NIKKISO CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

Nikkiso reported higher revenue and earnings for the quarter, with strong growth and improved profitability in its core Industrial segment driving overall performance. Revenue was ¥1,184.2B (+18.0% YoY), Operating Income was ¥90.2B (+53.8%), and Net Income was ¥83.8B (+71.1%), while the Operating Margin improved to 7.6% from 5.9% in the same period of the previous year. In addition to the effect of higher revenue, an increase in financial income lifted Profit Before Tax, resulting in Net Income growth exceeding Operating Income growth.

Factors Affecting Performance

【Revenue】Revenue was ¥1,184.2B, representing an 18.0% YoY increase. By segment, Industrial led the overall performance with revenue of ¥780.7B (65.9% of total, YoY +26.5%), while Medical posted ¥403.4B (34.1% of total, YoY +4.5%), remaining at moderate growth. The increasing concentration in Industrial is evident.

【Profit and Loss】Operating Income was ¥90.2B (YoY +53.8%). Although the gross margin was 29.2%, nearly flat compared with 29.4% in the previous year, operating leverage took effect due to the relative decline in the SG&A ratio. Profit Before Tax was ¥104.0B, with financial income of ¥16.8B exceeding financial expenses of ¥6.9B and contributing to the increase. Net Income was ¥83.8B (YoY +71.1%), as improvements in non-operating income and expenses boosted Net Income growth beyond Operating Income growth. In conclusion, the Company achieved higher revenue and earnings.

Segment Analysis

The Industrial segment reported revenue of ¥780.7B (YoY +26.5%), Operating Income of ¥73.2B (YoY +63.8%), and a margin of 9.4%, leading the Company in both growth and profitability. The Medical segment’s revenue remained at ¥403.4B (YoY +4.5%), but Operating Income increased to ¥35.2B (YoY +36.0%), with a high earnings growth rate and an 8.7% margin, reflecting progress in cost efficiency. Industrial accounted for approximately 81% of total Operating Income, confirming the rising dependence on the core business.

Key Financial Indicators

【Profitability】The Operating Margin improved to 7.6% from 5.9% in the same period of the previous year, while the Net Profit Margin also increased to 7.1%. The gross margin of 29.2% was nearly flat compared with 29.4% in the same period of the previous year, indicating that the earnings increase was primarily driven by the relative decline in the SG&A ratio and improvements in non-operating income and expenses.【Cash Quality】Operating Cash Flow (OCF) was -¥20.9B, below Net Income of ¥83.8B, resulting in a negative OCF-to-Net Income ratio. This resulted from increases in trade receivables and inventories and a decrease in contract liabilities, which put pressure on working capital. A divergence between earnings and cash generation can be observed during the period of revenue growth.【Investment Efficiency】ROE was 4.8%, and the Equity Ratio was 46.0%. Capital expenditures were ¥31.9B, equivalent to 2.7% of Revenue, indicating that growth investment remained at a restrained level.【Financial Soundness】Cash and cash equivalents were ¥379.8B. While the Equity Ratio remained at a favorable level of 46.0%, short-term borrowings increased from ¥86.8B in the previous year to ¥227.1B, suggesting increased working capital requirements.

Cash Flow Analysis

Operating Cash Flow was -¥20.9B, a significant deterioration from ¥75.5B in the same period of the previous year. Investing Cash Flow was -¥36.7B, including ¥31.9B in capital expenditures, while Financing Cash Flow was -¥14.7B, including ¥14.3B in dividend payments. Free Cash Flow, calculated as the sum of Operating Cash Flow and Investing Cash Flow, was -¥57.6B, indicating that investments and dividends during the period were not financed by operating activities. The deterioration in Operating Cash Flow was primarily attributable to the reversal of working capital, including increases in trade receivables and inventories, decreases in accounts payable, and decreases in contract liabilities (advances received). The expansion in required working capital accompanying revenue growth has constrained cash generation. Although cash and cash equivalents remained at ¥379.8B, the increase in short-term borrowings appears to have supplemented liquidity.

Earnings Quality

Operating Income, which indicates the earning power of the core business, was ¥90.2B and constituted the central component of recurring earnings. The approximately ¥13.7B difference between Profit Before Tax of ¥104.0B and Operating Income was attributable to the net contribution of financial income of ¥16.8B and financial expenses of ¥6.9B, together with the contribution of other income, and therefore includes an element of non-recurring factors. The divergence between Net Income and Operating Income widened from the previous year, indicating that improvements in non-operating income and expenses supported Net Income growth. Meanwhile, Operating Cash Flow was -¥20.9B, significantly below Net Income of ¥83.8B, with the increase in working capital (an increase in trade receivables equivalent to approximately +¥77B and a decrease in contract liabilities) expanding accruals, or the divergence between reported earnings and cash. In assessing earnings quality, the normalization of working capital and progress in cash conversion toward H2 will be important points of observation.

Earnings Forecast and Guidance

Progress against the Full-Year forecast was 47.8% for Revenue (¥1,184.2B/¥2,477.0B), 45.8% for Operating Income (¥90.2B/¥197.0B), and 52.3% for Net Income, based on disclosed Net Income attributable to owners of the parent of ¥82.6B against the Full-Year forecast of ¥158.0B. Compared with standard first-half progress of 50%, Revenue and Operating Income were slightly below expectations, while Net Income was ahead, reflecting the contribution of non-operating income and expenses to first-half earnings progress. The Full-Year Operating Income forecast represents YoY growth of +28.5%, making the accumulation of core business earnings in H2 the key to achieving the plan. During the quarter, revisions were made to both the earnings forecast and the dividend forecast.

Shareholder Returns

The interim dividend is ¥30 per share, and the Full-Year forecast dividend is ¥60. Based on the Full-Year forecast Net Income of ¥158.0B, forecast EPS of ¥241.93, and forecast dividend of ¥60, the Payout Ratio is approximately 24.8%, a conservative level. Meanwhile, Free Cash Flow for the period was -¥57.6B, with financing activities, including dividend payments of ¥14.3B, supplementing the cash shortfall from operating and investing activities. No share repurchases were conducted. Dividend sustainability appears secured for the time being, given the Equity Ratio of 46.0% and cash balance of ¥379.8B; however, the recovery of operating cash generation will require monitoring as a source of dividends over the medium to long term.

Risk Factors

1. Decline in cash generation due to the reversal of working capital: Operating Cash Flow was -¥20.9B, and the divergence from Net Income of ¥83.8B has widened. The primary factors were increases in trade receivables and inventories and a decrease in contract liabilities, while the expansion of required working capital during a period of revenue growth has pressured cash flow.

2. Rising dependence on the core segment: The Industrial segment accounts for 65.9% of Revenue and approximately 81% of Operating Income, increasing the relative impact of demand fluctuations in this business on overall Company performance.

3. Greater dependence on short-term financing: Short-term borrowings increased from ¥86.8B in the previous year to ¥227.1B. This reflects a change in the financing mix accompanying higher working capital requirements, necessitating monitoring of liquidity trends.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Margin is slightly below the industry median, while the Net Profit Margin exceeds it, supported by improvements in non-operating income and expenses.

Growth and Capital Efficiency

The Revenue Growth Rate significantly exceeds the industry median, placing the Company among the industry leaders in terms of growth.

Source: Compiled by the Company

Key Points from the Earnings Results

1. High growth and improved profitability in the Industrial segment drove the improvement in the Company-wide Operating Margin (+177bp YoY), with the change in business portfolio mix representing an inflection point in the earnings structure.

2. Operating Cash Flow shifted to -¥20.9B from +¥75.5B in the previous year, with the expansion of working capital accompanying revenue growth (increases in trade receivables and inventories and a decrease in contract liabilities) observed as a divergence between earnings and cash.

3. While Full-Year progress was slightly ahead of plan at 52.3% for Net Income, Operating Income was slightly below plan at 45.8%. Progress in the accumulation of core business earnings and cash conversion in H2 will be key points in evaluating earnings quality.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,569–¥2,720 at Cost of Equity ±1%, and ¥2,642–¥2,643 at ω±0.1.

Notes:

• 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 values based solely on publicly disclosed data; these are not forecasts of the market share price or recommendations of specific investment actions, and do 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 summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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