NSK (6471) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative Q3 results showed increases in both revenue and earnings, with Operating Income in particular improving significantly faster than Revenue. Revenue was ¥6,584.6B (+10.3% YoY), Operating Income was ¥273.9B (+75.2%), and Net Income attributable to owners of the parent was ¥135.4B (+244.5%). The Operating Margin improved to 4.2% from approximately 2.6% in the same period of the previous year, but remains low in absolute terms. The substantial outperformance of earnings growth relative to Revenue growth reflects operating leverage, as the increase in gross profit exceeded the burden of SG&A expenses.

Factors Affecting Results

【Revenue】Revenue increased 10.3% YoY to ¥6,584.6B. Progress against the full-year company forecast of ¥9,000.0B was 73.2%, slightly below the standard progress rate of 75% as of Q3.

【Profit and Loss】Operating Income was ¥273.9B (+75.2% YoY), and the Operating Margin improved by approximately 1.5pt YoY to 4.2%. The Gross Profit Margin was 21.0%, compared with an SG&A Expense Ratio of 17.8%; the advancement of fixed-cost absorption accompanying the increase in Revenue was the primary factor behind the improvement in the Operating Margin. Profit Before Tax was ¥266.4B. Financial income of ¥26.5B versus financial expenses of ¥34.1B resulted in a net financial expense of negative ¥7.5B, limiting the reduction from Operating Income. Meanwhile, income taxes of ¥122.3B reached 45.9% of Profit Before Tax, and the high effective tax rate was the primary factor keeping the Net Profit Margin at 2.1%. The Company is in a phase of earnings improvement characterized by increases in both Revenue and earnings, with earnings growth substantially exceeding Revenue growth.

Key Financial Metrics

【Profitability】The Operating Margin was 4.2% (approximately +1.5pt YoY), while the Net Profit Margin was 2.1% (approximately +1.4pt YoY). Both improved, but their absolute levels remain low. ROE remained at 2.1%, and even after considering financial leverage of 1.86x, capital efficiency was limited.【Cash Quality】Operating Cash Flow (OCF) was ¥814.9B, approximately 6.0x Net Income attributable to owners of the parent, indicating cash generation exceeding accounting earnings. However, attention is required because this includes a temporary working-capital contribution from the collection of trade receivables of ¥374.4B.【Investment Efficiency】In addition to capital expenditures of ¥256.0B and acquisitions of intangible assets of ¥87.6B, the acquisition of other financial assets of ¥949.9B was a primary driver of Investing Cash Flow. Total Investing Cash Flow was negative ¥847.5B, resulting in reported Free Cash Flow (FCF) of negative ¥32.5B.【Financial Soundness】The Equity Ratio was 52.2% (slightly down from 53.4% in the same period of the previous year), while the Current Ratio was high at approximately 214% and the Debt-to-Equity Ratio remained at 0.86x. Cash and cash equivalents were ¥1,543.6B, providing a substantial financial buffer.

Cash Flow Analysis

Operating Cash Flow increased substantially to ¥814.9B from ¥48.4B in the same period of the previous year, reaching approximately 6.0x Net Income attributable to owners of the parent of ¥135.4B. The decrease in and collection of trade receivables of ¥374.4B made a significant contribution to this increase. Accordingly, attention is required because the result includes a temporary factor involving working-capital improvement in addition to recurring earnings capacity. Investing Cash Flow was negative ¥847.5B. In addition to capital expenditures of ¥256.0B and acquisitions of intangible assets of ¥87.6B, the acquisition of other financial assets of ¥949.9B represented a major use of funds. As a result, Free Cash Flow, calculated as the sum of Operating Cash Flow and Investing Cash Flow, was negative ¥32.5B. Although dividend payments of ¥165.9B were covered within the scope of Operating Cash Flow, the overall funds cycle including investing activities was not self-sustaining. Financing Cash Flow was an inflow of ¥125.6B, with the issuance of ¥300.0B in bonds and a net increase in short-term borrowings offsetting the redemption of ¥150.0B in bonds, repayment of ¥106.0B in long-term borrowings, and dividend payments. Consequently, cash and cash equivalents increased by ¥161.1B, bringing the period-end balance to ¥1,543.6B.

Earnings Quality

Earnings for the quarter were accompanied by a substantive improvement in Operating Income, indicating limited dependence on temporary factors. However, in the conversion from Profit Before Tax of ¥266.4B to Net Income, the high tax burden of income taxes of ¥122.3B (effective tax rate of 45.9%) weighed on earnings quality. Equity in earnings of affiliates of ¥26.8B accounted for approximately 19.8% of Net Income attributable to owners of the parent of ¥135.4B and is a component susceptible to the performance of investees and foreign-exchange movements. Comprehensive Income was ¥462.0B, substantially exceeding Net Income; the difference was attributable to Other Comprehensive Income of ¥317.9B, particularly foreign currency translation adjustments for foreign operations of ¥270.4B. These items differ in nature from the Company’s recurring operating earnings capacity. The substantial excess of Operating Cash Flow over Net Income is favorable from an accruals perspective, but the potential reversal of the working-capital contribution from trade receivables collections requires monitoring.

Earnings Forecasts and Guidance

Progress against the full-year company forecast was 73.2% for Revenue and 74.0% for Operating Income, both broadly in line with the standard progress rate of 75% as of Q3. By contrast, progress against the forecast Net Income attributable to owners of the parent of ¥200.0B was relatively low at 67.7%, with the high effective tax rate suppressing progress in profit after tax. The full-year forecast assumes increases of +13.0% in Revenue and +30.0% in Operating Income. In Q4, the key challenges will be an acceleration in Revenue growth and a recovery in earnings progress accompanied by normalization of the tax burden. Cumulative EPS was ¥27.69 against forecast EPS of ¥40.89, representing progress of 67.7%, consistent with the progress rate for Net Income.

Shareholder Returns

The Q2 dividend was ¥17.00 per share. Based on cumulative Net Income, the Payout Ratio, calculated using the annual dividend forecast of ¥34.00 per share including the year-end dividend and forecast EPS of ¥40.89, is approximately 83.2%. Share repurchases were minimal at ¥0.1B, and the Total Return Ratio remained approximately at the same level as the Payout Ratio. Operating Cash Flow of ¥814.9B substantially exceeded dividend payments of ¥165.9B, securing the source of dividends from operating activities. However, reported Free Cash Flow including investing activities was negative ¥32.5B, and depending on the scale of Investing Cash Flow, continued dividend payments funded solely by internal funds could become constrained.

Risk Factors

1. High inventory levels: Inventories were ¥2,201.2B, and annualized inventory days are estimated at approximately 116 days, exceeding the general benchmark for the manufacturing industry. The relative risks of valuation losses and discounted sales during demand fluctuations are high.

2. Absolute level of profitability: Although the Operating Margin of 4.2% is trending upward, it remains low. The earnings structure is highly sensitive to increases in raw-material prices and labor costs, as well as delays in passing through higher costs.

3. High effective tax rate: The effective tax rate of 45.9% constrains the conversion efficiency from Profit Before Tax to Net Income and is one factor contributing to the relatively low progress rate of 67.7% against the full-year forecast for Net Income attributable to owners of the parent.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability is below the industry median and remains below the lower bound of the IQR.

Growth and Capital Efficiency

The Revenue Growth Rate substantially exceeds the industry median and is also above the upper bound of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Operating Income increased +75.2% against Revenue growth of +10.3%, and the Operating Margin improved by approximately 1.5pt YoY. Earnings growth exceeding Revenue growth indicates the emergence of operating leverage, with the increase in gross profit exceeding the burden of SG&A expenses.

2. Operating Cash Flow reached ¥814.9B, approximately 6.0x Net Income. However, the contribution from the working-capital factor of trade receivables collections of ¥374.4B was substantial, and reported Free Cash Flow including Investing Cash Flow was negative ¥32.5B. The sustainability of cash generation will be affected by the reversal of working-capital effects.

3. Progress against the full-year forecast was a standard 74.0% for Operating Income, while Net Income attributable to owners of the parent remained at 67.7%. A notable feature is that the high tax burden, with an effective tax rate of 45.9%, has not allowed the improvement at the operating level to be fully reflected in profit after tax.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,133–¥1,196 at Cost of Equity ±1%, and ¥1,157–¥1,168 at ω±0.1.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burden, acquisition-related expenses, and non-controlling interests, among other factors (Net Income ÷ Operating Income 54%). This value reflects that compression at face value; if these factors are temporary, the Company’s underlying value may be higher.
• Because 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 difference from the full-year forecast).

（Valuation 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; this is not a forecast of the market share price or a recommendation of any specific investment action, nor does it 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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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