NIHON DEMPA KOGYO (6779) FY2027 Q1 Earnings Report

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Executive Summary

The Company reported higher revenue and profit, driven by substantial revenue growth in crystal oscillators, with margins also improving. Revenue was ¥153.2B (+20.5% YoY), Operating Income was ¥12.4B (+58.8%), and Net Income was ¥7.8B (+65.1%). The rate of profit growth exceeding the rate of revenue growth reflects an improved product mix resulting from the strong growth of crystal oscillators and the emergence of operating leverage due to the relative containment of SG&A expenses.

Factors Affecting Performance

【Revenue】Revenue was ¥153.2B, up +20.5% YoY. By product, the core crystal resonator business recorded ¥108.9B (71.0% of total, +15.4% YoY), while crystal oscillators recorded ¥31.4B (20.5% of total, +64.8% YoY), representing substantial revenue growth and raising their composition ratio from 15.0% to 20.5%. Other products declined to ¥13.0B, down △6.2% YoY, indicating that growth is concentrated in crystal oscillators.

【Profit and Loss】The gross profit margin improved to 29.2% from 28.4% in the same period of the previous year, apparently reflecting the strong growth of crystal oscillators. SG&A expenses were ¥26.5B, with growth contained relative to the 20.5% increase in revenue; the SG&A ratio remained flat, allowing operating leverage to take effect. The Operating Income margin improved to 8.1% from the same period of the previous year. Financial expenses doubled to ¥2.6B from ¥1.3B in the same period of the previous year; however, Profit Before Tax of ¥9.9B and Net Income of ¥7.8B increased broadly in proportion, indicating only a small divergence between ordinary items and Net Income. In conclusion, the Company achieved higher revenue and profit, with the rate of profit growth exceeding the rate of revenue growth due to an improved product mix.

Segment Analysis

The Group operates in a single segment consisting of crystal-related products, and business segment information is not disclosed. By product, the business is divided into crystal resonators (71.0% of total), crystal oscillators (20.5%), and other products (8.5%); growth in crystal oscillators is driving overall growth.

Key Financial Metrics

【Profitability】The Operating Income margin of 8.1% and Net Income margin of 5.1% both improved from 6.1% and 3.7%, respectively, in the same period of the previous year. The gross margin was 29.2%, up 74bp from 28.4% in the same period of the previous year.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥33.8B, reaching 4.35 times Net Income of ¥7.8B, indicating strong cash backing for earnings.【Investment Efficiency】Annualized ROE was 9.5%, primarily due to the improvement in the Net Income margin. Total asset turnover remained low and was supplemented by financial leverage (total assets/net assets).【Financial Soundness】The Equity Ratio improved to 42.5% from 41.8% in the same period of the previous year. Current assets of ¥443.7B compared with current liabilities of ¥144.7B resulted in a current ratio of approximately 307%, providing a substantial liquidity cushion. However, long-term borrowings of ¥246.2B account for 31.8% of total assets and remain a constraint in terms of the cost of capital.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥33.8B, up +9.4% YoY, and its ratio to Net Income of ¥7.8B was high at 4.35 times, indicating that current-period earnings were supported by cash generation. OCF benefited from depreciation and amortization of ¥10.5B and an increase in operating liabilities of ¥7.3B, while accounts receivable increased by ¥6.5B and inventories by ¥2.2B in line with revenue growth, creating a working capital burden. Investing Cash Flow was positive at ¥10.1B, including government subsidy income of ¥11.1B and repayment of time deposits of ¥8.0B; however, underlying expenditures continued, including capital expenditures of ¥5.0B and acquisitions of intangible assets of ¥4.0B. Financing Cash Flow was △¥18.6B due to repayments of long-term borrowings of ¥13.3B and dividend payments of ¥3.0B, while short-term borrowings were substantially reduced from ¥13.3B in the same period of the previous year to ¥2.0B. Free Cash Flow was ¥43.9B (on a structural basis, including temporary income such as government subsidies), and cash and cash equivalents accumulated to ¥134.7B.

Earnings Quality

The increase in profit for the current period was supported by the structural business factor of strong growth in crystal oscillators, and no temporary factors such as extraordinary gains or losses have been identified. In non-operating items, financial expenses increased from ¥1.3B in the same period of the previous year to ¥2.6B, exceeding financial income of ¥0.3B and representing a greater burden. Nevertheless, the increase in Profit Before Tax to ¥9.9B was broadly consistent with operating earnings. From an accruals perspective, OCF substantially exceeded Net Income, indicating a high degree of cash conversion. However, increases in accounts receivable and inventories should be monitored as potential future working capital burdens, as capital efficiency during sustained revenue growth will affect earnings quality. Comprehensive Income was ¥12.7B, exceeding Net Income of ¥7.8B, with foreign exchange-related other comprehensive income, including translation adjustments for foreign operations, providing an additional contribution.

Earnings Forecasts and Guidance

The Full-Year forecasts are Revenue of ¥625.0B, Operating Income of ¥52.0B (+55.0% YoY), and Net Income of ¥32.0B (+54.9% YoY); the earnings forecasts were revised during the current quarter. Q1 progress against the Full-Year forecasts was 24.5% for Revenue, 23.8% for Operating Income, and 24.3% for Net Income, representing standard progress broadly in line with a simple one-quarter level of 25%. Whether the strong growth in crystal oscillators can continue throughout the Full Year will determine whether progress is above or below expectations.

Shareholder Returns

The Full-Year forecast dividend per share is ¥30.0, with no revision to the dividend forecast. Based on the Full-Year forecast EPS of ¥139.56, the forecast Payout Ratio is approximately 21.5%. As no share repurchases have been identified, the Company is evaluated based on the Payout Ratio rather than the Total Return Ratio. Dividend payments during the current quarter were ¥3.0B, equivalent to only 8.9% of OCF of ¥33.8B, indicating high dividend coverage by cash flow.

Risk Factors

1. Inventory and accounts receivable accumulation: Inventories increased to ¥127.5B (+2.5% YoY), while accounts receivable increased to ¥146.2B (+6.0% YoY). Expansion in working capital accompanying revenue growth may put pressure on future OCF.

2. Increase in financial expenses: Financial expenses doubled from ¥1.3B in the same period of the previous year to ¥2.6B. Against the backdrop of long-term borrowings of ¥246.2B, the impact of changes in the interest-rate environment on earnings requires continued monitoring.

3. Dependence on product mix: Crystal oscillators, the primary driver of profit growth, expanded to 20.5% of total composition, while other products declined by △6.2% YoY, indicating that growth drivers are concentrated in specific products.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

Both the Operating Income margin and Net Income margin are slightly below the industry median, but remain well above the lower bound of the IQR.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeds the industry median and represents high growth above the upper bound of the IQR.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Operating Income increased +58.8% against a +20.5% increase in Revenue, recording a rate of profit growth exceeding the rate of revenue growth. The composition ratio of crystal oscillators rose from 15.0% to 20.5%, with the improved product mix being the primary driver of profit growth.

2. OCF reached 4.35 times Net Income, indicating that current-period earnings were supported by cash generation. Meanwhile, increases in accounts receivable and inventories were identified, making working capital management during the revenue growth phase an area for future monitoring.

3. Q1 progress against the Full-Year forecasts was 24.5% for Revenue, 23.8% for Operating Income, and 24.3% for Net Income, representing standard progress. The upward trend in financial expenses requires continued monitoring when assessing Full-Year earnings progress.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,422–¥1,507 at a ±1% change in the Cost of Equity, and ¥1,463–¥1,465 at a ±0.1 change in ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing discrepancy with the Full-Year forecasts).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest-rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these values do not constitute a forecast of the market share price or a recommendation of any specific investment action, and do not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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 with professionals as necessary.

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