Nippon Electric Glass Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

Although the Company secured revenue growth, this was a year-on-year increase in revenue but decrease in earnings, as declining core earnings power and temporary extraordinary losses weighed on net income. Revenue was 1564.1B yen (+1.7% YoY), while Operating Income declined to 113.7B yen (-31.8% YoY). However, Ordinary Income increased to 162.9B yen (+14.7% YoY), supported by an expansion in non-operating income, primarily foreign exchange gains. Nevertheless, the recognition of 14.17B yen in extraordinary losses, mainly consisting of 12.97B yen in business structural reform expenses, together with the high effective tax rate of 41.2%, resulted in Net Income attributable to owners of the parent of only 6.41B yen (-36.4% YoY). The gross margin declined to 22.8% from 25.3% in the previous year, indicating that deterioration in the profitability of the core business was the underlying cause of the earnings decline.

Factors Affecting Results

【Revenue】Revenue was 1564.1B yen, representing a 1.7% year-on-year increase. Although segment-level disclosure could not be confirmed, the increase remained modest compared with the previous year, suggesting that existing businesses were largely flat rather than experiencing substantial volume expansion.

【Profit and Loss】Operating Income was 113.7B yen, down 31.8% year on year. The Operating Income margin declined by 3.5pt to 7.3% from 10.8% in the previous year, while the gross margin also declined by 2.5pt to 22.8% from 25.3%. SG&A expenses increased to 24.36B yen (+9.2% YoY), and the SG&A ratio rose to 15.6% from 14.5%, indicating that both costs of sales and SG&A contributed to the decline in Operating Income. Meanwhile, non-operating income expanded to 6.35B yen, primarily reflecting foreign exchange gains of 3.07B yen. After deducting non-operating expenses of 1.43B yen, non-operating income and expenses improved significantly from the previous year, enabling Ordinary Income to increase to 16.29B yen (+14.7%). However, extraordinary losses of 14.17B yen, mainly consisting of 12.97B yen in business structural reform expenses, exceeded extraordinary income of 9.03B yen, including 4.93B yen in gains on the sale of investment securities and other items. The resulting net extraordinary loss of -5.14B yen compressed Profit Before Tax. Combined with the high effective tax rate of 41.2%, Net Income attributable to owners of the parent declined to 6.41B yen (-36.4%). The overall earnings structure was characterized by a decline at the Operating Income level, an increase at the Ordinary Income level, and another decline at the final net income level; overall, this was a results period with higher revenue but lower earnings.

Key Financial Indicators

【Profitability】The Operating Income margin declined by 3.5pt to 7.3% from 10.8% in the previous year, while the net profit margin, based on income attributable to owners of the parent, also declined by 2.5pt to 4.1% from 6.6%. Both indicators are trending downward. 【Cash Flow Quality】Operating Cash Flow (OCF) was 24.13B yen, approximately 3.8 times Net Income attributable to owners of the parent of 6.41B yen, indicating strong cash backing for reported earnings. 【Investment Efficiency】ROE remained at only 1.3%, primarily reflecting the decline in the net profit margin. 【Financial Soundness】The Equity Ratio increased to 74.1% from 70.2% in the previous year. Cash and deposits totaled 100.66B yen, while short-term borrowings declined by 33.9% year on year to 15.69B yen, indicating that the financial base remained conservative.

Cash Flow Analysis

Operating Cash Flow expanded by 29.3% year on year to 24.13B yen. The decrease in inventories (+4.98B yen) and the decrease in trade receivables (+4.74B yen) contributed positively, while the decrease in trade payables (-8.36B yen) had a negative impact. Investing Cash Flow was -9.60B yen, primarily due to capital expenditures and other items, resulting in positive Free Cash Flow of 14.52B yen. Financing Cash Flow was -36.08B yen, with dividend payments of 6.02B yen, share repurchases of 10.00B yen, and debt repayments and other items serving as the primary sources of cash outflow. As a result, cash and deposits stood at 100.66B yen at the end of the period, down from the previous year, but remained well above short-term interest-bearing liabilities, preserving a substantial level of on-hand liquidity.

Earnings Quality

Operating Income, which reflects the profitability of the core business, declined to 11.37B yen (-31.8% YoY), while Ordinary Income increased to 16.29B yen (+14.7%) due to the expansion of non-operating income to 6.35B yen, including foreign exchange gains of 3.07B yen and dividend income of 0.95B yen. Non-operating income was limited to 4.1% of revenue, within a recurring range; however, it is important to note that this increase in earnings was attributable to non-operating factors rather than an improvement in the profitability of the operating business. In extraordinary income and expenses, extraordinary losses of 14.17B yen, mainly consisting of 12.97B yen in business structural reform expenses, exceeded extraordinary income of 9.03B yen, including 4.93B yen in gains on the sale of investment securities and other items. The resulting net extraordinary loss of -5.14B yen placed pressure on Profit Before Tax. In addition, the effective tax rate was high at 41.2%, substantially widening the gap between Ordinary Income and Net Income attributable to owners of the parent (16.29B yen → 6.41B yen). This gap was caused by the temporary factor of business structural reform expenses and the high tax rate, indicating that the recurring earnings power of the core business is not as strong as the increase in Ordinary Income would suggest. On the other hand, OCF substantially exceeded Net Income, indicating that the reported earnings themselves had solid cash backing.

Earnings Forecasts and Guidance

The first-half progress rates against the full-year earnings forecasts—Revenue of 300.0B yen, Operating Income of 20.0B yen, and Ordinary Income of 25.0B yen—were 52.1%, 56.9%, and 65.2%, respectively, representing a pace above the simple time-apportionment benchmark of 50%. By contrast, the progress rate for Net Income attributable to owners of the parent was only 42.8% (6.41B yen/15.00B yen), noticeably behind the other indicators. This delay appears to have resulted from the extraordinary losses, including business structural reform expenses, recorded in the first half, as well as the high effective tax rate of 41.2%. The full-year plan anticipates lower revenue (-3.7%), lower Operating Income (-41.4%), and lower Ordinary Income (-33.8%) compared with the previous fiscal year, and the earnings forecast was revised during the current quarter.

Shareholder Returns

The interim dividend was ¥80 per share, and the full-year dividend forecast is ¥160 (previous-year actual: ¥70). Based on the full-year forecast, the Payout Ratio is calculated at 79.2%, based on expected total dividends of approximately 11.89B yen (¥160 × approximately 7429 ten thousand average shares outstanding during the period) divided by forecast Net Income of 15.00B yen. In the first half, the Company paid dividends of 6.02B yen and conducted share repurchases of 10.00B yen, resulting in total shareholder returns of approximately 16.02B yen. This represented 66.4% of first-half OCF of 24.13B yen and 110.3% of Free Cash Flow of 14.52B yen. Given cash and deposits of 100.66B yen, there is unlikely to be significant concern regarding the funding of shareholder returns in the near term. However, if shareholder returns continue to exceed Free Cash Flow, monitoring alongside the recovery of core earnings power and working capital efficiency may be warranted.

Risk Factors

1. Profitability decline risk: The gross margin deteriorated to 22.8% from 25.3% in the previous year, and the Operating Income margin declined to 7.3% from 10.8%, suggesting that cost increases and changes in the product mix may be placing pressure on the profitability of the core business.

2. Risk of fluctuations in extraordinary items and tax burden: Profit Before Tax was compressed by the recognition of 14.17B yen in extraordinary losses, mainly consisting of 12.97B yen in business structural reform expenses. The effective tax rate was also high at 41.2%, increasing the volatility of Net Income.

3. Risk of dependence of non-operating income on foreign exchange: Foreign exchange gains of 3.07B yen, which boosted Ordinary Income, were equivalent to approximately 27% of Operating Income of 11.37B yen. Future non-operating income and expenses may therefore fluctuate with movements in the foreign exchange market.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Return

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Points in the Financial Results

1. The Operating Income margin was 7.3%, down 3.5pt from 10.8% in the previous year and below the industry median of 11.0%. The ongoing decline in core earnings power will be a key focus going forward.

2. Ordinary Income increased due to the expansion of non-operating income, including foreign exchange gains. However, Net Income attributable to owners of the parent declined by 36.4% year on year due to extraordinary losses, mainly consisting of business structural reform expenses, and the high effective tax rate of 41.2%. A key characteristic in assessing earnings quality is the significant impact of temporary factors.

3. OCF was 24.13B yen (+29.3% YoY), and positive Free Cash Flow of 14.52B yen was secured, indicating sound cash-generation capability. However, total shareholder returns, including dividends and share repurchases, exceeded Free Cash Flow, meaning that the sustainability of shareholder returns will depend on the extent of the recovery in core earnings power.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥5,579–¥5,892 at a cost of equity of ±1%, and ¥5,699–¥5,753 at ω of ±0.1.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end 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 / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee the future share 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 available earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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