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

Nitto Seiko Co., Ltd. (TSE: 5957) posted FY2025 Q3 (cumulative) revenue of ¥35,998 million, up 5.8% YoY, indicating modest top-line expansion despite a soft macro backdrop for industrial components. Gross profit was ¥8,031 million, translating to a gross margin of 22.3%, which appears pressured for a fastening systems and industrial equipment mix where mid‑20s gross margins are common; pricing, input costs, or mix likely weighed on gross profitability. Operating income was ¥2,264 million (+0.2% YoY), implying significant operating deleverage as revenue growth did not translate into operating profit growth. Operating margin stood at 6.3%, highlighting increased SG&A intensity; implied SG&A is roughly ¥5,767 million (about 16.0% of revenue). Ordinary income of ¥2,175 million suggests a modest net non‑operating loss (about ¥89 million) despite small interest expense, likely reflecting FX or other non‑operating items. Net income declined 9.9% YoY to ¥1,322 million, with an implied effective tax rate around 35% (tax expense ¥725 million on pre‑tax profit ~¥2,047 million) contributing to the decline. The DuPont framework shows a calculated ROE of 3.39% (Net margin 3.67% × Asset turnover 0.650 × Financial leverage 1.42), indicating low equity returns primarily due to thin net margins and moderate asset turns rather than leverage. Balance sheet strength is notable: total assets ¥55,381 million versus total equity ¥39,040 million implies an equity ratio of about 70.5% (despite the displayed 0.0% placeholder) and a debt‑to‑equity ratio of 0.44x, reflecting conservative leverage. Liquidity is ample with a current ratio of 276.5% and quick ratio of 239.5%, supported by working capital of ¥23,305 million; inventories are ¥4,885 million (~13.6% of revenue run‑rate), broadly consistent with an industrial supply chain. Interest coverage is robust at 171x, underscoring minimal financial risk from borrowing costs. Several cash flow indicators (OCF, FCF, EBITDA) are unreported in this dataset; consequently, cash conversion and capex intensity cannot be evaluated from the provided figures. Dividend data are also unreported (DPS and payout shown as 0.00 represent nondisclosure, not actual zero). Overall, the quarter reflects resilient sales but margin pressure and higher tax burden, yielding weaker bottom‑line growth and subdued ROE, offset by a strong balance sheet and liquidity. Near‑term focus should be on restoring gross margin, controlling SG&A, and clarifying cash flow and capital allocation to support sustainable returns.

Profitability Analysis

ROE decomposition: Reported/Calculated ROE is 3.39%, driven by a 3.67% net margin, 0.650x asset turnover, and 1.42x financial leverage. Margin quality: Gross margin of 22.3% suggests cost pressure; operating margin of 6.3% indicates elevated SG&A (implied ~16.0% of revenue). The gap between operating and ordinary income (approx. -¥89 million) points to small non‑operating headwinds (likely FX or other). Net margin at 3.67% is further constrained by an implied ~35% effective tax rate. Operating leverage: With revenue up 5.8% YoY but operating income up just 0.2% YoY, incremental margins were near zero, indicating negative operating leverage in the period (cost inflation and/or fixed cost absorption challenges). Interest burden is negligible (¥13.2 million), and interest coverage is 171x, so financing costs are not a constraint on profitability. Return on assets is ~2.4% (¥1,322m/¥55,381m), underscoring that the primary drag on ROE is margin, not leverage.

Growth Assessment

Revenue growth of 5.8% YoY demonstrates resilient demand across end markets, likely supported by industrial and automotive/electronics fastener demand and equipment sales. However, operating income grew only 0.2% YoY, implying limited conversion of sales growth into profits due to gross margin compression and/or SG&A increases. Net income declined 9.9% YoY, with both operational margin pressure and a higher effective tax impact (~35%) contributing. Sustainability: Without cash flow and order backlog data, visibility is limited; inventory levels (¥4.9bn) appear proportionate, suggesting no obvious overstocking. Profit quality: Ordinary income below operating income indicates modest non‑operating losses, reducing quality of earnings slightly, but the magnitude is small. Outlook dependencies: ability to pass through input cost increases, product mix normalization (higher‑margin fasteners vs. lower‑margin equipment), FX volatility, and cost control will drive margin recovery; tax rate normalization could aid bottom line if structural. Near‑term, focus on restoring gross margin and maintaining SG&A discipline should support a more favorable drop‑through if demand holds.

Financial Health

Liquidity is strong: current ratio 276.5% and quick ratio 239.5% indicate ample short‑term coverage; working capital is ¥23,304,723,000. Solvency: total liabilities ¥17,013m vs equity ¥39,040m implies a debt‑to‑equity ratio of 0.44x; equity ratio implied at ~70.5% (equity/total assets), reflecting a conservative capital structure. Interest coverage of 171x confirms minimal financing strain. Asset composition: current assets ¥36,505m (about 66% of total assets), inventories ¥4,885m; no red flags in inventory relative to sales scale. Overall balance sheet resilience is high, providing flexibility for investment and dividends when supported by cash generation.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported in this dataset (zeros reflect nondisclosure, not actual values), so cash conversion, capex intensity, and free cash flow cannot be assessed from the provided figures. Earnings quality: the small negative non‑operating result modestly lowers the quality of earnings vs. operating profit, but the key unknown is cash conversion. Working capital: with strong liquidity and sizeable working capital, monitoring receivables and inventory turns is important to ensure cash is not tied up as sales grow. Once disclosed, OCF/NI, capex to sales, and FCF margin will be critical to validate earnings sustainability.

Dividend Sustainability

Dividend data (DPS, payout, and FCF coverage) are unreported here; therefore, we cannot assess payout ratios or coverage. EPS stands at ¥36.48 for the period, and the balance sheet is conservative with low leverage and high liquidity, which suggests capacity for distributions if supported by cash flow. However, without OCF/FCF and explicit policy guidance, dividend sustainability cannot be evaluated. Key determinants will be normalized FCF generation, capital expenditure needs for equipment/automation businesses, and management’s capital allocation policy.

Risk Assessment

Business Risks:

• End-market cyclicality in automotive, electronics, and general industrial demand impacting fastener and equipment volumes
• Input cost volatility (steel and components) and pricing power affecting gross margins
• Foreign exchange fluctuations influencing both margins and non-operating items
• Product mix shifts toward lower-margin equipment diluting profitability
• Customer concentration risk typical in OEM supply chains
• Lead-time and supply chain disruptions affecting delivery and inventory levels

Financial Risks:

• Working capital swings potentially suppressing operating cash flow during growth periods
• Tax rate volatility (implied ~35%) weighing on net income
• FX-related non-operating gains/losses affecting ordinary income
• Pension or other long-term obligations (not visible here) that could impact equity and cash flows

Key Concerns:

• Margin compression despite revenue growth, resulting in near-zero incremental operating profit
• Low ROE of 3.39% versus typical Japanese industrial mid-cap levels
• Lack of reported cash flow data, limiting visibility on cash conversion and FCF

Investment Implications

Key Takeaways:

• Top-line growth of 5.8% YoY but minimal operating profit growth indicates operating deleverage
• Net margin of 3.67% and implied 35% tax rate depress bottom-line growth and ROE
• Balance sheet remains very strong with ~70% equity ratio and 171x interest coverage
• Non-operating headwinds are modest but present (ordinary income below operating income)
• Cash flow and dividend data are not disclosed; confirmation of cash generation is a key next step

Metrics to Watch:

• Gross margin trajectory and input cost pass-through
• SG&A as a percentage of sales and operating margin recovery
• Order intake/backlog (if disclosed) and inventory turnover
• Operating cash flow, capex, and free cash flow once reported
• Effective tax rate normalization and FX impacts on non-operating income
• Asset turnover trends relative to sales growth

Relative Positioning: Within Japanese fasteners and industrial equipment peers, Nitto Seiko shows stronger-than-average balance sheet conservatism (implied ~70% equity ratio) but underperforms on profitability and returns (ROE ~3.4% vs. sector mid-to-high single digits). Margin and cash conversion improvements are needed to close the gap.

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
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