NTN (6472) FY2026 Q3 Earnings Report

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Executive Summary

Although operating income increased and ordinary income rose significantly despite lower revenue, net income remains at a low level and the impact of one-time expenses persists. Revenue was ¥60.334B (-2.0% YoY, △¥1.218B), operating income was ¥1.930B (+35.8% YoY, +¥0.509B), ordinary income was ¥1.398B (+141.5% YoY, +¥0.819B), and net income was ¥0.475B, representing a return to profitability from a loss of ¥7.29B in the same period of the previous year. The primary drivers of the profit increase were cost reductions in the CVJ Axle Business and progress in passing U.S. tariffs through to selling prices, while the Bearings and Other Business posted lower earnings due to declining automotive demand.

Factors Affecting Performance

【Revenue】Revenue was ¥60.334B, down 2.0% YoY. In addition to declining automotive-related demand, primarily in Japan, lower demand in the Americas, Europe, and China, as well as semiconductor supply shortages, contributed to lower revenue in the CVJ Axle Business. Meanwhile, the aftermarket business remained solid at ¥10.66B (+¥0.22B YoY), confirming support from replacement demand.

【Profit and Loss】Operating income was ¥1.930B (+35.8% YoY), and the operating margin was 3.2%, improving by 0.9pt from 2.3% in the previous year. Despite lower revenue, the CVJ Axle Business posted a substantial increase in operating income to ¥1.26B (+¥0.78B), due to cost reductions and progress in passing U.S. tariffs through to selling prices. The Bearings and Other Business recorded operating income of ¥0.67B (△¥0.28B), a decline due to inventory valuation effects and other factors. Extraordinary losses of ¥0.326B included impairment losses of ¥0.214B and business restructuring expenses of ¥0.101B, which are identified as one-time factors. Ordinary income was ¥1.398B, below operating income, with the difference attributable to non-operating expenses of ¥0.885B, primarily interest expenses of ¥0.592B. Net income of ¥0.475B resulted from deducting income taxes and other taxes of ¥0.628B (effective tax rate: 56.9%) from pretax income of ¥1.103B, with the gap between ordinary income and net income attributable to the significant tax burden. Overall, the results reflect lower revenue but higher earnings.

Segment Analysis

By revenue composition, the Bearings and Other Business accounted for ¥25.18B (approximately 42%), while the CVJ Axle Business accounted for ¥35.15B (approximately 58%), positioning the CVJ Axle Business as the core business. In terms of operating income, the CVJ Axle Business generated ¥1.26B (margin: 3.6%), exceeding the ¥0.67B generated by the Bearings and Other Business (margin: 2.7%). It accounted for approximately 65% of total company operating income of ¥1.93B and served as the main driver of performance improvement. The Bearings and Other Business recorded a ¥0.28B YoY decline in earnings due to lower automotive demand in Japan and inventory valuation effects, restraining the company-wide earnings growth trend. The operating margin gap between the segments was approximately 0.9pt, with the effects of cost reductions and tariff pass-through more pronounced in the CVJ Axle Business.

Key Financial Metrics

Profitability: ROE 1.6%; operating margin 3.2% (improved from 2.3% in the previous year)
Cash flow quality: Operating CF/net income approximately 9.6x (operating CF of ¥3.563B against net income attributable to owners of the parent of ¥0.372B); FCF ¥1.264B
Investment efficiency: Capital expenditures/depreciation and amortization approximately 0.77x (capital expenditures of ¥2.313B against depreciation and amortization of ¥3.012B)
Financial soundness: Equity ratio 33.1%; current ratio approximately 135.5% (current assets of ¥56.039B ÷ current liabilities of ¥41.345B)

Cash Flow Analysis

Operating CF was ¥3.563B, up 63.1% YoY, securing cash generation approximately 9.6x net income attributable to owners of the parent of ¥0.372B and substantially exceeding accounting profit. Investing CF was △¥2.299B, with capital expenditures of ¥2.313B accounting for nearly the entire amount. Financing CF was △¥0.554B, mainly due to dividend payments of ¥0.585B and other factors. FCF was positive at ¥1.264B, calculated by deducting capital expenditures of ¥2.313B from operating CF of ¥3.563B. The increase in operating CF was supported by a ¥1.150B decrease in trade receivables, and attention is required because this includes a temporary working capital compression effect. Cash generation is assessed as somewhat stronger than standard.

Quality of Earnings

There is a significant gap between ordinary income of ¥1.398B, net income (consolidated profit for the period) of ¥0.475B, and net income attributable to owners of the parent of ¥0.372B. The factors were income taxes and other taxes of ¥0.628B (effective tax rate: 56.9%) and the deduction of net income attributable to non-controlling interests of ¥0.103B. Extraordinary losses of ¥0.326B (impairment losses of ¥0.214B and business restructuring expenses of ¥0.101B) were one-time factors and should be excluded when evaluating recurring earnings power. Operating CF of ¥3.563B substantially exceeded net income, indicating sound cash backing for earnings; however, caution is warranted when assessing sustainability because the figure includes contributions from decreases in trade receivables and inventories.

Earnings Forecast and Guidance

Progress against the full-year forecasts (revenue of ¥80.500B, operating income of ¥2.600B, and ordinary income of ¥1.300B) was 75.0% for revenue, 74.2% for operating income, and 107.5% for ordinary income, which has already exceeded the forecast. Compared with the standard progress rate of 75%, revenue and operating income are approximately in line with the standard trajectory, while ordinary income has already exceeded the full-year plan. This may indicate a conservative plan that incorporates increased non-operating expenses and foreign exchange effects in Q4. Full-year forecast EPS is △¥7.27, implying a return to a loss from cumulative profitability (EPS of ¥6.93), and additional recognition of business restructuring expenses, impairment losses, and other charges is expected in Q4.

Shareholder Returns

The Q2 dividend was ¥5.50 per share, and the full-year dividend forecast is ¥11.00. Since the full-year net income forecast is expected to be a loss against cumulative net income attributable to owners of the parent of ¥3.72B, the full-year payout ratio cannot be calculated. Returns consist solely of dividends, and no share repurchases have been confirmed.

Catalysts

【Short term】Additional recognition of business restructuring expenses in Q4 (progress of ¥0.33B against the full-year plan of ¥10.0B) and the extent to which the full-year loss forecast materializes. 【Long term】Progress in reducing inventories (full-year target: ¥230.0B) and reducing interest-bearing debt (full-year target: ¥320.0B) under the DRIVE NTN100 Final plan.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability is substantially below the industry median.

Growth and Capital Efficiency

Revenue growth also falls below the industry median, indicating that the impact of declining automotive demand is relatively significant within the industry.

※Source: Compiled by the Company

Risk Factors

1. Inventory and Working Capital Efficiency: Inventories were ¥14.129B (increased YoY), and deterioration in turnover has been noted. There is a risk of inventory valuation losses amid declining automotive demand.

2. Financial Leverage: Interest-bearing debt remains at a high level, and interest expenses of ¥0.592B represent 30.7% of operating income of ¥1.930B. The impact on ordinary income could be amplified in the event of rising interest rates or deterioration in operating income.

3. Risk of a Return to a Full-Year Loss: Although cumulative results are profitable (net income of ¥0.475B), the full-year forecast anticipates a loss attributable to owners of the parent, with additional business restructuring expenses, impairment losses, and other charges expected to be recognized in Q4.

Key Takeaways from the Earnings

1. The improvement in operating margin under declining revenue (2.3%→3.2%) resulted from cost reductions in the CVJ Axle Business and progress in passing U.S. tariffs through to selling prices. The clear separation of profit-increasing and profit-decreasing factors by business is noteworthy.

2. Although ordinary income has already exceeded the full-year forecast, the full-year forecast anticipates a loss attributable to owners of the parent, creating a divergence in direction between cumulative results and the full-year plan. The nature of one-time expenses recognized in Q4 will affect earnings quality.

3. Extraordinary losses included impairment losses and business restructuring expenses, resulting in high volatility in net income. When evaluating recurring earnings power, emphasis should be placed on operating income and ordinary income excluding these one-time factors.

Theoretical Share Price (Reference Value)

Sensitivity: ¥346–¥365 for a ±1% change in the cost of equity, and ¥351–¥358 for a ±0.1 change in 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 quarter-end are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated through AI-based integrated analysis of XBRL earnings summary data and PDF earnings presentation materials. 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 a professional as necessary.

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