NORITZ CORPORATION FY2026 Q2 Earnings Report

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Executive Summary

Net income increased significantly; however, the primary driver was a gain on the sale of investment securities, while the improvement in core earnings capacity was limited. Revenue was ¥99.57B (+1.1% YoY), operating income was ¥1.83B (+10.6%), ordinary income was ¥2.02B (-9.6%), and net income was ¥4.92B (+251.5%). The increase in operating income was attributable to SG&A efficiency improvements and the contribution from a change in accounting policy. Gross profit margin declined, while ordinary income decreased due to higher non-operating expenses, including foreign exchange losses.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥99.57B, representing a modest 1.1% YoY increase. Domestic business revenue rose to ¥73.73B (+6.4%), led mainly by the hot-water and air-conditioning field, while overseas business revenue declined double digits to ¥31.79B (-10.4%), resulting in contrasting performance across regions. The domestic revenue mix reached 74.1%, indicating the continued concentration toward the domestic market.

【Profit and Loss】Operating income increased to ¥1.83B (+10.6%), but gross profit margin declined to 30.6% (31.9% in the previous year), while the improvement in the SG&A ratio to 28.7% (30.2% in the previous year) supported profitability. Domestic segment profit nearly doubled to ¥1.34B (+99.4%); however, ¥0.302B of this increase was a temporary uplift resulting from changes to the depreciation method and useful lives of molds, and its sustainability should be viewed neutrally. Overseas segment profit declined substantially to ¥0.49B (-50.2%). Ordinary income decreased to ¥2.02B (-9.6%), affected by higher non-operating expenses, including foreign exchange losses of ¥0.09B. Net income of ¥4.92B (+251.5%) was primarily driven by a ¥4.70B gain on the sale of investment securities, recorded as extraordinary income, indicating a high degree of dependence on a one-time factor. In conclusion, the Company achieved revenue and profit growth, but the quality of the profit increase depends on the change in accounting policy and one-time gains.

Segment Analysis

Domestic business revenue was ¥73.73B (+6.4% YoY), segment profit was ¥1.34B (+99.4%), and profit margin was 1.8%. Overseas business revenue was ¥31.79B (-10.4%), segment profit was ¥0.49B (-50.2%), and profit margin was 1.5%. Although the difference in profit margins between the two segments was small at 0.3pt, their growth rates were contrasting, with domestic business driving first-half performance and overseas business acting as a drag. Domestic segment profit includes a ¥0.302B uplift from changes to the depreciation method and useful lives, equivalent to approximately 16% of first-half operating income of ¥1.83B. The decline in overseas revenue and profit suggests the effects of softer demand and foreign exchange movements, and, together with the regional portfolio concentration (domestic ratio: 74.1%), warrants attention.

Key Financial Indicators

【Profitability】The operating margin improved modestly to 1.8% (1.7% in the previous year), but gross profit margin declined to 30.6% (31.9% in the previous year), indicating that core profitability remains low. Net profit margin was 4.9%, but this does not represent normalized earnings due to the significant contribution from extraordinary income. ROE remained at 3.3%. 【Cash Flow Quality】Operating cash flow (OCF) was ¥3.29B, a substantial 64.1% decrease YoY. OCF was below net income of ¥4.92B, indicating weak cash backing for earnings. Trade receivables decreased by ¥7.70B, generating a cash inflow, while trade payables decreased by ¥9.87B, resulting in a cash outflow. 【Investment Efficiency】Capital expenditures were ¥3.71B, below depreciation and amortization expense of ¥4.55B, indicating a level primarily focused on replacement investment. Free cash flow was secured at ¥4.41B. 【Financial Soundness】The equity ratio was high at 63.6%, while long-term borrowings had been reduced to ¥0.15B, indicating a strong capital base. Cash and deposits stood at ¥30.12B, providing substantial short-term financial flexibility.

Cash Flow Analysis

OCF was ¥3.29B, a significant 64.1% decrease YoY, and remained below net income of ¥4.92B. In terms of working capital, the decrease in trade receivables (a positive impact of ¥7.70B) and the decrease in inventories (a positive impact of ¥1.84B) contributed to cash generation, while the decrease in trade payables (a negative impact of ¥9.87B) resulted in a cash outflow. Overall, working capital weighed on cash flow. Investing cash flow was positive at ¥1.12B, as proceeds from the sale and collection of investment securities exceeded the negative impact of ¥3.71B in capital expenditures. Financing cash flow was negative at ¥1.25B, mainly due to dividend payments and share repurchases of ¥0.19B. Free cash flow, calculated as the sum of OCF and investing cash flow, was ¥4.41B; however, because the positive investing cash flow included the one-time factor of investment securities sales, it should be viewed cautiously as an indicator of core cash-generating capacity.

Earnings Quality

The majority of first-half net income of ¥4.92B resulted from the ¥4.70B gain on the sale of investment securities, recorded as extraordinary income, indicating that one-time items accounted for a high proportion of net income. Ordinary income of ¥2.02B and net income of ¥4.92B differed by more than 147%, primarily due to extraordinary gains and losses. Non-operating income was ¥1.01B, approximately 1.0% of revenue and not particularly large; however, it was primarily composed of dividend income of ¥0.51B, which is not directly linked to business operations and therefore warrants attention. From an accruals perspective, OCF of ¥3.29B was below net income, indicating a delay in the conversion of earnings into cash. Comprehensive income was ¥4.96B, nearly equal to net income of ¥4.92B. By component, foreign currency translation adjustments of +¥2.92B and valuation differences on available-for-sale securities of -¥2.30B offset each other, indicating substantial fluctuations in asset values.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥214.00B (+5.9% YoY), operating income of ¥4.50B (+4.6%), and ordinary income of ¥5.20B (-6.2%). First-half progress rates were 46.5% for revenue, 40.8% for operating income, 38.8% for ordinary income, and 58.1% for net income. While operating performance was below the 50% first-half benchmark, net income was ahead of schedule due to the recognition of the gain on the sale of investment securities. The delay in operating income progress was affected by the decline in overseas revenue and profit and the lower gross profit margin, making recovery in the second half a key challenge. It is also confirmed that the earnings forecast was revised during the current quarter.

Shareholder Returns

The interim dividend was ¥47 per share, and the full-year dividend forecast is ¥94. Dividend payments during the first half were ¥1.79B, implying a payout ratio of approximately 36.4% relative to first-half net income of ¥4.92B. However, as current-period net income includes a one-time gain on the sale of investment securities, the sustainability of dividends based on normal cash-generating capacity should be assessed together with OCF trends. Share repurchases were small at ¥0.19B, making dividends the primary form of shareholder return. No revision was made to the dividend forecast.

Risk Factors

1. Declining overseas revenue and profit: Overseas revenue deteriorated significantly to ¥31.79B (-10.4% YoY), while segment profit declined to ¥0.49B (-50.2%). Together with the concentration of the regional portfolio (domestic revenue ratio: 74.1%), this indicates vulnerability in the earnings structure.

2. Deterioration in working capital and cash flow quality: Trade payables decreased by ¥9.87B, resulting in a cash outflow. In addition, OCF declined by 64.1% YoY to ¥3.29B and was below net income of ¥4.92B. Weak cash backing for earnings is a monitoring point.

3. Dependence on short-term liabilities: While long-term borrowings have been reduced to ¥0.15B, short-term borrowings have increased, resulting in a bias toward short-term interest-bearing debt. Compared with cash and deposits of ¥30.12B, a liquidity cushion is secured; however, changes in the funding structure warrant attention.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company's operating margin is significantly below the industry median and ranks toward the lower end of the industry.

Growth and Capital Efficiency

The Company's revenue growth rate is also below the industry median, placing it at a disadvantage within the industry in terms of growth.

Source: Compiled by the Company

Key Points in the Earnings Results

1. The significant increase in net income was dependent on the ¥4.70B gain on the sale of investment securities, contrasting with the continued low level of core earnings capacity, as represented by the 1.8% operating margin. When reviewing the earnings data, attention should be paid to the qualitative difference between the growth in net income and operating income.

2. The doubling of domestic segment profit includes a ¥0.302B uplift from changes to the depreciation method and useful lives of molds. Understanding the underlying earnings improvement excluding the impact of the change in accounting policy will be fundamental to evaluating future performance.

3. First-half progress toward full-year operating income was 40.8%, below the standard 50% benchmark. With overseas revenue and profit continuing to decline, the presence or absence of a recovery in the second half will be a key factor determining whether the full-year plan is achieved.

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 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,601–¥2,749 at ±1% for the cost of equity, and ¥2,655–¥2,685 at ±0.1 for ω.

Notes:

• Normalized EPS calculated from ordinary income and other items is used to exclude the impact of one-time gains and losses (the Company's forecast EPS is ¥188.1).
• Goodwill amortization of ¥5.4 per share is added back to profit (as a non-cash expense and for comparability with IFRS companies).
• 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 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: 2026-07 / 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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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