NITTO KOGYO CORPORATION FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, Revenue was ¥1957.8B (YoY +¥111.0B +6.0%), Operating Income was ¥154.5B (YoY +¥20.1B +15.0%), Ordinary Income was ¥162.6B (YoY +¥27.4B +20.3%), and Net Income was ¥114.7B (YoY +¥44.7B +63.7%), achieving increases at all profit levels. Gross margin improved to 27.4% (prior year 26.8%) up +0.6pt; SG&A ratio remained flat at 19.5% (prior year 19.5%), resulting in Operating Margin expanding to 7.9% (prior year 7.3%) up +0.6pt. Non-operating items including foreign exchange gains of ¥4.1B and dividend income of ¥2.5B, alongside low interest expense of ¥3.1B, contributed to the rise in Ordinary Income. At the Net Income level, although the prior year included a negative goodwill gain of ¥23.9B that did not recur, special losses in the current period were limited to ¥8.8B (impairment ¥3.8B, litigation settlement ¥2.6B, etc.), resulting in a substantial increase in Net Income. By segment, the Electrical & Information Infrastructure Manufacturing, Construction & Services Business led with Revenue ¥1251.6B (+5.4%) and Operating Income ¥113.1B (+10.3%); the Distribution Business recorded Revenue ¥606.3B (+7.5%) and Operating Income ¥26.3B (+25.8%); the Electronic Components Manufacturing Business posted Revenue ¥159.8B (+10.6%) and Operating Income ¥13.8B (+43.8%). All segments achieved both revenue and profit growth.

業績変動要因

【売上高】Revenue ¥1957.8B (+6.0%) resulted from revenue increases across both Electrical & Information Infrastructure-related businesses and all three Electronic Components-related segments. The core Electrical & Information Infrastructure Manufacturing, Construction & Services Business accounted for ¥1251.6B (+5.4%), representing 63.9% of the total, supported by steady demand for distribution boards, cabinets and strong demand in information and telecommunications network and electrical construction work. The Electrical & Information Infrastructure Distribution Business grew to ¥606.3B (+7.5%), driven by expanded sales of information and communication equipment and components. The Electronic Components Manufacturing Business achieved ¥159.8B (+10.6%), recording double-digit growth reflecting demand recovery for electromagnetic environment components. The topline growth of +6.0% was achieved by stable growth in core segments and strong increases in Distribution and Electronic Components.

【損益】Operating Income ¥154.5B (+15.0%) grew substantially faster than revenue due to gross margin improvement and SG&A efficiency. Cost of sales ratio improved to 72.6% (prior year 73.2%) -0.6pt, expanding gross margin to 27.4% (prior year 26.8%) +0.6pt. SG&A rose to ¥381.2B (+5.9%) roughly in line with revenue growth of +6.0%, keeping SG&A ratio at 19.5% unchanged from prior year. By segment, the core Manufacturing, Construction & Services Business generated Operating Income ¥113.1B (+10.3%), accounting for 73.2% of total operating profit; the Distribution Business recorded Operating Income ¥26.3B (+25.8%) with a margin of 4.3% and high profit growth; Electronic Components recorded Operating Income ¥13.8B (+43.8%), improving margin to 8.6%. Ordinary Income ¥162.6B (+20.3%) was further boosted by non-operating income of ¥11.8B (dividends received ¥2.5B, foreign exchange gains ¥4.1B, etc.) and low non-operating expenses of ¥3.7B (interest expense ¥3.1B, etc.). Net Income ¥114.7B (+63.7%) followed pretax income ¥155.3B with corporate taxes of ¥40.2B (effective tax rate 25.9%). Although the prior-year negative goodwill gain of ¥23.9B did not recur, limited special losses of ¥8.8B in the period resulted in a large increase in Net Income. In conclusion, topline growth across all segments combined with gross margin improvement and SG&A containment drove the bottom-line expansion and the overall revenue and profit growth.

セグメント別分析

The Electrical & Information Infrastructure Manufacturing, Construction & Services Business recorded Revenue ¥1251.6B (+5.4%) and Operating Income ¥113.1B (+10.3%) for a margin of 9.0%, maintaining stable profitability as the core business. Integrated offerings of distribution boards, cabinets, breakers, and information/telecommunications network and electrical construction/services were supported by domestic infrastructure renewal demand and contributions from overseas subsidiaries (China and ASEAN). The Electrical & Information Infrastructure Distribution Business delivered Revenue ¥606.3B (+7.5%) and Operating Income ¥26.3B (+25.8%) with a margin of 4.3%; despite low margin, expansion of information/telecom equipment and component sales produced high profit growth. The Electronic Components Manufacturing Business posted Revenue ¥159.8B (+10.6%) and Operating Income ¥13.8B (+43.8%), markedly improving margin to 8.6% as demand recovery for electromagnetic environment components and precision engineering components lifted profitability. All three segments achieved revenue and profit growth; while the core Manufacturing, Construction & Services continues to supply 73.2% of total profit, the profit contribution from Distribution and Electronic Components has increased, strengthening the business portfolio.

Key Financial Metrics

【収益性】Operating Margin 7.9% improved +0.6pt from 7.3% in the prior year, driven by gross margin improvement to 27.4% (prior year 26.8%) and stable SG&A ratio 19.5% (prior year 19.5%). ROE was 9.2%, which can be decomposed as Net Profit Margin 5.9% × Total Asset Turnover 1.06x × Financial Leverage 1.48x; while net profit margin declined from the prior year (prior-year ROE 10.8% was based on net profit margin 6.6%), operating-level profitability improved. 【キャッシュ品質】Operating Cash Flow (OCF) was ¥183.5B, 1.60x of Net Income ¥114.7B, indicating high quality; OCF/EBITDA ratio was 0.84x (EBITDA ¥218.7B = Operating Income ¥154.5B + Depreciation ¥64.2B), somewhat low but mainly due to temporary working capital movements (inventory increase ¥26.0B, decrease in bonus reserves ¥7.7B, etc.). Free Cash Flow was ¥111.6B (OCF ¥183.5B - Investing CF ¥71.9B), sufficiently covering dividend payments ¥60.2B and share buybacks ¥12.2B. 【投資効率】Total Asset Turnover was 1.06x, indicating efficient asset utilization. CapEx/Depreciation ratio was 0.90x (increase in tangible and intangible fixed assets ¥58.7B ÷ Depreciation ¥64.2B), reflecting disciplined maintenance and replacement-focused investment. 【財務健全性】Equity Ratio was 67.6%, Current Ratio 299%, Quick Ratio 267%, indicating extremely high liquidity and soundness. D/E ratio 0.16x, Debt/Capital 13.8%, Debt/EBITDA 0.92x reflect low leverage and substantial financial capacity. Interest Coverage was 49.7x (Operating Income ¥154.5B ÷ Interest Expense ¥3.1B), and on an EBITDA basis 70.3x, indicating minimal interest burden.

Cash Flow Analysis

OCF was ¥183.5B, a slight decrease of -1.6% from prior-year ¥186.4B, but the subtotal of pretax income ¥155.3B plus depreciation ¥64.2B totaled ¥225.0B, demonstrating stable cash generation. In working capital, reductions in inventories ¥26.0B (cash inflow) and in trade receivables ¥7.4B (cash inflow) were positive, while decreases in trade payables ¥14.6B (cash outflow) and bonus reserves ¥7.7B (cash outflow) reduced cash on balance. Corporate tax payments ¥41.8B were a cash burden, while interest/dividend received ¥3.5B and interest paid ¥3.1B roughly offset, and OCF remained 1.60x of Net Income ¥114.7B, maintaining high quality. Investing CF was -¥71.9B, mainly for acquisition of tangible and intangible fixed assets ¥57.6B; CapEx corresponded to 0.90x of depreciation ¥64.2B, focusing on maintenance and renewal. Net inflows/outflows from time deposits and investment securities (purchases ¥2.6B, sales/redemptions ¥1.2B) were also included, resulting in Free Cash Flow ¥111.6B. Financing CF was -¥103.7B: although long-term borrowings provided ¥120.0B and repayments ¥40.2B resulted in net financing of ¥79.8B, dividend payments ¥60.2B, share buybacks ¥12.2B and other financing payments led to net outflow. Cash and cash equivalents increased by ¥12.8B to ¥344.2B at year-end from ¥331.3B at the beginning of the period, including foreign exchange effects of ¥5.0B, indicating ample liquidity.

Quality of Earnings

Ordinary Income ¥162.6B equals Operating Income ¥154.5B plus net non-operating items ¥8.1B (Non-operating income ¥11.8B - Non-operating expenses ¥3.7B), so contributions from non-operating items were limited but positive. Major components of non-operating income were foreign exchange gains ¥4.1B, dividends received ¥2.5B, and interest received ¥0.8B; foreign exchange gains include one-off market-related elements, whereas dividend and interest income are sustainable revenue sources. Non-operating expenses centered on interest expense ¥3.1B, which is minor; other non-operating expenses ¥0.6B were limited. Extraordinary items: special gains ¥1.5B (negative goodwill gain ¥23.9B, gain on sale of investment securities ¥0.5B, gain on sale of fixed assets ¥0.6B) versus special losses ¥8.8B (impairment loss ¥3.8B, loss on disposal/sale of fixed assets ¥1.6B, litigation settlement ¥2.6B), resulting in a net downward impact of -¥7.3B. Prior year had special gains of ¥27.5B due to the negative goodwill gain ¥23.9B, so special gains decreased to ¥1.5B this period; special losses increased from prior ¥5.3B to ¥8.8B. The net effect of one-off items largely offset year-on-year, and Net Income ¥114.7B rose significantly from prior ¥70.0B (+63.7%). From an accrual perspective, the difference between OCF ¥183.5B and Net Income ¥114.7B (¥69.0B) is mainly explained by depreciation ¥64.2B and working capital movements, indicating high quality of earnings. Comprehensive income was ¥146.4B, ¥31.7B above Net Income ¥114.7B, with Other Comprehensive Income ¥31.3B (foreign currency translation adjustments ¥9.0B, valuation differences on available-for-sale securities ¥11.6B, adjustments related to retirement benefits ¥10.7B) contributing to equity strength. Ordinary-stage earnings show high sustainability; fluctuations in extraordinary items are transitory, and core earning power remains robust.

Earnings Forecast & Guidance

Full-year guidance is Revenue ¥2100.0B (YoY +7.3%), Operating Income ¥167.0B (YoY +8.1%), Ordinary Income ¥170.0B (YoY +4.5%), and Net Income ¥96.0B (YoY -16.3%). Year-to-date progress against the full-year forecast: Revenue ¥1957.8B is 93.2% of the annual forecast, Operating Income ¥154.5B is 92.5%, Ordinary Income ¥162.6B is 95.6%, and Net Income ¥114.7B is 119.5%. Operating and Ordinary stages are slightly behind the pace required to meet full-year forecasts, but Net Income has exceeded the forecast due to the prior-year negative goodwill gain not recurring and limited special losses this period. Assumptions underlying the full-year forecast include continued infrastructure renewal demand and maintenance of the profitability improvement trend in Distribution and Electronic Components segments. For H2, progress on projects in the core segment and penetration of price pass-through will be key. The Net Income forecast decline of -16.3% YoY primarily reflects the non-recurrence of the prior-year negative goodwill gain ¥23.9B, contrasting with the improving trend at the Ordinary stage. The company plans certain revenue and profit increases in H2, so achieving full-year Revenue and Operating Income targets will require H2 contributions.

Shareholder Returns

Annual dividend is ¥152 (interim ¥62, year-end ¥90). Against Net Income ¥114.7B, total dividends amounted to ¥60.9B, with a Payout Ratio of 50.2%, a sustainable level. The prior-year payout ratio was also 50.2%, indicating a consistent return policy. Share buybacks totaled ¥12.2B; combined with dividends ¥60.9B, total shareholder returns were ¥73.1B, and the Total Return Ratio was approximately 63.7% (Total Returns ¥73.1B ÷ Net Income ¥114.7B). Coverage of total returns by Free Cash Flow ¥111.6B is 1.53x, indicating ample coverage and a good balance between growth investment and shareholder returns. With an Equity Ratio of 67.6% and cash and deposits of ¥353.8B, the strong financial base provides scope to continue stable dividends and execute opportunistic buybacks. Dividend guidance is ¥77 for the full year (including interim ¥62 already paid), and actual year-end dividend of ¥90 versus forecast ¥15 indicates a significant increase reflecting strong performance and shareholder-friendly stance.

Risk Factors

1. Segment concentration risk: The Electrical & Information Infrastructure Manufacturing, Construction & Services Business accounts for 63.9% of Revenue and 73.2% of Operating Income, creating a concentrated structure whereby demand fluctuations or intensified price competition in this segment directly affect consolidated performance. While infrastructure renewal demand is resilient, public investment cycles or a slowdown in private capital expenditure could pressure revenue and profits. Increased profit contribution from Distribution and Electronic Components mitigates this risk, but dependence on the core business remains high.

2. Prolongation of receivables collection period risk: Trade receivables (notes and accounts receivable) of ¥336.8B correspond to DSO of approximately 63 days against Revenue ¥1957.8B, showing a tendency toward longer collection periods. Although the Current Ratio is 299% and liquidity is ample, continued payment delays would increase working capital burden and reduce cash generation efficiency. Strengthening credit management and improving collection processes are necessary.

3. Structural issues in low-margin segment: The Distribution Business Operating Margin of 4.3% is materially below the core Manufacturing, Construction & Services margin of 9.0%, and a rising share of Distribution could dilute consolidated margins. Although Distribution is achieving revenue and profit growth, without clear margin improvement strategies, it could structurally cap consolidated ROE.

Industry Benchmark (Reference, Company Analysis)

Profitability & Returns

The company’s Operating Margin is roughly in line with the industry median; Net Profit Margin exceeds the median by +0.7pt, maintaining standard profitability among manufacturers.

Growth & Capital Efficiency

Revenue growth rate outperformed the industry median by +2.3pt, reflecting relatively high growth supported by infrastructure-related demand and diversified segment offerings.

※ Source: Company compilation

Key Reporting Highlights

1. Achievement of revenue and profit growth across all segments, gross margin improvement, Operating Margin expansion to 7.9% (+0.6pt), and OCF ¥183.5B representing 1.60x of Net Income demonstrate recovery and sustainability of core earnings. The core Manufacturing, Construction & Services Business producing 73.2% of Operating Income provides a stable structure, while accelerated profit growth in Distribution and Electronic Components enhances portfolio resilience, supporting continued revenue and profit growth.

2. Financial soundness is extremely high with D/E 0.16x, Debt/EBITDA 0.92x, Interest Coverage 49.7x; Free Cash Flow ¥111.6B sufficiently covers dividends and buybacks. With Equity Ratio 67.6% and cash ¥353.8B, there is ample liquidity to pursue growth investments, M&A, or additional returns, presenting substantial medium-term upside for shareholder value. Stable return policy with Payout Ratio 50.2% and Total Return Ratio 63.7% is also positive.

3. Extended receivables collection (DSO ~63 days) and low-margin structure in the Distribution Business (margin 4.3%) are structural constraints on upside for consolidated profitability. Improvements in working capital efficiency and measures to raise Distribution margins (shift to higher-value products, digitalization, etc.) would improve OCF/EBITDA and further enhance ROE. While full-year guidance requires H2 contributions, the current profit trend and strong cash generation suggest the medium-term growth trajectory is likely to be maintained.

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This report was auto-generated by AI analyzing XBRL financial disclosure data and is a financial analysis document. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company based on public financial statements. Investment decisions are your responsibility; consult a professional advisor as necessary before making investment decisions.