NICHICON CORPORATION FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, revenue was ¥1697.2B (YoY -¥60.3B -3.4%), operating income was ¥64.6B (YoY +¥12.5B +24.1%), ordinary income was ¥83.3B (YoY +¥8.2B +10.9%), and profit attributable to owners of parent (consolidated) was ¥63.1B (YoY +¥2.4B +7.4%), resulting in a decline in revenue but an increase in profit. The revenue decline was mainly due to a significant drop in the NECST Business, while the core Capacitor Business expanded operating income nearly threefold (¥15.5B in prior year → ¥46.0B current) through gross margin improvement and SG&A control, lifting company-wide profitability. Operating margin improved to 3.8% from 3.0% a year ago (+0.8pt), and gross margin improved to 17.7% from 16.1% (+1.6pt), indicating a clear recovery trend in profitability. At the ordinary income level, foreign exchange gains of ¥9.6B (¥12.0B prior) and dividend income of ¥7.4B (¥7.0B prior) provided support, and equity-method investment income of ¥2.1B (¥4.8B prior) also contributed. Meanwhile, net income was held back by special losses of ¥20.9B (including valuation losses on investment securities of ¥8.0B and impairment losses of ¥9.6B) against special gains of ¥9.6B (gains on sale of investment securities, etc.), resulting in a net drag; although the effective tax rate was low at 5.1% (25.3% prior), net income growth was limited to +7.4%. The apparent decrease from prior-year net income of ¥102.7B to current ¥55.0B is attributable to the current period being consolidated results (profit attributable to owners of parent ¥63.1B, non-controlling interests ¥5.2B), making a simple comparison with prior-year non-consolidated figures inappropriate. Operating Cash Flow was ¥81.6B, well above net income ¥55.0B (OCF/NI = 1.48x); deterioration in working capital—accounts payable decrease -¥59.8B and accounts receivable increase -¥12.0B—was offset by depreciation ¥80.8B and inventory decrease ¥17.9B.

Drivers of Performance

Revenue: Revenue declined to ¥1697.2B (YoY -3.4%). By segment, the Capacitor Business achieved revenue of ¥1035.5B (¥991.7B prior, YoY +3.9%), while the NECST Business recorded a large revenue decline to ¥669.8B (¥766.8B prior, YoY -12.7%), dragging down consolidated sales. The Capacitor Business's revenue increase is likely attributable to demand recovery for film capacitors for xEVs and industrial aluminum electrolytic capacitors and product mix improvement. The NECST Business decline was primarily due to fewer orders in energy solution areas such as residential storage systems and V2H systems; contract liabilities (advance receipts) rose to ¥11.2B from ¥5.7B prior (+98.4%), indicating order accumulation for future periods not yet reflected in current revenue. Revenue by region: Japan ¥836.1B (¥888.5B prior, YoY -5.9%), Americas ¥146.9B (¥138.5B prior, +6.1%), Greater China ¥450.1B (¥456.2B prior, -1.3%), Asia ¥168.9B (¥174.2B prior, -3.0%), Europe & others ¥94.4B (¥100.0B prior, -5.6%). The Japanese market deceleration is notable, while the Americas was the only region to post revenue growth.

Profitability: Gross profit increased to ¥299.8B (gross margin 17.7%) from ¥283.3B (gross margin 16.1%) prior, up +5.8% and improving gross margin by 1.6pt. Cost of sales ratio improved to 82.3% from 83.9% prior, aided by production efficiency improvements and raw material cost containment in the Capacitor Business. SG&A was slightly up at ¥235.2B (SG&A ratio 13.9%) from ¥231.2B (13.2% prior), a 0.7pt increase in SG&A ratio; however, the gross margin gains outweighed this, and operating income rose to ¥64.6B from ¥52.0B prior (+24.1%). Non-operating items—foreign exchange gains ¥9.6B and dividend income ¥7.4B—lifted ordinary income. Interest expense increased to ¥2.7B (¥1.7B prior) reflecting higher borrowings, but interest coverage (Operating Income / Interest Expense) remained healthy at 24.1x. Ordinary income was ¥83.3B (ordinary income margin 4.9%) versus ¥75.1B (4.3%) prior, up +10.9%. In extraordinary items, while gains on sale of investment securities of ¥9.6B were recorded, special losses totaling ¥20.9B (including valuation losses on investment securities ¥8.0B and impairment losses ¥9.6B related to business structure reforms) netted to depress pre-tax income, which was ¥72.0B (¥84.7B prior, YoY -15.0%). Income taxes were ¥3.7B (effective tax rate 5.1%) versus ¥21.4B (25.3%) prior, a large decline aided by recognition of deferred tax assets and temporary tax reliefs. After deducting profit attributable to non-controlling interests ¥5.2B, profit attributable to owners of parent was ¥63.1B (¥58.8B prior, YoY +7.4%), ending the year with declining revenue but rising profit.

Segment Analysis

The Capacitor Business reported revenue ¥1035.5B (¥991.7B prior, YoY +3.9%), operating income ¥46.0B (¥15.5B prior, YoY +196.5%), and operating margin 4.4% (1.6% prior), a substantial improvement in margins. Recovery in demand for film capacitors for xEVs and industrial aluminum electrolytic capacitors, plus cost reductions and product mix improvements, contributed to margin expansion. Even excluding prior-year impairment losses of ¥18.2B, current-period profitability significantly improved, marking a clear recovery in the core business's earnings power. The NECST Business recorded revenue ¥669.8B (¥766.8B prior, YoY -12.7%), operating income ¥18.6B (¥36.5B prior, YoY -49.0%), and operating margin 2.8% (4.8% prior), a decline in both revenue and profit. The drop in orders for residential storage systems and V2H systems was the main cause, although contract liabilities (advance receipts) rose to ¥11.2B from ¥5.7B prior (+98.4%), indicating backlog accumulation. The two segments diverged notably, with the Capacitor Business accounting for the bulk of company profit (71.2% of operating income).

Key Financial Metrics

Profitability: Operating margin improved to 3.8% (3.0% prior), driven by a 1.6pt improvement in gross margin to 17.7% (16.1% prior). ROE was 5.1% (5.3% prior), effectively flat, structured as net margin 3.7% × total asset turnover 0.87 × financial leverage 1.58x. The low effective tax rate of 5.1% (25.3% prior) supported net margin. ROA (on ordinary income basis) improved to 4.3% (3.8% prior), reflecting stronger core operating profitability. Cash Quality: Operating CF was ¥81.6B, exceeding net income ¥55.0B (OCF/NI = 1.48x), with an accrual ratio of -0.9%, indicating good cash backing for earnings. However, cash conversion (OCF/EBITDA) was limited to 0.56x, and decreases in accounts payable -¥59.8B and increases in accounts receivable -¥12.0B weighed on working capital and constrained cash generation. Cash conversion cycle (CCC) lengthened to 141 days (DSO 91 days, DIO 75 days, DPO 25 days), highlighting a need to improve inventory and receivables management. Investment Efficiency: CapEx / Depreciation was 0.88x (CapEx ¥71.0B / Depreciation ¥80.8B), indicating ongoing renewal investment but restrained from prior-year 1.26x. Construction in progress ¥70.5B (¥56.4B prior) signals a continued investment pipeline. Free Cash Flow was ¥16.1B, below dividends ¥24.2B (FCF coverage 0.66x), meaning dividends are not fully covered by internal free cash generation. Financial Soundness: Equity ratio 63.2% (59.1% prior) is strong, with current ratio 228% and quick ratio 198% indicating high short-term liquidity. Interest-bearing debt totaled ¥260.8B (short-term borrowings ¥84.0B + long-term borrowings ¥132.5B + lease liabilities, etc.), while cash and deposits were ¥244.9B, resulting in net interest-bearing debt of ¥15.9B—minor. Debt/EBITDA 1.49x and interest coverage 24.1x (operating income basis) indicate a high level of financial safety.

Cash Flow Analysis

Operating CF was ¥81.6B (¥183.5B prior, YoY -55.5%) and exceeded net income ¥55.0B (OCF/NI 1.48x), showing good cash backing for earnings. Operating CF before working capital changes was ¥98.7B, mainly due to depreciation ¥80.8B and other non-cash expenses. Working capital movements: inventory decrease ¥17.9B (inventory efficiency) contributed positively, while accounts receivable increase -¥12.0B (DSO deterioration) and accounts payable decrease -¥59.8B (DPO deterioration) significantly pressured cash, producing an overall working capital cash outflow of approximately -¥54B. The decrease in accounts payable may reflect changes in payment terms or reduced transaction volumes, and CCC at 141 days underscores the lengthening cycle. Investing CF was -¥65.6B, driven primarily by capital expenditures -¥71.0B. Net increase in long-term loans receivable -¥5.4B (loans advanced -¥7.9B, collections ¥2.5B) and net increase in investment securities -¥4.0B (acquisitions -¥2.0B, sales ¥16.0B) contributed negatively on net. Free Cash Flow was ¥16.1B (prior year approx. ¥100B: operating CF ¥183.5B - investing CF ¥83.6B), a significant decline year-on-year. Financing CF was -¥38.4B, mainly due to long-term borrowings repayment -¥25.0B and dividends -¥24.2B (parent company -¥24.2B, non-controlling interests -¥2.1B). Net short-term borrowings increased ¥17.0B and long-term borrowings procured ¥120.0B to balance financing. Cash and cash equivalents decreased from ¥255.2B at the beginning of the period to ¥244.4B at period-end (-¥10.8B), and after foreign exchange effects +¥11.6B, the weak underlying cash generation capability is highlighted.

Quality of Earnings

Recurring earnings consist of operating income ¥64.6B and non-operating income ¥26.2B (dividend income ¥7.4B, foreign exchange gains ¥9.6B, equity-method profits ¥2.1B, etc.), indicating a focus on core operations complemented by stable financial income. One-off items—special gains ¥9.6B (gains on sale of investment securities ¥9.6B, etc.) and special losses ¥20.9B (valuation losses on investment securities ¥8.0B, impairment losses ¥9.6B, etc.)—netted to -¥11.3B, reducing net income by roughly 20% of ¥55.0B. Non-operating income ¥26.2B is 1.5% of revenue, tolerable, but the foreign exchange gains contribution ¥9.6B is variable and lacks reproducibility. The gap between ordinary income ¥83.3B and pre-tax income ¥72.0B (-¥11.3B) is due to the net negative special items; overall, the quality of earnings at the operating and ordinary-income stages is generally sound. Accrual quality is solid—OCF/NI 1.48x and accrual ratio -0.9% indicate earnings are backed by cash—yet OCF/EBITDA 0.56x and heavy working capital constrain cash generation. The effective tax rate of 5.1% (25.3% prior) is likely due to temporary factors such as recognition of deferred tax assets and should not be assumed as a permanent low-tax structure.

Forecasts & Guidance

Full-year guidance forecasts revenue ¥1850.0B (YoY +9.0%), operating income ¥87.0B (YoY +34.8%), ordinary income ¥90.0B (YoY +8.1%), profit attributable to owners of parent ¥67.0B, EPS ¥99.76, and year-end dividend ¥19.00. Versus current results (revenue ¥1697.2B, operating income ¥64.6B), the company expects incremental revenue of +¥152.8B and operating income of +¥22.4B in H2. Achievement relies on continued gross margin improvement and profitability recovery in the Capacitor Business, as well as recovery in NECST Business profitability and improvement in working capital efficiency. Attention should be paid to FX assumptions, raw material cost outlook, and the degree of price-revision pass-through. The dividend forecast of ¥19.00 (payout ratio based on forecast EPS ¥99.76 equals 19.0%) declines from current-year ¥37.00 (payout ratio 41.0%), but because the company has not disclosed the total full-year dividend amount including interim (interim dividend ¥18.00), it is unclear whether the year-end ¥19.00 represents the full-year total or an additional payment.

Shareholder Returns

Dividends for the year are interim ¥18.00 and year-end ¥19.00, totaling ¥37.00. With profit attributable to owners of parent ¥63.1B and total dividends ¥24.2B, the payout ratio is 41.0% (same level as prior year), which is within a sustainable range. Free Cash Flow ¥16.1B versus dividends ¥24.2B yields FCF coverage 0.66x, indicating dividends are not fully covered by FCF alone; however, cash and deposits ¥244.9B and low leverage provide a buffer and there is no immediate concern for dividend continuity. Next fiscal year guidance lists year-end dividend ¥19.00 (interim not disclosed) and EPS forecast ¥99.76 implying a payout ratio of 19.0%, but without disclosure of interim dividend and total full-year amount, assessment of continuity in shareholder return policy requires additional disclosure. No share buybacks were executed; total return ratio equals the payout ratio.

Risk Factors

1. NECST Business profitability deterioration risk: Operating income ¥18.6B (¥36.5B prior, YoY -49.0%), margin 2.8% (4.8% prior) worsened substantially. Demand slowdown in residential storage systems and V2H systems is the main cause. Although contract liabilities of ¥11.2B (¥5.7B prior) indicate order buildup, delayed conversion to revenue could prolong low segment margins and pressure consolidated earnings. NECST Business accounts for 39.5% of revenue; a delay in profitability recovery could impede achievement of full-year guidance.

2. Cash generation risk due to deteriorating working capital efficiency: DSO 91 days and CCC 141 days have lengthened, and working capital deterioration—accounts payable -¥59.8B and accounts receivable -¥12.0B—compressed operating CF from ¥183.5B to ¥81.6B (-55.5%). OCF/EBITDA 0.56x is low; if inventory and receivables management do not improve, free cash generation may not meet dividend and investment needs, constraining financial flexibility. While contract liabilities ¥11.2B indicate increases in advance receipts, timing mismatches in revenue recognition could further strain working capital.

3. Volatility of special items and instability of effective tax rate: The company recorded valuation losses on investment securities ¥8.0B and impairment losses ¥9.6B this period, and the net special-item impact of -¥11.3B (about 20% of net income) was a drag. The effective tax rate fell to 5.1% (25.3% prior) likely due to temporary factors such as recognition of deferred tax assets; this is not necessarily permanent, and higher tax burdens in subsequent periods could compress net income. Re-occurrence of valuation losses or impairments would increase earnings volatility and make sustained profit-growth scenarios less certain.

Industry Benchmark (Reference — Company Compilation)

Profitability & Returns

Profitability is well below industry medians; both operating and net margins are in the lower percentile, indicating significant room for gross margin improvement and cost containment.

Growth & Capital Efficiency

Growth lags the industry median by 7.1pt, placing the company at a relative disadvantage. Accelerating revenue growth driven by the Capacitor Business is an urgent priority.

※ Source: Company compilation

Key Points from the Financial Results

1. The core Capacitor Business’s margin recovery is evident: operating income nearly tripled (¥15.5B → ¥46.0B) and operating margin improved to 4.4%, demonstrating the effects of gross margin improvement, cost reductions, and product mix improvements. The full-year guidance projects operating income +34.8%; if the core business continues to strengthen earnings power, convergence toward industry median operating margins and sustained ROE improvement can be expected. Conversely, the NECST Business’s margin decline to 2.8% (4.8% prior) is a drag on company margins; converting accumulated contract liabilities into revenue and profit is the watershed for meeting full-year targets.

2. Financial position is robust: equity ratio 63.2%, current ratio 228%, and Debt/EBITDA 1.49x are strong, placing the company among the upper tier in the industry for short-term liquidity and leverage. Cash and deposits ¥244.9B roughly match interest-bearing debt ¥260.8B, yielding net interest-bearing debt ¥15.9B—near net-debt-free. While a payout ratio of 41.0% is sustainable, FCF coverage 0.66x and deteriorating working capital efficiency (CCC 141 days) suppress cash generation; improving DSO and DPO to boost operating CF is key to expanding shareholder return capacity.

3. Operating margin 3.8% (industry median 7.8%) and net margin 3.2% (industry median 5.2%) are below industry medians, indicating substantial room for profitability improvement. Gross margin 17.7% improved by 1.6pt YoY, but the rise in SG&A ratio to 13.9% partially offset margin gains. Unless revenue growth and SG&A leverage improve in tandem, significant operating margin expansion is unlikely. Volatility in special items (net -¥11.3B this period) and instability in the effective tax rate (5.1% this period vs. 25.3% prior) increase earnings volatility, complicating evaluation of sustainable growth scenarios. Emphasis should be placed on the quality of earnings at the ordinary-income level and stability of operating CF.

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This report is an earnings analysis document automatically generated by AI based on XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company from published financial statements. Investment decisions are your responsibility; consult professional advisors as needed before making investment decisions.