NITTO DENKO CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

For Q1 of the fiscal year ending March 2026, revenue and profit increased, with the recovery in profitability of the core Industrial Tape Business driving company-wide earnings. Revenue was ¥271.67B (+10.3% YoY), while Operating Income was ¥49.21B (+15.4% YoY), resulting in an Operating Income margin of 18.1%, an improvement of +0.8pt from 17.3% in the same period of the previous year. Profit Before Tax was ¥49.58B (+14.5% YoY), and quarterly Net Income attributable to owners of the parent was ¥33.87B (+8.2% YoY). The increase in the effective tax rate from 27.7% to 31.6% restrained net income growth relative to Operating Income growth. By segment, the Industrial Tape Business led the increase in revenue and profit, while Optoelectronics posted higher revenue but a lower margin, highlighting a change in the earnings structure during the period.

Factors Affecting Performance

【Revenue】Revenue was ¥271.67B, representing an increase of +10.3% YoY. By segment, Optoelectronics, which accounted for 48.4% of the revenue mix, remained almost flat at ¥131.48B (YoY+1.3%). In contrast, Industrial Tape, accounting for 37.1% of the mix, grew to ¥100.69B (YoY+18.2%), while Human Life, accounting for 14.4%, increased to ¥39.24B (YoY+27.0%). Both segments achieved double-digit growth and drove the company-wide increase in revenue.

【Profitability】Operating Income was ¥49.21B (YoY+15.4%), with the main contributing factor being the significant improvement in Industrial Tape Operating Income to ¥16.28B (YoY+64.9%, margin 16.2%). Optoelectronics reported Operating Income of ¥35.38B (YoY-3.8%), and its margin declined from 28.3% to 26.9%, indicating that profit growth stagnated despite higher revenue. Human Life’s Operating Loss narrowed to ¥0.32B from a loss of ¥1.63B in the previous year, suggesting signs of earnings improvement. Profit Before Tax was ¥49.58B (YoY+14.5%), while quarterly Net Income attributable to owners of the parent was ¥33.87B (YoY+8.2%). The recognition of ¥15.69B in income taxes and other taxes caused the effective tax rate to rise to 31.6% from 27.7% in the previous year, which was the primary reason net income growth fell below Operating Income and Profit Before Tax growth. Overall, both revenue and profit increased.

Segment Analysis

Among the three reportable segments, Industrial Tape showed the greatest improvement, with revenue increasing 18.2% and Operating Income increasing 64.9%; its margin also expanded from the 9.9% range to 16.2%. Optoelectronics is the largest segment, accounting for 48.4% of revenue, but Operating Income declined 3.8% and its margin fell from 28.3% to 26.9%, apparently reflecting changes in pricing and product mix. Human Life maintained strong growth, with revenue increasing 27.0%, while its Operating Loss narrowed to ¥0.32B from a ¥1.63B loss in the previous year, indicating an improving trend. Against company-wide Operating Income of ¥49.21B, the total for the reportable segments was ¥51.34B, while adjustments due to the allocation of company-wide expenses amounted to -¥0.18B. Changes in the segment portfolio contributed to the increase in profit led by Industrial Tape.

Key Financial Indicators

【Profitability】The Operating Income margin was 18.1%, improving by +0.8pt from 17.3% in the same period of the previous year. The gross margin was 37.6%, roughly unchanged from the previous year, while the Net Income margin attributable to owners of the parent was 12.5%, slightly below 12.7% in the previous year. 【Cash Flow Quality】Operating Cash Flow (OCF) of ¥23.19B was approximately 0.68 times consolidated quarterly profit of ¥33.89B, as increases in trade receivables and inventories constrained cash conversion. 【Investment Efficiency】ROE was 3.0% (quarterly basis, before annualization), while basic EPS increased to ¥50.75 from ¥45.68 in the previous year (YoY+11.1%). 【Financial Soundness】The Equity Ratio was 79.5%, nearly unchanged from 79.6% in the same period of the previous year. With total liabilities of ¥29.44B and net assets of ¥114.82B, the D/E ratio remained low at approximately 0.26 times, indicating that the company’s financial foundation remains robust.

Cash Flow Analysis

Cash Flow from Operating Activities was ¥23.19B, an increase of +25.9% from ¥18.42B in the same period of the previous year. However, the increase in trade receivables (-¥15.98B) and the increase in inventories (-¥3.16B) placed pressure on working capital, resulting in a moderate pace of cash conversion relative to Profit Before Tax of ¥49.58B. Cash Flow from Investing Activities was -¥36.21B, of which capital expenditures accounted for -¥28.12B, indicating continued growth investment. Cash Flow from Financing Activities was -¥52.02B, including dividend payments of -¥20.21B and -¥29.49B for share repurchases. Free Cash Flow, calculated as the sum of Operating Cash Flow and Investing Cash Flow, was -¥13.02B, indicating that dividends and share repurchases could not be funded solely through operating activities. As a result, cash and cash equivalents declined from ¥35.98B at the beginning of the period to ¥29.91B at the end of the period.

Earnings Quality

Income taxes and other taxes of ¥15.69B were recorded against Profit Before Tax of ¥49.58B, causing the effective tax rate to rise to 31.6% from 27.7% in the same period of the previous year and restraining net income growth relative to Operating Income growth. Comprehensive income attributable to owners of the parent was ¥48.73B, substantially exceeding quarterly Net Income attributable to owners of the parent of ¥33.87B. The primary reason for the difference was the recognition of ¥14.71B in foreign currency translation adjustments of foreign operations. This divergence is valuation-related and results from fluctuations in foreign exchange rates; it should therefore be considered separately from net income, which reflects the underlying earnings power of the business. In addition, the relatively low level of OCF compared with net income reflects accrual-related factors arising from increases in trade receivables and inventories, warranting monitoring from the perspective of the speed of cash conversion.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥1,110.0B, Operating Income of ¥200.0B (YoY+8.9%), and Net Income of ¥142.0B (YoY+6.4%). Q1 progress rates were 24.5% for revenue, 24.6% for Operating Income, and 23.9% for Net Income, placing performance broadly in line with the plan and close to the simple quarterly progress benchmark of 25%. Although the earnings forecast was revised during the quarter, there was no revision to the dividend forecast, and the full-year dividend was maintained at ¥32. The Industrial Tape Business’s trend of earnings growth should support achievement of the full-year plan, while the trend in Optoelectronics’ margin will determine future progress.

Shareholder Returns

The full-year dividend forecast is ¥32 per share, representing an increase from the previous fiscal year’s actual dividend of ¥30. The Payout Ratio against forecast full-year EPS of ¥212.75 is approximately 15.0%. Dividend payments during Q1 were ¥20.21B, up from ¥19.46B in the same period of the previous year. In addition, the company conducted share repurchases of ¥29.49B, bringing total quarterly shareholder returns, including dividends and share repurchases, to ¥49.70B—substantially exceeding OCF of ¥23.19B during the same period. Cash and cash equivalents stood at ¥299.06B, providing substantial liquidity and no short-term concern regarding the source of returns. However, the fact that total returns exceeded Free Cash Flow (-¥13.02B) should be noted when assessing the sustainability of shareholder returns.

Risk Factors

1. Declining margins in the Optoelectronics Business: The Operating Income margin declined by -1.4pt from 28.3% in the same period of the previous year to 26.9%. Revenue remained broadly flat (YoY+1.3%), and changes in pricing and product mix may have affected profitability.

2. Increased working capital and cash-generation capacity: Trade receivables increased from ¥23.19B at the end of the previous fiscal year to ¥25.22B, while inventories increased from ¥15.79B to ¥16.30B. OCF remained at approximately 0.68 times net income (consolidated quarterly profit of ¥33.89B). If working capital continues to increase, it may further affect the pace of cash generation.

3. Monetization of the Human Life Business: Although revenue maintained strong growth of 27.0%, the Operating Loss of ¥0.32B continued. The loss narrowed from ¥1.63B in the same period of the previous year, but the business has not yet achieved profitability.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

Both the Operating Income margin and Net Income margin are substantially above the industry median, placing profitability in the upper tier of the industry.

Growth and Capital Efficiency

The revenue growth rate also exceeds the industry median, but remains below the upper quartile of 14.8%, placing the company in the mid-to-upper range of the industry.

※Source: Compiled by the Company

Key Earnings Takeaways

1. Operating Income in the Industrial Tape Business improved significantly by +64.9% YoY, changing the balance of the earnings mix, which had been weighted toward Optoelectronics. Whether this structural change persists can be assessed through the quarterly trends in segment-level margins.

2. OCF remained at approximately 0.68 times net income, with increases in trade receivables and inventories constraining cash conversion. Free Cash Flow was -¥13.02B, below combined dividends and share repurchases of ¥49.70B. The trend in working capital reduction will be key to future cash flow improvement.

3. Progress rates against the full-year plan were around 24% for revenue, Operating Income, and Net Income, close to the level implied by evenly distributed quarterly progress. Whether the declining trend in Optoelectronics’ margin continues will be an important point to monitor for achievement of the full-year plan.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on 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: ¥1,886–¥2,002 at ±1% for the cost of equity capital, and ¥1,937–¥1,951 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / 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 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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