NORITZ (5943) FY2026 Q1 Earnings Report

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Executive Summary

This quarter was characterized by lower revenue and operating income from the core business, while net income increased substantially due to gains on the sale of investment securities, warranting attention to earnings quality. Revenue was ¥516.4B (-2.3% YoY), Operating Income was ¥16.8B (-16.4%), and Ordinary Income was ¥15.2B (-29.9%), all of which declined. Meanwhile, Net Income increased substantially to ¥44.8B (+191.4%), primarily due to ¥44.3B in gains on the sale of investment securities, and therefore does not indicate the earnings power of the core business. Declines in revenue and earnings from the overseas business were the primary factors behind the deterioration in consolidated results.

Factors Affecting Results

【Revenue】Revenue was ¥516.4B, representing a 2.3% YoY decline. Domestic Business revenue increased to ¥388.7B (+1.6%), but Overseas Business revenue declined substantially to ¥158.5B (-11.6%), weighing on consolidated results. By product, revenue from the hot-water and air-conditioning field, the main business, was ¥431.2B (-2.3%), while revenue from the kitchen field was ¥63.4B (-4.0%); both declined. As the hot-water and air-conditioning field accounts for 83.5% of revenue, consolidated results are structurally dependent on demand trends in this field.

【Profit and Loss】The gross margin declined to 31.2% from 32.7% in the same period of the previous year, a decrease of 1.5pt. Although the SG&A ratio was contained at 27.9% (an improvement from the low 27.9% range in the previous year), this was insufficient to absorb the deterioration in gross margin, and the operating margin contracted to 3.2% from 3.8%. In the Overseas Business, profit declined 41.8% against a 10.0% decline in revenue, indicating strong operating leverage and a deterioration in the profit margin from 2.6% to 1.6%. Ordinary Income declined a further 29.9% due to the impact of non-operating expenses, including interest expenses and foreign exchange losses. Net Income increased 191.4%, primarily due to ¥44.3B in gains on the sale of investment securities, recorded as extraordinary income. However, Profit Before Tax of ¥56.9B exceeded Ordinary Income of ¥15.2B by ¥41.7B, indicating a high degree of dependence on non-recurring factors. In conclusion, the results for this quarter represent lower revenue and lower earnings.

Segment Analysis

Domestic Business revenue was ¥388.7B (+1.6% YoY), segment profit was ¥14.2B (-9.3%), and the profit margin was 3.7% (4.3% in the previous year). Although revenue increased, the profit margin declined. Domestic Business profit includes a ¥1.5B positive impact from changes in the depreciation method and useful lives of molds; excluding this effect, the underlying decline in earnings was even greater.

Overseas Business revenue was ¥158.5B (-11.6%), segment profit was ¥2.5B (-41.8%), and the profit margin was 1.6% (2.6% in the previous year), making it the primary factor behind the decline in consolidated earnings. The decline in profit exceeding the rate of revenue decline indicates a heavy fixed-cost burden and deteriorating profitability.

Key Financial Indicators

【Profitability】The operating margin was 3.2%, down 0.55pt from 3.8% in the same period of the previous year. The deterioration in gross margin to 31.2% from 32.7% outweighed the improvement in the SG&A ratio to 27.9%. Annualized ROE was 12.1%; however, because Net Income includes ¥44.3B in gains on the sale of investment securities, it is important to note that ROE is elevated as an indicator of recurring earnings power.【Cash Flow Quality】Profit Before Tax of ¥56.9B was substantially higher than Ordinary Income of ¥15.2B, primarily due to ¥44.3B in extraordinary income from gains on the sale of investment securities. There is a significant gap between this figure and earnings power based on Operating Income.【Investment Efficiency】Against total assets of ¥2332.3B, net assets were ¥1480.5B, and the Equity Ratio was 63.5% (59.0% in the previous year), indicating a capital structure that prioritizes financial safety over capital efficiency.【Financial Soundness】Cash and deposits of ¥284.0B substantially exceeded interest-bearing debt (approximate), and together with an Equity Ratio of 63.5%, the financial base is conservative. Meanwhile, most interest-bearing debt consists of short-term borrowings, resulting in a funding structure dependent on liquidity.

Cash Flow Analysis

As this report does not include detailed data from the cash flow statement, funding trends are analyzed based on changes in the balance sheet. Cash and deposits increased by ¥28.4B to ¥284.0B from ¥255.7B in the same period of the previous year. Meanwhile, accounts receivable and notes receivable declined to ¥411.5B from ¥458.3B in the previous year, while inventories also edged down to ¥307.0B from ¥317.5B, suggesting that the contraction of operating assets may have contributed to the increase in cash. Accounts payable and notes payable declined by ¥81.8B to ¥303.5B from ¥385.3B in the previous year, suggesting a contraction in purchasing and production activities or changes in payment terms. Overall, the Company is maintaining its cash position while operating assets and liabilities are contracting, and there are no significant concerns regarding liquidity management.

Earnings Quality

The earnings structure for the current period is characterized by a significant divergence between recurring earnings power and Net Income. While Operating Income was ¥16.8B and Ordinary Income was ¥15.2B, Profit Before Tax reached ¥56.9B. The ¥41.7B difference was attributable to extraordinary income of ¥44.3B from gains on the sale of investment securities. Extraordinary losses also included ¥2.5B in impairment losses on investment securities, making this a quarter in which portfolio adjustments to securities had a substantial impact on earnings. Non-operating income and expenses were negative, with non-operating income of ¥4.5B, including ¥2.0B in dividends received, versus non-operating expenses of ¥6.2B, including ¥0.5B in interest expenses and ¥0.3B in foreign exchange losses. Consequently, Ordinary Income declined from Operating Income. Comprehensive income was ¥48.4B, nearly in line with Net Income of ¥44.8B, as foreign currency translation adjustments of +¥16.2B and valuation difference on available-for-sale securities of -¥9.6B had offsetting effects. Accordingly, the high growth in Net Income during the current period depends on non-recurring gains from asset sales and must be evaluated together with the deterioration in core-business profitability, reflected in the 3.2% operating margin.

Earnings Forecast and Guidance

The full-year Company forecasts are revenue of ¥2100.0B (+3.9% YoY), Operating Income of ¥45.0B (+4.6%), and Ordinary Income of ¥55.0B (-0.8%); no revisions to the earnings forecasts had been made as of Q1. Revenue progress was 24.6%, broadly in line with the standard quarterly progress rate of 25%, while Operating Income progress was 37.3%, exceeding the standard rate. However, this includes a ¥1.5B positive impact from changes in the depreciation method and useful lives of molds in the Domestic Business, meaning that underlying progress was more gradual. Ordinary Income progress was 27.6%, approximately in line with the standard level. Progress toward the full-year forecast of ¥86.0B in Net Income attributable to owners of the parent reached 51.9%; however, this was temporarily boosted by gains on the sale of investment securities and does not indicate progress toward recurring full-year earnings. From Q2 onward, recovery in the profitability of the Overseas Business and sales trends in the core hot-water and air-conditioning field will be key to achieving the full-year forecasts.

Shareholder Returns

The full-year dividend forecast is ¥94.00 per share, an increase from the previous-year dividend of ¥35 (details of the combined interim and year-end dividends are unknown). Based on the full-year forecast of ¥86.0B in Net Income attributable to owners of the parent and the period-average number of shares outstanding of 45,727,761 shares, the forecast total dividend is approximately ¥4.3B, resulting in a Payout Ratio of approximately 50.0%. This Payout Ratio is calculated by dividing dividends alone by forecast Net Income and differs from the Total Return Ratio, which includes share repurchases. A Payout Ratio of approximately 50% is within the general guideline range for sustainability. Because Q1 Net Income of ¥44.8B includes gains on the sale of investment securities, it is appropriate to evaluate the dividend policy based on forecast full-year Net Income rather than quarterly results. The financial base, including cash and deposits of ¥284.0B and an Equity Ratio of 63.5%, supports the Company’s resilience in maintaining dividends.

Risk Factors

1. Deterioration in Overseas Business profitability: Overseas Business revenue declined 11.6% YoY, segment profit declined 41.8%, and the profit margin fell from 2.6% to 1.6%. The decline in profit exceeding the rate of revenue decline indicates a heavy fixed-cost burden and is the primary factor behind the deterioration in consolidated results.

2. Divergence between core-business earnings power and Net Income: Against Operating Income of ¥16.8B, the majority of Net Income of ¥44.8B was attributable to ¥44.3B in gains on the sale of investment securities, indicating a high degree of dependence on non-recurring factors that do not reflect recurring earnings power.

3. Decline in gross margin: The gross margin declined to 31.2% from 32.7% in the same period of the previous year, and the improvement in the SG&A ratio to 27.9% was insufficient to offset this decline, causing the operating margin to contract to 3.2%. Changes in raw material costs, logistics costs, and product mix may affect future gross-margin trends.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

While the operating margin is below the industry median, the Net Profit Margin exceeds the industry median due to the impact of gains on the sale of investment securities.

Growth and Capital Efficiency

The Revenue Growth Rate is substantially below the industry median, placing the Company at a relative disadvantage in terms of growth even within the manufacturing sector.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The core business experienced lower revenue and lower earnings, with the decline in the operating margin to 3.2% being the central observation from these results. The decline in gross margin exceeded the benefit from SG&A reductions.

2. The substantial increase in Net Income to ¥44.8B (+191.4% YoY) was largely attributable to the non-recurring ¥44.3B gain on the sale of investment securities, and is materially different in scale from core-business earnings power, represented by Operating Income of ¥16.8B.

3. Q1 progress toward the full-year Operating Income forecast was 37.3%, exceeding the standard level. However, this includes a ¥1.5B positive impact from an accounting policy change in the Domestic Business, involving changes to the depreciation method and useful lives, and this factor must be considered when evaluating underlying progress.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,603–¥2,751 at ±1% for the Cost of Equity, and ¥2,657–¥2,687 at ±0.1 for ω.

Notes:

• Normalized EPS calculated from Ordinary Income and other figures is used to exclude the impact of non-recurring gains and losses (Company forecast EPS is ¥188.1).
• 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 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 (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this 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, and you should consult a professional as necessary.

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