Nabtesco Corporation FY2026 Q2 Earnings Report

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Executive Summary

In the interim period, in addition to revenue growth, operating income recorded a substantial 72.4% year-on-year increase, confirming a structural improvement in profitability. Revenue was ¥1,674.0B (+16.8% year-on-year), operating income was ¥158.5B (+72.4%, operating margin 9.5%), profit before tax was ¥191.3B (+124.0%), and net income attributable to owners of the parent was ¥124.2B (+90.6%) (consolidated net income including non-controlling interests was ¥129.5B, up 78.4%). The primary drivers of profit growth were the effects of cost control through price pass-through and improved product mix in the core segments, as well as the turnaround to a ¥31.8B profit in equity-method investment income.

Factors Affecting Performance

【Revenue】All segments recorded revenue growth, with broad-based demand expansion supporting top-line growth. Accessibility Solutions, which has the highest composition ratio (35.3%), recorded ¥590.0B (+12.2%); Transport Solutions (32.5%) recorded ¥544.2B (+17.1%); and Component Solutions (27.2%) recorded ¥455.2B, representing the highest growth rate at +23.6%. The primary driver of revenue growth was demand recovery across segments, with particularly strong growth in Component Solutions boosting overall growth.

【Profit and Loss】Operating income was ¥158.5B (+72.4%). The cost of sales ratio declined from 70.1% to 68.8%, improving the gross margin to 31.2% (29.9% in the previous year, +1.3pt), while the SG&A ratio was also contained at 22.3%, down from 23.9% (-1.6pt). As a result, the operating margin improved by +3.1pt, from 6.4% to 9.5%. Profit before tax (+124.0%) increased even more than operating income, supported by improved net financial income and the turnaround in equity-method gains and losses (previous year: ▲¥0.4B → current period: +¥31.8B). Meanwhile, the effective tax rate rose from 28.2% to 32.3%, and the growth in net income attributable to owners of the parent (+90.6%) was somewhat below the growth in profit before tax (+124.0%). Overall, the results reflect both revenue and profit growth, with profit growth substantially exceeding revenue growth, indicating high-quality earnings.

Segment Analysis

By segment, Transport Solutions was the largest contributor to operating profit, recording operating income of ¥93.5B (+31.8%) and a margin of 17.2% (+1.9pt from 15.3% in the previous year), and serving as the key driver in terms of both scale and margin. Component Solutions recorded operating income of ¥48.4B (+160.8%) and a margin of 10.6% (+5.6pt from 5.0% in the previous year), showing the largest degree of improvement and a notable recovery in profitability. Accessibility Solutions recorded operating income of ¥56.8B (+33.6%) and a margin of 9.6% (+1.5pt from 8.1% in the previous year), demonstrating steady improvement. Meanwhile, Other Businesses outside the reportable segments recorded operating income of ¥4.9B (-29.7%) and a margin of 5.8% (-3.6pt from 9.4% in the previous year), making it the only segment with both profit decline and margin deterioration. The Company-wide profit structure is consequently becoming relatively more dependent on Transport Solutions.

Key Financial Metrics

【Profitability】The operating margin improved by +3.1pt to 9.5%, from 6.4% in the previous year, driven by both the improvement in gross margin to 31.2% (29.9% in the previous year, +1.3pt) and the reduction in the SG&A ratio to 22.3% (23.9% in the previous year, -1.6pt). The net margin based on net income attributable to owners of the parent improved by +2.9pt to 7.4%, from 4.5% in the previous year.【Cash Flow Quality】Operating cash flow (OCF) was ¥220.3B, equivalent to approximately 1.77 times net income attributable to owners of the parent of ¥124.2B, indicating strong cash backing for earnings.【Investment Efficiency】ROE was 4.4%, while total asset turnover, calculated as revenue/total assets, improved to 0.37x from 0.31x in the previous year, indicating gradual improvement in asset efficiency.【Financial Soundness】The equity ratio rose by +3.8pt to 62.4%, from 58.6% in the previous year. Cash and cash equivalents of ¥995.8B exceeded total interest-bearing debt of ¥434.3B, placing the Company in a net cash position and indicating that its financial foundation has become even more robust compared with the previous year.

Cash Flow Analysis

Operating cash flow was ¥220.3B (+8.4% year-on-year), equivalent to approximately 1.77 times net income attributable to owners of the parent of ¥124.2B, indicating strong cash backing for earnings. In terms of working capital, the increase in inventories of -¥45.6B and the decrease in accounts payable of -¥60.0B were headwinds to cash flow, but the subtotal of ¥276.3B, reflecting the recovery in operating income, absorbed these effects. Investing cash flow turned from a net outflow of -¥102.5B in the previous year to a net inflow of +¥114.8B in the current period. The investment burden itself remained contained, with capital expenditures of -¥24.0B and intangible asset acquisitions of -¥12.4B. Financing cash flow was -¥84.6B, with dividend payments of -¥47.0B serving as the primary outflow factor. As a result, free cash flow, calculated as the sum of operating cash flow and investing cash flow, was substantial at ¥335.1B. Cash and cash equivalents consequently accumulated to ¥995.8B (¥733.4B in the previous year, +35.8%), while comfortably covering dividends and investments.

Earnings Quality

The earnings increase in the interim period was primarily driven by improvement at the operating level, while non-operating items also provided support, resulting in generally favorable earnings quality. Equity-method gains and losses turned from -¥0.4B in the previous year to +¥31.8B, while net financial income was positive at +¥1.1B, consisting of financial income of ¥7.5B and financial expenses of ¥6.4B, contributing to the increase in profit before tax. These non-operating items are small relative to revenue, and the primary drivers of profit growth were improvements in the gross margin and SG&A ratio in the core business; therefore, dependence on temporary factors can be viewed as limited. The effective tax rate rose from 28.2% in the previous year to 32.3%, contributing to the fact that net income attributable to owners of the parent increased only +90.6%, compared with the +124.0% increase in profit before tax. The fact that OCF reached 1.77 times net income attributable to owners of the parent indicates limited accruals, or divergence between accounting profit and cash flows, and strong cash backing for earnings.

Earnings Forecast and Guidance

Progress toward the full-year forecast was 48.7% for revenue (¥1,674.0B/¥3,440.0B), 48.6% for operating income (¥158.5B/¥326.0B), and 51.5% for net income attributable to owners of the parent (¥124.2B/¥241.0B), generally in line with the 50% benchmark expected at the interim stage. The interim dividend of ¥41 against the full-year dividend forecast of ¥82 represents a 50.0% progress rate and is consistent with the full-year plan. Although the earnings forecast was revised during the quarter, the dividend forecast was not revised. In light of the improvement in profit margins in the first half and the positive contribution from equity-method income, both full-year revenue and profit are considered to be progressing in line with plan.

Shareholder Returns

The interim dividend was ¥41, representing a 50.0% progress rate against the full-year dividend forecast of ¥82. Dividing the full-year dividend forecast of ¥82 by the full-year forecast EPS of ¥206.2 gives a payout ratio of approximately 39.8%. Dividend payments of ¥47.0B represented approximately 7.1 times coverage by free cash flow of ¥335.1B, indicating that the dividend burden is small relative to cash generation. Given cash on hand of ¥995.8B and the low level of interest-bearing debt, the financial foundation supporting the sustainability of the current dividend level is sound.

Risk Factors

1. Concentration in short-term debt: Short-term borrowings of ¥433.97B account for 99.9% of total interest-bearing debt of ¥434.3B, while long-term borrowings have been reduced to ¥0.3B. Although the Company has practical resilience due to its net cash position, with cash of ¥995.8B exceeding interest-bearing debt, concentrated refinancing management remains a financial management issue.

2. Working capital retention: Inventories increased to ¥578.7B (+9.5% from ¥528.4B in the previous year), creating a -¥45.6B use of funds in OCF. Meanwhile, accounts payable declined to ¥399.6B (-11.5% from ¥451.6B in the previous year), creating an additional -¥60.0B cash outflow factor in cash flow. Movements in both inventory and trade payables are weighing on working capital turnover.

3. Concentration of segment earnings: The operating margin of businesses outside the reportable segments declined to 5.8% (-3.6pt from 9.4% in the previous year), making it the only segment with a profit decline (-29.7%). Profit contribution is concentrated in Transport Solutions (composition ratio 32.5%, profit margin 17.2%), indicating relatively high dependence on a specific segment.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

The Company’s profitability is slightly below the industry median, but exceeds the lower bounds of the IQR (7.5% and 4.2%), placing it in the middle range relative to its industry peers.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median by +5.4pt, placing the Company at a relatively high level within the industry in terms of growth.

※Source: Company compilation

Key Takeaways from the Results

1. The operating margin of 9.5% (+3.1pt from 6.4% in the previous year) was driven by both gross margin improvement (+1.3pt) and SG&A ratio containment (-1.6pt). This can be interpreted as a sign of structural profitability improvement rather than a temporary factor.

2. OCF of ¥220.3B, equivalent to approximately 1.77 times net income attributable to owners of the parent, was secured, while free cash flow was also ample at ¥335.1B, indicating strong cash backing for earnings.

3. The increase in inventories (+9.5%) and decrease in accounts payable (-11.5%) were headwinds to working capital. Inventory and accounts receivable turnover will therefore remain factors to monitor as they may affect future cash-generation capacity.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥2,356–¥2,494 at ±1% in the cost of equity, and ¥2,423–¥2,424 at ±0.1 in ω.

Notes:

• 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 time-period mismatch with the full-year forecast.

（Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not forecast 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 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 with a professional as necessary.

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