NITTOSEIKO CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥36.00B
• Operating Income: ¥2.26B
• Net Income: ¥1.60B
• EPS: ¥36.48

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A mixed Q3 FY2025—solid top-line growth but clear margin compression resulted in weaker bottom-line profitability and subdued capital efficiency. Revenue rose 5.8% YoY to 359.98, supported by steady demand, while operating income was essentially flat at 22.64 (+0.2% YoY), indicating cost pressure. Gross profit reached 80.31, implying a gross margin of 22.3% in the period. Operating margin stood at 6.29%, while ordinary income declined 8.5% YoY to 21.75 and net income fell 9.9% YoY to 13.22. Net margin was 3.7%, in line with the provided DuPont input. Based on reported growth rates, operating margin compressed by roughly 35 bps YoY (from ~6.64% to 6.29%). Ordinary margin compressed by about 96 bps (from ~7.0% to ~6.04%), and net margin contracted by approximately 64 bps (from ~4.31% to ~3.67%). The spread between operating income and ordinary income suggests headwinds below the operating line despite positive non-operating income and very light interest burden, pointing to other non-operating factors offsetting the net benefit. ROE is a muted 3.4% on a DuPont basis (net margin 3.7%, asset turnover 0.65x, leverage 1.42x), underscoring modest profitability and conservative leverage. Liquidity is strong with a current ratio of 270% and net cash of roughly 67 (cash 93.34 minus total borrowings 26.35). Debt metrics remain conservative (D/E 0.42x; interest coverage 171x) and do not constrain operations or shareholder returns. Earnings quality cannot be fully assessed due to unreported operating cash flow, a key limitation this quarter. The calculated ROIC of 4.8% sits below the 5% warning threshold, signaling capital efficiency challenges that need margin recovery and/or better asset turns. The payout ratio of 59% is at the upper end of a sustainable zone in the absence of FCF visibility, but the balance sheet provides a buffer. Forward-looking, focus should be on cost normalization (materials, logistics), pricing discipline, and working capital efficiency to defend margins and lift ROIC toward mid-to-high single digits. With solid liquidity but weakened profitability, execution on margin initiatives will be the primary driver of improvement into FY-end.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.4% = Net Profit Margin (3.7%) × Asset Turnover (0.650x) × Financial Leverage (1.42x). The binding constraint is the net margin: compression of ~64 bps YoY more than offsets revenue growth, while leverage remains modest by design. Operating margin compressed by ~35 bps YoY (approximate), indicating negative operating leverage despite a 5.8% revenue increase—COGS and/or SG&A likely grew faster than sales. Ordinary margin compressed by ~96 bps YoY, implying incremental non-operating drags despite positive reported non-operating income; this could reflect items not detailed in the breakdown. Business drivers: likely input cost inflation (materials/logistics), an unfavorable mix, and limited pricing flow-through, given flat operating income. Sustainability: absent price increases or easing input costs, current margin pressure could persist; however, strong interest coverage and light leverage mean financial structure is not the source of pressure. Watch for SG&A discipline—SG&A ratio is 16.0% this period (57.71/359.98), and with operating income flat, any SG&A creep versus revenue will further compress margins.

Growth Assessment

Top-line growth was healthy at +5.8% YoY to 359.98, suggesting stable demand across end-markets. Profit growth lagged sharply: operating income +0.2% YoY, ordinary income -8.5% YoY, and net income -9.9% YoY, reflecting cost and below-OP line pressures. Non-operating income of 2.65 and expenses of 1.47 indicate a net positive contribution, but ordinary income still declined, implying other non-operating items or timing effects weighed on results. The non-operating income ratio of 20.0% points to a meaningful—though not dominant—contribution from items outside core operations. Near-term outlook hinges on margin recapture via pricing, product mix, and cost control; with asset turnover at 0.65x and ROIC at 4.8%, improving yield on invested capital is a priority. Given net margin at 3.7% and operating margin at 6.29%, even modest gross margin recovery or SG&A containment could re-lever earnings on a 5.8% sales base. Absent reported R&D and capex, we cannot assess whether product pipeline and capacity investments can drive sustained growth. Overall, revenue momentum appears more durable than earnings momentum until cost normalization is evident.

Financial Health

Liquidity is robust: current ratio 269.9% and quick ratio 230.5%, well above healthy thresholds; no warning for current ratio <1.0. Solvency is conservative with D/E 0.42x and interest coverage of 171x; no warning for D/E >2.0. Net cash position is strong at roughly 66.99 (cash 93.34 minus total borrowings 26.35), mitigating refinancing risk. Maturity mismatch risk appears low: current assets of 344.41 comfortably cover current liabilities of 127.59, including short-term loans of 24.45. Accounts receivable (73.04) and inventories (50.26) are sizable, but without turnover data we cannot judge collection or inventory risk trends. Goodwill and intangibles total about 29.53, modest relative to equity (390.40), keeping impairment risk manageable. No off-balance sheet obligations are reported in the provided data.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be assessed; this is a key limitation for earnings quality evaluation. Free cash flow and capex are also unreported, preventing assessment of coverage for dividends and reinvestment. Working capital signals (AR, inventory) cannot be trend-analyzed without prior-period balances; we cannot confirm or deny working capital-driven earnings management. Given net cash on the balance sheet and conservative leverage, near-term liquidity for operations and dividends appears adequate even without OCF disclosure.

Dividend Sustainability

The calculated payout ratio is 59.0%, near the upper bound of typical sustainability thresholds (<60%), but still acceptable. FCF coverage is not calculable due to unreported OCF and capex, so we cannot confirm cash coverage of dividends. Balance sheet strength (net cash ~67 and retained earnings 286.12) provides a buffer for ongoing dividends absent a severe downturn. Dividend policy direction cannot be inferred without DPS history for the period.

Risk Assessment

Business Risks:

• Margin pressure from raw material and logistics costs compressing gross and operating margins
• Pricing power and product mix risk limiting pass-through of cost inflation
• End-market cyclicality in key sectors (e.g., automotive, electronics, machinery) affecting volumes
• Execution risk on SG&A and cost control given revenue growth but flat operating income

Financial Risks:

• ROIC at 4.8% (<5% warning), indicating weak capital efficiency
• Potential working capital buildup risk (AR/inventory) without turnover data to confirm efficiency
• Dependence on non-operating items (non-operating income ratio ~20%) introducing earnings variability

Key Concerns:

• Operating margin compressed ~35 bps YoY despite +5.8% sales growth
• Ordinary and net margins compressed ~96 bps and ~64 bps YoY, respectively
• Lack of OCF and capex disclosure limits visibility into earnings quality and FCF

Investment Implications

Key Takeaways:

• Top-line growth solid, but profitability underperformed due to margin compression
• Capital efficiency below par with ROE 3.4% and ROIC 4.8%; improvement requires margin and/or asset turn recovery
• Balance sheet strength (net cash, high liquidity) reduces financial risk and supports continuity of dividends near a ~59% payout

Metrics to Watch:

• Gross and operating margin trajectory (pricing vs input costs)
• OCF/Net Income and FCF once disclosed
• SG&A ratio and operating leverage vs revenue growth
• AR and inventory turnover for working capital discipline
• ROIC and asset turnover improvements
• FX movements and material cost trends impacting COGS

Relative Positioning: Versus domestic small-cap machinery/industrial peers, liquidity and leverage are stronger-than-average, but profitability and capital efficiency are weaker, with ROE/ROIC below peer medians; near-term upside depends on effective margin restoration.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis