Nippon Hume (5262) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for Q3 of the fiscal year ending March 2026 represent a decline in both revenue and earnings, with operating income falling as the increase in revenue and earnings from the Sewerage-Related Business was insufficient to offset the decline in the Foundation Business. Revenue was ¥27.59B (YoY -3.7%), operating income was ¥1.87B (down 7.6%), ordinary income was ¥3.01B (down 3.2%), and net income attributable to owners of the parent was ¥2.74B (down 11.0%). Although the gross margin improved to 21.0% from the previous year, an increase in the SG&A ratio due to higher company-wide expenses pushed the operating margin down to 6.8% (7.1% in the previous year). Ordinary income and net income were supported by non-operating and extraordinary gains, including equity-method investment gains and gains on the sale of investment securities.

Factors Affecting Performance

【Revenue】Revenue was ¥27.59B, down -3.7% year on year. While the Foundation Business, the core business, posted a significant revenue decline to ¥16.34B (down 11.1%), the Sewerage-Related Business increased revenue to ¥10.06B (up 9.9%), and the Solar Power Generation and Real Estate Business increased revenue to ¥1.15B (up 5.1%). The decline in the Foundation Business was the primary cause of the consolidated revenue decrease.

【Profit and Loss】Operating income was ¥1.87B (down 7.6%). The gross margin improved by 59bp to 21.0%, but the SG&A ratio increased by 88bp to 14.2%, resulting in a 29bp decline in the operating margin to 6.8%. Company-wide expenses increased 10.4% year on year to ¥1.75B, offsetting the 1.9% increase in total segment profit to ¥3.61B. Ordinary income was supported by ¥0.76B in equity-method investment gains, ¥0.30B in dividend income, and other non-operating income totaling ¥1.18B, but remained at ¥3.01B (down 3.2%). Net income was ¥2.74B (down 11.0%), despite the contribution of ¥0.75B in extraordinary gains, including ¥0.65B in gains on the sale of investment securities. Overall, the Company recorded declines in both revenue and earnings.

Segment Analysis

The Sewerage-Related Business has the highest profitability, with a segment profit margin of 18.3%, and is the central driver of consolidated earnings as both revenue and profit increased. The Solar Power Generation and Real Estate Business demonstrated extremely high profitability, with a profit margin of 57.5%, but its revenue scale remains approximately 4% of consolidated revenue. The Foundation Business is the largest segment, with revenue of ¥16.34B (59% composition ratio), but its profit margin remained at 6.4%, while both revenue and profit declined by double digits. The structure in which weak performance in the Foundation Business weighs on company-wide results is clear.

Key Financial Indicators

【Profitability】The operating margin was 6.8%, down from 7.1% in the same period of the previous year, while the net profit margin was 9.9%. Annualized ROE was 8.0%, and annualized ROIC was 4.6%.【Cash Flow Quality】Cash and deposits were ¥6.63B, a significant decrease from ¥12.75B in the same period of the previous year, while accounts receivable increased to ¥10.47B, indicating that the increase in operating receivables is affecting capital efficiency.【Investment Efficiency】Investment securities totaled ¥22.59B, accounting for 38.7% of total assets. The Company’s structure is such that ¥0.76B in equity-method investment gains and ¥0.30B in dividend income support ordinary income.【Financial Soundness】The equity ratio rose to 78.8% from 74.4% in the previous year. Interest-bearing debt of ¥0.83B consists entirely of short-term borrowings, but cash and deposits are approximately eight times that amount, indicating a conservative financial foundation.

Cash Flow Analysis

Although the Company does not disclose a statement of cash flows, changes in the balance sheet provide insight into its cash trends. Cash and deposits decreased by ¥6.12B to ¥6.63B from ¥12.75B in the same period of the previous year, while accounts receivable increased by ¥2.49B to ¥10.47B. Delays in the collection of operating receivables may therefore be one factor behind the decline in cash on hand. Investment securities increased to ¥22.59B from ¥19.86B in the same period of the previous year, suggesting that a portion of funds was allocated to securities investments. Interest-bearing debt was ¥0.83B, unchanged from the same period of the previous year, and no significant financing or repayment through financing activities was observed. Total assets increased to ¥58.31B, while net assets increased to ¥45.96B, supported by the accumulation of retained earnings and an increase in the valuation difference on other securities.

Earnings Quality

Ordinary income and net income include a meaningful contribution from temporary and non-recurring factors, and earnings quality should therefore be assessed more cautiously than operating income alone. Of the ¥1.18B in non-operating income, ¥0.76B in equity-method investment gains and ¥0.30B in dividend income are regarded as recurring income from investment securities. In contrast, the ¥0.75B in extraordinary gains consisted of ¥0.65B in gains on the sale of investment securities and ¥0.08B in gains on the sale of fixed assets, making them non-recurring factors. The net contribution of extraordinary gains and losses was ¥0.70B, equivalent to approximately 25.7% of net income attributable to owners of the parent of ¥2.74B. Accordingly, the repeatability of net income is lower than that of operating income and ordinary income. In addition, accounts receivable increased by 31.2% while revenue declined, suggesting a potential time lag between sales and cash conversion. From an accrual perspective as well, working capital trends warrant close monitoring.

Earnings Forecast and Guidance

The full-year company plan calls for revenue of ¥40.00B (up 7.9%), operating income of ¥2.30B (up 13.7%), and ordinary income of ¥3.40B (up 11.5%). There have been no revisions to either the earnings forecast or the dividend forecast. The cumulative Q3 progress rates were 69.0% for revenue, 81.2% for operating income, and 88.5% for ordinary income, with operating income and ordinary income exceeding the standard 75% progress benchmark. However, given that revenue progress was only 69.0%, the plan can be interpreted as incorporating conservative assumptions of approximately ¥12.41B in Q4 revenue and a decline in the operating margin to approximately 3.5%.

Shareholder Returns

The Q2 dividend was ¥22.00 per share, representing a payout ratio of 47.1% based on net income for the current period. The Company conducted a 1-for-2 stock split of its common shares effective January 1, 2026. The Q2 dividend is presented on a pre-split basis, while the forecast year-end dividend is presented on a post-split basis. On a pre-split basis, the forecast year-end dividend is ¥26, and the annual dividend is ¥48. Against the full-year net income forecast of ¥3.00B, cumulative Q3 net income was ¥2.74B, representing 91.4% progress. The degree of achievement of the earnings plan therefore supports the dividend policy. However, as net income includes temporary factors such as gains on the sale of investment securities, the sustainability of dividend funding should be assessed primarily based on recurring earnings power, including operating income and equity-method investment gains.

Risk Factors

1. Declines in revenue and earnings in the Foundation Business: Revenue declined by -11.1% year on year, while segment profit fell by -25.0%. The timing of public works orders and deterioration in profitability may pose downside risks to consolidated performance.

2. Increase in trade receivables and lengthening collection periods: Accounts receivable increased 31.2% year on year to ¥10.47B. This increase amid declining revenue may tie up funds in working capital.

3. Concentration of capital in investment securities: Investment securities of ¥22.59B account for 38.7% of total assets. Share price fluctuations may affect performance through changes in valuation differences, net assets, and extraordinary gains.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The operating margin is below the industry median, while the net profit margin exceeds the industry median due to contributions from non-operating and extraordinary gains and losses.

Growth and Capital Efficiency

The revenue growth rate is significantly below the industry median, with the decline in the Foundation Business being a factor behind the Company’s relative underperformance within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Sewerage-Related Business increased both revenue and profit while maintaining a high segment profit margin of 18.3%, making it the central driver of consolidated earnings.

2. Despite the improvement in the gross margin, the consolidated operating margin declined due to the decline in revenue and earnings in the core Foundation Business and the 10.4% increase in company-wide expenses. The trend in the cost structure will be a key focus going forward.

3. Ordinary income and net income were supported by non-operating and extraordinary factors, such as equity-method investment gains and gains on the sale of investment securities. When evaluating progress toward the full-year plan, it is necessary to distinguish core earnings power from temporary factors.

Theoretical Share Price (Reference Value)

Sensitivity: ¥892–¥944 at ±1% cost of equity, and ¥915–¥919 at ω±0.1.

Notes:

• As 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 from the full-year forecast).

(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.)

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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 professionals as necessary.

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