NIKKISO CO.,LTD. FY2026 Q2 Earnings Report

Quick View

Executive Summary

Although revenue and profit increased, with profit growth significantly outpacing revenue growth, operating cash flow turned negative, making this an earnings release that requires attention to earnings quality. Revenue was ¥1,184.2B (+18.0% YoY), Operating Income was ¥90.2B (+53.8%), and Net Income attributable to owners of the parent was ¥82.6B (+67.5%). The primary driver of the earnings increase was operating leverage, as revenue growth (+18.0%) significantly exceeded the increase in SG&A expenses (+5.6%); consequently, the Operating Income margin improved from 5.8% in the same period of the previous year to 7.6%. Meanwhile, OCF was negative ¥20.9B, with increases in accounts receivable and inventories absorbing funds, making this a key area of focus going forward.

Factors Affecting Performance

【Revenue】Revenue was ¥1,184.2B, representing an 18.0% YoY increase. By segment, the Industrial Segment led overall growth with ¥780.7B (+26.5%), while the Medical Segment remained at ¥403.4B (+4.5%). The revenue mix was approximately 66% Industrial and 34% Medical, with Industrial growth serving as the central driver of the revenue increase.

【Profit and Loss】Operating Income was ¥90.2B (+53.8% YoY), and the Operating Income margin improved by 177bp from 5.8% in the same period of the previous year to 7.6%. The gross margin declined slightly from 29.4% in the same period of the previous year to 29.2%, but this was absorbed as revenue growth (+18.0%) outpaced the increase in SG&A expenses (+5.6%), resulting in higher profit. By segment, the Industrial Segment posted ¥73.2B (+63.8%, 9.4% margin), while the Medical Segment posted ¥35.2B (+36.0%, 8.7% margin); both recorded profit growth exceeding revenue growth. Financial income of ¥16.8B exceeded financial expenses of ¥6.9B, resulting in Profit Before Tax of ¥104.0B, exceeding Operating Income. Net Income was ¥83.8B (+71.1%), concluding with higher revenue and profit.

Segment Analysis

The Industrial Segment, with revenue of ¥780.7B (+26.5%), Operating Income of ¥73.2B (+63.8%), and a 9.4% margin, is the core business driving overall revenue and profit growth. The Medical Segment posted revenue of ¥403.4B (+4.5%), Operating Income of ¥35.2B (+36.0%), and an 8.7% margin; although revenue growth was moderate, margin improvement is progressing. Both segments recorded profit growth exceeding their revenue growth rates, with cost efficiencies contributing to both businesses.

Key Financial Metrics

【Profitability】The Operating Income margin was 7.6%, improving by 177bp from 5.8% in the same period of the previous year, while the Net Income margin was 7.0%, up 206bp from 4.9%. The gross margin was nearly flat at 29.2% (29.4% in the previous year), and the primary driver of profitability improvement was operating leverage resulting from a decline in the SG&A expense ratio.【Cash Flow Quality】OCF was negative ¥20.9B, representing a significant divergence from Net Income of ¥82.6B, as increases in trade receivables and inventories absorbed funds. The OCF/Net Income ratio was negative, confirming a divergence between accounting profit and cash generation.【Investment Efficiency】ROE (annualized) was 9.6%, with the increase in the Net Income margin serving as the primary driver. Total asset turnover remained in the 0.6x range on an annualized basis, indicating room for improvement in asset efficiency.【Financial Soundness】While the Equity Ratio remained at a solid 46.0%, short-term borrowings increased significantly from the same period of the previous year, indicating a change in the funding mix associated with the expansion of working capital.

Cash Flow Analysis

OCF was negative ¥20.9B, deteriorating significantly from positive ¥75.5B in the same period of the previous year. The primary factors were the increase in inventories (-¥11.6B), the decrease in trade payables (-¥18.4B), and the cash absorption from working capital resulting from increases in trade receivables and a decrease in contract liabilities (-¥39.5B). Investing CF was negative ¥36.7B, reflecting continued expenditures centered on capital investments of ¥31.9B. Financing CF was negative ¥14.7B, with dividend payments of ¥14.3B representing the primary cash outflow; no share buybacks were conducted. As a result, free cash flow was negative ¥57.6B, indicating that operating activities alone did not cover investments and dividends. Although cash and cash equivalents stood at ¥379.8B, improvement in OCF will be a key focus for future funding management.

Earnings Quality

The earnings increase for the current period was primarily attributable to recurring profitability improvement, as the growth in SG&A expenses was kept below revenue growth while the gross margin remained nearly flat; no temporary factors dependent on extraordinary gains or losses were identified. Profit Before Tax of ¥104.0B exceeded Operating Income of ¥90.2B because net financial income contributed, with financial income of ¥16.8B exceeding financial expenses of ¥6.9B. The contribution of non-operating factors to Net Income should therefore be distinguished and understood separately. Meanwhile, OCF of negative ¥20.9B showed a significant divergence from Net Income of ¥83.8B, indicating that the accrual of working capital in the form of increased trade receivables and inventories is delaying the conversion of accounting profit into cash. While the increase in revenue and profit reflects an improvement in recurring earnings power, the cash backing of earnings requires further verification.

Earnings Forecast and Guidance

The Full-Year forecast is revenue of ¥2,477.0B and Operating Income of ¥197.0B (+28.5% YoY). The cumulative Q2 progress rates were 47.8% for revenue and 45.8% for Operating Income, slightly below the standard 50% progress level. The progress rate toward the Full-Year forecast of ¥158.0B in Net Income attributable to owners of the parent was 52.3%, exceeding the standard progress level. The earnings forecast and dividend forecast were revised during the current quarter, and maintaining the profit margin and collecting working capital in the second half will be key to achieving the Full-Year plan.

Shareholder Returns

The dividend per share for Q2 was ¥30.00, and the Full-Year dividend forecast is ¥60.00. The Payout Ratio, calculated by dividing dividends only by cumulative Net Income attributable to owners of the parent (¥82.6B), is approximately 25%, and is expected to remain at a similar level based on the Full-Year forecast. No share buybacks were conducted, making evaluation based on the Payout Ratio rather than the Total Return Ratio appropriate. Although the Payout Ratio itself remains low, free cash flow for the current period was negative ¥57.6B, and it should be noted that cumulative cash generation from operating activities during the current period was insufficient to cover dividends and capital investments.

Risk Factors

1. Lengthening Working Capital Cycle: OCF was negative ¥20.9B, primarily due to increases in trade receivables of ¥856.2B and inventories of ¥631.4B. If the expansion of working capital continues during a period of revenue growth, the deterioration in cash-generating capacity could become prolonged.

2. Sharp Increase in Short-Term Borrowings: Short-term borrowings increased from ¥86.8B in the same period of the previous year to ¥227.1B. If the OCF deficit continues, dependence on short-term funding and refinancing risk could increase.

3. Slight Decline in Gross Margin: The gross margin declined slightly from 29.4% in the same period of the previous year to 29.2%. Although the Operating Income margin has improved through SG&A expense controls, continued increases in costs could affect the sustainability of the earnings growth trend driven by operating leverage.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income margin is slightly below the industry median, while the Net Income margin exceeds the median, indicating relatively favorable overall profitability including non-operating income.

Growth and Capital Efficiency

The revenue growth rate significantly exceeds the industry median, achieving high growth close to the upper bound of the IQR.

※Source: Compiled by the Company

Key Points in the Earnings Release

1. Against revenue growth of +18.0%, Operating Income increased +53.8% and Net Income increased +71.1%, achieving profit growth exceeding revenue growth. The primary factor was operating leverage resulting from restrained SG&A expense growth, suggesting structural improvement in profitability.

2. OCF was negative ¥20.9B, representing a significant divergence from Net Income of ¥83.8B. Increases in trade receivables and inventories absorbed funds, and the conversion of profit into cash should be monitored in future earnings releases.

3. Progress rates toward the Full-Year forecast were 45.8% for Operating Income and 52.3% for Net Income attributable to owners of the parent. Although there was no significant divergence, Operating Income was slightly below the standard progress level. Maintaining the profit margin and monitoring working capital trends in the second half will be key to achieving the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,569–¥2,720 at ±1% for the cost of equity, and ¥2,642–¥2,643 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end were used (there is a timing difference from the Full-Year forecast).

(Calculation model: Residual Income Model (Ohlson type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of market share prices or recommendations of specific investment actions, and do not forecast or guarantee future share prices.)

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings report 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.

---End of Report---