%) increased at rates exceeding revenue growth, offsetting part of the increase in operating income. Below operating income, finance costs of ¥329.7B absorbed finance income of ¥47.0B and equity in earnings of affiliates of ¥57.1B, leaving profit before tax at only ¥3.8B. Net income attributable to owners of the parent of ¥44.2B was boosted by a ¥51.3B tax benefit and cannot be explained solely by improvement at the operating level. In conclusion, although revenue and earnings increased, the increase in net income was substantially dependent on the tax effect.

Key Financial Indicators

【Profitability】The operating margin improved to 3.3% from 2.0% in the previous year, and the gross margin improved to 22.3% from 20.0%; however, the net margin remained low at 0.6%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥336.2B, reaching 7.6 times net income attributable to owners of the parent of ¥44.2B, indicating that cash conversion in the current period significantly exceeded reported earnings. 【Investment Efficiency】ROE was 3.4%, reflecting a structure of a 0.6% net margin × 0.79x total asset turnover × 6.02x financial leverage, whereby the low profit margin is supplemented by high leverage. 【Financial Soundness】The equity ratio was 13.5%, improving by +3.0pt from 10.5% in the previous year, but the current ratio was 61.0%, below 1x, and total liabilities reached 5.0 times equity.

Cash Flow Analysis

Operating Cash Flow was ¥336.2B, down 35.9% from ¥524.2B in the previous year, but significantly exceeded net income attributable to owners of the parent of ¥44.2B, indicating that earnings had solid cash support. However, of the ¥637.4B in cash generated from operating activities, interest paid of ¥285.3B consumed 44.8%, placing pressure on operating cash generation through the interest burden. Investing Cash Flow represented an outflow of ¥325.6B, primarily due to capital expenditures of ¥418.5B, partially offset by dividends received from equity-method affiliates of ¥64.0B and other items. As a result, free cash flow, calculated as OCF less capital expenditures, was only a modest positive ¥10.6B, leaving limited capacity to simultaneously fund investments, shareholder returns, and debt repayment. Financing Cash Flow was an outflow of ¥146.6B, with ¥2,751.5B of proceeds from borrowings and bonds and ¥2,866.3B of repayments occurring concurrently, suggesting a funding structure dependent on refinancing. Cash at the end of the period was ¥551.0B, down ¥78.8B year on year.

Earnings Quality

The increase in net income consisted of factors with different characteristics—improvement at the operating level and the tax effect—and these factors should be evaluated separately. Operating income was ¥288.2B, up +74.7% year on year, indicating an improvement in recurring earnings capacity against the backdrop of gross margin expansion. In contrast, profit before tax was only ¥3.8B, with most of operating income offset by finance costs of ¥329.7B, which exceeded operating income. Net income attributable to owners of the parent of ¥44.2B was generated by the ¥51.3B tax benefit and was significantly larger than profit before tax. Equity in earnings of affiliates of ¥57.1B was more than 15 times profit before tax of ¥3.8B, indicating a structure in which final earnings are sensitive to the performance of investees and fluctuations in net finance income and costs. While OCF significantly exceeding earnings is healthy from an accruals perspective, attention is required regarding the dependence on tax effects and equity-method investment income in terms of the sustainability of net income.

Earnings Forecasts and Guidance

The Company’s forecast for the fiscal year ending March 2027 is revenue of ¥8,800B (+0.1% year on year), operating income of ¥360B (+24.9%), and net income of ¥40B (-32.1%). Revenue is planned to remain almost flat, with the focus placed on improving the operating margin rather than increasing revenue (forecast operating margin of 4.1%, +0.8pt from 3.3% in the current period). Meanwhile, forecast net income attributable to owners of the parent is ¥30B, representing an expected decrease of 32.1% from ¥44.2B in the current period, suggesting an assumption that the boost from the tax effect recognized in the current period will diminish in the following period. Achieving the planned improvement in operating income will require containing increases in selling, general and administrative expenses and reducing the finance cost burden.

Shareholder Returns

The annual dividend on common shares was ¥0 for both the current period and the forecast for the following period, resulting in a payout ratio of 0%. Share repurchases were also negligible at ¥0.01B, making the Total Return Ratio effectively close to zero. The no-dividend policy is consistent with capital allocation that prioritizes maintaining liquidity and reducing interest-bearing debt under financial constraints, including a current ratio of 61.0% and total liabilities equal to 5.0 times equity. Series A preferred shares were acquired during the current period following the exercise of conversion requests into common shares, and there was no outstanding balance as of March 31, 2026.

Risk Factors

1. Interest burden and insufficient earnings coverage: Finance costs of ¥329.7B exceeded operating income of ¥288.2B, creating a structure in which operating income alone cannot cover finance costs. As a result, profit before tax was compressed to ¥3.8B, and attention should be paid to the fact that the benefits of operating improvement were offset by the interest burden.

2. Short-term liquidity and borrowing structure: The current ratio was 61.0%, below 1x, with current liabilities of ¥5,602.8B exceeding current assets of ¥3,418.5B. Current bonds and borrowings were ¥3,078.0B, increasing significantly year on year, while the non-current portion decreased, indicating that the maturity profile of borrowings has shifted toward the short term.

3. Inventory accumulation: Inventories increased 12.8% year on year to ¥1,855.1B, expanding at a pace exceeding the +4.6% revenue growth rate. Deterioration in inventory turnover could create a risk of valuation losses during demand fluctuations and place pressure on working capital.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability was below the industry median across all three indicators, with the largest gap in the net margin.

Growth and Capital Efficiency

Although the revenue growth rate exceeded the industry median, the low level of profitability indicates that growth has not been fully converted into earnings.

※Source: Compiled by the Company

Key Points in the Financial Results

1. The operating margin improved to 3.3% from 2.0% in the previous year, indicating an improvement in core earnings capacity against the backdrop of gross margin expansion. However, the gap with the industry median of 7.6% remains substantial.

2. The structure in which finance costs of ¥329.7B exceed operating income significantly offsets the earnings growth at the bottom-line level. Even if the forecast operating income of ¥360B for the following period is achieved, the degree of conversion into net income may vary depending on the level of the interest burden.

3. The combination of inventory growth (+12.8% year on year) and a current ratio of 61.0% means that trends in working capital and short-term funding will be key points of focus in future financial results.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥823–¥871 at cost of equity ±1%, and ¥839–¥851 at ω±0.1.

Notes:

• Net income is significantly compressed relative to operating income due to tax expenses, acquisition-related costs, non-controlling interests, and other factors (net income ÷ operating income 8%). This value reflects that compression at face value; if these factors are temporary, normalized earnings capacity may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Goodwill represents a high proportion of net assets, and the assumptions would change substantially if impairment were recognized.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly available data and is not a forecast of the market stock price, a recommendation of any specific investment action, or a prediction or guarantee of the future stock price.)

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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 available earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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