NICHIAS (5393) FY2026 Q3 Earnings Report

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Executive Summary

Profit declined by more than revenue, making the deterioration in profitability the most important point in the current period results. Revenue was ¥1850.2B (down -4.1% YoY), Operating Income was ¥253.1B (down -18.3%), Ordinary Income was ¥269.2B (down -19.1%), and Net Income was ¥213.1B (down -7.9%). The decline in Operating Income exceeding the revenue decline was primarily attributable to a significant decrease in profit in the High-Performance Products segment and an increase in SG&A expenses, while the relatively limited decline in Net Income was supported by a lower effective tax rate.

Factors Affecting Earnings

【Revenue】Revenue was ¥1850.2B, representing a -4.1% decline YoY. By segment, High-Performance Products declined significantly to ¥280.1B (down -20.0% YoY), while Plant-Related Construction and Sales at ¥580.6B (down -0.2%), Industrial Products at ¥477.6B (nearly flat), Automotive Parts at ¥384.8B (down -0.6%), and Building Materials at ¥211.6B (down -2.8%) each recorded only modest declines. The main driver of the Company-wide revenue decline was weaker demand and an unfavorable product mix in High-Performance Products.

【Profit and Loss】Operating Income was ¥253.1B (down -18.3% YoY), and the Operating Margin declined to 13.7% from 16.0% in the same period of the previous year. The Gross Margin also declined to 27.3% from 27.9%, while a 10.9% increase in SG&A expenses further pressured the profit margin. By segment, High-Performance Products recorded profit of ¥44.5B (down -47.6% YoY), representing the largest factor behind the Company-wide decline in profit, while Plant-Related Construction and Sales also recorded a decline to ¥82.4B (down -12.0%). Conversely, Automotive Parts and Building Materials both secured profit growth. Ordinary Income was ¥269.2B (down -19.1%), and Net Income was ¥213.1B (down -7.9%); the relatively limited decline in Net Income was largely attributable to the lower effective tax rate. Extraordinary Losses totaled ¥8.8B, including ¥6.0B in litigation settlement expenses, and constituted a temporary factor depressing Profit Before Tax. Overall, the Company reported lower revenue and lower profit.

Segment Analysis

Plant-Related Construction and Sales generated segment profit of ¥82.4B (margin of 14.2%, versus 16.1% in the previous year), accounting for 32.6% of consolidated Operating Income and representing the core business; however, its profit margin is trending downward. Industrial Products maintained a nearly flat profit level at ¥72.9B (margin of 15.3%). High-Performance Products generated ¥44.5B (margin of 15.9%, versus 24.3% in the previous year), with its profit margin declining by approximately 840bp and representing the central factor behind the Company-wide profit decline. Automotive Parts generated ¥36.1B (margin of 9.4%), while Building Materials generated ¥17.2B (margin of 8.1%); both achieved profit growth and showed improved profitability relative to the other segments.

Key Financial Indicators

【Profitability】The Operating Margin of 13.7% declined from 16.0% in the same period of the previous year, while the Net Profit Margin also declined to 11.5% from 12.0%; the Gross Margin contracted to 27.3% from 27.9%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥131.9B, and its ratio to Net Income of ¥213.1B was limited to 0.62x, representing a significant decrease from ¥252.2B in the same period of the previous year. Inventories increased by ¥19.5B, while trade payables decreased by ¥16.5B, putting pressure on working capital. 【Investment Efficiency】ROE of 12.6% was supported by a high total asset turnover ratio and high Net Profit Margin, with limited reliance on financial leverage. 【Financial Soundness】The Equity Ratio was 77.5%, and cash and deposits of ¥516.7B substantially exceeded interest-bearing debt. The current ratio was also high, indicating an extremely conservative financial foundation.

Cash Flow Analysis

Operating Cash Flow was ¥131.9B, a significant -47.7% decline YoY, and the cash conversion ratio to Net Income of ¥213.1B was limited to 0.62x. From a working capital perspective, the positive impact from the decrease in trade receivables was ¥17.8B, down from ¥52.7B in the same period of the previous year. In addition, the ¥19.5B increase in inventories and ¥16.5B decrease in trade payables pressured OCF. Investing Cash Flow was -¥66.0B, primarily reflecting capital expenditures of ¥56.8B, resulting in Free Cash Flow of ¥65.9B. Financing Cash Flow represented an outflow of -¥147.3B, mainly comprising dividend payments of ¥84.1B and share repurchases of ¥58.4B. Cash and deposits were ample at ¥516.7B, and even with the decline in cash-generation capacity, there are no significant constraints on the continuation of capital allocation.

Quality of Earnings

Relative to recurring operating earnings, non-operating income of ¥20.5B (including dividend income of ¥5.6B and foreign exchange gains of ¥2.1B) and non-operating expenses of ¥4.4B had a limited impact on Ordinary Income of ¥269.2B, and the divergence from Operating Income was not significant. Extraordinary gains and losses comprised an extraordinary gain on the sale of fixed assets of ¥0.4B and extraordinary losses of ¥8.8B, including ¥6.0B in litigation settlement expenses. These constituted a temporary factor that reduced Profit Before Tax by ¥8.4B. OCF remained below Net Income at 0.62x, and it should be noted that deterioration in working capital, including the increase in inventories and decrease in trade payables, weakened earnings quality on an accrual basis. Comprehensive Income was ¥238.7B, exceeding Net Income of ¥213.1B, primarily due to a ¥24.3B increase in valuation differences on securities; factors separate from the underlying earnings power of the business therefore boosted Comprehensive Income.

Earnings Forecast and Guidance

The full-year Company forecast is Revenue of ¥2540.0B (down -1.0% YoY), Operating Income of ¥365.0B (down -8.1%), and Ordinary Income of ¥365.0B (down -12.5%). The Q3 cumulative progress rates were 72.8% for Revenue, 69.3% for Operating Income, and 73.8% for Ordinary Income, all below the standard progress pace of 75%. Achieving the full-year Operating Income forecast requires Operating Income of ¥111.9B in Q4, necessitating a profit level above the cumulative quarterly average. A recovery in High-Performance Products profitability and control of SG&A expense growth will be key to achieving the full-year forecast.

Shareholder Returns

The Q2 dividend was ¥76.00 per share, while the Company’s full-year dividend forecast is ¥164.00 (including a planned year-end dividend of ¥88.00). The Payout Ratio against cumulative Net Income is 24.3%, while the forecast Payout Ratio against full-year forecast EPS of ¥403.93 is approximately 40.6%; both are at sustainable levels. On a cumulative basis, in addition to dividend payments of ¥84.1B, the Company conducted share repurchases of ¥58.4B. The resulting Total Return amounted to ¥142.6B, and the Total Return Ratio against cumulative Net Income was approximately 67.2%. Given cash and deposits of ¥516.7B and low interest-bearing debt, the Company has substantial financial capacity for shareholder returns. However, as OCF remains below Net Income, the sustainability of future total shareholder returns will depend on the extent of the recovery in OCF.

Risk Factors

1. Deterioration in High-Performance Products segment profitability: Revenue declined -20.0% YoY, while segment profit declined -47.6%; the profit margin fell from 24.3% to 15.9%. This was the largest factor behind the Company-wide profit decline, making the recovery of demand and product mix a key focus.

2. Weakness in cash conversion related to working capital and inventories: Inventories increased by ¥19.5B, while trade payables decreased by ¥16.5B, leaving OCF at 0.62x Net Income. If demand recovery is delayed, there is a risk of cash outflows from inventory reduction or inventory write-downs.

3. Declining profitability in the core segment: Plant-Related Construction and Sales is a core business accounting for 32.6% of consolidated Operating Income, but its profit declined -12.0% YoY. Profitability of construction projects and fluctuations in material and labor costs could affect Company-wide earnings.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s Operating Margin and Net Profit Margin both exceed the industry median, indicating that profitability is relatively high within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is significantly below the industry median, indicating that the Company is lagging its industry peers in terms of top-line growth.

※Source: Company analysis

Key Points from the Financial Results

1. The Operating Margin of 13.7% and Net Profit Margin of 11.5% remain above the industry median; however, profit margins have declined by approximately 237bp YoY, indicating an observable trend of deterioration in profitability.

2. OCF remained at 0.62x Net Income, while the increase in inventories and decrease in trade payables pressured working capital. The divergence between profit and cash generation requires continuous monitoring when assessing the quality of the financial results.

3. The conservative financial foundation, reflected in an Equity Ratio of 77.5% and cash and deposits of ¥516.7B, supports financial resilience even during the decline in High-Performance Products profitability. The Company’s progress toward achieving its full-year forecast indicates that profit improvement in Q4 is required.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,809–¥4,032 at Cost of Equity ±1%, and ¥3,910–¥3,931 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a time lag relative to the full-year forecast).
• As 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 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 the future share price.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 professionals as necessary.

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