NIKKISO (6376) FY2026 Q1 Earnings Report

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Executive Summary

Although revenue and earnings increased during the quarter, the key point from an earnings-quality perspective is that Operating Cash Flow (OCF) fell deeply into negative territory due to deteriorating working capital. Revenue was ¥553.7B (+14.6% YoY), Operating Income was ¥36.9B (+24.9%), Profit Before Tax was ¥42.5B (+133.5%), and Net Income attributable to owners of the parent was ¥31.6B (+39.4%). The increase in revenue was primarily driven by significant expansion in the Industrial Business, while the increase in Operating Income benefited from fixed-cost absorption, as the growth in SG&A expenses (+6.3%) remained below revenue growth. Meanwhile, OCF was negative ¥56.1B, as decreases in trade payables and increases in inventories and trade receivables pressured cash generation.

Factors Affecting Earnings

【Revenue】Revenue was ¥553.7B, representing a +14.6% increase YoY. The Industrial Business led growth with revenue of ¥365.4B (+23.8%), accounting for 66% of total company revenue. The Medical Business was nearly flat at ¥188.2B (+0.1%), indicating that growth was concentrated in the Industrial Business.

【Profit and Loss】Operating Income was ¥36.9B (+24.9%), and the Operating Margin improved by approximately 55bp to 6.7% from 6.1% in the previous year. The gross margin was 29.3%, down approximately 45bp from 29.7% in the previous year, indicating that the cost ratio actually deteriorated. The increase in Operating Income was attributable to fixed-cost absorption, as SG&A expense growth (+6.3%) remained below revenue growth (+14.6%), rather than to cost improvements. The substantial decline in financial expenses from ¥1.48B in the previous year to ¥0.33B also boosted Profit Before Tax (+133.5%), while Net Income was ¥31.6B (+39.4%). In conclusion, both revenue and earnings increased.

Segment Analysis

The Industrial Business was the primary contributor to the company-wide increase in earnings, with revenue of ¥365.4B (+23.8%), segment profit of ¥31.1B (+82.3%), and a margin of 8.5%, representing an improvement of approximately 270bp from 5.8% in the previous year. The Medical Business recorded revenue of ¥188.2B (+0.1%), segment profit of ¥16.4B (-5.7%), and a margin of 8.7%, down approximately 50bp from 9.2% in the previous year, underperforming the Industrial Business in both growth and profitability. Against total segment profit of ¥47.5B, adjustments including company-wide expenses amounted to negative ¥10.6B, compared with negative ¥4.9B in the previous year. The increase in adjustments was a factor depressing consolidated Operating Income to ¥36.9B.

Key Financial Indicators

【Profitability】The Operating Margin of 6.7% (6.1% in the previous year) and Net Profit Margin of 5.7% (4.7% in the previous year) both improved, but the gross margin declined to 29.3% from 29.7% in the previous year. Annualized ROE is estimated at 7.8%, while ROIC is estimated at approximately 4.4%; both remain at levels indicating room for improvement in capital efficiency.【Cash Flow Quality】OCF was negative ¥56.1B, resulting in an OCF/Net Income ratio of negative 1.78x relative to Net Income of ¥31.6B, indicating that the increase in earnings did not translate into cash generation.【Investment Efficiency】Capital expenditures were ¥17.7B, and Free Cash Flow was negative ¥78.0B due to the OCF shortfall.【Financial Soundness】The Equity Ratio improved to 45.3% from 44.2% in the previous year, and cash and cash equivalents totaled ¥386.1B. Short-term borrowings increased +161.3% YoY to ¥22.69B, while long-term borrowings declined to ¥64.14B, indicating a shift toward shorter-term financing.

Cash Flow Analysis

OCF was negative ¥56.1B, a significant deterioration from positive ¥42.1B in the same period of the previous year. The primary factor was an ¥80.0B decrease in trade payables and other liabilities. In addition, a ¥15.9B increase in inventories, a ¥12.6B increase in trade receivables, and an ¥11.5B decrease in contract liabilities combined to pressure cash generation as working capital accumulated in line with revenue growth. Investing CF was negative ¥21.9B, with capital expenditures of ¥17.7B and acquisitions of intangible assets of ¥4.2B representing the primary outflows. Free Cash Flow was negative ¥78.0B, meaning that shareholder returns, including dividend payments of ¥14.3B, were not funded by internally generated cash flow during the quarter. Financing CF was positive ¥16.4B, with ¥49.8B in long-term borrowings partially covering the shortfall. As a result, cash and cash equivalents declined from ¥446.6B at the beginning of the period to ¥386.1B.

Earnings Quality

The increase in earnings during the quarter included the impact of non-recurring factors. The increase in Profit Before Tax (+133.5%) significantly exceeded the growth in Operating Income (+24.9%), largely due to non-operating factors, namely the substantial decline in financial expenses from ¥1.48B in the previous year to ¥0.33B and the increase in financial income from ¥0.29B to ¥0.77B. It should be noted that this improvement may not be highly repeatable. The OCF/Net Income ratio was low at negative 1.78x, indicating that the accounting-based increase in earnings did not translate into cash generation during the quarter. The main causes were deterioration in working capital, including a decrease in trade payables and increases in inventories and trade receivables, and this situation requires monitoring from an earnings-quality perspective. Comprehensive Income was ¥6.65B, exceeding Net Income of ¥3.16B; the difference was attributable to increases in other comprehensive income, including foreign currency translation adjustments for foreign operations (+¥1.59B).

Earnings Forecast and Guidance

For the full year, the company has announced Revenue of ¥233.50B, Operating Income of ¥16.50B (+7.6% YoY), EPS of ¥199.19, and a dividend of ¥50.0, with no revisions to its earnings or dividend forecasts during the quarter. Q1 progress rates were 23.7% for Revenue, 22.4% for Operating Income, and 24.3% for Net Income. All were slightly below the standard quarterly progress rate of 25%, but not materially divergent. The relatively low progress rate for Operating Income means that maintaining profitability in the Industrial Business and recovering profitability in the Medical Business will be key to achieving the full-year plan.

Shareholder Returns

Dividend payments during the quarter were ¥14.3B, representing a Payout Ratio of approximately 45.5% against Net Income attributable to owners of the parent of ¥31.6B (no share repurchases were conducted, and this is distinguished from the Total Return Ratio). Based on the full-year company forecast of an annual dividend of ¥50.0 and projected EPS of ¥199.19, the Payout Ratio is approximately 25.1%. Both OCF and Free Cash Flow were negative during the quarter, and dividends were not funded by internally generated cash flow; however, cash and cash equivalents of ¥386.1B and a sound current ratio support short-term payment capacity.

Risk Factors

1. Deterioration in working capital and cash-generation capacity: OCF was negative ¥56.1B, with a ratio of negative 1.78x relative to Net Income. If the situation in which earnings are not converted into cash continues, primarily due to the ¥80.0B decrease in trade payables, reliance on borrowings and cash on hand may increase.

2. Concentration of growth and profitability across segments: The Industrial Business achieved increases in both revenue and earnings (revenue +23.8%, profit +82.3%), while the Medical Business was flat in revenue (+0.1%) and saw profit decline by 5.7%. Growth and profit expansion are concentrated in the Industrial Business, meaning that changes in its demand, pricing, and cost environment could have a significant impact on consolidated performance.

3. Shift toward shorter-term financing: Short-term borrowings surged +161.3% YoY to ¥22.69B, while long-term borrowings declined to ¥64.14B. Although cash of ¥386.1B exceeds short-term borrowings, cash coverage of total current liabilities remains approximately 0.41x, requiring monitoring of short-term liquidity.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability is approximately in line with, or slightly below, the industry median.

Growth and Capital Efficiency

The Revenue Growth Rate significantly exceeds the industry median, indicating a high level of growth within the industry.

※Source: Compiled by the company

Key Points from the Financial Results

1. The Operating Margin improved by approximately 55bp to 6.7%, but this was due to fixed-cost absorption resulting from the relative restraint of SG&A expense growth, while the gross margin declined by approximately 45bp to 29.3%. Structural improvement in costs has not yet been confirmed.

2. Net Income growth (+39.4%) exceeded Operating Income growth (+24.9%) and included the contribution of a non-operating improvement in net financial income. The sustainability of growth in core operating profitability requires continued assessment.

3. The deficit in OCF and Free Cash Flow was primarily attributable to quarter-specific working-capital movements, including a decrease in trade payables and increases in inventories and trade receivables. Whether these factors normalize in subsequent quarters will be a key point in evaluating the quality of the financial results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,352–¥2,490 at ±1% for the cost of equity, and ¥2,416–¥2,421 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 end of the quarter 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 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 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 with professionals as necessary.

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