NIKKO (6306) FY2026 Q3 Earnings Report

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Executive Summary

For the nine months ended Q3 of the fiscal year ending March 2026, the Company posted declines in both revenue and earnings despite an improvement in the cost-of-sales ratio, due to deteriorating profitability in the asphalt plant-related business, one of its core businesses. Revenue was ¥31.16B (-5.8% YoY), operating income was ¥1.10B (-29.1%), ordinary income was ¥1.39B (-25.6%), and net income was ¥0.99B (-13.4%). The gross profit margin improved to 31.2% from the prior year, but an increase in the SG&A expense ratio pushed the operating margin down to 3.5%.

Factors Affecting Earnings

【Revenue】Revenue was ¥31.16B, down -5.8% YoY. While the largest segment, the asphalt plant-related business, declined to ¥11.23B (-12.0%), the manufacturing contract-related business declined to ¥2.21B (-43.2%), and the crushing equipment-related business declined to ¥0.98B (-39.1%), the concrete plant-related business increased to ¥10.33B (+13.5%), and the environmental and conveying-related business increased to ¥2.78B (+17.1%).

【Profit and Loss】The gross profit margin improved to 31.2% (29.8% in the prior year), but SG&A expenses increased to ¥8.64B (+4.1%) without corresponding revenue growth, causing the SG&A expense ratio to rise to 27.7% (25.1% in the prior year). Consequently, operating income contracted to ¥1.097B (-29.1%), representing a decline greater than the rate of revenue contraction. Ordinary income was limited to ¥1.39B (-25.6%), supported by non-operating income comprising dividend income of ¥0.23B and foreign exchange gains of ¥0.12B; however, reliance on non-operating income remains high. Extraordinary income of ¥0.04B (gain on sale of investment securities: ¥0.04B) was a temporary factor. In conclusion, the Company as a whole experienced declines in both revenue and earnings.

Segment Analysis

Performance varied significantly by segment. The concrete plant-related business generated revenue of ¥10.33B (+13.5% YoY) and operating income of ¥1.39B (+26.2%), with a margin of 13.5%, making it the largest contributor to Company-wide earnings through higher revenue and earnings. The environmental and conveying-related business also maintained high profitability, with revenue of ¥2.78B (+17.1%), operating income of ¥0.69B, and a margin of 24.7%, resulting in higher earnings. In contrast, the asphalt plant-related business generated revenue of ¥11.23B (-12.0%), while operating income plunged to just ¥0.01B (¥0.28B in the prior year), reducing its margin to 0.0%. The manufacturing contract-related business recorded operating income of ¥0.30B (-51.3%), while the crushing equipment-related business fell into an operating loss of ¥0.07B. The declines in these two businesses and deteriorating profitability in the asphalt plant-related business were the primary causes of the Company-wide earnings decline.

Key Financial Indicators

【Profitability】The operating margin of 3.5% and net profit margin of 3.2% both declined from the prior year. Annualized ROE was 3.7%, while the equity ratio was 56.7%. 【Cash Quality】Cash and deposits declined by -33.4% YoY to ¥9.35B, while short-term borrowings were also reduced to ¥3.69B, indicating efforts to improve funding efficiency. Inventories were ¥3.88B, of which work in process was ¥11.35B, both increasing from the prior year; the progress of projects and the status of cost recovery are weighing on working capital. 【Investment Efficiency】Investment securities increased by +40.3% YoY to ¥7.80B, accounting for 12.4% of total assets. Goodwill was ¥0.19B, equivalent to 0.5% of net assets, and was immaterial, indicating that the risk of impairment related to M&A is limited. 【Financial Soundness】Liquidity was secured, with current assets of ¥36.44B against current liabilities of ¥19.09B. Long-term borrowings were ¥4.40B, while contract liabilities were ¥6.54B (+28.4% YoY), indicating progress in receiving advance payments for orders; however, management of performance obligations will be important.

Cash Flow Analysis

As a cash flow statement has not been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits decreased by ¥4.69B (-33.4% YoY) to ¥9.35B, while short-term borrowings were also reduced by ¥1.79B (-32.7%), suggesting that funds may have been used for debt repayment. Accounts receivable and notes receivable were ¥5.77B, down ¥4.39B YoY, and progress in collecting receivables appears to have contributed to cash generation. Meanwhile, inventories increased by ¥2.66B YoY to ¥3.88B, of which work in process was ¥11.35B, indicating continued cash tied up in projects in progress. Investment securities increased by ¥2.24B to ¥7.80B, suggesting that a portion of surplus funds may have been allocated to securities investments. Contract liabilities increased by ¥1.44B to ¥6.54B, and the increase in advance payments received for orders was a positive factor for working capital.

Earnings Quality

Ordinary income of ¥1.39B exceeded operating income of ¥1.097B, but the difference was largely attributable to dividend income of ¥0.23B and foreign exchange gains of ¥0.12B included in non-operating income. Accordingly, the level of operating income, which reflects the Company’s core earnings power, provides a more accurate representation of underlying conditions. Extraordinary income of ¥0.04B resulted from gains on the sale of investment securities and was a temporary factor; therefore, a portion of pretax income of ¥1.43B was supported by non-recurring items. Comprehensive income increased substantially by +75.3% YoY to ¥2.33B, primarily due to an increase in valuation differences on other securities, and its divergence from net income of ¥0.99B does not indicate an improvement in the core business. From an accrual perspective, work in process increased by +27.7% YoY, and the accumulation of inventories and work in process without corresponding revenue growth warrants attention when assessing earnings quality.

Earnings Forecast and Guidance

The full-year Company forecast is revenue of ¥51.0B (+3.7% YoY), operating income of ¥3.00B (+8.4%), and ordinary income of ¥3.10B (+0.9%), with no revisions to either the earnings forecast or the dividend forecast. The progress ratios for the nine months ended Q3 were 61.1% for revenue, 36.6% for operating income, and 44.9% for ordinary income, all below the standard progress benchmark of approximately 75% after nine months. In particular, operating income of approximately ¥1.90B must be generated in Q4 alone, equivalent to an approximately 9.6% full-year margin. Accumulation of high-margin projects, including in the concrete plant-related business, and a recovery in profitability in the asphalt plant-related business are prerequisites for achieving the plan.

Shareholder Returns

The Q2 dividend was ¥17.00 per share, and the full-year dividend forecast is ¥34.00, assuming equal interim and year-end dividends, unchanged from the prior year’s annual dividend. Based on forecast full-year EPS of ¥54.65, the forecast payout ratio is 62.2%, slightly above the generally regarded sustainability benchmark of 60%. Net income for the nine months ended Q3 was ¥0.99B, only 47.0% of the full-year net income forecast of ¥2.10B; therefore, earnings recovery in Q4 will be important for maintaining the dividend. Treasury shares amounted to ¥0.645B, down from the prior year, but the amount of share repurchases conducted during the period is not clear from the disclosures. Accordingly, this report evaluates only the payout ratio.

Risk Factors

1. Deteriorating profitability in the core segment: The asphalt plant-related business generated revenue of ¥11.23B (-12.0% YoY), while segment profit plunged from ¥0.28B in the prior year to ¥0.01B, reducing the margin to 0.0%. As the Company’s largest business by revenue, any delay in profitability recovery would have a significant impact on Company-wide operating income.

2. Working capital tied up: Work in process increased by +27.7% YoY to ¥11.35B, and total inventories also increased substantially. As an order-based manufacturing business, delays in project progress and cost management are increasing the risk of funds being tied up and margins deteriorating.

3. Uncertainty surrounding achievement of the full-year plan: The progress ratio for operating income was only 36.6%, below the standard progress benchmark. High-margin revenue recognition is required in Q4, and any shortfall could result in downside risk to full-year results.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability is well below the industry median and is also below the lower bound of the IQR.

Growth and Capital Efficiency

Revenue growth is also below the industry median, positioning the Company among industry participants experiencing declining revenue.

※Source: Compiled by the Company

Key Points from the Financial Results

1. While the gross profit margin improved to 31.2%, the operating margin declined to 3.5% due to an increase in the SG&A expense ratio, highlighting the challenge of absorbing fixed costs within the cost structure.

2. The concrete plant-related business and the environmental and conveying-related business maintained higher revenue, earnings, and profitability, while deteriorating profitability in the asphalt plant-related business, the largest business by revenue, reduced Company-wide earnings.

3. The progress ratio for the nine months ended Q3 against the full-year plan was only 36.6% for operating income. Together with the increase in work in process and the increase in provisions for losses on orders, the trend in profitability improvement during Q4 warrants attention.

Theoretical Share Price (Reference Value)

Sensitivity: ¥816–¥862 at ±1% for the cost of equity, and ¥836–¥841 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 quarter-end are used (there is a timing mismatch with the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit five-year fade) / Interest Rate Reference Month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this 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 financial results analysis document created by AI based on XBRL financial results 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 financial results data. Investment decisions should be made at your own responsibility, and you should consult a professional adviser as necessary.

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