Nippon Sheet Glass (5202) FY2026 Q3 Earnings Report

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Executive Summary

Although operating income improved significantly by +71.3% year on year, net income attributable to owners of the parent was a loss of ¥51.3B, resulting in a financial performance characterized by the coexistence of higher revenue and operating profit with continued net losses. Revenue was ¥6,405.6B (+1.7% year on year), operating income was ¥185.1B (¥108.1B in the previous year, +71.3%), and profit before tax was ¥8.2B (turning profitable from -¥62.0B in the previous year). Consolidated net income was -¥40.6B (loss narrowed from -¥93.0B in the previous year, +56.4%), while net income attributable to owners of the parent was -¥51.3B (improving from -¥100.8B in the previous year). As the company uses IFRS, there is no concept of ordinary income; performance is evaluated based on profit before tax. Finance costs of ¥243.0B almost offset profit before tax, meaning that the sustainability of the profitability improvement depends on trends in the interest burden.

Factors Affecting Performance

【Revenue】Revenue increased slightly by +1.7% year on year to ¥6,405.6B. As segment-level disclosure is not available, the analysis is conducted on a company-wide basis; however, the increase in revenue was limited, and the growth driver appears to have been limited to gradual demand expansion in the core businesses.

【Profit and Loss】Cost of sales decreased to ¥4,996.7B from ¥5,052.4B in the previous year, improving gross profit to ¥1,408.9B (gross margin of 22.0%, compared with 19.8% in the previous year). The operating margin rose to 2.9% (1.7% in the previous year), apparently reflecting improvements in cost management and product mix. However, finance costs increased to ¥243.0B from ¥212.5B in the previous year, significantly weighing on profit before tax, which remained at ¥8.2B. Share of profit of investments accounted for using the equity method of ¥44.0B (¥37.1B in the previous year) provided support to earnings. In conclusion, despite higher revenue and operating profit, the net loss continued, with the interest burden constraining the improvement in net income.

Key Financial Metrics

【Profitability】The operating margin improved to 2.9% (1.7% in the previous year), but finance costs were substantial relative to the gross margin of 22.0%, putting pressure on bottom-line earnings; net income attributable to owners of the parent as a percentage of revenue remained negative at -0.8%. 【Cash Flow Quality】Operating cash flow (OCF) was -¥45.9B, improving from -¥68.1B in the previous year, while the subtotal before changes in working capital remained positive at ¥187.0B. 【Investment Efficiency】ROE was -3.5% (based on consolidated net income), with the high level of leverage affecting the absolute level of ROE. Inventories stood at ¥1,890.1B, a high 17.6% of total assets. 【Financial Soundness】The equity ratio improved slightly to 11.6% (10.5% in the previous year) but remained low. Total bonds and borrowings reached ¥5,674.8B, indicating a structure with a high degree of dependence on interest-bearing debt.

Cash Flow Analysis

Operating cash flow was -¥45.9B, improving from -¥68.1B in the previous year but remaining negative. The gap between this figure and the ¥187.0B subtotal before changes in working capital appears to have been affected by factors including an increase in inventories. Investing cash flow was -¥276.2B, primarily due to capital expenditures of ¥323.2B, indicating that the company continues to invest for growth and maintenance. Free cash flow (operating cash flow + investing cash flow) was significantly negative at -¥322.1B, with financing cash flow of ¥97.3B, including the raising of interest-bearing debt, providing funding. Cash and cash equivalents decreased to ¥456.9B from ¥653.1B in the previous year, as investment and interest payment burdens pressured the cash position.

Earnings Quality

Of profit before tax of ¥8.2B, share of profit of investments accounted for using the equity method of ¥44.0B made a significant contribution as an earnings driver, indicating limited dependence on the earnings power of the core business. Finance income of ¥32.9B and finance costs of ¥243.0B represent an asymmetric structure, with dependence on interest-bearing debt affecting the quality of the P&L. Comprehensive income was ¥59.2B (¥119.6B attributable to owners of the parent), substantially diverging from net income attributable to owners of the parent of -¥51.3B. This difference resulted from other comprehensive income items, including foreign currency translation adjustments of ¥39.3B and valuation differences on other securities. Based on the relationship between profit before tax of ¥8.2B and income taxes of ¥48.8B for the period, the effective tax rate was an abnormal figure approaching 600%, potentially reflecting special factors such as temporary differences for tax purposes. Overall, the improvement in earnings for the period was partly supported by equity-method income and comprehensive income items, and caution is warranted in assessing it as an improvement in profitability generated solely by the core business.

Earnings Forecasts and Guidance

The company forecasts full-year revenue of ¥8,500.0B (+1.1% year on year), operating income of ¥310.0B (+88.0% year on year), and net income of ¥40.0B. Operating income of ¥185.1B for the current quarter represents 59.7% progress against the full-year forecast, indicating progress in line with the full-year operating income plan. On the other hand, consolidated net income for the current quarter was a loss of -¥40.6B, meaning that a significant turnaround to profitability during the remaining period will be required to achieve the full-year net income forecast of ¥40.0B. If the finance cost burden continues, the structure in which improvement in operating income is not easily reflected in net income is unlikely to change.

Shareholder Returns

The dividend forecast for the period is ¥0 per share, and the company remains without a dividend. In addition to net income being a loss, free cash flow was significantly negative at -¥322.1B; therefore, the payout ratio is not calculated. Share repurchases were effectively zero in cash flow terms (-¥0.0B), and no substantive shareholder returns were made. The resumption of dividends is expected to require stable positive operating cash flow and a reduction in the interest-bearing debt burden.

Risk Factors

1. High Leverage and Interest Burden Risk: The equity ratio was 11.6%, while total bonds and borrowings reached ¥5,674.8B. Finance costs of ¥243.0B were substantially larger than profit before tax of ¥8.2B. Changes in the interest-rate environment are therefore considered likely to have a significant impact on performance.

2. Inventory Retention Risk: Inventories stood at ¥1,890.1B, increasing to 17.6% of total assets from 15.9% in the previous year. The pace at which inventories are converted into cash may be affecting operating cash flow.

3. Goodwill and Intangible Asset Impairment Risk: Goodwill was ¥904.4B, equivalent to 58.4% of net assets of ¥1,547.5B. Depending on changes in the business environment, monitoring of impairment risk is considered necessary.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net margin were below the industry median, placing profitability relatively low within the industry.

Growth and Capital Efficiency

The revenue growth rate was also slightly below the industry median, with top-line growth remaining at an average level within the industry.

※Source: Company analysis

Key Takeaways from the Financial Results

1. The improvement in the operating margin to 2.9% (1.7% in the previous year) was accompanied by an increase in the gross margin to 22.0%, indicating a structural improvement trend in cost management and product mix. However, the gap from the industry median of 8.6% remains substantial, and profitability improvement is still in progress.

2. The structure in which finance costs of ¥243.0B almost offset profit before tax continues, with dependence on interest-bearing debt and the interest burden identified as major factors constraining improvement in net income.

3. The increase in the inventory-to-total-assets ratio and significantly negative free cash flow (-¥322.1B) represent structural characteristics requiring monitoring with respect to the balance between investment, inventory, and cash generation.

Theoretical Share Price (Reference Value)

Sensitivity: ¥901–¥954 at cost of equity ±1%, and ¥916–¥933 at ω±0.1.

Notes:

• Net income is substantially compressed relative to operating income due to tax expenses, acquisition-related costs, and non-controlling interests (net income ÷ operating income 6%). This figure reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• As 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 occurs.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate base 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 forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL financial results 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 financial results data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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