NITTO KOGYO (6651) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 of the fiscal year ending March 2026, the Company maintained revenue and operating income growth, although net income declined due to the reversal of a one-time gain recorded in the previous year. Revenue was ¥1430.2B (+7.2% YoY), Operating Income was ¥110.0B (+18.3%), and Ordinary Income was ¥116.1B (+22.2%), reflecting continued improvement in core business profitability, while Net Income was ¥80.5B (-9.8% YoY). The primary reason for the decline in Net Income was the reversal of the ¥23.95B gain on negative goodwill arising from the acquisition of Tempel Kogyo Co., Ltd. as a subsidiary, which was recorded in the same period of the previous year.

Factors Affecting Performance

【Revenue】Revenue increased 7.2% YoY to ¥1430.2B, with all three reported segments posting revenue growth. The core Electrical and Information Infrastructure-Related Manufacturing, Construction, and Services Business generated ¥888.9B (+5.8% YoY), accounting for 62.2% of total Company revenue. The Electrical and Information Infrastructure-Related Distribution Business generated ¥425.2B (+10.1%), while the Electronic Components-Related Manufacturing Business generated ¥116.2B (+8.5%); both latter businesses grew faster than the Company-wide average.

【Profit and Loss】Operating Income increased 18.3% YoY to ¥110.0B, and the Operating Income Margin improved to 7.7% from approximately 7.0% in the previous year. The Company absorbed higher SG&A expenses while maintaining a gross margin of 27.5%, securing an earnings growth rate exceeding its revenue growth rate. Ordinary Income increased 22.2% YoY to ¥116.1B, supported by non-operating income including ¥2.5B in dividend income and ¥2.8B in foreign exchange gains. Meanwhile, Profit Before Tax was ¥113.5B (-6.7% YoY). Extraordinary losses included ¥2.6B in litigation settlement costs and ¥0.8B in losses on the disposal and sale of fixed assets. In addition, the reversal of the ¥23.95B gain on negative goodwill recorded in the previous year resulted in Net Income of ¥80.5B (-9.8% YoY). This can be characterized as a results period featuring revenue and core-business earnings growth, with growth through the Operating Income and Ordinary Income stages coexisting with a decline at the Net Income stage.

Segment Analysis

The Electrical and Information Infrastructure-Related Manufacturing, Construction, and Services Business is the core business, with external revenue of ¥888.9B (+5.8% YoY) and segment income of ¥80.9B (+11.8% YoY), accounting for 73.6% of total segment income. The Electrical and Information Infrastructure-Related Distribution Business generated revenue of ¥425.2B (+10.1%) and segment income of ¥17.7B (+39.1%), recording the highest earnings growth rate. The Electronic Components-Related Manufacturing Business generated revenue of ¥116.2B (+8.5%) and segment income of ¥10.4B (+57.2%), demonstrating a marked improvement in profitability. All three segments achieved both revenue and earnings growth, with the Distribution and Electronic Components-Related businesses particularly driving earnings growth.

Key Financial Metrics

【Profitability】The Operating Income Margin of 7.7% improved from approximately 7.0% in the same period of the previous year, while the Ordinary Income Margin also expanded to 8.1% from approximately 7.1%. In contrast, the Net Income Margin declined to 5.6% from approximately 6.8% in the previous year, reflecting an apparent decline caused by the reversal of the gain on negative goodwill recorded in the previous year.【Cash Flow Quality】Accounts receivable of ¥432.4B accounted for 23.9% of total assets, and DSO (Days Sales Outstanding) was relatively long at approximately 83 days on an annualized basis, suggesting that the working capital burden may be expanding during the revenue growth phase.【Investment Efficiency】ROE of 6.8% can be decomposed into a Net Income Margin of 5.6% × total asset turnover of 0.79 times × financial leverage of 1.52 times, with the low turnover rate acting as a constraint on capital efficiency.【Financial Soundness】The Company maintained a conservative financial structure, with an Equity Ratio of 65.9% and a Current Ratio of 279.3%. Cash and deposits of ¥298.6B exceeded interest-bearing debt of ¥240.0B, while the Debt/Capital ratio remained at 16.8%.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is not available, fund movements can be assessed based on changes in the balance sheet. Cash and deposits decreased by ¥41.7B to ¥298.6B from ¥340.3B in the same period of the previous year, while accounts receivable increased to ¥432.4B from ¥422.0B and inventories increased to ¥129.6B from ¥120.6B. The accumulation of working capital accompanying revenue growth may be pressuring the cash balance. Long-term borrowings declined to ¥210.0B from ¥240.1B in the previous year, indicating progress in reducing interest-bearing debt. Equity increased to ¥1176.1B, with the accumulation of retained earnings supporting the financial base. Overall, although earnings growth from operating activities continues, the increase in accounts receivable and inventories appears to be slowing the pace of cash conversion.

Quality of Earnings

The improvement in earnings through the Ordinary Income stage has a strongly recurring nature, reflecting improved profitability in the core business. Of the ¥8.8B in non-operating income, dividend income of ¥2.5B and foreign exchange gains of ¥2.8B were the principal components. Meanwhile, the year-on-year decline in Net Income was largely attributable to fluctuations in extraordinary gains and losses, primarily the reversal of the one-time ¥23.95B gain on negative goodwill arising from the acquisition of Tempel Kogyo Co., Ltd. as a subsidiary, which was recorded in the same period of the previous year. In the current period, the Company recorded extraordinary income of ¥0.8B against extraordinary losses of ¥3.4B, including ¥2.6B in litigation settlement costs, resulting in a net extraordinary loss of ¥2.6B. Comprehensive Income was ¥85.5B, exceeding Net Income of ¥80.5B, with a positive ¥8.6B contribution from valuation difference on securities lifting Comprehensive Income. The divergence between Net Income and Comprehensive Income was limited, and no significant abnormalities were observed from an accruals perspective.

Earnings Forecast and Guidance

Progress against the full-year Company forecast was 73.7% for Revenue, 75.8% for Operating Income, 77.9% for Ordinary Income, and 80.4% for Net Income. Revenue progress was slightly below the standard Q3 cumulative benchmark of 75%, but Operating Income, Ordinary Income, and Net Income were all above that level, indicating steady progress toward achieving the earnings plan. To achieve the full-year Revenue forecast of ¥1940.0B, the Company needs ¥509.8B in Q4, while achieving the Operating Income forecast of ¥145.0B requires ¥35.0B in Q4. This corresponds to a required Q4 Operating Income Margin of 6.9%, below the Q3 cumulative actual result of 7.7%; therefore, the required level is not excessively high as a condition for achieving the forecast.

Shareholder Returns

The Company’s full-year dividend forecast is ¥132.00 per share. As an interim dividend of ¥62.00 has already been paid, the year-end dividend would be ¥70.00 if the plan proceeds as scheduled. Based on the full-year forecast EPS of ¥263.60, the forecast Payout Ratio is 50.1%. Given retained earnings of ¥974.1B and cash and deposits of ¥298.6B, the Company has sufficient capacity to pay dividends. Since no data on share repurchases has been disclosed, shareholder return indicators were evaluated using the Payout Ratio.

Risk Factors

1. Prolonged collection period for accounts receivable: Accounts receivable of ¥432.4B accounted for 23.9% of total assets, and DSO was relatively long at approximately 83 days on an annualized basis. The expansion of the working capital burden accompanying revenue growth and the slowdown in cash conversion are concerns.

2. Concentration in the core business: The Electrical and Information Infrastructure-Related Manufacturing, Construction, and Services Business accounts for 62.2% of Revenue and 73.6% of segment income. Consequently, infrastructure investment demand and the progress of construction projects in this business have a significant impact on Company-wide performance.

3. Volatility in foreign exchange and non-operating income and expenses: The ¥2.8B foreign exchange gain that contributed to the increase in Ordinary Income is affected by fluctuations in foreign exchange rates. Accordingly, the increase in the Ordinary Income Margin could contract in a future reversal phase.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability is positioned slightly below the industry median.

Growth and Capital Efficiency

The Revenue Growth Rate exceeds the industry median, placing the Company in a relatively favorable position in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The Operating Income Margin improved by approximately 0.7pt from the previous year to 7.7%, and all three segments achieved both revenue and earnings growth, clearly demonstrating improved profitability in the core business.

2. The year-on-year decline in Net Income resulted from the reversal of the one-time ¥23.95B gain on negative goodwill recorded in the previous year. It should therefore be evaluated separately from the earnings growth at the Operating Income and Ordinary Income stages.

3. The accounts receivable collection period (approximately 83 days on an annualized basis) warrants ongoing monitoring from the perspective of working capital management during a period of revenue growth.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,995–¥3,166 at ±1% for the Cost of Equity, and ¥3,076–¥3,080 at ±0.1 for ω.

Notes:

• As 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 mismatch with the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and 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 report data. 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 professionals as necessary.

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