NIHON KOHDEN CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

In Q1 FY2027, revenue declined, while operating income, ordinary income, and net income all fell into the red, resulting in a sharp deterioration in profitability after a reversal from the prior growth trend. Revenue was ¥47.41B (¥50.02B in the previous year, -5.2% YoY), operating income was ¥-0.98B (¥1.40B in the previous year, -170.2%), ordinary income was ¥-0.34B (¥0.47B in the previous year, -171.7%), and net income attributable to owners of the parent was ¥-0.76B (¥0.14B in the previous year, -651.8%). The primary causes were a decline in revenue in the core Japan segment and persistently high SG&A expenses. Although the gross profit margin improved, the improvement was insufficient to offset these factors.

Factors Affecting Business Performance

【Revenue】Company-wide revenue was ¥47.41B, a 5.2% YoY decline. The core Japan segment, which accounted for 59.5% of the total composition, declined significantly to ¥32.74B (-13.0% YoY), becoming the primary cause of the company-wide revenue decrease. In contrast, North America generated ¥13.98B (+12.5% YoY), while other regions generated ¥8.32B (+9.9% YoY), securing revenue growth. The domestic decline appears to have been attributable to a timing mismatch in demand, reflecting seasonality in which shipments to national hospitals and government agencies are concentrated in September and March.

【Profit and Loss】The gross profit margin improved by +1.1pt to 53.7% (52.6% in the previous year) as cost of sales was reduced to ¥21.95B. However, SG&A expenses increased to ¥26.44B (+6.1% YoY), causing the SG&A ratio to deteriorate by +6.0pt to 55.8% (49.8% in the previous year). As a result, the operating margin deteriorated by -4.9pt to -2.1% (previous year: +2.8%), and the company recorded an operating loss of ¥0.98B. In non-operating items, a foreign exchange gain of ¥0.60B was recorded, reversing the foreign exchange loss reported in the previous year and narrowing the ordinary loss relative to the operating loss; however, the company did not return to profitability. Extraordinary income and expenses consisted only of a gain on the sale of fixed assets of ¥0.03B, with a limited impact on net income. The divergence between the ordinary loss and net loss was primarily attributable to the ¥0.45B burden from income taxes and other taxes. Overall, the results represented declining revenue and earnings, with a fall into operating losses.

Segment Analysis

By segment, Japan posted revenue of ¥32.74B (-13.0% YoY) and operating income of ¥0.24B (-84.2% YoY; margin of 0.7%), barely maintaining profitability despite declines in both revenue and earnings. North America continued to grow in revenue, reaching ¥13.98B (+12.5% YoY), but operating income fell into the red at ¥-0.29B (¥0.35B in the previous year, -183.9%), placing significant pressure on company-wide earnings. Other regions generated revenue of ¥8.32B (+9.9% YoY) and operating income of ¥0.05B (+135.1% YoY), returning to profitability and becoming the only segment among the three regions to achieve both revenue and earnings growth. With Japan accounting for approximately 60% of revenue, the company’s exposure to seasonal fluctuations in domestic demand is confirmed as a source of volatility in company-wide performance.

Key Financial Indicators

【Profitability】ROE was -0.4%, the operating margin was -2.1%, and the net profit margin based on net income attributable to owners of the parent was -1.6%; all three indicators were negative, and the recognition of a net loss directly led to deterioration in capital efficiency. 【Cash Flow Quality】Operating Cash Flow (OCF) remained positive at ¥8.14B, with the collection of trade receivables, which decreased by ¥15.96B, supporting cash generation despite the net loss. The divergence between earnings and cash flow is therefore a point to note. 【Investment Efficiency】Capital expenditures were ¥0.56B, equivalent to only 0.43 times depreciation and amortization of ¥1.28B. The total asset turnover ratio was also low at 0.19x, indicating room for improvement in asset efficiency. 【Financial Soundness】The equity ratio rose by +1.9pt to 72.0% (70.1% in the previous year). Current assets of ¥167.31B versus current liabilities of ¥42.06B imply a current ratio of approximately 398%. Cash and deposits of ¥36.34B substantially exceeded long-term borrowings of ¥21.75B, indicating that on-hand liquidity was well above outstanding borrowings.

Cash Flow Analysis

Net cash provided by operating activities was positive at ¥8.14B, representing a YoY increase of +37.7%; thus, cash-generating capacity exceeded the previous year even amid the recognition of a net loss. The ¥15.96B decrease in trade receivables made a significant contribution to cash inflows, as progress in collecting receivables at the beginning of the period compressed working capital. Conversely, the ¥3.90B decrease in trade payables was a factor weighing on cash flow. Net cash used in investing activities was ¥-0.33B, primarily reflecting capital expenditures of ¥0.56B, while net cash used in financing activities was ¥-3.19B, mainly due to dividend payments and other factors. Free cash flow (OCF + investing cash flow) was ¥7.81B, providing ample capacity to cover dividend payments and capital expenditures. While earnings were in the red, cash flow remained solid; however, the positive result was primarily supported by the temporary working-capital factor of trade receivables collection, which should be considered in evaluating the results.

Quality of Earnings

Operating income, representing the core business, was negative at ¥-0.98B. At the ordinary income level, a foreign exchange gain of ¥0.60B was recorded as non-operating income, whereas a foreign exchange loss had been recorded in the previous year, narrowing the ordinary loss to ¥-0.34B. This foreign exchange gain accounted for approximately 76% of total non-operating income of ¥0.79B, indicating that non-operating factors related to currency fluctuations supported earnings rather than an improvement in recurring business profitability. Extraordinary income and expenses were limited to a ¥0.03B gain on the sale of fixed assets and had only a minor impact on the net loss. OCF was positive at ¥8.14B, diverging substantially from the net loss of ¥-0.76B; as noted above, this was attributable to the working-capital movement resulting from the collection of trade receivables. Accrual-based earnings and the quality of cash generation therefore need to be evaluated separately.

Earnings Forecast and Guidance

The full-year earnings forecast calls for revenue of ¥232.50B (-1.1% YoY), operating income of ¥23.50B (+25.4% YoY), ordinary income of ¥23.50B (+4.2% YoY), EPS of ¥93.77, and a dividend of ¥33.00 per share. No revisions were made to the earnings forecast or dividend forecast during the current quarter. Revenue progress was ¥47.41B/¥232.50B, or 20.4%, below the simple 25% benchmark. However, as disclosed by the company, domestic revenue is seasonal, with shipments to national hospitals and government agencies concentrated in September and March. Given the structure in which revenue and earnings are weighted toward Q4, the slower progress as of Q1 may be within the range attributable to seasonality. Because operating income was negative in the current quarter, achieving the full-year plan will require a significant improvement in profitability during the second half.

Shareholder Returns

The full-year dividend forecast is ¥33.00 per share, with no revision made during the current quarter. Based on projected full-year net income of ¥15.00B and an average number of shares outstanding during the period of 159,972 thousand shares, the annual total dividend is simply calculated at approximately ¥5.28B, implying an estimated payout ratio of approximately 35.2%. Dividend payments during the current quarter amounted to ¥2.54B, which was fully covered by free cash flow of ¥7.81B during the same period. Together with cash and deposits of ¥36.34B, the company has secured sufficient short-term capacity to pay dividends.

Risk Factors

1. Deterioration in North American segment profitability: North American revenue continued to grow, reaching ¥13.98B (+12.5% YoY), but operating income fell into the red at ¥-0.29B (¥0.35B in the previous year). Improving profitability in line with revenue growth remains a challenge.

2. Seasonality and timing shifts in domestic demand: Revenue in the Japan segment declined significantly to ¥32.74B (-13.0% YoY). Because shipments to national hospitals and government agencies are concentrated in September and March, the substantial fluctuations in Q1 results arising from this structure require monitoring.

3. Persistently high SG&A expenses and cost structure: The SG&A ratio rose by +6.0pt to 55.8% (49.8% in the previous year), while SG&A expenses increased by +6.1%, exceeding the -5.2% decline in revenue. The resulting decline in fixed-cost absorption capacity was a direct cause of the operating loss.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin were substantially below the industry median, indicating that profitability was relatively low within the industry.

Growth and Capital Efficiency

Revenue growth was also significantly below the industry median, with the company in a declining-revenue phase compared with peer companies that remain on a growth trajectory.

※Source: Compiled by the company

Key Takeaways from the Results

1. While the gross profit margin improved to 53.7% (+1.1pt YoY), the SG&A ratio deteriorated to 55.8% (+6.0pt YoY), becoming the direct cause of the fall into an operating loss. The ability to absorb the cost structure will be key to restoring profitability.

2. OCF was positive at ¥8.14B, up +37.7% YoY and solid despite the earnings loss. However, the primary cause was a working-capital movement resulting from the collection of trade receivables, which must be distinguished from an improvement in recurring earnings power.

3. The North American segment fell into an operating loss of ¥-0.29B despite revenue growth (+12.5%). Together with the high dependence on the Japan segment, which accounted for 59.5% of revenue, changes in regional profitability should be monitored as a factor that will influence progress toward the full-year results.

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

Sensitivity: ¥1,094–¥1,158 at ±1% for the cost of equity, and ¥1,125–¥1,126 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥7.6 per share is added back to earnings (to account for a non-cash expense and comparability with IFRS companies).
• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does 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 summary data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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