NITTO KOHKI (6151) FY2026 Q3 Earnings Report

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Executive Summary

This earnings period saw a decline in revenue and operating income, while net income was boosted by extraordinary gains. The deterioration in core earnings power is therefore the key fundamental point. Revenue was ¥20.09B (-1.1% YoY), Operating Income was ¥1.12B (-45.8%), and Ordinary Income was ¥1.34B (-38.8%), while quarterly net income attributable to owners of the parent increased to ¥2.17B (+49.8%). The primary factor behind the increase in net income was ¥2.37B in extraordinary gains, mainly subsidy income. The operating margin declined substantially to 5.6% from 10.2% in the same period of the previous year.

Factors Affecting Performance

【Revenue】Revenue was ¥20.09B, down 1.1% YoY. By segment, the core QuickConnectCouplings (quick fluid couplings) secured higher revenue of ¥8.99B (+0.9%), while AirCompressorsAndVacuumPumps (linear-drive pumps) also increased revenue to ¥3.36B (+3.3%). However, MachineTools (machine tools) declined to ¥6.13B (-4.2%), and DoorClosers (building equipment) fell to ¥1.61B (-7.6%), resulting in an overall revenue decline.

【Profit and Loss】Operating Income was ¥1.12B (-45.8%). The gross margin declined to 43.2% from 46.2% in the same period of the previous year, while the SG&A ratio increased by 1.6pt to 37.6%. As a result, the operating margin contracted by 4.6pt to 5.6%. By segment, MachineTools posted a loss of ¥0.26B, falling from a profit of ¥0.42B in the same period of the previous year, while DoorClosers posted a loss of ¥0.07B. Profits of ¥1.41B from QuickConnectCouplings, representing a 15.7% margin, absorbed the losses of the other businesses. Ordinary Income remained limited to ¥1.34B (-38.8%), despite a contribution of ¥0.28B from non-operating income. Meanwhile, extraordinary gains of ¥2.37B, mainly subsidy income, and extraordinary losses of ¥0.45B resulted in Profit Before Tax of ¥3.26B, and Net Income reached ¥2.17B (+49.8%). The net extraordinary gain of ¥1.92B accounted for approximately 88% of Net Income and must be evaluated separately from recurring earnings power. In conclusion, the Company recorded lower revenue and lower profit on an Operating Income and Ordinary Income basis, while the increase in Net Income was attributable to temporary factors.

Segment Analysis

QuickConnectCouplings generated revenue of ¥8.99B and Operating Income of ¥1.41B, with a 15.7% margin, making it the core contributor to total Company profits. However, this was down from a 17.7% margin in the same period of the previous year. MachineTools generated revenue of ¥6.13B and an operating loss of ¥0.26B, turning from a ¥0.42B profit in the same period of the previous year into a loss and becoming the largest factor behind the overall profit decline. DoorClosers also remained loss-making, with revenue of ¥1.61B and an operating loss of ¥0.07B. AirCompressorsAndVacuumPumps generated revenue of ¥3.36B and Operating Income of ¥0.03B, maintaining profitability, although its margin remained low at 0.8%. Overall, deteriorating profitability has become evident in the three segments other than QuickConnectCouplings, increasing the concentration of earnings sources.

Key Financial Metrics

【Profitability】The operating margin was 5.6%, down approximately 4.6pt from 10.2% in the same period of the previous year. The net margin was 10.8%, but it was strongly affected by extraordinary gains. Annualized ROE was 4.8% and annualized ROIC was only 2.1%, indicating that improving the efficiency of generating core operating profits from the Company’s substantial equity base remains a challenge.【Cash Flow Quality】Inventories were ¥6.15B, equivalent to 9.1% of total assets, consisting of finished products of ¥6.15B, raw materials of ¥3.80B, and work in process of ¥0.43B. Inventory turnover days were 148 days, annualized DIO was 249 days, and annualized CCC was 278 days, indicating a substantial accumulation of working capital.【Investment Efficiency】Property, plant and equipment increased by ¥4.81B YoY to ¥24.60B, while construction in progress decreased substantially from ¥8.31B to ¥0.15B, indicating progress in transferring assets to operating assets.【Financial Soundness】The Company has an extremely conservative financial structure, with an Equity Ratio of 88.5%, a D/E ratio of 0.13x, and a current ratio of 949.5%, providing high resilience to earnings volatility.

Cash Flow Analysis

As this earnings report does not include cash flow statement data, funding trends are analyzed based on changes in the balance sheet. Cash and deposits decreased by ¥7.62B from ¥20.31B in the same period of the previous year to ¥12.69B, while property, plant and equipment increased by ¥4.81B YoY to ¥24.60B. Together with the decline in construction in progress from ¥8.31B to ¥0.15B, the progress of capital investment involving the transfer of assets under construction to operating assets appears to be the background to the cash outflow. Accounts payable decreased by ¥0.26B YoY to ¥0.75B, which may have affected working capital efficiency through changes in procurement and payment terms. Given the current ratio of 949.5% and cash and deposits accounting for 18.7% of total assets, there are no concerns regarding near-term liquidity. However, the recovery of invested funds and progress in inventory reduction will determine future funding trends.

Earnings Quality

The increase in Net Income to ¥2.17B was primarily attributable to net extraordinary gains of ¥1.92B, consisting of extraordinary gains of ¥2.37B, mainly subsidy income, and extraordinary losses of ¥0.45B. This does not indicate an improvement in recurring earnings power. In fact, Operating Income declined by 45.8% and Ordinary Income declined by 38.8%, demonstrating deterioration in core profitability. Non-operating income of ¥0.28B mainly consisted of dividend income of ¥0.10B and interest income of ¥0.06B, representing only 1.4% of revenue and insufficient to offset the decline in Operating Income. Comprehensive Income was ¥2.42B, slightly above Net Income of ¥2.17B, with increases in valuation differences on other securities of ¥0.34B and other items contributing to the difference. However, the divergence between the two figures was limited. In evaluating earnings quality, priority should be given to monitoring Operating Income and improvements in inventory and working capital.

Earnings Forecast and Guidance

The full-year earnings forecast is revenue of ¥27.30B (+0.2% YoY), Operating Income of ¥1.50B (-36.0%), Ordinary Income of ¥1.70B (-32.3%), and Net Income of ¥2.50B. The Q3 cumulative progress rates were 73.6% for revenue, 74.5% for Operating Income, 78.8% for Ordinary Income, and 86.8% for Net Income. Progress in revenue and Operating Income was slightly below the standard 75%, requiring approximately ¥0.38B in additional Operating Income in Q4. The high progress rate for Net Income reflects the impact of extraordinary gains and should be distinguished from an upside in recurring earnings power. The earnings forecast was revised during the current quarter, and the speed of profitability recovery in the MachineTools and DoorClosers segments will be the focus for achieving the full-year plan.

Shareholder Returns

The Q2 dividend was ¥20.00 per share, and the full-year forecast dividend is ¥40.00, unchanged from the previous year. Based on the interim dividend, the Payout Ratio against Q3 cumulative Net Income of ¥2.170B was 17.7%, while the forecast Payout Ratio against forecast full-year Net Income of ¥2.50B was approximately 29.9%, remaining below 60%. The Company’s conservative financial structure, with an Equity Ratio of 88.5% and a D/E ratio of 0.13x, provides financial support for dividends. However, because current-period Net Income includes a substantial impact from extraordinary gains and losses, it is appropriate to evaluate the recurring source of dividends based on the level of Operating Income. No revision was made to the dividend forecast during the current quarter.

Risk Factors

1. Segment profitability deterioration risk: MachineTools posted a segment loss of ¥0.26B, and DoorClosers posted a loss of ¥0.07B, with profits from QuickConnectCouplings of ¥1.41B continuing to offset losses in the other businesses. If weak demand or insufficient absorption of costs persists, the concentration of the earnings structure may become entrenched.

2. Working capital and inventory efficiency risk: Inventory turnover days of 148 days, annualized DIO of 249 days, and annualized CCC of 278 days all substantially exceed typical manufacturing industry levels. Delays in reducing inventories of finished products of ¥6.15B and raw materials of ¥3.80B could lead to valuation losses or an additional working capital burden.

3. Low capital efficiency (ROIC): Annualized ROIC remained at 2.1%, indicating insufficient monetization of Operating Income relative to substantial equity and property, plant and equipment of ¥24.60B. The issue is not excessive debt, but rather the recovery of profit-generating capacity relative to invested capital.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The operating margin is below the industry median, while the net margin exceeds the median, partly due to the impact of extraordinary gains.

Growth and Capital Efficiency

Revenue growth is below the industry median, indicating relative underperformance in terms of growth.

※Source: Compiled by the Company

Key Points from the Earnings Report

1. The operating margin declined by approximately 4.6pt to 5.6%, making recovery in core profitability the top priority. The increase in Net Income of ¥2.17B was largely attributable to net extraordinary gains of ¥1.92B and must be distinguished from recurring profit growth.

2. Annualized ROIC of 2.1% and annualized CCC of 278 days indicate substantial room for improvement in both capital efficiency and working capital efficiency. Meanwhile, the current ratio of 949.5%, D/E ratio of 0.13x, and Equity Ratio of 88.5% support the Company’s strong financial resilience.

3. Progress toward the full-year Operating Income plan of ¥1.50B was 74.5%, and controlling losses in MachineTools and DoorClosers in Q4 will be a key factor determining whether the plan is achieved.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,471–¥2,614 at ±1% for the cost of equity, and ¥2,520–¥2,555 at ±0.1 for ω.

Notes:

• Normalized EPS calculated from Ordinary Income and other figures is used to exclude the impact of temporary gains and losses (the Company’s forecast EPS is ¥133.6).
• Because progress in Net Income toward the full-year forecast (87%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of schedule tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• 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 on the high side.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and 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 discretion and responsibility, after consulting a professional as necessary.

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