NTN CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

In Q1, the Company recorded increases in both revenue and earnings, with the growth rate in operating income (+19.2%) exceeding the revenue growth rate (+6.7%). This indicates a period of rising revenue and earnings, with an improvement in profitability centered on gross margin improvement. Revenue was ¥2,122.8B (¥1,990.4B in the previous year, +¥132.4B, +6.7%), operating income was ¥83.2B (¥69.8B in the previous year, +¥13.4B, +19.2%), ordinary income was ¥63.5B (¥40.3B in the previous year, +¥23.2B, +57.5%), and consolidated net income was ¥22.2B (¥14.5B in the previous year, +¥7.7B, +53.2%; of which net income attributable to owners of the parent was ¥19.3B, +62.0%). The fact that the growth rates of ordinary income and net income exceeded that of operating income was attributable to the relatively reduced impact of non-operating expenses and extraordinary losses, which had been substantial in the previous year.

Factors Affecting Results

【Revenue】Revenue was ¥2,122.8B (+6.7% year on year), with all four regions recording increases in revenue on an external-customer sales basis. The three overseas regions showed strong growth, with Europe at +8.9%, Asia and Other at +7.7%, and the Americas at +7.3%, while Japan recorded relatively moderate growth of +3.1%. The composition of external revenue was highest in the Americas at 32.6%, followed by Japan at 25.2%, Europe at 23.7%, and Asia and Other at 18.5%.

【Profit and Loss】Operating income was ¥83.2B (+19.2%). The gross margin improved to 19.2% (+1.1pt from 18.1% in the previous year), while the selling, general and administrative expense ratio of 15.3% increased at a rate below revenue growth, resulting in operating leverage. By segment, Japan recorded operating income of ¥41.7B (¥4.8B in the previous year, +772.0%, 4.8% margin), while Asia and Other recorded ¥43.4B (+13.2%, 10.2% margin), representing significant improvement and sustained high profitability. In contrast, the Americas recorded ¥5.2B (-68.1%, 0.7% margin), a substantial decline in earnings, while Europe remained in the red at -¥3.5B. Ordinary income was ¥63.5B (+57.5%), with non-operating expenses of ¥33.1B (interest expense of ¥17.7B and foreign exchange losses of ¥5.2B) declining from ¥41.6B in the previous year and contributing to the increase in earnings. Extraordinary losses of ¥11.7B, including ¥10.5B in business restructuring costs, temporarily reduced profit before tax. Consolidated net income was ¥22.2B (+53.2%), of which ¥19.3B (+62.0%) was attributable to owners of the parent. The sharp recovery in Japan and the continued high profitability of Asia and Other drove the increase in consolidated earnings, although this was partially offset by weak performance in the Americas and Europe. Overall, the Company achieved increases in both revenue and earnings.

Segment Analysis

The performance gap among segments has widened. Japan recorded operating income of ¥41.7B (¥4.8B in the previous year, +772.0%), with its margin recovering sharply from 0.6% to 4.8%, making it the largest contributor to the increase in consolidated earnings. Asia and Other recorded operating income of ¥43.4B (+13.2%) and maintained the highest profitability among all segments, with a 10.2% margin (9.7% in the previous year), positioning it as a core business comparable to Japan in absolute earnings. The Americas recorded operating income of ¥5.2B (¥16.3B in the previous year, -68.1%), with its margin deteriorating substantially from 2.5% to 0.7%. Europe recorded an operating loss of ¥3.5B (¥-3.3B in the previous year), with its deficit continuing at a -0.7% margin. Against segment total operating income of ¥86.78B (including intersegment transactions), adjustments shifted from +¥13.6B in the previous year to -¥3.6B in the current period, with the elimination of intersegment transactions and other factors also slightly suppressing consolidated operating income.

Key Financial Indicators

【Profitability】The operating margin was 3.9%, improving +0.4pt from 3.5% in the previous year, while the gross margin also improved to 19.2% (18.1% in the previous year). The consolidated net profit margin was 1.0% (0.7% in the previous year), while the margin based on net income attributable to owners of the parent increased to 0.9% (0.6% in the previous year). ROE was 0.7% (quarterly actual), and the effective tax rate was 59.3% (64.1% in the previous year), remaining high but showing an improvement trend. 【Cash Flow Quality】Operating Cash Flow (OCF) of ¥264.6B was approximately 13.7 times net income attributable to owners of the parent of ¥19.3B, indicating solid cash backing for earnings. Capital expenditures were ¥97.9B, approximately in line with depreciation and amortization of ¥99.0B. 【Investment Efficiency】Total asset turnover for the quarter was 0.245x, indicating that improvement in asset efficiency has been gradual relative to revenue growth. Basic EPS was ¥3.24 (¥2.25 in the previous year, +44.0%), reflecting the increase in net income attributable to owners of the parent. 【Financial Soundness】The equity ratio was 36.3%, improving +0.8pt from 35.5% in the previous year. The current ratio was 150.7% and the quick ratio was 113.9%, indicating sufficient short-term liquidity. Interest-bearing debt was ¥3,024.0B, down ¥167.7B from ¥3,191.7B in the previous year. Interest coverage improved to 4.7x from 3.4x in the previous year.

Cash Flow Analysis

Cash flow from operating activities was ¥264.6B, up +42.2% year on year. In terms of working capital, the decrease in trade receivables (+¥32.2B), decrease in inventories (+¥24.0B), and increase in trade payables (+¥66.7B) all contributed to cash generation. Cash flow from investing activities was -¥117.8B, of which capital expenditures accounted for ¥97.9B, representing a maintenance and replacement investment level approximately in line with depreciation and amortization of ¥99.0B. Cash flow from financing activities was -¥221.0B, primarily due to debt reduction, including repayment of long-term borrowings of ¥200.0B and a decrease in short-term borrowings of ¥95.5B. Dividend payments of ¥32.8B were also included. Free cash flow was positive at ¥146.8B, confirming that the Company generated sufficient cash from operating activities to fund dividends and debt reduction, with cash generation exceeding capital expenditures.

Earnings Quality

Against operating income of ¥83.2B and ordinary income of ¥63.5B, which indicate recurring earnings power, net extraordinary income and losses were -¥9.0B (extraordinary income of ¥2.7B and extraordinary losses of ¥11.7B). Business restructuring costs of ¥10.5B were the primary temporary factor. Net non-operating income and expenses were -¥19.7B (non-operating income of ¥13.4B and non-operating expenses of ¥33.1B). Interest expense of ¥17.7B and foreign exchange losses of ¥5.2B represent structural burdens, although non-operating expenses declined from ¥41.6B in the previous year. Comprehensive income was ¥68.8B, and the difference from net income attributable to owners of the parent of ¥19.3B was primarily attributable to foreign currency translation adjustments of ¥48.5B, reflecting translation differences at overseas subsidiaries. This divergence arose from factors separate from the underlying earnings power of the business. The fact that OCF reached approximately 13.7 times net income attributable to owners of the parent indicates that current-period earnings are supported by cash rather than accruals (accounting estimates), and earnings quality is therefore considered sound.

Earnings Forecast and Guidance

Progress against the full-year plan (revenue of ¥8,100.0B, operating income of ¥330.0B, ordinary income of ¥210.0B, and net income of ¥150.0B) was 26.2% for revenue, 25.2% for operating income, and 30.2% for ordinary income, broadly in line with the standard quarterly progress rate of 25%. In contrast, progress for net income attributable to owners of the parent was 12.9% (¥19.3B/¥150.0B), while EPS progress was also 12.8% (¥3.24/¥25.23), lagging the other indicators. This delay was primarily due to non-operating factors, including extraordinary losses (business restructuring costs of ¥10.5B) and the high effective tax rate of 59.3%. Neither the full-year earnings forecast nor the dividend forecast has been revised.

Shareholder Returns

The full-year dividend forecast is ¥13.00 per share, with no revision as of the current quarter. Based on forecast net income attributable to owners of the parent of ¥150.0B and the number of issued shares excluding treasury shares, total dividends are calculated at approximately ¥77.3B, resulting in a payout ratio of approximately 51.5%. Current-period free cash flow of ¥146.8B more than covered dividends paid during the period of ¥32.8B, confirming sufficient cash flow support for the dividend.

Risk Factors

1. Profitability of the Europe segment: The operating loss of ¥3.5B (-0.7% margin) continues, with the loss widening slightly from the previous year (¥-3.3B). This is a factor depressing the consolidated operating margin of 3.9%.

2. Earnings decline in the Americas segment: Despite revenue growth of +7.2%, operating income declined sharply to ¥5.2B (¥16.3B in the previous year, -68.1%), and the margin fell to 0.7%. As the only region that did not achieve increases in both revenue and earnings, it has weighed on consolidated profitability.

3. Financial cost burden: Against interest-bearing debt of ¥3,024.0B, interest expense was ¥17.7B (4.7x interest coverage), and the effective tax rate was high at 59.3%. These non-operating burdens structurally constrain the absolute levels of ordinary income and net income.

Industry Benchmark (For Reference; Compiled by the Company)

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The sharp recovery in Japan’s operating margin from 0.6% to 4.8%, together with Asia and Other maintaining a high margin of 10.2%, drove the consolidated increase in operating income (+19.2%).

2. The regional profitability gap—an earnings decline in the Americas (0.7% margin) and continued losses in Europe (-0.7% margin)—constrained the consolidated operating margin of 3.9%, making the dispersion of profitability within the regional portfolio a structural characteristic.

3. While the growth rates of ordinary income and net income (+57.5%/+53.2%) exceeded operating income growth (+19.2%), progress in net income attributable to owners of the parent against the full-year plan was 12.9%, lagging revenue and operating income progress of 25–26%. This difference was attributable to non-operating factors, including extraordinary losses and the high effective tax rate.

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 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥458–¥485 at ±1% cost of equity, and ¥469–¥472 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 (net income ÷ operating income 45%). This figure reflects that compression at face value, and normalized earnings power may be higher if these factors are temporary.
• 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, resulting in a timing difference relative to the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This figure 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 summary data. It does not recommend investment in any specific security. 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 a professional as necessary.

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