Nomura Micro Science (6254) FY2027 Q1 Earnings Report

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Executive Summary

Q1 FY2027 resulted in lower revenue and lower earnings, with increased financial expenses further weighing on profit. Revenue was ¥9.20B (-25.8% YoY), Operating Income was ¥0.63B (-54.4%), Ordinary Income was ¥0.34B (-56.2%), and Net Income was ¥0.24B (-48.4%). In addition to lower revenue from the core Japan and U.S. businesses, interest expenses of ¥0.56B consumed a substantial portion of Operating Income, widening the decline in earnings. Progress against the full-year company forecasts was limited to 9.5% for Revenue and 3.9% for Operating Income, indicating a plan premised on earnings being concentrated in the second half of the fiscal year.

Factors Affecting Earnings

【Revenue】Revenue was ¥9.20B, down -25.8% YoY. By region, the core Japan business recorded ¥5.31B (-32.9% YoY), while the U.S. recorded ¥1.12B (-58.1% YoY), both representing substantial declines. In contrast, Taiwan secured ¥1.73B (+168.4% YoY) and South Korea ¥1.41B (+101.5% YoY), both representing revenue growth. The decline in Japan, which accounts for approximately 58% of consolidated revenue, was the primary driver of the overall revenue decline.

【Profit and Loss】Operating Income was ¥0.63B (-54.4% YoY), and the Operating Income margin declined substantially to 6.8% from approximately 11.1% in the same period of the previous year. Japan’s Operating Income was ¥0.40B (-48.1% YoY), accounting for approximately 63% of consolidated Operating Income, while the U.S. recorded ¥0.04B (-88.9% YoY), and China turned to a loss of -¥0.02B. Taiwan maintained a largely flat result at ¥0.19B, with a relatively high profit margin of 10.9%. Non-operating income included a foreign exchange gain of ¥0.21B; however, interest expenses of ¥0.56B consumed approximately 90% of Operating Income, reducing Ordinary Income to ¥0.34B (-56.2% YoY). Net Income was ¥0.24B (-48.4% YoY), confirming an overall decline in both revenue and earnings.

Segment Analysis

By segment, Japan (Revenue ¥5.31B, Operating Income ¥0.40B, profit margin 7.5%) remains the core source of consolidated profit but recorded lower revenue and earnings YoY. The U.S. (Revenue ¥1.12B, Operating Income ¥0.04B, profit margin 3.6%) posted a substantial decline in earnings. China (Revenue ¥1.04B, Operating Income -¥0.02B) increased revenue but became loss-making. South Korea (Revenue ¥1.41B, Operating Income ¥0.02B, profit margin 1.4%) increased revenue, although its profit margin remained low. Taiwan (Revenue ¥1.73B, Operating Income ¥0.19B, profit margin 10.9%) maintained revenue growth while keeping its profit level largely flat, making it the most profitable region. Lower revenue and earnings in Japan and the U.S. were the primary causes of the deterioration in consolidated performance.

Key Financial Indicators

【Profitability】The Operating Income margin was 6.8%, down from approximately 11.1% in the same period of the previous year, while the Net Income margin also contracted to 2.6% (approximately 3.7% in the same period of the previous year). The cost of sales ratio was 76.7% and the gross profit margin was 23.3%. The decline in profitability was primarily attributable to the increased fixed-cost burden during a period of lower revenue and higher interest expenses.【Cash Quality】Accounts receivable were ¥83.98B, accounting for 75.6% of total assets, while work in process was ¥3.59B, representing 68.5% of inventories. The lengthening collection cycle is affecting capital efficiency.【Investment Efficiency】ROE was 0.6% (on a quarterly basis), and the Equity Ratio was 34.7%, slightly down from 35.6% in the same period of the previous year. EPS was ¥6.25 (¥12.27 in the previous year), and BPS was ¥982.15.【Financial Soundness】The current ratio was maintained at approximately 143%; however, cash and deposits were limited to ¥8.47B against short-term borrowings of ¥54.54B, indicating a high degree of dependence on short-term funding.

Cash Flow Analysis

As the statement of cash flows has not been disclosed, cash trends are assessed based on changes in the balance sheet. Cash and deposits were ¥8.47B, down from ¥10.43B in the same period of the previous year, while short-term borrowings increased to ¥54.54B from ¥51.07B. Accounts receivable remained high at ¥83.98B, suggesting that collections have not progressed despite the decline in revenue. Work in process also remained substantial at ¥3.59B, with funds tied up in project-related assets acting as a constraint on liquidity. Accounts payable were ¥5.71B, down from ¥7.76B in the same period of the previous year, limiting the potential for cash generation on the payment side. Overall, the company continues to offset funds tied up in accounts receivable and work in process through short-term borrowings.

Earnings Quality

Looking at the factors affecting Ordinary Income, the foreign exchange gain of ¥0.21B was equivalent to approximately 34% of Operating Income of ¥0.63B and should therefore be evaluated separately from recurring operating earnings. Meanwhile, interest expenses of ¥0.56B accounted for the majority of non-operating expenses and expanded to a level that nearly offset Operating Income, making financial expenses a major determinant of earnings quality. Extraordinary income consisted solely of a ¥0.01B gain on the sale of fixed assets and was not material. Comprehensive income was ¥0.79B, exceeding Net Income of ¥0.24B; the difference was attributable to foreign currency translation adjustments of ¥0.39B and valuation differences on securities of ¥0.16B. This divergence arose from factors separate from the earning power of the core business, and changes in foreign exchange gains and financial expenses should be separated when assessing the underlying level of Net Income.

Earnings Forecasts and Guidance

The full-year earnings forecasts are Revenue of ¥97.00B (+72.5% YoY), Operating Income of ¥16.00B (+140.0%), and Ordinary Income of ¥15.00B (+166.5%), representing a plan premised on a substantial buildup of earnings in the second half of the fiscal year. Q1 progress rates were 9.5% for Revenue, 3.9% for Operating Income, 2.3% for Ordinary Income, and 2.2% for Net Income, all substantially below the 25% level that would result from simple linear phasing. No revisions have been made to either the earnings forecasts or the dividend forecasts. Achieving the plan depends on the recognition of revenue from large projects, mainly in Japan and the U.S., and improved profit margins in the second half of the fiscal year.

Shareholder Returns

The full-year dividend forecast is ¥85.00 per share. The forecast Payout Ratio against full-year forecast EPS of ¥289.21 is approximately 29.4%, a relatively conservative level. However, the Q1 progress rate for Net Income was only 2.2%, meaning that the feasibility of the dividend depends on achievement of the earnings plan in the second half of the fiscal year. The company holds 2,217 thousand treasury shares, but the amount of share repurchases has not been disclosed; accordingly, this section evaluates only the Payout Ratio.

Risk Factors

1. Lower revenue and earnings in core regions: Revenue in Japan was down -32.9% YoY, while the U.S. was down -58.1% YoY, making these regions the primary causes of the deterioration in consolidated performance. Delays in the timing of project recognition in both regions represent the greatest uncertainty in achieving the full-year plan.

2. Working capital tied up: Accounts receivable of ¥83.98B account for 75.6% of total assets, while work in process of ¥3.59B represents 68.5% of inventories. Delays in project acceptance and collection could affect liquidity.

3. Increased financial expense burden: Interest expenses of ¥0.56B were close to Operating Income of ¥0.63B, while short-term borrowings of ¥54.54B account for the majority of interest-bearing debt. Changes in borrowing rates and refinancing terms may affect future earnings levels.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability was below the industry median, with the Net Income margin particularly 4.5pt below the median, partly due to the financial expense burden.

Growth and Capital Efficiency

The Revenue growth rate was substantially below the industry median, placing the company among those with the largest revenue declines in the industry during the quarter.

※Source: Company calculations

Key Points from the Earnings Results

1. Japan, the core business, accounts for approximately 63% of consolidated Operating Income, making the recovery of project recognition in the region the most important driver for achieving the full-year plan.

2. While the full-year forecast implies an Operating Income margin of 16.5%, the Q1 actual result was only 6.8%, indicating that the company’s plan assumes a substantial improvement in profitability in the second half of the fiscal year.

3. The scale of working capital represented by accounts receivable of ¥83.98B and work in process of ¥3.59B, together with the financial expense burden of ¥0.56B in interest expenses, are structural points to monitor that may influence future performance more significantly than the absolute level of earnings itself.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,660–¥1,762 at ±1% for the Cost of Equity, and ¥1,689–¥1,741 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly disclosed data; this does not constitute 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 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 responsibility, after consulting professionals as necessary.

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AI Financial Analysis

Executive Summary

FY2027 Q1 was a weak start, with sharply lower revenue and operating profit compounded by a material financing-cost burden. Revenue declined 25.8% YoY to ¥9.20bn, while operating income fell 54.4% to ¥0.63bn. Ordinary income declined 56.2% to ¥0.34bn and net income decreased 48.4% to ¥0.24bn. The gross margin nevertheless improved to 23.3% from 22.4% a year earlier, an expansion of approximately 90bp. This indicates that the principal earnings pressure was not gross-profit deterioration. Operating margin compressed to 6.8% from 11.1%, a decline of approximately 429bp, because SG&A expenses rose 8.2% YoY despite the revenue contraction. Net margin fell to 2.6% from 3.7%, a compression of approximately 113bp. Interest expense of ¥0.56bn absorbed approximately 44% of EBIT, reducing the interest burden to 0.555x. Foreign-exchange gains of ¥0.21bn partly supported non-operating income, equivalent to 33.7% of operating income, but did not offset the financing burden. Japan and the United States were the principal regional drags, with external revenue declining 47.8% and 58.1% YoY, respectively. Taiwan was the main positive regional contributor, with revenue up 168.4% and segment profit broadly stable at ¥0.19bn. Korea also delivered strong revenue growth, although its segment margin remained low. China returned to a segment loss despite modest revenue growth. The balance sheet remains liquid on a current-ratio basis, with a 143.3% current ratio and ¥30.49bn of working capital. However, the quality of this liquidity is weakened by receivables representing 75.6% of total assets and cash covering only 0.16x of short-term borrowings. All interest-bearing debt is short term, creating a substantial refinancing dependency. The full-year forecast implies a pronounced recovery after Q1, with current progress rates materially below a standard first-quarter run rate. Consequently, the central issues for the remainder of FY2027 are order execution and revenue conversion in Japan and the United States, normalization of SG&A absorption, collection of project receivables, and reduction in funding-cost pressure.

Profitability Analysis

The reported annualized DuPont ROE is 2.5%, decomposed into a 2.6% net profit margin, 0.331x annualized asset turnover, and 2.88x financial leverage. The weak net margin is the primary constraint on returns, while leverage is already elevated and therefore cannot be viewed as a low-risk source of additional ROE improvement. The EBIT margin was 6.8%, below the 8-15% range generally associated with solid profitability and down approximately 429bp YoY at the operating-margin level. Gross margin expanded approximately 90bp YoY to 23.3%, suggesting that project mix, pricing, or cost execution at the gross-profit level was comparatively resilient. In contrast, SG&A increased to ¥1.52bn from ¥1.40bn, up 8.2% YoY against a 25.8% revenue decline. This adverse operating leverage was the largest earnings driver and reduced the conversion of gross profit into EBIT. The five-factor analysis also shows a 0.555 interest burden, meaning financing costs significantly diluted operating earnings before tax. The tax burden was 0.685, with an effective tax rate of 31.2%. Annualized ROIC of 2.0% is below the 5% warning threshold, indicating that current operating returns are insufficient relative to the capital employed. The recovery in gross margin is constructive, but sustainable earnings improvement requires a recovery in revenue volume and stronger SG&A absorption rather than reliance on foreign-exchange gains.

Growth Assessment

Revenue declined ¥3.20bn YoY to ¥9.20bn in Q1. Japan remained the core business by operating-income contribution, generating segment profit of ¥0.40bn, but its external revenue declined 47.8% YoY to ¥3.89bn and segment profit fell 48.1% to ¥0.40bn. The United States recorded the steepest profit deterioration among the major overseas operations: external revenue fell 58.1% YoY to ¥1.12bn and segment profit declined 88.9% to ¥0.04bn. Taiwan was the strongest growth market, with external revenue increasing 168.4% YoY to ¥1.73bn; segment profit was broadly flat at ¥0.19bn, implying lower margin conversion amid rapid growth. Korea's external revenue rose 124.7% to ¥1.37bn, although segment profit decreased 67.6% to ¥0.02bn and its segment margin was only about 1.4%. China increased external revenue 4.2% to ¥1.03bn but moved to a ¥0.25bn segment loss from a ¥0.09bn profit. Segment margins based on total segment sales were approximately 10.9% in Taiwan, 7.5% in Japan, 3.6% in the United States, 1.4% in Korea, and negative 2.4% in China. The geographic mix therefore shifted toward Taiwan and Korea, but this did not fully compensate for the contraction in the historically larger Japan and US businesses. Against the full-year forecast of ¥97.0bn revenue and ¥16.0bn operating income, Q1 progress is 9.5% and 3.9%, respectively, versus a standard 25% first-quarter pace. Net-income progress is 2.2% against the ¥11.1bn full-year forecast. These unusually low progress rates require a substantial acceleration in subsequent quarters, although project-based water-treatment equipment and engineering revenue can be unevenly recognized. The unchanged forecast places emphasis on management's expected timing of project execution and margin recovery.

Financial Health

Liquidity is adequate in headline terms, with a current ratio of 143.3%, a quick ratio of 142.7%, and working capital of ¥30.49bn. Current assets of ¥100.83bn exceed current liabilities of ¥70.34bn. However, the asset composition is highly concentrated in trade receivables of ¥83.98bn, equal to 75.6% of total assets and 83.3% of current assets. Cash and deposits were ¥8.47bn, while short-term loans were ¥54.54bn. This creates a material maturity mismatch: although current assets exceed current liabilities, immediately available cash covers only 0.16x of short-term debt. All interest-bearing debt is classified as short term, producing a 100.0% short-term debt ratio and heightened refinancing risk. Debt-to-equity was 1.88x, below but close to the 2.0x aggressive-leverage threshold, while debt-to-capital was 58.6%, near the 60% concern threshold. Interest coverage was only 1.12x, leaving limited protection against higher funding rates or weaker operating profit. Accounts payable declined 26.4% YoY to ¥5.71bn, which reduces supplier financing at a time when short-term borrowings increased to ¥54.54bn from ¥51.07bn. Contract liabilities increased to ¥2.14bn from ¥1.75bn, providing some customer-funded support to working capital. Equity declined to ¥38.54bn from ¥39.85bn, while comprehensive income of ¥0.79bn exceeded net income because of favorable valuation and foreign-currency translation movements. Lease obligations of ¥1.58bn are included in non-current liabilities and should be considered alongside borrowings when assessing fixed financing commitments.

Notable B/S Changes

Accounts payable: -¥2.05bn (-26.4% YoY) to ¥5.71bn — lower supplier financing increases reliance on short-term borrowings and weakens the working-capital offset to the large receivables balance.

Cash Flow Quality

The earnings profile indicates elevated working-capital intensity. Annualized receivable days are 833 days, substantially above the 60-day warning threshold, reflecting the very large receivables balance relative to reported quarterly revenue. The annualized cash conversion cycle is 827 days, also materially above the 120-day warning threshold. This length of conversion increases the risk that accounting profit and liquidity diverge during periods of project delivery or slower customer acceptance. Trade receivables increased 2.7% YoY to ¥83.98bn despite Q1 revenue declining 25.8%, which warrants close monitoring of collections and project milestone billing. The allowance for doubtful accounts was ¥0.37bn, equivalent to approximately 0.4% of trade receivables. Manufacturing inventory composition is weighted toward work in process of ¥3.59bn, representing 68.5% of manufacturing inventory and exceeding the 40% warning threshold. The high work-in-process proportion may reflect a project-engineering production cycle, but it also raises execution, completion-delay, and cost-overrun sensitivity. Finished goods were ¥0.48bn, while raw materials were ¥1.17bn. Accounts payable declined 26.4% YoY, reducing the offset provided by supplier credit. The company reported a product-warranty provision of ¥0.32bn, equal to 3.5% of quarterly revenue and above the 3% warning benchmark. The small ¥0.06bn gain on sale of assets was immaterial relative to net income, so reported net income was not meaningfully supported by extraordinary gains. Foreign-exchange gains of ¥0.21bn were material relative to operating income and should not be treated as a substitute for operating cash generation. Cash-flow coverage of dividends and investment spending should be assessed principally through the evolution of receivable collections, short-term borrowing needs, and the cash balance.

Dividend Sustainability

The full-year dividend forecast is ¥85 per share, unchanged from management's disclosed forecast. Based on forecast EPS of ¥289.21, the indicated dividend payout ratio is approximately 29.4%, which is moderate and below the 60% sustainability benchmark. The forecast dividend represents a lower per-share amount than the ¥20 prior-year first-quarter dividend annualized mechanically, but quarterly dividend comparisons are not an appropriate indicator of annual distribution policy. The principal sustainability issue is not the forecast payout ratio but liquidity conversion, given cash of ¥8.47bn, short-term loans of ¥54.54bn, and exceptionally long annualized receivable days. Interest coverage of 1.12x also constrains financial flexibility. Preservation of the announced dividend therefore depends on the forecast earnings recovery and timely conversion of receivables into cash. No share repurchase amount is provided, so a total return ratio is not assessed.

Risk Assessment

Business risks include Project-execution risk is elevated because Q1 revenue progress was only 9.5% of the full-year forecast and work in process accounted for 68.5% of manufacturing inventory., Regional concentration risk remains material: Japan is the core earnings contributor but suffered a 47.8% YoY external-revenue decline, while US external revenue fell 58.1%., China recorded a ¥0.25bn segment loss despite 4.2% revenue growth, indicating margin, cost-control, or project-execution risk in that market., Product-quality and after-sales cost risk is elevated by a ¥0.32bn warranty provision, equal to 3.5% of quarterly revenue., Foreign-currency volatility is material: FX gains of ¥0.21bn were equivalent to 33.7% of operating income, demonstrating sensitivity of below-operating earnings to exchange rates., The water-treatment and semiconductor-related capital-investment supply chain is exposed to customer fab-investment timing, project acceptance delays, cross-border procurement conditions, and competitive tender pricing..

Financial risks include Interest coverage of 1.12x is below the 2.0x warning threshold; approximately 44% of EBIT was consumed by interest expense., All ¥54.54bn of interest-bearing debt is short term, creating substantial refinancing risk., Cash covers only 0.16x of short-term loans, limiting the ability to self-fund debt repayment without receivable collection or refinancing., Debt-to-equity of 1.88x and debt-to-capital of 58.6% indicate a leveraged capital structure with limited tolerance for a further earnings setback., Annualized receivable days of 833 and a cash conversion cycle of 827 days make liquidity dependent on collection timing..

Key concerns include The most immediate concern is the gap between weak Q1 operating profit and the full-year operating-income forecast, requiring a substantial second-half recovery., SG&A increased 8.2% while revenue declined 25.8%, causing severe negative operating leverage., Receivables represent 75.6% of total assets, so collection performance is central to both cash generation and refinancing capacity., Margin recovery must be led by Japan, the United States, and China, rather than solely by rapid top-line growth in Taiwan and Korea..

Investment Implications

Key takeaways include Gross-margin resilience was offset by sharply weaker revenue, SG&A deleverage, and a heavy interest burden., Japan remains the core business, but its sharp Q1 contraction was the major contributor to consolidated profit weakness., Taiwan delivered the strongest revenue growth and maintained the highest major-segment margin, partially diversifying the regional earnings base., The balance sheet has positive working capital, but liquidity quality is constrained by receivable concentration and short-term debt reliance., The unchanged full-year plan embeds a highly back-end-loaded recovery in revenue, operating income, and net income..

Metrics to watch include Quarterly Japan and US order execution, revenue recognition, and segment-profit recovery, China segment margin and the path back from the Q1 loss, Trade receivable balance, annualized DSO, allowance coverage, and collection timing, Short-term loan balance, refinancing terms, interest expense, and interest coverage, SG&A growth relative to revenue growth and consolidated operating-margin recovery, Work-in-process conversion, warranty provision trends, and foreign-exchange sensitivity, Progress toward the full-year revenue forecast of ¥97.0bn and operating-income forecast of ¥16.0bn.

Regarding relative positioning, The company retains a favorable gross-margin profile for a project-oriented manufacturing and engineering business, and Taiwan demonstrates strong growth potential. However, its current annualized ROE of 2.5%, annualized ROIC of 2.0%, 1.12x interest coverage, and 827-day annualized cash conversion cycle place its present financial-risk profile below that of a conservatively funded, cash-convertible industrial peer.