Nippon Electric Glass (5214) FY2026 Q1 Earnings Report

Quick View

Executive Summary

The Company recorded higher revenue but lower operating income, with the key feature being that lower core operating profitability was offset by foreign exchange gains and gains on the sale of investment securities. Revenue was nearly flat at ¥751.0B (+0.3% YoY), while operating income declined to ¥64.8B (-17.9% YoY). Meanwhile, ordinary income rose significantly to ¥89.7B (+47.0% YoY), and net income increased to ¥84.0B (+64.3% YoY). However, this increase was driven by non-operating and extraordinary gains, including foreign exchange gains of ¥16.5B and gains on the sale of investment securities of ¥36.3B, and does not indicate an improvement in core operating profitability.

Factors Driving Earnings Changes

【Revenue】Revenue was ¥751.0B, essentially flat at +0.3% YoY. The Company operates a single Glass Business segment, and segment-level drivers of changes are not disclosed. Growth through changes in sales volume, pricing, and product mix was limited, and Q1 progress toward the full-year revenue plan of ¥3,200B was 23.5%, slightly below the standard 25%.

【Profit and Loss】Cost of sales was ¥568.8B and did not expand at a rate exceeding the +0.3% increase in revenue. Gross profit was ¥182.2B, with a gross margin of 24.3%, down from 24.9% in the same period last year. SG&A expenses were ¥117.4B, up +9.9% YoY and substantially above the growth in revenue. As a result of negative operating leverage, operating income declined to ¥64.8B (-17.9% YoY), and the operating margin fell to 8.6% from 10.6% in the same period last year. In non-operating items, foreign exchange gains of ¥16.5B, compared with foreign exchange losses of ¥26.6B in the same period last year, contributed to an increase in ordinary income to ¥89.7B (+47.0% YoY). Extraordinary items generated a net gain of ¥34.6B, primarily due to gains on the sale of investment securities of ¥36.3B, resulting in net income of ¥84.0B (+64.3% YoY). A substantial portion of the increase in net income was attributable to temporary factors; consequently, this quarter should be assessed as higher revenue but lower operating income.

Segment Analysis

The Company operates a single Glass Business segment, and disclosure of segment information has been omitted.

Key Financial Indicators

【Profitability】The operating margin was 8.6%, down 1.9pt from 10.6% in the same period last year, while the net profit margin increased to 11.1% from 6.7%, up 4.4pt. However, the increase was largely driven by foreign exchange gains and gains on the sale of investment securities, moving in the opposite direction from an improvement in core operating margins. 【Cash Quality】Against pretax income of ¥124.2B, non-operating income of ¥33.0B and extraordinary income of ¥47.3B together accounted for a substantial ¥80.3B, and therefore need to be distinguished from recurring business earnings. 【Investment Efficiency】Annualized ROE was 6.8%. Asset efficiency relative to total assets of ¥6,922.2B was limited, while property, plant and equipment of ¥3,660.0B accounted for 52.9% of total assets, indicating an asset-intensive structure that constrains returns. 【Financial Soundness】With an equity ratio of 71.9% and cash and deposits of ¥1,058.3B, the Company has a strong financial foundation and high resilience to short-term debt obligations.

Cash Flow Analysis

Although individual items in the cash flow statement are not disclosed, cash trends can be assessed from changes in the balance sheet. Cash and deposits were ¥1,058.3B, a decrease of ¥148.7B from ¥1,207.1B in the same period last year. During this period, machinery and equipment and vehicles increased by ¥1,088.9B, indicating that capital investment has continued. Interest-bearing debt remains stable, including long-term borrowings of ¥537.2B, bonds of ¥100.0B, and bonds due for redemption within one year of ¥100.0B, while short-term borrowings were broadly flat at ¥236.6B. Cash represented 98.7% of current liabilities of ¥1,072.1B. Although liquidity on hand remains ample, the increasing use of funds for capital investment warrants monitoring.

Earnings Quality

The increase in earnings for the current period was not driven by an improvement in recurring business earnings, but rather depended on non-operating and extraordinary gains, warranting attention to earnings quality. Of non-operating income of ¥33.0B, foreign exchange gains accounted for ¥16.5B, and the reversal from foreign exchange losses of ¥26.6B in the same period last year made a significant contribution to the +47.0% increase in ordinary income to ¥89.7B. The primary component of extraordinary income of ¥47.3B was gains on the sale of investment securities of ¥36.3B, a temporary item accounting for a substantial portion of net income attributable to owners of the parent of ¥84.0B. Comprehensive income was ¥156.5B, exceeding net income of ¥84.0B, primarily due to a ¥72.1B increase in foreign currency translation adjustments. The ¥59.4B gap between operating income of ¥64.8B and pretax income of ¥124.2B was largely attributable to non-recurring factors such as foreign exchange gains and gains on sales. Accordingly, operating income trends should be prioritized when evaluating the Company’s core earning power.

Earnings Forecasts and Guidance

The full-year plan is revenue of ¥3,200.0B (+2.8% YoY), operating income of ¥330.0B (-3.3% YoY), and ordinary income of ¥330.0B (-12.6% YoY), with no revisions from the previous forecast. Q1 progress rates were 23.5% for revenue, 19.6% for operating income, and 27.2% for ordinary income, with operating income progress below the standard 25%. The Company itself expects declines in operating income and ordinary income for the full year, suggesting that it assumes the temporary boosts from Q1 foreign exchange gains and gains on the sale of investment securities will normalize going forward. Recovery in core operating margins from Q2 onward will be key to achieving the plan.

Shareholder Returns

The full-year dividend forecast remains unchanged at ¥160 per share. The payout ratio against the full-year EPS forecast of ¥307.69 is approximately 52.0%, below the generally regarded sustainability benchmark of 60%. However, the full-year net income plan may include the impact of temporary gains on sales and other items. Accordingly, when assessing the source of dividends, it is advisable to also consider trends in recurring earnings. Retained earnings were substantial at ¥4,007.9B, indicating high financial capacity to maintain dividend payments. The amount of share repurchases conducted during the current period is not included in the disclosed data; therefore, the Total Return Ratio has not been calculated.

Risk Factors

1. Deterioration in core profitability due to negative operating leverage: SG&A expenses increased +9.9% YoY, substantially exceeding the +0.3% increase in revenue, and the operating margin declined to 8.6% from 10.6% in the same period last year. In an asset-intensive business with limited revenue growth, increased fixed-cost burdens can amplify pressure on profit margins.

2. Foreign exchange sensitivity: Foreign exchange gains of ¥16.5B were equivalent to 25.5% of operating income of ¥64.8B, and the reversal from foreign exchange losses of ¥26.6B in the same period last year boosted ordinary income. If exchange rates reverse, profits could be pressured by a similar magnitude.

3. Quality of net income: Gains on the sale of investment securities of ¥36.3B accounted for a substantial portion of net income attributable to owners of the parent of ¥84.0B. Caution is therefore warranted in viewing the +64.3% YoY increase in net income as a sustainable improvement in earning power.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin exceeded the industry median. However, it should be noted that the advantage in net profit margin was supported by non-recurring items such as foreign exchange gains and gains on the sale of investment securities.

Growth and Capital Efficiency

The revenue growth rate was substantially below the industry median, placing the Company at a relative disadvantage within the industry in terms of top-line growth.

※Source: Company analysis

Key Takeaways from the Earnings Results

1. The core business recorded higher revenue but lower operating income, and the decline in the operating margin to 8.6% (down 1.9pt YoY) was the central profitability issue in these results. The fact that SG&A expenses grew substantially faster than revenue was observed as a structural source of pressure.

2. The substantial increases in ordinary income and net income were highly dependent on non-recurring factors, namely foreign exchange gains of ¥16.5B and gains on the sale of investment securities of ¥36.3B, contrasting with core operating income progress of 19.6% against the full-year plan. The extent to which core operating margins recover in the coming quarters will be a key focus.

3. With an equity ratio of 71.9% and cash and deposits of ¥1,058.3B, the Company’s financial foundation is strong, providing high resilience to changes in the business environment. At the same time, the level of returns on total assets indicates room for improvement in asset efficiency relative to the industry.

Theoretical Share Price (Reference Value)

Sensitivity: ¥5,800–¥6,133 at ±1% for the cost of equity, and ¥5,937–¥5,979 at ±0.1 for ω.

Notes:

• 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 time-period mismatch with 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.)

---

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 discretion and responsibility, after consulting with a professional as necessary.

---End of Report---