NITTO KOHKI CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The key feature of Q1 of FY2027 was the shift to profitability in net income, driven by the absence of the prior-year one-time loss, in addition to increases in revenue and operating income. Revenue was ¥71.0B (+7.8% YoY), operating income was ¥4.7B (+4.2%), ordinary income was ¥5.7B (+5.8%), and net income was ¥3.5B (+225.3% from ¥-2.8B in the previous year). Revenue growth was driven by the expansion of the core quick fluid couplings and air compressors and vacuum pumps businesses, while the sharp recovery in net income was primarily attributable to the absence of the extraordinary loss recorded in the previous year.

Factors Affecting Performance

【Revenue】Revenue increased 7.8% YoY to ¥71.0B. By segment, quick fluid couplings and air compressors and vacuum pumps (AirCompressorsAndVacuumPumps) led growth, with revenue of ¥32.1B (+9.1%) and ¥12.4B (+24.2%), respectively. In contrast, machine tools slowed to ¥21.3B (+2.2%), while door closers (architectural hardware) declined to ¥5.2B (-7.4%).

【Profit and Loss】Operating income was ¥4.7B (+4.2%). The gross profit margin declined to 42.0% from 45.6% in the previous year (3002/6586), confirming an increase in the cost ratio. Although the SG&A ratio declined YoY to 35.4%, this was insufficient to offset the decline in gross margin, and the operating margin contracted by 23bp to 6.6% from 6.9% in the previous year. Ordinary income increased to ¥5.7B (+5.8%) due to non-operating income, including dividend income of ¥0.6B and interest income of ¥0.2B. Net income turned profitable at ¥3.5B, compared with ¥-2.8B in the previous year, due to the absence of the prior-year extraordinary loss of ¥4.5B. The company achieved both revenue and profit growth, while bottom-line profit improved substantially due to the elimination of a special factor.

Segment Analysis

Segment-level operating performance was mixed. Quick fluid couplings served as the core source of company-wide profit, generating revenue of ¥32.1B and operating income of ¥6.0B, for a margin of 18.8% (YoY +29.7%). Air compressors and vacuum pumps improved substantially, with revenue of ¥12.4B and operating income of ¥0.7B, for a margin of 5.7% (YoY +102.9%). In contrast, machine tools reported an operating loss of ¥-0.9B against revenue of ¥21.3B (margin: -4.3%), while door closers reported an operating loss of ¥-1.1B against revenue of ¥5.2B (margin: -21.1%), indicating continued and expanding losses. Company-wide operating income of ¥4.7B reflects a structure in which the earnings power of quick fluid couplings offsets the losses of two divisions. Improving the profitability of the loss-making segments is therefore a key challenge for expanding the company-wide margin.

Key Financial Indicators

【Profitability】The operating margin was 6.6%, down from 6.9% in the previous year, while the gross margin of 42.0% was affected by the increase in the cost ratio. The net profit margin was 4.9%, representing a substantial improvement from the prior-year loss of -4.3%. 【Cash Flow Quality】Cash and deposits remained substantial at ¥154.9B, while inventories of ¥60.8B and notes and accounts receivable of ¥36.8B both showed a slight upward trend from the previous year, indicating a structure in which the expansion of working capital could affect the conversion of profit into cash. 【Investment Efficiency】ROE remained low at 0.6%, with the low total asset turnover acting as a drag despite the improvement in the net profit margin. The company invested ¥2.2B in research and development, equivalent to 3.1% of revenue, to maintain product competitiveness. 【Financial Soundness】The equity ratio was extremely high at 89.1%, maintaining a conservative capital structure, with net assets of ¥611.5B against total assets of ¥686.2B.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, the balance sheet trends warrant a somewhat cautious assessment of the quality of cash generation. Cash and deposits were ¥154.9B, slightly down from ¥162.2B in the previous year, while inventories of ¥60.8B and notes and accounts receivable of ¥36.8B both accumulated at a pace exceeding revenue growth. Accounts payable increased to ¥11.8B from ¥7.8B in the previous year, supporting short-term liquidity; however, continued accumulation of inventory and receivables could weigh on future free cash flow. The strong equity ratio of 89.1% and cash holdings of approximately ¥155B provide financial capacity to absorb fluctuations in working capital.

Quality of Earnings

No extraordinary gains or losses were recorded in the current period. The absence of the prior-year extraordinary loss, which was approximately ¥4.5B, was the primary driver of the sharp recovery in net income and should be distinguished as a temporary factor. Non-operating income was ¥1.1B, primarily consisting of non-operating sources such as dividend income of ¥0.6B, foreign exchange gains of ¥0.1B, and other income of ¥0.2B, contributing to higher ordinary income. Against an operating margin of 6.6%, the ordinary income margin was approximately 8.0%, and the gap between the two indicates a certain degree of reliance on non-operating income. Comprehensive income was ¥5.9B, exceeding net income of ¥3.5B, primarily due to a ¥2.5B increase from valuation differences on securities; accordingly, this difference is strongly temporary in nature, driven by fluctuations in asset values.

Earnings Forecast and Guidance

Q1 progress against the full-year forecast was 24.3% for revenue (forecast: ¥291.9B), 26.9% for operating income (forecast: ¥17.5B), and 30.2% for ordinary income (forecast: ¥18.9B). Revenue and operating income are generally progressing smoothly, at levels close to the quarterly benchmark of 25%. Ordinary income is slightly ahead at 30.2%, due to the accumulation of non-operating income such as dividends, interest, and foreign exchange gains; this may indicate upside potential relative to the full-year outlook for non-operating income. There were no revisions to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The annual dividend forecast is ¥32.00 per share, implying a payout ratio of approximately 40.8% based on the company’s forecast EPS of ¥78.36. The previous year’s dividend was ¥20, but this payout ratio is a single metric based on net income and the dividend plan, and no revision has been made to the dividend forecast. The strong financial foundation, including cash and deposits of ¥154.9B and an equity ratio of 89.1%, supports the stable continuation of dividends.

Risk Factors

1. Deterioration in the profitability of loss-making segments: Machine tools reported an operating loss of ¥-0.9B (margin: -4.3%), while door closers reported an operating loss of ¥-1.1B (margin: -21.1%). The losses of the two segments offset approximately 4割 of company-wide operating income of ¥4.7B.

2. Expansion of working capital: Inventories of ¥60.8B and notes and accounts receivable of ¥36.8B both increased from the previous year, potentially resulting in funds being tied up at a pace exceeding revenue growth (+7.8%).

3. Reliance on non-operating income: Non-operating income accounted for ¥1.1B of ordinary income of ¥5.7B, indicating a certain degree of reliance on factors susceptible to market conditions, such as dividend income, interest income, and foreign exchange gains.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin are below the industry median, placing the company in the lower tier of the industry.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median, indicating that the company’s revenue growth is relatively strong within the industry.

Source: Compiled by the Company

Key Takeaways from the Results

1. The core quick fluid couplings business generated revenue of ¥32.1B and operating income of ¥6.0B (margin: 18.8%), serving as the center of company-wide profit. This confirms that the earnings contribution of the business portfolio is concentrated in a specific segment.

2. The machine tools and door closers segments recorded a combined operating loss of ¥-2.0B. The progress of profitability improvement in these segments will determine the scope for improvement in the company-wide operating margin, currently 6.6% versus the industry median of 8.7%.

3. Ordinary income is progressing ahead of operating income due to the contribution of non-operating income, including dividends, interest, and foreign exchange gains. The sustainability of these non-operating factors will be a key focus when assessing the achievement of the full-year ordinary income forecast.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥2,561–¥2,708 for ±1% in the cost of equity, and ¥2,613–¥2,646 for ω±0.1.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter 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 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 with a professional as necessary.

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