NICHIAS CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Driven by the rapid expansion of the Advanced Products segment and an improved product mix, the pace of revenue and profit growth accelerated from the previous year. Revenue was ¥719.5B (+16.0% year on year), Operating Income was ¥111.4B (+20.7%), Ordinary Income was ¥118.5B (+28.3%), and Net Income attributable to owners of the parent was ¥82.3B (+25.3%), with all metrics posting double-digit growth. Advanced Products increased Revenue by +42.3% and Operating Income by +78.3%, raising its Operating Margin to 23.0%; this was the primary factor behind the company-wide structure in which the rate of profit growth exceeded the rate of revenue growth.

Factors Affecting Business Performance

【Revenue】Revenue of ¥719.5B (+16.0% year on year) increased in four of the five segments, resulting in top-line expansion across a broad range of businesses. Plant Construction and Sales for Energy and Industrial Plants (EnergyAndIndustrialPlants), the largest segment by composition, generated ¥222.2B (30.9% of total, YoY+14.5%), while Industrial Products (IndustrialProducts) generated ¥189.9B (26.4% of total, YoY+14.4%), with the two core divisions achieving stable growth. Meanwhile, Advanced Products (AdvancedProducts) showed exceptional growth, generating ¥138.9B (19.3% of total, YoY+42.3%), while Automotive Parts (+3.3%) and Building Materials (+4.2%) remained low-growth businesses.

【Profit and Loss】Operating Income was ¥111.4B (YoY+20.7%), and the Operating Margin improved to 15.5% from 14.9% in the previous year, an improvement of +0.6pt. Gross Margin also improved to 28.7% (27.8% in the previous year, +0.9pt), as the increase in revenue, together with the higher mix of highly profitable Advanced Products, lifted profitability. Ordinary Income was ¥118.5B (YoY+28.3%), exceeding the growth rate of Operating Income. The recognition of a ¥3.1B foreign exchange gain provided an additional factor, although its scale was limited at slightly more than 1% of revenue. Extraordinary income of ¥0.6B and extraordinary losses of ¥0.4B had only a minor impact on Net Income, and the decline from Ordinary Income to Net Income was primarily attributable to the ¥36.1B tax burden. The company achieved both revenue and profit growth, with profitability supported by both quantitative expansion of its core businesses and an improved mix of higher value-added products.

Segment Analysis

By segment, Advanced Products (AdvancedProducts) led the improvement in company-wide profitability, with Revenue of ¥138.9B (YoY+42.3%), Operating Income of ¥31.9B (YoY+78.3%), and a Profit Margin of 23.0% (the highest growth rate in terms of composition). Plant Construction and Sales for Energy and Industrial Plants (EnergyAndIndustrialPlants) generated Revenue of ¥222.2B (YoY+14.5%) and Operating Income of ¥35.3B (YoY+14.5%), with a Profit Margin of 15.9%, making the largest contribution in terms of segment profit and maintaining revenue and profit growth at the same rate. Industrial Products (IndustrialProducts) generated Revenue of ¥189.9B (YoY+14.4%), while Operating Income was ¥30.0B (YoY+6.9%), meaning that profit growth lagged revenue growth; its Profit Margin was broadly flat at 15.8%. Automotive Parts (AutomotiveParts) generated Revenue of ¥132.6B (YoY+3.3%), while Operating Income declined to ¥9.9B (YoY-10.4%), with its Profit Margin falling to 7.4% from the previous year. Building Materials and Contracts (BuildingMaterialsAndContracts) also posted a decline in profit, with Revenue of ¥69.3B (YoY+4.2%) and Operating Income of ¥4.3B (YoY-4.2%); its Profit Margin of 6.2% was the lowest among all segments. While the shift in product mix toward highly profitable areas is supporting the company-wide Profit Margin, the Automotive Parts and Building Materials divisions are showing a softening trend in profitability, indicating increasing polarization in profitability within the portfolio.

Key Financial Indicators

【Profitability】Against Revenue of ¥719.5B (+16.0% year on year), the Operating Margin improved to 15.5% (14.9% in the previous year, +0.6pt), Gross Margin improved to 28.7% (27.8% in the previous year, +0.9pt), and Net Profit Margin attributable to owners of the parent improved to 11.4% (10.6% in the previous year, +0.9pt). All metrics improved, with the improved mix toward higher value-added areas contributing to a gradual rise in profit margins in addition to revenue growth.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥134.3B, equivalent to 1.63 times Net Income attributable to owners of the parent of ¥82.3B, indicating strong cash-generation capacity relative to earnings.【Investment Efficiency】ROE was 3.4% (quarterly result), while EPS was ¥43.56 (¥34.09 in the previous year, +27.8%). EPS growth exceeded Net Income growth of +25.3%, suggesting an accretive effect on per-share metrics from share repurchases.【Financial Soundness】The Equity Ratio was 76.7% (77.7% in the previous year, ▲1.0pt). Although it declined slightly due to the expansion of total assets, it remained at a high level. The Current Ratio was 357.0%, and Cash and Deposits of ¥617.1B substantially exceeded Short-Term Borrowings of ¥100.4B, indicating ample liquidity.

Cash Flow Analysis

Operating Cash Flow was ¥134.3B, a substantial increase of +254.0% year on year. Investing Cash Flow was -¥26.5B, primarily due to capital expenditures of ¥26.1B, while Financing Cash Flow was -¥76.9B, mainly due to dividend payments of ¥53.5B and share repurchases of ¥23.0B. As a result, Free Cash Flow was ¥107.8B (Operating Cash Flow ¥134.3B + Investing Cash Flow -¥26.5B), a level comfortably exceeding the approximately ¥76.4B combined amount of dividends paid and share repurchases during the current period, thereby providing financial support for shareholder returns. In the breakdown of Operating Cash Flow, the subtotal before changes in working capital was high at ¥157.1B. While the increase in trade receivables was a negative factor of -¥25.1B, increases in trade payables of +¥3.1B and accrued expenses, among others, partially offset this impact. After payment of income taxes of -¥23.3B, final Operating Cash Flow reached ¥134.3B. In terms of investment, capital expenditures of ¥26.1B exceeded depreciation and amortization expense of ¥18.9B, indicating that investment is progressing at a pace above the replacement level.

Earnings Quality

The current period’s earnings were strongly derived from core operations. Of the ¥8.8B in non-operating income (1.2% of revenue), the main components were a foreign exchange gain of ¥3.1B and dividend income of ¥2.0B; their contribution to Ordinary Income was limited in scale. Extraordinary income of ¥0.6B and extraordinary losses of ¥0.4B were both minor relative to Net Income, and temporary factors did not materially determine overall performance. Operating Cash Flow of ¥134.3B exceeded Net Income attributable to owners of the parent of ¥82.3B, indicating low dependence on accruals (accounting estimation items) and high earnings quality from the perspective of cash conversion. Comprehensive Income was ¥113.4B, representing a divergence of approximately ¥30.9B from Net Income attributable to owners of the parent of ¥82.3B. This was primarily due to a valuation difference on investment securities of +¥27.2B and foreign currency translation adjustments of +¥5.1B; these are factors that should be distinguished from the earning power of the operating business itself.

Earnings Forecast and Guidance

Progress toward the full-year company forecast in Q1 was 25.0% for Revenue (¥719.5B/¥2,880.0B), 22.7% for Operating Income (¥111.4B/¥490.0B), 23.5% for Ordinary Income (¥118.5B/¥505.0B), and 23.5% for Net Income attributable to owners of the parent (¥82.3B/¥350.0B). Compared with the simple one-quarter benchmark of 25%, Operating Income, Ordinary Income, and Net Income were each approximately 2–3pt below the benchmark, while Revenue was progressing largely in line with the standard level. The full-year forecast calls for Revenue growth of +14.3%, Operating Income growth of +32.4%, and Ordinary Income growth of +28.2%. The current quarter’s growth rates (Operating Income +20.7%, Ordinary Income +28.3%) show growth close to the plan at the Ordinary Income level. Although the earnings forecast was revised during the current quarter, there was no revision to the dividend forecast.

Shareholder Returns

The company disclosed actual dividends for the fiscal year ended March 2026 based on figures before the stock split, while forecasting annual dividends of ¥65 for the fiscal year ending March 2027 based on figures after the three-for-one stock split effective April 1, 2026. Based on forecast EPS of ¥186.13, the Payout Ratio is approximately 34.9%, a sustainable level under a single definition. At the same time, treasury stock increased from ¥2.97B at the end of the previous fiscal year to ¥5.52B, and approximately ¥2.30B was allocated to share repurchases in the Financing Cash Flow for the current quarter, demonstrating shareholder returns through both dividends and share repurchases. The total shareholder returns of approximately ¥76.4B, consisting of dividend payments of ¥53.5B and share repurchases of ¥23.0B during the current quarter, are comfortably covered by Free Cash Flow of ¥107.8B for the current period.

Risk Factors

1. Deterioration in profitability in the Automotive Parts and Building Materials segments: Operating Income in Automotive Parts declined to ¥9.9B (YoY-10.4%), with a Profit Margin of 7.4%, down from the previous year. Building Materials also saw a slight deterioration, with Operating Income of ¥4.3B (YoY-4.2%) and a Profit Margin of 6.2%. Although revenue increased in both segments, profit declined, suggesting reduced cost absorption capacity.

2. Accumulation of working capital: Trade receivables (notes and accounts receivable) were high at ¥352.2B, while inventories were ¥232.1B. In Operating Cash Flow for the current quarter, the increase in trade receivables was a negative factor of -¥25.1B. If the tying up of funds associated with revenue expansion continues, it may affect the pace of cash generation.

3. Dependence on temporary factors in non-operating income: Ordinary Income growth (+28.3%) exceeded Operating Income growth (+20.7%), and part of this difference was attributable to the foreign exchange gain of ¥3.1B. If foreign exchange market conditions reverse, the growth rate at the Ordinary Income level may converge toward that at the Operating Income level.

Industry Benchmark (For Reference; Compiled by the Company)

The company’s Operating Margin and Net Profit Margin are substantially above the industry median, placing its profitability among the top tier of the industry.

The Revenue Growth Rate also substantially exceeds the industry median, placing the company among the industry leaders in revenue growth.

※Source: Compiled by the company

Key Points in the Earnings Results

1. Structural improvement in the profitability of the Advanced Products segment: The segment’s Profit Margin was 23.0%, substantially above the company-wide average of 15.5%, and the increase in its revenue composition contributed to improvements in the company-wide Gross Margin (+0.9pt) and Operating Margin (+0.6pt). Whether this structure becomes established, and whether the segment can maintain its margin from Q2 onward, will be key points to monitor in assessing the quality of earnings.

2. Balancing cash generation and shareholder returns: Operating Cash Flow was secured at ¥134.3B, equivalent to 1.63 times Net Income attributable to owners of the parent, and Free Cash Flow of ¥107.8B exceeded total shareholder returns of approximately ¥76.4B through dividends and share repurchases. Treasury stock increased aggressively by +85.7% from the end of the previous fiscal year, suggesting that the company is strengthening its return stance relative to its cash-generation capacity.

3. Softening profitability in non-core segments: Both the Automotive Parts and Building Materials segments posted revenue growth but profit declines. The progressing polarization of profitability within the portfolio, behind the improvement in the company-wide Profit Margin, will be an important factor for monitoring future structural changes.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from 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: ¥1,520–¥1,611 at ±1% for the Cost of Equity, and ¥1,558–¥1,575 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from 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 release 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, and you should consult a professional as necessary.

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