NIPPON CERAMIC CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥20.79B
• Operating Income: ¥4.80B
• Net Income: ¥2.89B
• EPS: ¥258.17

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

FY2025 Q3 was a strong quarter for Nippon Ceramic (6929), with top- and bottom-line outperformance and robust balance sheet strength. Revenue grew 12.5% YoY to 207.85 and operating income rose 32.3% YoY to 47.97, driving meaningful operating leverage. Ordinary income reached 50.88 (+26.4% YoY), and net income surged 96.6% YoY to 55.88, implying a material improvement in profitability. Operating margin is estimated at 23.1%, up from roughly 19.6% a year ago (about +350 bps), reflecting improved cost absorption and/or an increased contribution from other operating income. Net margin expanded to 26.9% from roughly 15.4% (+1,150 bps), helped by non-operating income (notably interest income of 2.90) and potential one-off factors. Gross margin printed at 25.3%; the fact that operating margin exceeds gross margin suggests sizable other operating income or classification differences under JGAAP, rather than pure manufacturing margin expansion. Earnings quality is decent but not pristine: operating cash flow of 48.85 was 0.87x of net income, slightly below the >1.0x ideal and warrants monitoring. The balance sheet remains fortress-like with current ratio at 8.5x, quick ratio at 7.5x, low debt (D/E 0.13x), and large cash and deposits of 294.02, supporting resilience and capital allocation flexibility. ROE is 11.4% on DuPont math (net margin 26.9%, asset turnover 0.376x, leverage 1.13x), comfortably above the cost of equity for a components maker with minimal leverage. ROIC of 17.2% indicates strong investment returns versus a 7–8% benchmark, suggesting disciplined capital deployment and better-than-peer asset efficiency. Total comprehensive income (12.31) lagged net income (55.88) materially, implying sizable negative other comprehensive income (likely valuation/FX-related), which tempers the headline profit strength. Financing cash outflow of -54.25 was driven by share repurchases (-26.81), signaling shareholder return commitment; coverage by internally generated cash appears tight but manageable given the cash-rich balance sheet. Capital expenditures were a modest -11.39, consistent with maintaining capacity and product roadmap while protecting FCF. Forward-looking, demand normalization and product mix upgrades (e.g., sensing solutions into auto/industrial) likely sustain revenue momentum, while rising interest income on large cash balances provides a small earnings tailwind. Key watch items are OCI volatility, the sustainability of operating margin above gross margin, and the OCF/NI gap. Overall, the quarter demonstrates solid execution, strong capital efficiency, and ample financial capacity to navigate macro variability.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 26.9% × 0.376 × 1.13 ≈ 11.4%. The biggest driver versus last year is Net Profit Margin, which expanded sharply (net income +96.6% on revenue +12.5%), while asset turnover likely improved only modestly and leverage stayed low. Margin expansion reflects operating leverage (OI +32.3% vs revenue +12.5%), increased non-operating income (interest income 2.90, non-operating income ratio 8.3%), and possible one-off items given the gap between PBT, tax, and NI. Sustainability: operating leverage from volume/mix is partially sustainable if demand holds; however, the unusually high net margin and operating margin above gross margin likely include non-recurring or classification effects and may normalize. Concerning trends: none acute on costs, but monitor if SG&A growth outpaces revenue in future periods (SG&A level 16.29 is not comparable YoY here). Also flag the large negative OCI that depressed comprehensive income; this could recur with market volatility and partially offset retained earnings accretion.

Growth Assessment

Revenue growth of 12.5% YoY to 207.85 indicates resilient end-market demand, likely in automotive/industrial sensing and consumer applications. Operating income growth (+32.3% YoY) outpaced sales, evidencing operating leverage and/or other operating income contributions. Net income growth (+96.6% YoY) far exceeded sales growth, aided by higher non-operating income and possible one-time factors; this pace is unlikely to repeat. ROIC at 17.2% signals strong project economics and disciplined capital allocation, supportive of medium-term value creation. Interest income of 2.90 on substantial cash provides a small non-operating buffer in a higher-rate environment. Inventory at 49.67 and receivables at 45.90 look manageable relative to scale, supporting continued fulfillment without overstock risk; however, detailed turnover metrics are not available. With comprehensive income (12.31) well below NI (55.88), equity accretion is dampened by OCI losses; future reported equity growth will depend on market/FX swings. Outlook: mid-teens revenue growth is not embedded, but current momentum and cash-funded investment capacity support stable growth; watch for order flow, pricing, and FX.

Financial Health

Liquidity is exceptionally strong: current ratio 849.5%, quick ratio 750.2%, and working capital 374.95. Solvency is conservative with D/E 0.13x and total liabilities of 62.24 against equity of 491.27. Cash and deposits stand at 294.02, covering all current liabilities ~5.9x, minimizing refinancing risk. There is no reported short-term or long-term loan detail; interest-bearing debt is unreported, but the low D/E suggests minimal borrowings. Maturity mismatch risk is low given abundant liquid assets versus modest current liabilities (50.03). No off-balance sheet obligations are disclosed in the provided data. Explicit warnings: none on current ratio (<1.0) or leverage (D/E >2.0); both are comfortably within healthy ranges.

Cash Flow Quality

OCF was 48.85 versus net income of 55.88, yielding OCF/NI of 0.87x. This is slightly below the >1.0x benchmark and merits monitoring but does not signal acute quality deterioration. Using capex as a proxy for investing outflow, FCF proxy is ~37.46 (OCF 48.85 minus capex 11.39), indicating adequate internal funding capacity. Shareholder returns were heavy this period, with share repurchases of -26.81 and financing CF of -54.25; combined with an implied dividend payout ratio of 60.9%, total cash returns likely exceeded FCF, funded by the cash balance. Working capital quality appears stable given large cash and manageable receivables/inventory; no clear signs of end-period working capital optimization are observable from the limited snapshot. Monitor whether the OCF/NI ratio improves as profit mix normalizes and whether inventories remain aligned with shipment trends.

Dividend Sustainability

The calculated payout ratio is 60.9%, borderline relative to the <60% benchmark but broadly sustainable given strong FCF generation capacity and the sizeable cash position. With FCF proxy of ~37.46 and an implied dividend of ~34.0 (60.9% of NI 55.88), dividend coverage is tight but positive on current cash flows. When including buybacks (-26.81), aggregate shareholder returns exceed FCF, relying on the cash buffer—acceptable near term but not indefinitely if earnings or OCF soften. Policy outlook: given low leverage and strong liquidity, the company has flexibility to maintain or moderately grow dividends, but sustainability hinges on converting earnings to cash at >1.0x OCF/NI and keeping capex disciplined.

Risk Assessment

Business Risks:

• End-market cyclicality in autos/industrial and consumer electronics impacting sensor demand and pricing.
• FX volatility (USD/JPY, EUR/JPY) affecting both translation and transaction margins.
• Supply chain and component sourcing risks that can affect lead times and costs.
• Product mix shifts potentially compressing gross margin if lower-margin lines grow faster.

Financial Risks:

• OCF/NI at 0.87x below the >1.0x benchmark indicates moderate earnings-to-cash conversion risk.
• OCI volatility: total comprehensive income (12.31) far below NI (55.88) suggests valuation/FX losses that can reduce equity growth.
• Concentration of returns to shareholders (buybacks plus dividends) exceeding FCF in the period, relying on cash reserves.

Key Concerns:

• Unusual P/L relationships (operating margin > gross margin; NI exceeding what PBT-tax would imply) indicate classification differences or one-off items; sustainability uncertain.
• Potential normalization of non-operating income (interest income may ebb with rate changes).
• If growth slows, operating leverage could reverse, pressuring margins and ROE.

Investment Implications

Key Takeaways:

• Strong top-line growth (+12.5% YoY) with outsized profit growth (OI +32.3%, NI +96.6%).
• Operating margin expansion ~350 bps and net margin expansion ~1,150 bps YoY, though partly non-recurring.
• ROE 11.4% and ROIC 17.2% point to healthy capital efficiency on a low-leverage base.
• Liquidity is exceptional; balance sheet provides significant downside protection and capital allocation optionality.
• Earnings-to-cash conversion is acceptable but below the ideal; watch for improvement toward >1.0x OCF/NI.
• Comprehensive income weakness highlights market/FX sensitivity in equity.
• Shareholder returns are robust (notably buybacks), currently leaning on cash reserves beyond FCF.

Metrics to Watch:

• Order trends and book-to-bill in core sensor businesses.
• Gross vs operating margin gap to assess other operating income and sustainability.
• OCF/NI ratio and FCF after capex to validate dividend/buyback capacity.
• OCI drivers (securities valuation, FX) and impact on equity.
• Inventory and receivables turns for working capital discipline.
• Interest income trajectory relative to cash balance and rate environment.

Relative Positioning: Within Japanese electronic component peers, Nippon Ceramic stands out for an exceptionally strong balance sheet, high ROIC, and currently elevated margins; however, a portion of the profit strength appears non-operational or non-recurring, and OCI volatility tempers the otherwise strong earnings profile.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis