NS TOOL (6157) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 of FY2026, the Company maintained a high profit margin despite a gradual decline in revenue, demonstrating a stable earnings structure that can be characterized as neither revenue growth and profit growth nor revenue decline and profit decline. Revenue was ¥6.95B (down -1.2% year on year), Operating Income was ¥1.28B (down -1.1%), Ordinary Income was ¥1.31B (up +0.8%), and Net Income attributable to owners of the parent was ¥0.92B (up +0.7%). The decline in Operating Income was smaller than the decline in Revenue, while changes in non-operating income and expenses and the tax burden supported the increase in final profit.

Factors Affecting Earnings

【Revenue】Revenue was ¥6.95B, down 1.2% year on year. While the weakness of the demand environment appears to have had an impact, the decline was limited.

【Profit and Loss】Operating Income was ¥1.28B (down -1.1%), a decline roughly in line with the decrease in Revenue, indicating that cost management has generally been effective. Ordinary Income increased to ¥1.31B (up +0.8%), with non-operating income (¥0.03B) supplementing earnings. Extraordinary gains and losses were both immaterial, with no indication that temporary factors had a significant impact on performance. Net Income was ¥0.92B (up +0.7%), with income taxes and other taxes of ¥0.39B and an effective tax rate of approximately 29.5%, within the normal range. Overall, although the results appear to reflect declining revenue and declining profit, the downward pressure on profit was limited and the performance can essentially be characterized as a slight decline in profit despite lower revenue.

Key Financial Metrics

【Profitability】The Operating Margin was 18.4% and the Net Profit Margin was 13.3%, with the high Gross Margin of 54.0% absorbing the SG&A ratio of 35.6%.【Cash Quality】Although Operating Cash Flow (OCF) has not been disclosed, inventories of ¥1.41B account for 7.3% of total assets. Inventory turnover days are 121 days on an annualized basis, DIO is 196 days, and CCC is 227 days, indicating that cash conversion requires a considerable amount of time.【Investment Efficiency】ROE was 5.1%. Under a DuPont decomposition comprising a Net Profit Margin of 13.3%, total asset turnover of 0.359x, and financial leverage of 1.07x, the low asset turnover is the primary factor depressing ROE. Cash and deposits of ¥9.47B account for 48.9% of total assets, restraining asset efficiency.【Financial Soundness】The Equity Ratio was 93.5%, the Current Ratio was approximately 1,279%, and the debt-to-equity ratio was 0.07x, indicating an extremely conservative financial base.

Cash Flow Analysis

As disclosed values for Operating CF, Investing CF, and Financing CF could not be confirmed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥9.47B, down from ¥9.87B in the previous year, while total assets contracted from ¥19.37B to ¥19.94B. Inventories remained broadly flat at ¥1.41B, with inventory stagnation continuing as indicated by DIO of 196 days and CCC of 227 days. Accounts receivable were ¥1.27B, down from ¥1.39B in the previous year, indicating progress in collecting receivables, while inventory reduction remained limited. Accordingly, improvements in working capital efficiency will be an important area of observation affecting future cash generation capacity.

Quality of Earnings

Extraordinary gains of ¥0.0025B and extraordinary losses of ¥0.0034B were both immaterial, meaning that temporary factors played a limited role in increasing or decreasing Net Income, with recurring business profit and loss accounting for the central portion of performance. Non-operating income of ¥0.03B consisted primarily of other non-operating income, while both dividend income and interest income were small. Comprehensive Income was ¥0.90B, broadly in line with Net Income attributable to owners of the parent of ¥0.92B. The divergence arising from foreign currency translation adjustments (-¥0.03B) and valuation difference on securities (+¥0.01B) was small, and no significant distortion was observed in earnings quality. On the other hand, the length of inventory turnover days may indicate the presence of accruals (profits not yet converted into cash), making verification of Operating CF important for future earnings quality assessments.

Earnings Forecasts and Guidance

Cumulative Q3 progress rates against the Full-Year forecast were 76.1% for Revenue, 97.9% for Operating Income, 98.6% for Ordinary Income, and 98.3% for Net Income. Progress on profit-related indicators was substantially above the standard quarterly progress rate of approximately 75%, indicating a high probability of achieving the Full-Year forecast. Meanwhile, Revenue progress was not as high as profit progress, and approximately ¥2.19B in Revenue would be required in Q4 against the Full-Year forecast of ¥9.14B (down -3.1% year on year). In this case, the Q4 Operating Margin would be calculated to be low, suggesting that the Full-Year profit forecast may have been set conservatively. If Revenue does not recover, it will be necessary to confirm whether inventory valuation or shipment timing is affecting profit progress.

Shareholder Returns

A dividend of ¥15 per share was paid in Q2, and the Full-Year forecast dividend is ¥30 per share. The Payout Ratio based on the Q2 dividend and the latest results was 40.6%, below the general benchmark for sustainability. On the other hand, the Payout Ratio calculated using the Full-Year forecast Net Income of ¥0.94B and the forecast dividend of ¥30 per share is approximately 80%, indicating that the figure varies depending on the calculation basis and should be noted. Given cash and deposits of ¥9.47B and the low level of liabilities, the financial stability of the dividend payment is considered high. No information regarding share repurchases was identified.

Risk Factors

1. Declining inventory and working capital efficiency: DIO is 196 days, CCC is 227 days, and inventory turnover days are 121 days, all substantially above typical levels for the manufacturing industry. Inventory accumulation during periods of declining Revenue increases the risk of product obsolescence and inventory write-downs.

2. Softening demand environment: Revenue declined 1.2% year on year, and performance may be affected by the capital investment cycle and production trends in end-demand industries. Revenue progress for the Full Year (76.1%) is lower than profit progress, making the progress of demand recovery an area for monitoring.

3. Insufficient cash flow verification: Disclosed values for Operating CF, Investing CF, and Financing CF could not be confirmed, preventing a direct assessment of the extent to which Net Income has been converted into cash. Prolonged inventory stagnation may affect future cash generation capacity, requiring continuous monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

The Company’s profitability substantially exceeds the industry median, placing it in a high-margin position even within the manufacturing industry.

Growth and Capital Efficiency

The Revenue Growth Rate was below the industry median, indicating that top-line growth was relatively weak.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Margin of 18.4% and Net Profit Margin of 13.3% both substantially exceeded the industry median, indicating price competitiveness and high value-added products.

2. The financial structure, with an Equity Ratio of 93.5% and a debt-to-equity ratio of 0.07x, is conservative. The high level of cash and deposits of ¥9.47B contributes to financial stability, while also contributing to the low total asset turnover of 0.359x and suppressing ROE of 5.1%.

3. While the profit progress rate against the Full-Year forecast was high at approximately 98%, prolonged inventory and working capital accumulation was confirmed, as indicated by DIO of 196 days and CCC of 227 days. Inventory trends and cash flow verification will therefore be important areas of observation in future performance assessments.

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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. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q3 earnings were resilient despite modest top-line contraction, with gross-margin improvement and lower financial charges allowing net income to edge higher. Revenue declined 1.2% year on year to ¥6.955bn. Operating income declined 1.1% to ¥1.283bn, broadly tracking the revenue reduction. Net income attributable to owners increased 0.7% to ¥0.924bn. Gross profit increased 0.6% to ¥3.756bn despite the sales decline. The gross margin expanded to 54.0% from approximately 53.0% a year earlier, an improvement of roughly 100 basis points. This indicates that lower cost of sales, down 3.4% year on year, more than offset lower shipment volumes. The operating margin was effectively stable at 18.4%, improving by approximately 3 basis points from the prior-year period. SG&A expenses increased 1.6% to ¥2.473bn while revenue fell, limiting the conversion of gross-margin gains into operating-profit growth. Ordinary income rose 0.8% to ¥1.312bn because non-operating income increased and non-operating expenses fell sharply. The net margin improved to 13.3% from approximately 13.0%, a gain of around 26 basis points. Earnings were predominantly operating in nature: operating income represented 97.8% of ordinary income, while extraordinary gains and losses were immaterial. The effective tax rate was 29.5%, producing a normal tax burden factor of 0.704. The balance sheet remains exceptionally liquid, with cash and deposits of ¥9.474bn, equivalent to 48.9% of total assets. Equity represents 92.5% of assets and the debt-to-equity ratio is only 0.07x, giving the company considerable capacity to withstand cyclical manufacturing demand volatility. Working-capital efficiency is the principal operational concern, as reported inventory-day and cash-conversion-cycle alerts indicate capital is tied up for an extended period. Management's full-year plan appears to assume a sharply weaker Q4 profit conversion, as Q3 cumulative operating income has already reached 97.9% of full-year guidance. The FY forecast implies only ¥0.027bn of Q4 operating income and ¥0.015bn of Q4 net income on ¥2.185bn of Q4 sales. Accordingly, the key issue for the final quarter is whether the conservative forecast reflects seasonality, planned expenses, pricing pressure, or potential demand softness.

Profitability Analysis

The annualized DuPont ROE is 6.8%, decomposed into a 13.3% net profit margin, 0.479x annualized asset turnover, and 1.07x financial leverage. The principal constraint on ROE is low asset turnover rather than profitability or leverage. A 13.3% net margin is strong for a manufacturer, while financial leverage is deliberately low because the company is funded overwhelmingly by equity. Asset turnover is restrained by a balance sheet carrying ¥9.474bn of cash and deposits and ¥1.413bn of finished-goods inventory. Gross-margin expansion of roughly 100 basis points was the largest positive profitability movement, with cost of sales declining 3.4% against a 1.2% revenue decline. However, SG&A increased 1.6%, exceeding revenue growth by approximately 2.8 percentage points and absorbing most of the gross-profit improvement. Consequently, operating-margin improvement was negligible at approximately 3 basis points, leaving operating income 1.1% lower. Ordinary income increased 0.8% because non-operating expenses declined to ¥0.036bn from ¥0.112bn in the prior year, including the absence of the prior-period foreign-exchange loss. The interest-burden factor of 1.023 confirms that non-operating items were slightly earnings-accretive rather than a financing drag. The tax-burden factor of 0.704 is normal and supports the conversion of pre-tax income into net income. The 6.8% annualized ROE is below the 8% caution benchmark, but this reflects the conservatively capitalized balance sheet rather than weak operating margins. Improving inventory velocity, deploying surplus cash more productively, or maintaining higher sales on the existing asset base would be the most direct routes to improving returns.

Growth Assessment

Revenue contracted 1.2% year on year to ¥6.955bn, indicating that the Q3 period did not provide volume-led growth. Nevertheless, gross profit rose 0.6%, demonstrating favorable cost absorption, pricing, product mix, or manufacturing efficiency relative to the prior-year period. Operating income declined only 1.1%, showing that earnings have remained comparatively stable despite lower sales. The full-year revenue forecast is ¥9.140bn, implying Q3 cumulative progress of 76.1%, modestly above the standard 75% Q3 progress rate. Operating-income progress is materially ahead of plan at 97.9%, or 22.9 percentage points above the standard seasonal benchmark. Net-income progress is also very high at 98.4%, or 23.4 percentage points above the standard benchmark. The guidance therefore embeds substantial Q4 margin compression: the implied Q4 operating margin is about 1.2%, versus 18.4% for the cumulative nine-month period. The implied Q4 net margin is about 0.7%, versus 13.3% year to date. This pattern may reflect conservatism, a planned expense concentration, or an expectation of weaker demand and utilization in the final quarter. Finished goods were ¥1.413bn, essentially unchanged year on year, while raw materials declined 3.3% to ¥0.638bn and work in process was stable at ¥0.238bn. The inventory mix is concentrated in finished goods, which raises the importance of end-market demand, order visibility, and inventory obsolescence control. Construction in progress increased 26.0% to ¥0.308bn, suggesting an ongoing, though still limited, manufacturing investment pipeline.

Financial Health

Financial health is exceptionally strong. The current ratio is 1,279.4% and the quick ratio is 1,142.4%, far exceeding standard liquidity thresholds. Current assets of ¥13.201bn cover current liabilities of ¥1.032bn by 12.8 times. Cash and deposits alone of ¥9.474bn cover current liabilities by 9.2 times. Working capital totals ¥12.169bn, providing an ample buffer against short-term demand volatility or supplier disruptions. Total liabilities are only ¥1.252bn against total equity of ¥18.113bn. The debt-to-equity ratio of 0.07x is highly conservative and does not present an aggressive leverage risk. No maturity mismatch is evident because current assets substantially exceed current liabilities and cash alone is far greater than short-term obligations. Equity declined 1.6% year on year to ¥18.113bn, while total assets declined 2.9% to ¥19.365bn. Treasury stock increased in absolute deduction by ¥0.427bn, from negative ¥0.135bn to negative ¥0.562bn, a 317.7% change that signals meaningful capital return or share repurchase activity and reduces reported equity. Intangible assets increased 70.5% to ¥0.027bn, but remain immaterial at 0.1% of total assets. Investment securities increased 27.5% to ¥0.040bn, but remain only 0.2% of assets and are not a material source of market-value exposure. PPE declined 0.7% to ¥4.810bn, while construction in progress rose to ¥0.308bn from ¥0.244bn, consistent with selective reinvestment rather than a major capacity expansion. The capital structure provides material financial flexibility, although the large cash balance also contributes to the low annualized asset-turnover component of ROE.

Notable B/S Changes

Treasury stock: increased as an equity deduction by ¥0.427bn, from negative ¥0.135bn to negative ¥0.562bn (+317.7%) - indicates meaningful treasury-share activity and reduces reported equity. Intangible assets: +¥0.011bn to ¥0.027bn (+70.5%) - percentage growth is high but the asset remains immaterial at 0.1% of total assets. Investment securities: +¥0.009bn to ¥0.040bn (+27.5%) - increased financial-asset exposure remains immaterial at 0.2% of total assets. Construction in progress: +¥0.063bn to ¥0.308bn (+26.0%) - indicates a selective production or facility investment pipeline.

Cash Flow Quality

The earnings profile is supported by a high 18.4% operating margin and negligible extraordinary-item impact. Profit before tax was ¥1.313bn and net income was ¥0.925bn, with the difference primarily explained by ¥0.388bn of income tax expense rather than unusual below-the-line charges. Non-operating income of ¥0.033bn was only 0.5% of revenue, so reported profit is not dependent on non-core income. Extraordinary income and extraordinary loss were each immaterial, and gains and losses on fixed-asset transactions had no meaningful impact on net income. Working-capital discipline is the key cash-conversion issue. The reported 196-day DIO alert is materially above the 90-day warning threshold, indicating elevated inventory funding and obsolescence exposure. The separate reported 121-day DIO alert is also above the 60-day manufacturing benchmark and independently confirms slow inventory rotation. The reported cash conversion cycle of 227 days is well above the 120-day warning threshold, meaning that the operating cycle retains cash for an extended period. These alerts are particularly relevant because finished goods of ¥1.413bn account for the reported inventory balance and were broadly flat year on year despite the decline in revenue. A prolonged finished-goods holding period can create discounting, write-down, and utilization risks if customer demand weakens. Accounts receivable fell 9.2% year on year to ¥1.266bn, which is directionally favorable for collections and partly offsets inventory-related working-capital pressure. Accounts payable were stable at ¥0.213bn, limiting the degree to which supplier credit offsets the inventory carrying burden. The cash balance of ¥9.474bn provides substantial liquidity protection against the long cash-conversion cycle.

Dividend Sustainability

The Q2 dividend was ¥15.00 per share. The calculated payout ratio based on the Q2 dividend and Q3 cumulative net income is 40.6%, which is within the stated sustainable benchmark. The full-year dividend forecast is ¥30.00 per share. Against forecast EPS of ¥37.69, the implied full-year dividend payout ratio is approximately 79.6%. This prospective payout ratio is above the 60% conservative sustainability benchmark but remains below 100%. The higher full-year payout ratio reflects the low level of forecast EPS growth and the company’s shareholder-return stance rather than balance-sheet stress. Cash and deposits of ¥9.474bn and very low leverage provide substantial capacity to support the proposed dividend. The increased treasury-stock deduction indicates that share repurchases or other treasury-share transactions may also be relevant to capital allocation. However, a total return ratio cannot be determined from the available treasury-stock movement alone because the cash amount and timing of any repurchases are not established. Dividend sustainability will depend primarily on preserving operating cash conversion and avoiding inventory-related cash absorption, rather than on financing capacity.

Risk Assessment

Business risks include Demand and utilization risk: revenue declined 1.2% year on year, and the full-year forecast implies a meaningful slowdown in Q4 profitability., Inventory risk: reported DIO alerts of 196 days and 121 days both exceed relevant manufacturing warning levels; the ¥1.413bn finished-goods balance could face discounting or write-down pressure if demand weakens., Working-capital risk: the reported 227-day cash conversion cycle exceeds the 120-day warning threshold, extending the time required to convert production activity into cash., Manufacturing cost risk: while Q3 gross margin improved, future margins remain exposed to material costs, energy costs, labor availability, production yields, and capacity utilization., Foreign-exchange and export-market risk: the prior period included foreign-exchange losses, demonstrating that currency movements can affect non-operating earnings even though the current-period impact was limited..

Financial risks include Forecast execution risk: Q3 cumulative operating income is 97.9% of the full-year target, implying only ¥0.027bn of Q4 operating income; any change in the assumed Q4 cost or demand environment could materially alter the outcome versus guidance., Low return-on-equity risk: annualized ROE of 6.8% is below the 8% caution benchmark because surplus liquidity and low leverage depress capital efficiency., Capital-allocation risk: the implied FY dividend payout ratio of approximately 79.6% leaves a narrower earnings-retention buffer than the Q3 cumulative payout calculation., Treasury-stock risk: the ¥0.427bn increase in the treasury-stock deduction reduces equity and should be assessed alongside future shareholder returns and operating investment needs..

Key concerns include The 196-day DIO quality alert requires attention because it is more than double the 90-day warning threshold., The 121-day DIO quality alert separately confirms inventory turnover above the 60-day manufacturing benchmark., The 227-day CCC quality alert indicates that inventory and customer-payment cycles are creating a structurally cash-intensive operating cycle., SG&A increased 1.6% despite a 1.2% revenue decline, constraining operating leverage., The difference between strong Q3 cumulative results and the very low implied Q4 margins makes the full-year guidance assumptions a critical monitoring point..

Investment Implications

Key takeaways include The company combines strong profitability, with an 18.4% operating margin and 13.3% net margin, with an exceptionally conservative balance sheet., Gross-margin expansion offset lower revenue, but rising SG&A prevented a material operating-margin improvement., Annualized ROE of 6.8% is constrained mainly by low asset turnover and a cash-rich, low-leverage capital structure., Inventory velocity and the 227-day reported cash conversion cycle are the most significant operational quality concerns., Full-year guidance embeds unusually weak implied Q4 profitability despite near-complete progress toward the operating-income and net-income targets..

Metrics to watch include Revenue trend and Q4 order/demand conditions, Finished-goods inventory and inventory days, Cash conversion cycle and receivables collection, SG&A growth relative to revenue, Gross margin and operating margin, Full-year operating-income and net-income guidance delivery, Dividend payout ratio and treasury-share activity, Capital deployment of the ¥9.474bn cash balance.

Regarding relative positioning, Relative to typical manufacturers, Nissin Tools exhibits superior margin quality, exceptional liquidity, and very low balance-sheet leverage. Its relative weakness is capital efficiency: annualized ROE is below the stated 8% benchmark, largely because substantial cash and inventory holdings suppress asset turnover. The reported inventory-day and cash-conversion-cycle alerts also compare unfavorably with efficient manufacturing working-capital benchmarks.