NF HOLDINGS (6864) FY2026 Q3 Earnings Report

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Executive Summary

While revenue declined 3.3% year on year, operating income increased 47.7% due to the suppression of SG&A expenses, making profitability improvement without revenue growth the key feature of the current period. Revenue was ¥5.92B (¥6.12B in the same period last year), operating income was ¥0.36B (¥0.24B), and ordinary income was ¥0.38B (¥0.27B). However, as a result of recording ¥0.57B in extraordinary losses, including losses related to business restructuring and liquidation, net income attributable to owners of the parent amounted to a loss of ¥0.09B (a profit of ¥0.22B in the same period last year), while consolidated net income also amounted to a loss of ¥0.35B. The results reflect the coexistence of improved core operating profitability and deterioration in final earnings.

Factors Affecting Business Performance

【Revenue】Revenue was ¥5.92B, down 3.3% year on year. Although segment-level disclosure is not available, progress against the full-year forecast of ¥8.90B was only 66.5%, below the standard 75% progress level.

【Profitability】Cost of sales decreased to ¥3.73B (¥3.92B in the same period last year), and the gross profit margin improved to 36.9% (35.8% last year). SG&A expenses were ¥1.82B, down 6.5% year on year. As expenses were reduced at a pace exceeding the decline in revenue, the operating margin expanded by approximately 2.1pt to 6.1% (4.0% last year). Ordinary income also increased 39.9% year on year to ¥0.38B. The impact of non-operating income and expenses was limited (non-operating income of ¥0.03B), and the improvement was attributable to core operating profitability. However, the recognition of ¥0.57B in extraordinary losses caused profit before tax to turn into a loss of ¥0.18B, while net income attributable to owners of the parent became a loss of ¥0.09B. In the same period last year, the Company recorded extraordinary gains including a ¥0.29B gain on the sale of investment securities, meaning that the year-on-year comparison of final earnings is strongly affected by temporary factors. In conclusion, operating results show profit growth without revenue growth (profit growth despite declining revenue), but final earnings declined and turned negative due to the impact of extraordinary losses.

Key Financial Indicators

【Profitability】The operating margin was 6.1%, improving from 4.0% in the same period last year, while the gross profit margin also rose to 36.9% (35.8% last year). Meanwhile, the net profit margin attributable to owners of the parent was negative 1.5% (6.4% last year), deteriorating due to the impact of extraordinary losses.【Cash Quality】Operating receivables, comprising accounts receivable and electronically recorded monetary claims, amounted to ¥2.94B, while inventories were ¥0.74B. Work in process accounted for ¥1.46B, representing more than 45% of inventory, which warrants attention from the perspective of working capital turnover efficiency.【Investment Efficiency】ROE (annualized) was negative 3.6%, primarily due to net income attributable to owners of the parent turning negative, while financial leverage itself remained low. Total assets contracted to ¥15.86B (¥17.32B in the same period last year), and the level of asset efficiency remained limited.【Financial Soundness】The equity ratio remained high at 82.7% (approximately 77.4% in the same period last year), and cash and deposits of ¥5.12B substantially exceeded current liabilities of ¥2.26B. Interest-bearing debt remained limited to a total of ¥0.60B, comprising short-term borrowings of ¥0.30B and long-term borrowings of ¥0.30B, indicating that the overall financial foundation is solid.

Cash Flow Analysis

As figures from the statement of cash flows are not included in the disclosed data, funding trends are reviewed based on changes in the balance sheet. Cash and deposits were ¥5.12B, a decrease of ¥0.33B from ¥5.45B in the previous year. Total assets contracted by ¥1.46B from ¥17.32B to ¥15.86B, and current assets also declined to ¥11.48B. Short-term borrowings decreased 46.0% from ¥1.11B in the previous year to ¥0.60B, indicating lower reliance on borrowings. While inventories decreased from ¥0.89B in the previous year to ¥0.74B, work in process amounted to ¥1.46B, accounting for 45.2% of the inventory composition and suggesting that funds remain tied up in the production process. Retained earnings were ¥7.58B, down from ¥7.89B in the previous year, consistent with the recognition of a net loss for the current period.

Quality of Earnings

Although the improvement in core operating profitability can be viewed as an enhancement of recurring earnings power, final earnings were strongly affected by the temporary factor of extraordinary losses. Non-operating income was modest at ¥0.03B in total, including dividends received of ¥0.01B, and the improvement in ordinary income was largely in line with the increase in operating income. The ¥0.57B in extraordinary losses primarily comprised losses related to business restructuring and liquidation and was non-recurring in nature. In the same period last year, the Company recorded a ¥0.29B gain on the sale of investment securities as an extraordinary gain. As temporary items had a significant impact in both periods, attention should be paid to the divergence from underlying earnings power at the ordinary income level. Comprehensive income was negative ¥0.31B, and the difference from the ¥0.09B net loss attributable to owners of the parent was primarily due to a ¥0.26B comprehensive loss attributable to non-controlling interests. The divergence between net income and comprehensive income was mainly attributable to changes in non-controlling interests.

Earnings Forecast and Guidance

Progress against the full-year forecasts was 66.5% for revenue, 52.8% for operating income, and 56.0% for ordinary income, all below the standard 75% level. Achieving the full-year operating income forecast of ¥0.68B will require approximately ¥0.32B in operating income in Q4 alone, nearly equivalent to the ¥0.36B in operating income accumulated through Q3. Net income attributable to owners of the parent was a loss of ¥0.09B through Q3 against a full-year forecast of ¥0.06B; achieving full-year profitability will require a substantial profit contribution in Q4. Revenue was at 66.5% progress against the full-year forecast of ¥8.90B, making demand trends during the remaining quarter the key to achieving the forecast.

Shareholder Returns

The Q2 dividend was ¥0, while the full-year dividend forecast is ¥34 per share. The payout ratio against forecast full-year EPS of ¥8.55 is 397.7%, a level at which annual earnings cannot fund the dividend. Based on the number of shares outstanding, the annual dividend payout is estimated at approximately ¥0.24B, exceeding the forecast full-year profit attributable to owners of the parent of ¥0.06B. As the Company recorded a net loss attributable to owners of the parent of ¥0.09B through Q3, dividend funding is highly dependent on existing internal reserves, including retained earnings of ¥7.58B and cash and deposits of ¥5.12B.

Risk Factors

1. Deterioration in final earnings due to extraordinary losses: Net income attributable to owners of the parent turned into a loss of ¥0.09B due to ¥0.57B in extraordinary losses, mainly comprising losses related to business restructuring and liquidation. The potential for additional losses will be a key focus going forward.

2. Working capital tie-up: Work in process of ¥1.46B accounts for 45.2% of inventories, while operating receivables, comprising accounts receivable and electronically recorded monetary claims, reached ¥2.94B. The efficiency of production and collection processes will affect capital efficiency.

3. Delayed progress toward achieving the full-year forecast: Progress for revenue, operating income, and ordinary income was below the standard 75% level in every case, requiring a substantial profit contribution in Q4.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin were below the industry median, with the net profit margin showing a particularly large negative deviation due to the impact of extraordinary losses.

Growth and Capital Efficiency

The revenue growth rate was below the industry median, and the Company’s sluggish top-line growth was notable compared with peers that are on a revenue growth trajectory.

※Source: Compiled by the Company

Key Points in the Financial Results

1. Despite the decline in revenue, the operating margin improved to 6.1% (4.0% in the same period last year), confirming an improvement in core operating profitability, primarily through the suppression of SG&A expenses.

2. Due to the recognition of ¥0.57B in extraordinary losses, net income attributable to owners of the parent became a loss of ¥0.09B, creating a significant divergence between core business improvement and final profit. Whether additional losses will arise is a matter requiring monitoring.

3. While the financial foundation is solid, as indicated by an equity ratio of 82.7% and cash and deposits substantially exceeding current liabilities, the high proportion of work in process and delayed progress against the full-year forecast require monitoring going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,347–¥1,420 at ±1% for the cost of equity, and ¥1,369–¥1,391 at ±0.1 for ω.

Notes:

• Net income is substantially compressed relative to operating income due to tax burden, acquisition-related expenses, and non-controlling interests, among other factors (net income ÷ operating income 9%). This value reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• Since 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 difference from the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

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