NITTOSEIKO CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

The company achieved increases in both revenue and earnings, resulting in a high-quality financial performance in which profit growth significantly outpaced revenue growth. Revenue was ¥253.5B (+6.3% YoY), Operating Income was ¥19.4B (+31.3%), Ordinary Income was ¥19.4B (+37.8%), and Net Income was ¥13.9B (+45.1%). The primary drivers of earnings growth were operating leverage resulting from an improvement in the gross profit margin and restrained growth in SG&A expenses.

Factors Affecting Performance

【Revenue】Revenue was ¥253.5B, representing a 6.3% YoY increase. The core Fastener segment accounted for 74.9% of revenue and increased 7.1%, followed by Machinery, which increased 4.8%; both segments led revenue growth. ControlSystem posted a 3.2% increase, while Medical declined 1.2%.

【Profitability】Operating Income was ¥19.4B (+31.3%), and the Operating Income Margin improved to 7.7% from the previous year. In addition to the improvement in the gross profit margin to 24.7% (24.2% in the previous year), SG&A expenses were held to ¥43.3B (¥43.0B in the previous year, +0.6%), significantly below the pace of revenue growth, resulting in the emergence of operating leverage. Ordinary Income was ¥19.4B (+37.8%); non-operating income and expenses were both approximately ¥1.5B and largely offset each other, indicating that improvement in the core business was the primary driver. Net Income was ¥13.9B (+45.1%), with Extraordinary Income of ¥0.5B, including gains on the sale of investment securities, making a modest contribution. Both revenue and earnings increased.

Segment Analysis

There were significant differences in profitability among the segments. Fastener recorded revenue of ¥189.8B (+7.1%) and Operating Income of ¥13.3B (+50.5%), with a 7.0% margin, making it the largest contributor to company-wide profit. Machinery generated revenue of ¥29.2B (+4.8%) and Operating Income of ¥4.5B (+6.8%), with a 15.3% margin, making it the most profitable segment. ControlSystem increased revenue by 3.2% to ¥33.9B, but Operating Income declined 3.4% to ¥2.2B, resulting in a margin of only 6.5%. Medical continued to operate at a loss, with revenue of ¥0.5B (-1.2%) and an Operating Loss of ¥0.6B. The increase in company-wide Operating Income was primarily driven by improved volume and profitability in Fastener, while the high margins of Machinery provided support. Meanwhile, the decline in ControlSystem earnings and continued losses in Medical constrained the upside in the overall profit margin.

Key Financial Metrics

【Profitability】The Operating Income Margin improved to 7.7% from 6.2% in the previous year, while the gross profit margin rose to 24.7% (24.2% in the previous year), and the SG&A ratio was held broadly steady at 17.1%. The Net Profit Margin improved to 5.5% (Net Income/Revenue). 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥18.2B, exceeding Net Income of ¥13.9B, confirming cash backing for reported earnings. However, the OCF-to-EBITDA ratio was relatively low against EBITDA (approximately ¥27.4B), which includes ¥7.4B in depreciation and amortization. The ¥9.2B increase in accounts receivable and ¥6.3B increase in inventories, together with a ¥9.9B decrease in accounts payable, weighed on working capital. 【Investment Efficiency】ROE remained low at 3.3%, and asset turnover relative to total assets of ¥572.7B was low, indicating room for improvement in asset efficiency. 【Financial Soundness】The Equity Ratio was extremely high at 73.4%, while liquidity was ample, with current assets of ¥354.5B against current liabilities of ¥107.8B. Long-term borrowings stood at ¥7.0B, and short-term borrowings were also trending downward, leaving financial risk at a low level.

Cash Flow Analysis

Operating Cash Flow was ¥18.2B, up 15.9% YoY and exceeding Net Income of ¥13.9B, confirming cash backing for earnings. Cash flow before changes in working capital amounted to ¥25.5B; however, the increase in inventories (-¥6.3B) and decrease in accounts payable (-¥9.9B) put pressure on cash flow, partially offset by the decrease in accounts receivable (+¥9.2B). Investing Cash Flow was -¥6.8B, of which capital expenditures of -¥5.3B represented the primary use of funds. Free Cash Flow, calculated as the sum of Operating Cash Flow and Investing Cash Flow, amounted to +¥11.5B in cash generation. Even after Financing Cash Flow of -¥12.2B, including -¥0.6B in share repurchases, cash levels were broadly maintained. Going forward, reducing inventories and accounts receivable could provide room for improvement in the cash conversion rate.

Earnings Quality

Current-period earnings were primarily derived from the core business. Extraordinary Income of ¥0.5B, comprising ¥0.5B in gains on the sale of investment securities and ¥0.1B in gains on the sale of fixed assets, was small relative to Net Income, and the impact of one-time factors was limited. Of Non-operating Income of ¥1.5B, foreign exchange gains amounted to only ¥0.1B, a small amount relative to revenue, indicating a low degree of dependence on this source within the earnings structure. The difference between Ordinary Income of ¥19.4B and Profit Before Tax of ¥19.9B reflects the offsetting structure of non-operating income and expenses. After deducting corporate income taxes and other taxes of ¥6.0B and profit attributable to non-controlling interests of ¥1.9B from Profit Before Tax, Net Income of ¥13.9B represents an effective tax rate of approximately 30%, a standard level. While Operating Cash Flow of ¥18.2B exceeded Net Income, the increase in working capital somewhat weakened cash conversion. Earnings quality is favorable, although the speed of cash conversion warrants monitoring.

Earnings Forecast and Guidance

First-half progress against the full-year forecast (Revenue of ¥520B, Operating Income of ¥38B, and Ordinary Income of ¥38B) was 48.8% for revenue, 51.1% for Operating Income, and 51.0% for Ordinary Income. Progress was therefore tracking at approximately 50% or above as of the first half. Compared with standard progress of 50% for the first half, performance can be considered broadly on track. Neither the earnings forecast nor the dividend forecast has been revised, confirming progress in line with the initial plan.

Shareholder Returns

The interim dividend was ¥12, and the full-year dividend forecast is ¥24 (the plan represents an increase from the previous fiscal year's actual annual dividend of ¥10). The Payout Ratio, calculated based on the interim dividend amount relative to first-half Net Income of ¥13.9B (¥12.0B attributable to owners of the parent), is approximately 40%. Share repurchases were small at ¥0.6B, with shareholder returns centered on dividends. Free Cash Flow of ¥11.5B exceeded the combined amount of dividends and share repurchases, indicating that the funding source for shareholder returns was secured through Operating Cash Flow.

Risk Factors

1. Segment concentration risk: Fastener accounts for 74.9% of revenue and the majority of Operating Income, resulting in a high degree of dependence on a single segment. Demand fluctuations and price competition in this segment could have a significant impact on company-wide performance.

2. Deterioration in working capital: Accounts receivable increased by ¥9.2B and inventories by ¥6.3B, while accounts payable decreased by ¥9.9B, partially offsetting the growth in Operating Cash Flow. The management of inventories and accounts receivable requires ongoing monitoring.

3. Low profitability in non-core businesses: Medical continues to post an Operating Loss of ¥0.6B, while ControlSystem also recorded a 3.4% YoY decline in Operating Income. Improving the profitability of both segments remains a challenge for enhancing company-wide capital efficiency.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income Margin is below the industry median, while the Net Profit Margin is slightly above the median, indicating differences in the efficiency of the earnings structure.

Growth and Capital Efficiency

The revenue growth rate is below the industry median, placing the company in a relatively moderate position in terms of growth speed.

※Source: Company analysis

Key Takeaways from the Financial Results

1. The gross profit margin improved by +49bp from the previous year, while SG&A growth (+0.6%) was significantly below revenue growth (+6.3%), expanding the Operating Income Margin to 7.7%. This indicates an earnings growth structure accompanied by cost discipline.

2. Full-year progress was tracking ahead of plan as of the first half, with Operating Income at 51.1% and Net Income at 52.3%; neither the earnings forecast nor the dividend forecast has been revised.

3. Operating Cash Flow exceeded Net Income, but increases in accounts receivable and inventories, together with a decrease in accounts payable, weighed on working capital. The management of inventories and accounts receivable is a structural point that will influence cash generation capacity from the second half onward.

Theoretical Stock 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). It is not a forecast of the market price or a recommendation to undertake any specific investment action.

Sensitivity: ¥1,011–¥1,070 at ±1% for the cost of equity, and ¥1,036–¥1,042 at ±0.1 for ω.

Notes:

• 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 relative to 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 forecast or guarantee the future stock 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. Industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, and you should consult a professional as necessary.

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