NIKKO CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The key feature of Q1 was the turnaround to operating profitability, driven by substantial revenue growth and fixed-cost absorption. Revenue was ¥118.2B (¥82.9B in the same period of the previous year, YoY+42.5%), Operating Income was ¥2.7B (¥-0.5B in the same period of the previous year, YoY+607.4%), Ordinary Income was ¥4.6B (¥0.7B in the same period of the previous year, YoY+569.1%), and Net Income was ¥2.0B (¥-0.6B in the same period of the previous year, YoY+432.8%). The increase in revenue was primarily attributable to the doubling of the Concrete Plant-Related Business (+101.2%) and expansion of the Asphalt Plant-Related Business (+33.8%). Operating leverage took effect as the 9.1% increase in SG&A expenses was well below the revenue growth rate. However, the operating margin remained low at 2.3%, indicating that a full-scale improvement in profitability is still underway.

Factors Driving Earnings Changes

【Revenue】Revenue was ¥118.2B, up +42.5% year on year (+¥35.3B). By segment, the Concrete Plant-Related Business was the largest contributor to revenue growth, at ¥48.8B (41.3% of total revenue, YoY+101.2%), followed by the Asphalt Plant-Related Business at ¥41.3B (35.0% of total revenue, YoY+33.8%). Meanwhile, the Environmental and Conveyance-Related Business declined to ¥7.0B (YoY-12.7%), and the Contract Manufacturing-Related Business declined to ¥5.0B (YoY-26.1%), indicating that growth is concentrated in certain businesses.

【Profit and Loss】Gross profit increased to ¥34.0B (YoY+21.0%), but the gross margin declined to 28.7% from 33.8% in the same period of the previous year, suggesting the impact of higher costs. SG&A expenses, meanwhile, increased only 9.1% year on year to ¥31.2B, and as a percentage of revenue improved by 8.1pt to 26.4% from 34.5% in the same period of the previous year. This fixed-cost absorption effect resulted in a turnaround to Operating Income of ¥2.7B (¥-0.5B in the same period of the previous year). Ordinary Income was ¥4.6B, supported by ¥2.2B in non-operating income, including ¥1.6B in dividend income. Net Income was ¥2.0B, but the effective tax rate was high at 53.9%, limiting the conversion of Profit Before Tax of ¥4.4B into Net Income. Although the Company achieved higher revenue and profit, the quality of revenue growth reflects both a decline in the gross margin and SG&A absorption, which should be noted.

Segment Analysis

In terms of segment profit, the Concrete Plant-Related Business was the largest profit contributor, at ¥6.8B (YoY+144.0%, profit margin of 13.9%). The Environmental and Conveyance-Related Business maintained high profitability at ¥2.1B (profit margin of 29.7%). On the other hand, despite higher revenue, the Asphalt Plant-Related Business recorded an Operating Loss of ¥1.8B, worsening from ¥-1.2B in the same period of the previous year, suggesting deterioration in project profitability. The Crusher-Related Business also continued to incur a loss, albeit on a small scale (¥-0.2B). Corporate expenses were ¥5.9B, up from ¥5.1B in the same period of the previous year, and after deduction from the total reported segment profit of ¥7.7B, consolidated Operating Income was ¥2.7B.

Key Financial Metrics

【Profitability】The Operating Margin of 2.3% (¥-0.7% in the same period of the previous year) and Net Profit Margin of 1.7% (¥-0.7% in the same period of the previous year) both turned positive, but their absolute levels remain low. The gross margin of 28.7% declined from 33.8% in the same period of the previous year, indicating that cost control remains a challenge despite higher revenue.【Cash Flow Quality】Work in process stood at ¥105.8B, accounting for 70.6% of inventories. While this reflects the progress of contracted projects, it also entails the risk of funds being tied up. Contract liabilities increased 43.1% year on year to ¥90.3B, with higher customer advances supporting cash management.【Investment Efficiency】Annualized ROE was 2.2%, while the Equity Ratio was 56.4%, slightly down from 58.0% in the same period of the previous year. ROE remains low in absolute terms, making improvement in capital efficiency a future challenge.【Financial Soundness】Current assets were ¥396.1B versus current liabilities of ¥223.8B, ensuring short-term financial flexibility. Cash and deposits increased 23.4% year on year to ¥141.7B, and together with long-term borrowings of ¥41.3B, the debt structure remains conservative.

Cash Flow Analysis

Although an individual cash flow statement disclosure is not available, an analysis of fund movements based on changes in the balance sheet shows that cash and deposits increased by ¥26.9B (+23.4%) year on year to ¥141.7B. Accounts receivable declined by ¥31.2B (-32.7%) from ¥95.2B in the same period of the previous year to ¥64.0B, with progress in collections supporting cash levels. Meanwhile, work in process increased by ¥14.8B (+16.4%) year on year, indicating that funds remain tied up as contracted projects progress through manufacturing. Contract liabilities (customer advances) increased by ¥27.2B to ¥90.3B, creating a structure in which advance receipts at the order stage supplement liquidity. Overall, collections of accounts receivable and growth in customer advances are supporting cash efficiency, while the conversion of work in process into cash will be the key to future cash generation.

Quality of Earnings

Of Ordinary Income of ¥4.6B, non-operating income of ¥2.2B, including ¥1.6B in dividend income, made a meaningful contribution to income at the ordinary income level. Operating Income of ¥2.7B is an indicator of the profitability of the core business alone and should be emphasized as a measure of earnings power excluding non-operating income. An impairment loss on investment securities of ¥0.2B was recorded as an extraordinary loss, but its scale was small and its impact on earnings was limited as a temporary factor. The effective tax rate was high at 53.9%, with income taxes and other taxes of ¥2.4B incurred against Profit Before Tax of ¥4.4B, limiting the conversion into Net Income. Comprehensive Income was ¥5.1B, exceeding Net Income of ¥2.0B. The difference was primarily attributable to a ¥2.7B increase in the valuation difference on securities, which includes valuation fluctuations separate from the earnings power of the core business.

Earnings Forecast and Guidance

The full-year forecast calls for Revenue of ¥550.0B (YoY+11.4%), Operating Income of ¥38.0B (YoY+22.6%), and Ordinary Income of ¥38.3B (YoY+11.8%). Q1 revenue progress was 21.5%, within the range of seasonality, while Operating Income progress was well below plan at 7.2%. The Q1 Operating Margin of 2.3% was below the full-year forecast Operating Margin of 6.9%, making recovery in the gross margin and improvement in project profitability toward the second half of the fiscal year prerequisites for achieving the plan. There were no revisions to either the earnings forecast or the dividend forecast, and the Company is maintaining its full-year plan at this time.

Shareholder Returns

The full-year forecast dividend per share is ¥42.00, and the full-year forecast EPS is ¥68.79, resulting in a forecast Payout Ratio based solely on dividends of 61.1%. Based on the average number of shares outstanding during the period of 38,534,907 shares, total annual dividends are estimated at approximately ¥16.2B, representing the level of shareholder returns against forecast full-year Net Income of ¥26.5B. Cash and deposits of ¥141.7B and an Equity Ratio of 56.4% support the Company’s financial capacity to pay dividends. However, Q1 Net Income was only ¥2.0B, and the realization of the annual dividend depends on achieving the second-half earnings plan.

Risk Factors

1. Project profitability and cost inflation risk: The gross profit margin declined 5.1pt year on year to 28.7%, and higher material prices, subcontracting costs, and deterioration in the profitability of individual projects could place further pressure on the gross margin. The Asphalt Plant-Related Business recorded an Operating Loss of ¥1.8B despite higher revenue.

2. Working capital efficiency risk: Work in process stood at ¥105.8B, accounting for 70.6% of inventories, and increased by ¥14.8B year on year. If delays occur in the schedule or acceptance inspections of contracted projects, the period during which funds remain tied up could be prolonged.

3. High tax burden risk: The effective tax rate was high at 53.9%, with income taxes and other taxes of ¥2.4B incurred against Profit Before Tax of ¥4.4B. This indicates a structure in which increases in Profit Before Tax may not be sufficiently converted into Net Income.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability is substantially below the industry median, placing it in the lower-performing group.

Growth and Capital Efficiency

The Company’s revenue growth rate is notably high within the industry, placing it among the top performers from a growth perspective.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Q1 turned Operating Income positive due to substantial revenue growth and cost absorption, while the gross margin declined 5.1pt, indicating that the quality of revenue growth is accompanied by cost-related challenges.

2. The Concrete Plant-Related Business was the largest driver of both revenue and profit, but performance was uneven across businesses, including the Operating Loss in the Asphalt Plant-Related Business and revenue declines in the Environmental and Contract Manufacturing Businesses.

3. Q1 progress toward the full-year Operating Income forecast was 7.2%. Even taking seasonality into account, recovery in the gross margin and improvement in project profitability in the second half of the fiscal year will be key checkpoints for achieving the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥882–¥931 at Cost of Equity ±1%; ¥904–¥907 at ω±0.1.

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 gap 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 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 the future share price.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 with a professional as necessary.

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