NIPPON THOMPSON CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The most important point this quarter was that, in addition to revenue growth, profit margins normalized significantly due to improvements in pricing and product mix and disciplined expense management. Revenue was ¥19.85B (+32.9% YoY), Operating Income was ¥2.79B (+281.9%), Ordinary Income was ¥3.16B (+311.8%), and Net Income was ¥2.44B (+243.7%). The gross margin improved to 35.8%, while SG&A expense growth (+9.2%) remained substantially below revenue growth, resulting in strong operating leverage.

Factors Affecting Performance

【Revenue】Revenue was ¥19.85B, an increase of +32.9% from ¥14.94B in the prior-year period. The Company operates as a single segment (the manufacturing and sales business for bearings and other machinery components), and the revenue increase appears to have been driven by a recovery in demand, price revisions, and improvements in product mix.

【Profit and Loss】Cost of sales was limited to ¥12.74B (64.2% of revenue), and the gross margin improved to 35.8% from the prior year. SG&A expenses increased by +9.2% to ¥4.31B, remaining substantially below the rate of revenue growth; consequently, the operating margin rose to 14.1%. In non-operating income, dividend income of ¥0.20B and foreign exchange gains of ¥0.17B lifted Ordinary Income to ¥3.16B (+311.8%). Net Income was ¥2.44B (+243.7%), and the effective tax rate was approximately 24.4%. The Company achieved both revenue and profit growth, with the primary drivers of profit growth being improved gross margins in the core business and disciplined expense management.

Segment Analysis

The Group operates as a single segment comprising the manufacturing and sales business for bearings and other machinery components, and does not disclose results by segment.

Key Financial Indicators

【Profitability】The operating margin improved substantially to 14.1% (4.9% in the prior year), while the net margin was 12.3%, and the gross margin also rose to 35.8%. The primary drivers of the improvement were better pricing and product mix and relative control of SG&A expenses.【Cash Quality】Accounts receivable increased to ¥19.71B (+¥2.55B YoY), and work in process increased to ¥10.79B (+¥0.23B YoY), suggesting that the pace of cash conversion from collections and inventory has not kept pace with revenue growth. Meanwhile, finished-goods inventories declined from the prior year to ¥15.53B.【Investment Efficiency】ROE was 2.8%, with the improvement in the net margin serving as the primary driver. Total asset turnover remained stable at a low level, while financial leverage was approximately 1.46x, with no significant change.【Financial Soundness】The equity ratio improved to 68.4% (from 66.2% in the prior year), and cash and deposits were ample at ¥23.12B, providing sufficient capital capacity relative to long-term borrowings of ¥13.17B and bonds of ¥5.00B.

Cash Flow Analysis

As the Company does not disclose a statement of cash flows, funding trends are analyzed based on changes in the balance sheet. Cash and deposits declined to ¥23.12B from ¥25.00B in the prior year, likely reflecting the absorption of funds through increases in accounts receivable (+¥2.55B) and work in process (+¥0.23B). Meanwhile, investment securities increased to ¥17.76B (+¥3.37B), indicating not only accumulated valuation gains but also additional investments. Long-term borrowings increased slightly to ¥13.17B (+¥0.88B), but funding capacity remains sufficient given the equity ratio of 68.4% and high current ratio. Overall, a key characteristic is that the expansion of working capital is placing pressure on cash relative to profit growth.

Quality of Earnings

Current-period profit growth was supported by improvements in the core business, and earnings quality can be assessed as relatively high. Of ¥0.49B in non-operating income, dividend income of ¥0.20B and foreign exchange gains of ¥0.17B were the primary components; however, their ratio to Ordinary Income of ¥3.16B was limited, and the main source of profit growth was the increase in Operating Income. Extraordinary income of ¥0.06B (gain on sale of investment securities) was a temporary factor and had a limited impact relative to profit before tax of ¥3.23B. Meanwhile, comprehensive income of ¥5.18B substantially exceeded Net Income of ¥2.44B, primarily due to +¥2.31B in valuation difference on securities. This divergence was attributable to market conditions and should be distinguished from the earnings power of the core business. In addition, increases in accounts receivable and work in process suggest future accruals (the divergence between accounting profit and cash), requiring attention to the timing of cash conversion.

Earnings Outlook and Guidance

The full-year plan calls for Revenue of ¥80.00B (YoY +26.9%), Operating Income of ¥11.50B (YoY +180.3%), and Ordinary Income of ¥11.70B (YoY +126.7%). Progress in Q1 was 24.8% for Revenue, 24.3% for Operating Income, and 27.0% for Ordinary Income, representing standard quarterly progress levels. The fact that the earnings forecast was revised during the quarter indicates that management is highly focused on the full-year outlook. There was no revision to the dividend forecast, which is planned at ¥32 per year.

Shareholder Returns

The annual dividend forecast announced by the Company is ¥32. Based on forecast full-year EPS of ¥136.92, the Payout Ratio is approximately 23.4%, a conservative level. Given the solid financial foundation, including cash and deposits of ¥23.12B and an equity ratio of 68.4%, dividend sustainability is considered high. As there is no disclosure regarding share repurchases, shareholder returns currently consist solely of dividends.

Risk Factors

1. Working capital expansion risk: Accounts receivable increased to ¥19.71B (+¥2.55B YoY, +14.8%), and work in process increased to ¥10.79B (+¥0.23B YoY). Expansion of working capital at a pace exceeding revenue growth could delay the timing of cash generation.

2. Volatility in securities valuations: Investment securities increased to ¥17.76B (+¥3.37B YoY), while valuation difference on securities of +¥2.31B boosted comprehensive income. This valuation difference could reverse depending on changes in market conditions.

3. Higher funding costs in a rising interest-rate environment: The Company has long-term borrowings of ¥13.17B (+¥0.88B YoY) and bonds of ¥5.00B. Although interest coverage is currently high (EBIT/interest expense is at a high multiple), changes in the interest-rate environment could affect future financial expenses.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net margin exceed the industry median, placing the Company at a high level within the industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median, representing top-tier growth within the industry.

※Source: Company analysis

Key Earnings Highlights

1. The gross margin improved from the prior year, while the operating margin rose to 14.1%, indicating progress toward normalization of the earnings profile through improvements in pricing and product mix and disciplined expense management. The contribution of non-operating factors was limited, and the primary source of profit growth was improvement in the core business.

2. Meanwhile, accounts receivable and work in process have been increasing faster than revenue, making the expansion of working capital a key area of focus for future cash generation. Inventory turnover and collection periods will be monitoring items from the next quarter onward.

3. Against a solid financial foundation, including an equity ratio of 68.4% and cash and deposits of ¥23.12B, the Payout Ratio remains at a conservative level of approximately 23.4%, supporting the sustainability of shareholder returns.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from 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: ¥1,283–¥1,359 at ±1% for the cost of equity, and ¥1,318–¥1,323 at ±0.1 for ω.

Note:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model / Interest-rate reference month: 2026-07 / This value does not forecast 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 and, where necessary, after consulting with a professional advisor.

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