NITTO KOHKI (6151) FY2027 Q1 Earnings Report

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Executive Summary

During the current period, the Company secured higher revenue and higher operating income, while the sharp recovery in net income was largely attributable to the temporary effect of the absence of extraordinary losses recorded in the same period of the previous year. Revenue was ¥71.0B (+7.8% YoY), operating income was ¥4.7B (+4.2%), and ordinary income was ¥5.7B (+5.8%). Net income attributable to owners of the parent was ¥3.5B, representing a return to profitability from the ¥2.8B loss recorded in the same period of the previous year. However, this was primarily due to the reversal of the ¥4.45B extraordinary loss recorded in the same period of the previous year, making it difficult to view the result as an improvement in earnings power exceeding the operating income growth rate. The gross profit margin declined to 42.0% from 45.6% in the same period of the previous year, a decrease of 3.6pt, indicating that challenges remain in the profitability of the core business.

Factors Affecting Business Performance

【Revenue】Revenue increased 7.8% YoY to ¥71.0B. By segment, the core Rapid Fluid Couplings business was the largest contributor to revenue growth, increasing to ¥32.1B (+9.1% YoY), while Linear Drive Pumps (AirCompressorsAndVacuumPumps) also recorded strong growth, rising to ¥12.4B (+24.2%). In contrast, Building Equipment (DoorClosers) declined to ¥5.2B (-7.4%), while Machine Tools was nearly flat at ¥21.3B (+2.2%).

【Profit and Loss】Operating income increased 4.2% YoY to ¥4.7B, securing an increase in profit; however, the gross profit margin declined to 42.0% from 45.6% in the same period of the previous year, a decrease of 3.6pt, indicating limited quality in the revenue growth. Cost of sales increased 14.8% YoY, outpacing revenue growth, while SG&A expenses declined 1.4% YoY to ¥25.1B, with fixed-cost controls partially offsetting the deterioration in the gross profit margin. By segment, Rapid Fluid Couplings remained the core contributor to consolidated earnings, generating operating income of ¥6.0B (operating margin of 18.8%), while Machine Tools (-¥0.9B) and Building Equipment (-¥1.1B) recorded operating losses. The combined ¥2.0B loss from these two segments offset the profit generated by the core business. Ordinary income was ¥5.7B, ¥1.0B above operating income, supported by non-operating income including ¥0.6B in dividends received. Net income returned to profitability at ¥3.5B due to the absence of extraordinary losses recorded in the same period of the previous year. In conclusion, although the Company achieved higher revenue and profit, the result was accompanied by a decline in the gross profit margin and expanding losses in certain segments.

Segment Analysis

Rapid Fluid Couplings generated revenue of ¥32.1B (+9.1% YoY) and operating income of ¥6.0B (+29.7%), with an operating margin of 18.8%, making it the core contributor to consolidated earnings. Linear Drive Pumps recorded the highest growth rate, with revenue increasing to ¥12.4B (+24.2%), while operating income expanded to ¥0.7B (+102.9%). In contrast, Machine Tools increased revenue to ¥21.3B (+2.2%) but expanded its operating loss to ¥0.9B, indicating a structure in which fixed costs and costs of sales cannot be recovered even with higher revenue. Building Equipment recorded a revenue decline to ¥5.2B (-7.4%), while its operating loss worsened to ¥1.1B. The combined loss from Machine Tools and Building Equipment reached ¥2.0B, offsetting the profit generated by the core business.

Key Financial Metrics

【Profitability】The operating margin was 6.6%, down 0.2pt from 6.9% in the same period of the previous year, while the gross profit margin also declined 3.6pt YoY to 42.0%. The net profit margin was 4.9%; however, the figure was significantly affected by the return to profitability following the absence of extraordinary losses recorded in the same period of the previous year and should be distinguished from an improvement in the profitability of the core business.【Cash Flow Quality】Ordinary income exceeding operating income by ¥1.0B reflects a stable contribution from financial income, including ¥0.6B in dividends received and ¥0.2B in interest received, and does not include temporary factors.【Investment Efficiency】ROE (annualized) was 2.3%, indicating low earnings generation relative to the Company’s substantial equity base, and improving capital efficiency remains a challenge.【Financial Soundness】The equity ratio rose to 89.1% from 88.7% in the same period of the previous year. Cash and deposits of ¥154.9B substantially exceeded current liabilities of ¥39.0B. With total assets of ¥686.2B and net assets of ¥611.5B, the Company maintains an extremely conservative financial structure.

Cash Flow Analysis

As this report does not include detailed data from the cash flow statement, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥154.9B, slightly down from ¥162.2B in the same period of the previous year, but approximately four times current liabilities of ¥39.0B, indicating no short-term liquidity concerns. Inventories were ¥60.8B, including ¥60.8B in finished goods and ¥4.9B in work in process; work in process increased year on year, suggesting that funds remained tied up in production. Trade payables increased 49.9% YoY to ¥11.8B, potentially providing partial support for working capital through the expansion of operating liabilities. Investment securities increased 7.7% YoY to ¥50.9B, indicating that a portion of funds was allocated to financial assets. Overall, based on the asset composition, funds tied up in inventories and work in process warrant attention from the perspective of capital efficiency.

Quality of Earnings

The current-period profit before tax of ¥5.7B was primarily attributable to the absence of the ¥4.45B extraordinary loss recorded in the same period of the previous year and should be distinguished from a sustainable improvement in earnings power. Non-operating income of ¥1.1B consisted of ¥0.6B in dividends received, ¥0.1B in foreign exchange gains, and ¥0.2B in other income; these were all stable sources of income and did not include temporary factors. Although ordinary income exceeded operating income by ¥1.0B, operating margin of 6.6% and segment-level earnings should be prioritized when assessing the profitability of the core business. Comprehensive income was ¥5.9B, exceeding net income of ¥3.5B. The difference was attributable to a ¥2.5B increase in valuation difference on securities, which did not arise from business activities themselves and therefore warrants attention.

Earnings Forecast and Guidance

The full-year company forecast is revenue of ¥291.9B (+7.0% YoY), operating income of ¥17.5B (+48.1%), ordinary income of ¥18.9B (+28.9%), and EPS of ¥78.36. Progress in Q1 was 24.3% for revenue, 26.9% for operating income, and 30.2% for ordinary income, with no significant deviation from the standard 25%; consistency with the full-year plan is therefore maintained at this stage. However, against the full-year projected operating margin of 6.0%, the current-period result of 6.6% was slightly higher, making whether this level can be maintained throughout the year a key focus going forward. No revisions were made to the earnings forecast or dividend forecast during the current quarter.

Shareholder Returns

The full-year dividend forecast is ¥32.00 per share, an increase from ¥20 in the previous year. The forecast payout ratio based on forecast EPS of ¥78.36 is 40.8%. This is a payout ratio calculated using dividends only as the numerator and is not a total return ratio including share repurchases. The Company’s financial foundation—including an equity ratio of 89.1%, cash and deposits of ¥154.9B, and a low D/E ratio—supports the continuation of dividend payments. Future sustainability will depend on the extent to which the full-year net income forecast of ¥14.7B is achieved and on the recovery of the core business profit margin.

Risk Factors

1. Continued underperformance of loss-making segments: Despite revenue of ¥21.3B (+2.2% YoY), Machine Tools expanded its operating loss to ¥0.9B, while Building Equipment recorded revenue of ¥5.2B (-7.4% YoY) and a worsening operating loss of ¥1.1B. The combined ¥2.0B loss from the two segments is exerting downward pressure on the consolidated profit margin.

2. Inventory and working capital accumulation: Inventories reached ¥60.8B (finished goods of ¥60.8B, raw materials of ¥35.2B, and work in process of ¥4.9B), with work in process increasing from the same period of the previous year. Inventory growth amid a 3.6pt decline in the gross profit margin warrants attention from the perspectives of impairment risk in the event of demand fluctuations and funds tied up in working capital.

3. Quality of net income: The 225.3% YoY increase in net income was primarily attributable to the absence of the ¥4.45B extraordinary loss recorded in the same period of the previous year. The significant difference from the +4.2% operating income growth rate means that it is not appropriate to regard the high net income growth rate in the current period as a sustainable improvement in earnings power.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin are below the industry median, indicating that profitability is relatively low within the industry.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median, indicating that the pace of top-line expansion is relatively strong within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Although higher revenue and higher operating income were secured, the gross profit margin declined 3.6pt YoY, indicating that improvement in the profitability of the core business remains incomplete from the perspective of revenue quality. Rapid Fluid Couplings, with an operating margin of 18.8%, is the core contributor to consolidated earnings, and the structure indicates that the maintenance of this business’s profitability will determine overall Company performance.

2. The combined operating loss of Machine Tools and Building Equipment reached ¥2.0B, and cases were observed in which losses expanded even in segments with higher revenue, as with Machine Tools. Correcting the structure for recovering fixed costs and costs of sales will be key to improving the consolidated profit margin.

3. The 225.3% YoY increase in net income resulted from the absence of the extraordinary loss recorded in the same period of the previous year, and the difference from operating income growth (+4.2%) is substantial. When reviewing the financial results, it is important not to directly associate the sharp recovery in net income with an improvement in the profitability of the core business.

Theoretical Share Price (Reference Value)

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

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 time lag relative to the full-year forecast).
• As 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; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an automatically generated earnings analysis document created 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 a professional as necessary.

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