NSK Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Operating profit margin improved substantially due to earnings growth in the Industrial Machinery Business and the consolidation contribution from the Steering Business, resulting in higher revenue and profits. Revenue was ¥255.64B (¥195.76B in the previous year, YoY +30.6%), Operating Income was ¥14.96B (¥4.79B, YoY +212.3%), Profit Before Tax was ¥14.65B (¥4.89B, YoY +199.4%), and quarterly Net Income attributable to owners of the parent was ¥9.70B (¥1.08B, YoY +795.6%). Consolidated quarterly profit including non-controlling interests was ¥10.27B. The primary drivers of profit growth were improvements in volume, pricing, and product mix in the Industrial Machinery Business, together with positive operating leverage, as SG&A expense growth (+19.0%) was contained below revenue growth (+30.6%).

Factors Affecting Business Performance

【Revenue】By segment, the Industrial Machinery Business was the largest, generating ¥104.53B (40.9% of total, YoY +17.2%). The Automotive Business was nearly flat at ¥98.86B (38.7% of total, YoY ±0.0%), while the newly established Steering Business recorded ¥44.26B (17.3% of total). A simple year-on-year comparison for the Steering Business is not possible because NS&C became a consolidated subsidiary and was established as a new segment following the acquisition of its shares in September 2025. The primary drivers of revenue growth were improvements in volume, pricing, and product mix in the Industrial Machinery Business, together with the consolidation contribution from the Steering Business.

【Profit and Loss】Operating Income was ¥14.96B (YoY +212.3%), and the Operating Income margin improved by +3.4pt to 5.9% from 2.4% in the previous year. By segment, the Industrial Machinery Business was the main earnings driver, with segment profit of ¥8.10B (YoY +409.0%, margin 7.8%), while the Automotive Business generated ¥4.58B (YoY +37.7%, margin 4.6%), and the Steering Business remained profitable at ¥1.57B (margin 3.5%). SG&A expenses were limited to ¥45.00B (YoY +19.0%), below revenue growth, supporting the improvement in profitability. Profit Before Tax was ¥14.65B (YoY +199.4%); net financial expenses of ¥0.31B, comprising financial income of ¥1.15B and financial expenses of ¥1.46B, were a minor negative factor. Net Income attributable to owners of the parent was ¥9.70B (YoY +795.6%). In conclusion, the company achieved higher revenue and profits, with the improvement led primarily by operating performance.

Segment Analysis

The Industrial Machinery Business generated revenue of ¥104.53B (40.9% of total, YoY +17.2%) and Operating Income of ¥8.10B (YoY +409.0%, margin 7.8%, a substantial improvement from 1.8% in the previous year), driving more than half of the company-wide increase in profit. The Automotive Business was essentially flat in revenue at ¥98.86B (38.7% of total, YoY ±0.0%), but Operating Income increased to ¥4.58B (YoY +37.7%, margin 4.6%, versus 3.4% in the previous year) as cost improvements progressed. The Steering Business generated revenue of ¥44.26B (17.3% of total) and Operating Income of ¥1.57B (margin 3.5%), establishing a profitable trend as its first full-period contribution following its conversion into a consolidated subsidiary. The Other segment was somewhat weak, with revenue of ¥7.98B (YoY +3.1%) and Operating Income of ¥0.32B (YoY -7.2%). The Industrial Machinery Business’s margin improvement of +6.0pt was the primary driver of company-wide operating leverage, while the Automotive and Steering Businesses remained at relatively low profitability levels.

Key Financial Metrics

【Profitability】The Operating Income margin was 5.9%, an improvement of +3.4pt from 2.4% in the previous year, while the Net Income margin, based on income attributable to owners of the parent, was 3.8%, up +3.2pt from 0.6% in the previous year. The gross margin rose to 23.1% from 21.6%, an increase of +1.5pt. Improvements in pricing and product mix, together with a decline in the SG&A ratio to 17.6% from 19.3%, contributed to the expansion of the Operating Income margin.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥28.53B, 2.9 times Net Income attributable to owners of the parent of ¥9.70B, indicating strong cash-generation capacity relative to reported earnings.【Investment Efficiency】ROE was 1.5%; the effect of improved profitability was partially offset as total asset turnover remained low.【Financial Soundness】The Equity Ratio was 52.8%, down -1.4pt from 54.2% in the previous year. However, liquidity was secured, with current assets of ¥679.73B versus current liabilities of ¥330.51B, while cash and cash equivalents totaled ¥156.78B.

Cash Flow Analysis

Operating Cash Flow was ¥28.53B, maintaining a solid level with YoY growth of +4.1% from ¥27.41B in the previous year. Investing Cash Flow was a substantial outflow of -¥35.42B, primarily due to acquisitions of property, plant and equipment of -¥10.48B, acquisitions of intangible assets of -¥2.04B, and acquisitions of other non-current assets of -¥28.00B. As a result, Free Cash Flow (Operating Cash Flow + Investing Cash Flow) turned negative at -¥6.89B. Financing Cash Flow was +¥18.28B; a net increase in short-term borrowings of +¥28.84B offset the shortfall in Investing Cash Flow, while dividend payments of -¥8.26B, including -¥1.06B to non-controlling interests, were made. Cash and cash equivalents at the end of the period were ¥156.78B, an increase of +¥14.66B from the beginning of the period, further supported by a foreign-currency translation effect of +¥3.27B. As investment cash outflows expand, the increased reliance on short-term borrowings is a point to note in terms of the company’s funding structure.

Earnings Quality

The expansion in Operating Income during the current period was led by recurring factors, namely improvements in volume, pricing, and product mix in the Industrial Machinery Business, and no temporary factors comparable to extraordinary gains or losses have been identified. Equity-method investment income was ¥0.56B, down from ¥1.06B in the previous year, while non-operating income and expenses consisted of financial income of ¥1.15B and financial expenses of ¥1.46B, resulting in a minor net negative impact of -¥0.31B. Operating Cash Flow of ¥28.53B was 2.9 times Net Income attributable to owners of the parent of ¥9.70B, indicating strong cash backing for earnings from an accruals perspective. Comprehensive income was ¥22.79B, including ¥22.09B attributable to owners of the parent, resulting in a divergence of +¥12.39B from Net Income of ¥9.70B. This divergence was mainly attributable to a foreign currency translation adjustment for foreign operations of +¥7.47B and a net change of +¥4.57B in financial assets measured at fair value through other comprehensive income. Both factors were driven by foreign exchange and market conditions and should be distinguished from the company’s recurring operating earnings power.

Earnings Forecasts and Guidance

The full-year forecasts are Revenue of ¥104.00B (YoY +14.1%), Operating Income of ¥50.00B (YoY +28.8%), Net Income attributable to owners of the parent of ¥29.00B (YoY +26.8%), EPS of ¥59.27, and a dividend of ¥17.00. Q1 progress rates were 24.6% for Revenue, 29.9% for Operating Income, 33.5% for Net Income attributable to owners of the parent, and 33.5% for EPS. Compared with the 25% benchmark based on simple quarterly allocation, Operating Income and Net Income are progressing ahead of schedule, while Revenue remains at approximately a standard level. The company revised its earnings forecasts during the quarter, but made no revision to its dividend forecast.

Shareholder Returns

The dividend forecast remains unchanged from the previous fiscal year at ¥17.00 per share, with no revision made during the quarter. Based on projected full-year Net Income attributable to owners of the parent of ¥29.00B and an estimated annual dividend total of approximately ¥8.32B (¥17 × approximately 0.4893B shares after deducting treasury shares), the Payout Ratio is approximately 28.7%. Dividend payments during Q1 were ¥8.26B (¥8.22B in the previous year), reflecting a timing factor related to payment of the previous fiscal year-end dividend. Share repurchases were minimal at ¥0.002B, and shareholder returns therefore remain centered on dividends.

Risk Factors

1. High inventory levels: Inventories were ¥218.14B, accounting for 16.8% of total assets, and remained elevated, increasing by +¥1.93B (+0.9%) year on year. During periods of demand fluctuations, the relative risks of inventory valuation losses and production adjustments increase.

2. Increased reliance on short-term borrowings: Financing Cash Flow included a net increase in short-term borrowings of +¥28.84B, while other current financial liabilities increased by +¥33.97B (+33.6%) from the beginning of the period. These borrowings funded the substantial outflow from Investing Cash Flow, and attention should be paid to the potential increase in funding costs during periods of rising interest rates.

3. Foreign exchange impact: The foreign currency translation adjustment for foreign operations reported in other comprehensive income fluctuated substantially to +¥7.47B from -¥1.52B in the previous year. Given the high proportion of overseas sales and assets, the company remains highly sensitive to foreign exchange movements.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin are below the industry median, indicating that profitability is relatively low within the industry.

Growth and Capital Efficiency

The Revenue growth rate is substantially above the industry median, placing the company in a standout position within the industry in terms of growth.

※Source: Compiled by the company

Key Points from the Financial Results

1. The Operating Income margin improved to 5.9% from 2.4% in the previous year, an increase of +3.4pt, confirming positive operating leverage driven by pricing and product mix improvements in the Industrial Machinery Business and the relative containment of SG&A expenses. The fact that this improvement was led by the core business rather than being temporary is an important observation when assessing the quality of the earnings structure.

2. Full-year progress was 29.9% for Operating Income and 33.5% for Net Income, both ahead of the 25% benchmark based on quarterly allocation. Whether the same trend of profit growth continues beyond the first half will be an area of focus.

3. While inventories remain elevated at 16.8% of total assets, substantial Investing Cash Flow outflows are continuing. The balance between asset efficiency and capital allocation will be a key factor determining the sustainability of improvements in ROE and ROIC.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,188–¥1,257 at ±1% for the Cost of Equity, and ¥1,216–¥1,226 at ±0.1 for ω.

Notes:

• Because 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 / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee the future share price)

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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 available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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