NKK SWITCHES (6943) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, the key point was the turnaround to operating profitability, driven by revenue growth and reductions in selling, general and administrative expenses. Revenue was ¥61.2B (¥56.6B in the same period of the previous year, +8.2% YoY), Operating Income was ¥1.9B (¥-1.8B in the previous year), Ordinary Income was ¥2.8B (¥-1.4B in the previous year), and Net Income attributable to owners of the parent was ¥1.6B (¥-1.2B in the previous year), with all four items turning profitable from losses in the same period of the previous year. Revenue growth was led by expanded sales in Japan and Asia, while the primary driver of earnings improvement was operating leverage, with SG&A expenses declining 6.3% despite higher revenue.

Factors Affecting Business Performance

【Revenue】Revenue was ¥61.2B, representing an +8.2% YoY increase. By segment (external revenue), Japan at ¥25.5B (+17.0% YoY) and Asia at ¥8.2B (+26.8% YoY) were the main drivers, while Europe and the Americas declined to ¥27.5B (△2.8% YoY). The revenue mix was Europe and the Americas 45.0%, Japan 41.6%, and Asia 13.4%, with Europe and the Americas continuing to account for the largest share of revenue.

【Profit and Loss】Operating Income improved by ¥3.7B, from △¥1.8B in the same period of the previous year to ¥1.9B, and the Operating Margin was 3.1% (△3.1% in the previous year). The gross margin was 41.9%, representing only a slight YoY improvement, while the primary factor behind the improvement was the reduction of SG&A expenses to ¥23.7B (△6.3% YoY). Segment profit was led by the profitable Europe and Americas segment at ¥2.7B (9.7% margin) and Asia at ¥2.1B (25.2% margin), while Japan continued to post a loss of △¥2.0B, weighing on consolidated earnings. The gap between Ordinary Income of ¥2.8B and Net Income of ¥1.6B was primarily attributable to the high tax burden, with an effective tax rate of 41.0%; the impact of extraordinary gains and losses was negligible. Overall, the results can be characterized as higher revenue and higher earnings.

Segment Analysis

Segment revenue from external customers and profit were Japan at ¥25.5B (profit of △¥2.0B, profit margin of △7.8%), Europe and the Americas at ¥27.5B (profit of ¥2.7B, profit margin of 9.7%), and Asia at ¥8.2B (profit of ¥2.1B, profit margin of 25.2%). In the same period of the previous year, the respective segment results were Japan △¥3.3B, Europe and the Americas △¥0.9B, and Asia ¥0.4B. The simultaneous return to profitability and expansion in Europe and the Americas and Asia was the primary driver of the overall turnaround to operating profitability. Meanwhile, Japan continued to post a loss despite revenue growth, highlighting the significant structural disparity in profitability among regions.

Key Financial Indicators

【Profitability】The Operating Margin was 3.1% (△3.1% in the previous year), while the Net Profit Margin was 2.7% (△2.1% in the previous year), with both turning profitable. The gross margin was 41.9%, representing only a slight improvement of approximately 14bp YoY; the improvement in profitability was primarily attributable to greater SG&A efficiency.【Cash Flow Quality】Cash and deposits were ¥42.1B, down YoY, while inventory (inventories of ¥11.4B and raw materials of ¥19.9B) and trade receivables (accounts receivable of ¥13.2B) indicate an expansion in working capital.【Investment Efficiency】ROE (annualized) was 1.6%, indicating that capital efficiency remained low relative to the company’s substantial capital base, reflected in an Equity Ratio of 83.4%. EPS was ¥198.79 (△¥141.54 in the previous year), while BPS increased +4.6% YoY to ¥16,153.76.【Financial Soundness】Current assets of ¥92.5B substantially exceeded current liabilities of ¥17.7B, and total liabilities of ¥26.4B were substantially lower than net assets of ¥132.9B, indicating an extremely conservative financial foundation.

Cash Flow Analysis

As the disclosures do not include a statement of cash flows, an analysis of funding trends based on changes in the balance sheet indicates that cash and deposits declined to ¥42.1B from ¥46.9B in the previous year. Meanwhile, intangible assets increased +59.3%, from ¥5.1B to ¥8.1B, suggesting that capital allocation toward investment activities progressed. Inventories remained high at ¥11.4B for finished products and ¥19.9B for raw materials, potentially indicating that funds were tied up in inventory and trade receivables relative to revenue growth. Accounts payable increased +17.8% YoY to ¥8.8B, indicating that a certain degree of funding through trade payables also progressed, although it was insufficient to offset the increase in trade receivables and inventories. Net assets increased +4.6% YoY, with other comprehensive income, including foreign currency translation adjustments and valuation differences on securities, in addition to Net Income, contributing to the increase in equity.

Earnings Quality

Although Ordinary Income of ¥2.8B exceeded Net Income of ¥1.6B, the difference was attributable not to extraordinary gains or losses but to the high effective tax rate of 41.0%, and the contribution of temporary factors was limited. Non-operating income was ¥1.0B, equivalent to 52% of Operating Income of ¥1.9B, primarily consisting of dividend income of ¥0.4B. The relatively high degree of dependence on non-core income is a point to consider when evaluating earnings quality. Extraordinary gains and extraordinary losses were both immaterial, at the ¥0.0B level, indicating that the improvement in earnings for the period was primarily attributable to structural improvement in operating profit and loss. Comprehensive income was ¥6.6B, substantially exceeding Net Income of ¥1.6B. Market-linked items, including foreign currency translation adjustments of ¥2.6B and valuation differences on securities of ¥2.3B, contributed to this result and should be considered as factors behind the divergence between Net Income and comprehensive income.

Earnings Forecasts and Guidance

Against the full-year revenue forecast of ¥83.0B, cumulative Q3 actual revenue of ¥61.2B represented a progress rate of 73.8%, broadly in line with a standard progress rate (approximately 75%). Meanwhile, against the full-year Ordinary Income forecast of ¥0.5B, cumulative actual Ordinary Income was ¥2.8B, resulting in a progress rate of 552.0% and substantially exceeding the plan. This divergence suggests that the initial plan may have been set conservatively, or that expenses or inventory adjustments may be expected to arise in Q4. The full-year forecasts for Operating Income, Net Income, and EPS were all disclosed as ¥0.0 (zero), making the presence or absence of factors affecting profit and loss toward the fiscal year-end a key focus going forward.

Shareholder Returns

The Q2 dividend was ¥40.00 per share, and the cumulative Payout Ratio based on the average number of shares outstanding during the period of 823 thousand shares was approximately 20.7% (based solely on dividends). The full-year dividend forecast is ¥80.00 per share. The financial foundation of cash and deposits of ¥42.1B and an Equity Ratio of 83.4% supports the continuation of dividends. However, given capital efficiency levels of ROE 1.6% and ROIC 1.7%, the sustainability of the dividend level will depend on the establishment of a sustained recovery in earnings. No data on share buybacks was provided; accordingly, this section covers only the Payout Ratio.

Risk Factors

1. Deterioration in the profitability of the Japan segment: Revenue in Japan increased +17.0% YoY to ¥25.5B, but the segment loss persisted at △¥2.0B. If improvement in domestic profitability is delayed, maintaining the consolidated Operating Margin of 3.1% may become difficult.

2. Inventory and working capital accumulation: Inventory levels were high at ¥11.4B for finished products and ¥19.9B for raw materials, indicating valuation and obsolescence risks in the event of fluctuations in demand. If working capital reduction does not progress, the scope for improving capital efficiency will be limited.

3. Impact of the high tax burden on Net Income: The effective tax rate was high at 41.0%, resulting in Net Income of only ¥1.6B against Profit Before Tax of ¥2.8B. Changes in the tax burden may become a factor causing fluctuations in future Net Income.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Although the company’s profitability turned positive, it remained below the industry median.

Growth and Capital Efficiency

The revenue growth rate exceeded the industry median, indicating a high pace of revenue growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Revenue increased +8.2% and SG&A expenses declined △6.3%, resulting in a turnaround in operating profit and loss from △¥1.8B in the same period of the previous year to a profit of ¥1.9B. This structure indicates that the recovery was led more by cost efficiency than by revenue expansion.

2. While the return to profitability and expansion of the Europe and Americas and Asia segments drove the improvement in consolidated earnings, Japan continued to post a loss despite revenue growth. The disparity in regional profitability is therefore a structural focus that will determine future earnings trends.

3. Although the financial foundation was extremely conservative, with a current ratio of 521.3% and an Equity Ratio of 83.4%, the low capital efficiency represented by ROE of 1.6% and ROIC of 1.7%, together with the substantial outperformance of the full-year Ordinary Income forecast, warrants close monitoring, including the consistency between the earnings plan and actual results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥11,323–¥11,963 at a ±1% change in the cost of equity, and ¥11,502–¥11,724 at a ±0.1 change in 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 quarter-end are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-08 / Mechanically calculated solely from 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 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. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional advisor as necessary.

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