NITTOKU (6145) FY2026 Q3 Earnings Report

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Executive Summary

This earnings period achieved profit growth substantially exceeding revenue growth, driven by the sharp expansion of the core Winding Systems & Mechatronics Business. Revenue was ¥30.46B (+41.4% YoY), Operating Income was ¥4.18B (+725.2%), Ordinary Income was ¥4.29B (+593.6%), and Net Income was ¥2.51B (+209.4%). A key feature was the strong conversion of revenue growth into profits, supported by an improved gross margin and restraint in selling, general and administrative expenses. Net Income growth was not as large as Operating Income growth due to the recording of ¥0.57B in extraordinary losses and the impact of gains on the sale of investment securities recorded in the same period of the previous year.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥30.46B, an increase of +41.4% YoY. The core Winding Systems & Mechatronics Business drove overall growth, generating ¥28.95B in revenue (95.0% of total revenue), up +43.4% YoY. The Contactless IC Tags & Cards Business generated ¥1.52B, an increase of only +11.8%, indicating that the primary driver of revenue growth was largely the expansion of demand in a single segment.

【Profit and Loss】Operating Income was ¥4.18B (+725.2%), and the Operating Income Margin improved substantially to 13.7% from 2.3% in the same period of the previous year. The gross margin rose to 31.3% (25.5% in the previous year), while the SG&A ratio declined to 17.6% (23.2% in the previous year), with fixed-cost absorption against higher revenue being the primary factor behind the margin improvement. The segment profit margin of the Winding Systems & Mechatronics Business improved sharply to 15.9% from 4.8%, making it the center of company-wide profitability. Although Ordinary Income was ¥4.29B (+593.6%), Profit Before Tax remained at ¥3.72B due to the recording of ¥0.57B in extraordinary losses, resulting in Net Income of ¥2.51B (+209.4%). Since the same period of the previous year included ¥0.49B in extraordinary gains, including ¥0.43B in gains on the sale of investment securities, Net Income growth was restrained relative to growth at the operating level. The company achieved both revenue and profit growth.

Segment Analysis

The Winding Systems & Mechatronics Business generated revenue of ¥28.95B (+43.4% YoY) and segment profit of ¥4.60B, a sharp increase from ¥0.98B in the previous year, with its profit margin improving substantially from 4.8% to 15.9%. The Contactless IC Tags & Cards Business generated revenue of ¥1.52B (+11.8%) and segment profit of ¥0.49B (+41.4%), with its profit margin rising from 25.5% to 32.2%. Both businesses achieved revenue and profit growth, but nearly all company-wide profit growth was driven by the core business. Segment profit totaled ¥5.09B, and after deducting company-wide expenses of ¥0.91B, Operating Income was ¥4.18B.

Key Financial Metrics

【Profitability】The Operating Income Margin improved substantially to 13.7% (2.3% in the previous year), while the Net Profit Margin was 8.2% (3.8% in the previous year) and the gross margin rose to 31.3% (25.5% in the previous year). 【Cash Flow Quality】Annualized DSO was 60 days, annualized DIO was 204 days, and annualized CCC was 237 days. Work in process inventory of ¥13.16B accounted for 84.6% of total inventory, indicating a structure in which cash collection lags behind profit growth. 【Investment Efficiency】Annualized ROE was 8.5%. Since the total asset turnover ratio remained low despite the sharp improvement in the Net Profit Margin, the improvement in capital efficiency was not as significant as the improvement in profitability. 【Financial Soundness】The Equity Ratio was high at 64.2%, and the Current Ratio was 258.6%. Long-term borrowings declined to ¥4.47B from ¥6.07B in the same period of the previous year, indicating lower financial leverage.

Cash Flow Analysis

Although a cash flow statement was not disclosed, the movement of funds can be inferred from changes in the balance sheet. Cash and deposits increased by ¥1.48B to ¥16.38B from ¥14.91B in the same period of the previous year. While long-term borrowings declined to ¥4.47B, indicating progress in reducing financial borrowings, contract liabilities (customer advances) declined by ¥1.66B to ¥6.19B from ¥7.86B in the same period of the previous year, indicating reduced working capital support from customer advances. Work in process inventory remained high at ¥13.16B, suggesting that the progress of orders received was being held as inventory. Electronically recorded obligations increased to ¥2.51B from ¥1.03B in the same period of the previous year, potentially easing part of the working capital burden through changes in payment terms. Overall, although cash on hand increased, working capital turnover remained slow, and further monitoring of inventory and receivables will be necessary to determine whether profit growth is being sufficiently converted into cash generation.

Quality of Earnings

There were ¥0.57B in extraordinary losses between Ordinary Income of ¥4.29B and Profit Before Tax of ¥3.72B, with temporary factors weighing on Net Income. In the same period of the previous year, ¥0.49B in extraordinary gains, including ¥0.43B in gains on the sale of investment securities, boosted Net Income. Since the direction of extraordinary gains and losses was opposite in the two periods, it should be noted that a simple comparison makes Net Income growth appear smaller than the underlying operating performance would suggest. Non-operating income of ¥0.22B primarily consisted of dividend income of ¥0.05B and foreign exchange gains of ¥0.04B, and was mainly recurring in nature. The fact that work in process inventory accounted for 84.6% of total inventory warrants close monitoring from an accrual perspective, as the structure entails a time lag before increases in revenue and profit are fully converted into cash.

Earnings Forecast and Guidance

The full-year company forecasts are revenue of ¥41.00B (+23.2% YoY), Operating Income of ¥4.60B (+310.9%), and Ordinary Income of ¥4.60B (+275.4%). The cumulative Q3 progress rates were 74.3% for revenue, 90.8% for Operating Income, and 93.3% for Ordinary Income, with profit progress substantially exceeding revenue progress. Compared with a standard Q3 progress rate of approximately 75%, revenue is broadly in line, while profits are ahead of schedule, suggesting that the full-year forecasts may incorporate conservative assumptions. During the quarter, the company revised its earnings forecasts and dividend forecasts.

Shareholder Returns

The Q2 dividend was ¥30.00 per share, and the Payout Ratio against cumulative Q3 Net Income of ¥2.51B was 21.6%. The full-year dividend forecast is ¥62.00 per share. Given the interim dividend of ¥30.00, the implied year-end dividend is ¥32.00. Based on forecast full-year Net Income of ¥2.60B, the forecast full-year Payout Ratio is approximately 40.2%. In addition to cash and deposits of ¥16.38B and an Equity Ratio of 64.2%, the company has made progress in reducing long-term borrowings, securing sufficient financial capacity to maintain dividend payments. During the quarter, the company revised its dividend forecast.

Risk Factors

1. Business concentration risk: Since the Winding Systems & Mechatronics Business accounts for 95.0% of revenue, company-wide performance is highly dependent on demand trends in this business and the timing of order acceptance.

2. Working capital accumulation risk: Work in process inventory was ¥13.16B, accounting for 84.6% of total inventory, and annualized CCC was 237 days, substantially exceeding the cautionary benchmark of 120 days. If process delays or specification changes occur, the impact on cash collection and inventory valuation could be significant.

3. Contract liability reduction risk: Contract liabilities (customer advances) declined by 21.2% to ¥6.19B from ¥7.86B in the same period of the previous year, weakening the working capital support effect provided by customer advances.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income Margin and Net Profit Margin exceeded the industry median, placing profitability at a high level within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate substantially exceeded the industry median, demonstrating an exceptionally high rate of revenue growth within the industry.

※Source: Compiled by the Company

Key Earnings Highlights

1. Revenue increased by 41.4%, while Operating Income increased by 725.2%, confirming strong operating leverage resulting from an improved gross margin and lower SG&A ratio. The segment profit margin of the core Winding Systems & Mechatronics Business improved sharply from 4.8% to 15.9%, indicating a qualitative transformation in the company-wide earnings structure.

2. The full-year progress rate for Operating Income was 90.8%, substantially exceeding the revenue progress rate of 74.3%, indicating favorable progress toward achieving the full-year forecast. However, Net Income did not grow as strongly as income at the operating level due to extraordinary losses and the reversal of extraordinary gains recorded in the previous year.

3. The working capital structure, characterized by a work in process inventory ratio of 84.6% and annualized CCC of 237 days, requires continued monitoring to determine whether improved profitability can be smoothly converted into cash generation.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,064–¥2,181 at ±1% for the cost of equity, and ¥2,114–¥2,126 at ±0.1 for ω.

Notes:

• Since cumulative Net Income progress against the full-year forecast (97%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to exceed forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Since 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).
• Since 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 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price, a recommendation of any specific investment action, or a prediction or guarantee of the future share 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. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional advisor as necessary.

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