NICHICON (6996) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for the first three quarters saw a decline in revenue, although core operating profitability improved slightly, while net income declined sharply due to the reversal of special factors recorded in the previous year. Revenue was ¥124.25B (down -6.4% YoY), Operating Income was ¥3.85B (up +2.4%), Ordinary Income was ¥5.46B (down -12.8%), and Net Income attributable to owners of the parent was ¥4.02B (down -43.8%). The primary reason for the revenue decline was weaker demand in the NECST Business, which was partially offset by higher revenue and improved profitability in the Capacitor Business. The decline in net income was primarily attributable to gains on the sale of investment securities of ¥2.65B in the same period of the previous year, compared with only ¥0.74B in the current period. This factor should be evaluated separately from core operating performance.

Factors Affecting Performance

【Revenue】Revenue was ¥124.25B, a year-on-year decline of -6.4%. By segment, the Capacitor Business posted higher revenue of ¥76.30B (61.4% of total revenue, up +2.0% YoY), while the NECST Business recorded a significant revenue decline to ¥48.43B (39.0% of total revenue, down -17.1% YoY), making it the primary cause of the company-wide revenue decline.

【Profitability】Operating Income was ¥3.85B (up +2.4% YoY), supported by an improvement in the gross margin to 17.2% (16.1% in the previous year) and control of SG&A expenses at ¥17.52B (down -0.3% YoY). Ordinary Income was ¥5.46B (down -12.8% YoY), mainly due to the reduction in foreign exchange gains from ¥1.28B in the previous year to ¥0.72B. Net Income was ¥4.02B (down -43.8% YoY). Contributing factors to the decline included gains on the sale of investment securities of ¥2.65B recorded in the previous year, compared with ¥0.74B in the current period, as well as the recognition of business restructuring expenses, including impairment losses on fixed assets of ¥0.41B in the Capacitor Business. In conclusion, on a core operating basis, the company recorded higher operating income despite lower revenue, rather than lower operating income; however, at the Ordinary Income and Net Income levels, it recorded declines in both revenue and profit.

Segment Analysis

The Capacitor Business drove overall profitability, recording revenue of ¥76.30B (up +2.0% YoY), segment profit of ¥2.45B (up +124.7% YoY), and a profit margin of 3.2% (improved from 1.5% in the previous year). However, impairment indicators were identified for some manufacturing fixed assets in this business, and ¥0.41B was recorded as business restructuring expenses. The NECST Business posted revenue of ¥48.43B (down -17.1% YoY), segment profit of ¥1.41B (down -47.3% YoY), and a profit margin of 2.9% (down from 4.6% in the previous year), resulting in declines in both revenue and profit. It is the primary cause of the company-wide revenue decline and the risk to achieving the full-year plan. The performance of the two businesses has diverged, making the sustainability of the Capacitor Business’s improvement and the recovery of demand in the NECST Business the key areas of focus going forward.

Key Financial Indicators

【Profitability】The Operating Income margin was 3.1% (improved from 2.8% in the previous year), while the Net Income margin was 3.2% (down from 5.4% in the previous year). The decline in the Net Income margin was primarily due to the reversal of gains on the sale of investment securities recorded in the previous year. The gross margin was 17.2%, an improvement from 16.1% in the previous year. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥9.48B, or 2.36 times Net Income attributable to owners of the parent of ¥4.02B, securing cash generation in excess of accounting profit. However, OCF declined 38.2% from ¥15.33B in the previous year, as increases in trade receivables and inventories pressured working capital. 【Investment Efficiency】Annualized ROE was 5.0%, while the Equity Ratio was 60.4% (up from 57.3% in the previous year). Capital expenditures were ¥5.16B and depreciation and amortization expenses were ¥5.96B, resulting in a CapEx/depreciation ratio of 0.87x, remaining at a replacement investment level. 【Financial Soundness】Cash and deposits were ¥27.49B, compared with current liabilities of ¥51.88B and current assets of ¥111.73B, indicating ample liquidity. Short-term borrowings increased 25.4% to ¥8.40B from ¥6.70B in the previous year; however, in light of the cash balance, the immediate impact on liquidity is limited.

Cash Flow Analysis

OCF was ¥9.48B, down 38.2% from ¥15.33B in the previous year. Against OCF subtotal of ¥11.01B, which included depreciation and amortization expenses of ¥5.96B, an increase in inventories of ¥1.16B and an increase in trade receivables of ¥0.96B absorbed cash, while an increase in trade payables of ¥0.63B partially offset the outflow. Investing Cash Flow was -¥5.27B, most of which consisted of capital expenditures of ¥5.16B. Free cash flow, calculated as OCF less capital expenditures, was positive at ¥4.21B, indicating that capital expenditures can be funded through internal resources. Financing Cash Flow was -¥3.13B. The principal uses of funds were dividend payments of ¥2.42B and repayments of long-term borrowings of ¥1.88B, partially offset by an increase in short-term borrowings of ¥1.70B. Overall, deterioration in working capital was a factor behind the decline in OCF, and improvements in the turnover efficiency of trade receivables and inventories will determine cash-generation capacity going forward.

Earnings Quality

Operating Income, which indicates recurring earnings power, was ¥3.85B, while EBITDA was ¥9.81B. Ordinary Income of ¥5.46B exceeded Operating Income due to non-operating income of ¥2.11B, including dividends received of ¥0.74B and foreign exchange gains of ¥0.72B. Foreign exchange gains declined from ¥1.28B in the previous year and were a factor affecting Ordinary Income. The majority of extraordinary income of ¥0.75B consisted of gains on the sale of investment securities of ¥0.74B. Extraordinary losses of ¥0.71B included impairment losses of ¥0.41B in the Capacitor Business, and extraordinary gains and losses were broadly offset. In the same period of the previous year, the temporary factor of ¥2.65B in gains on the sale of investment securities significantly boosted net income. Accordingly, the decline in net income in the current period was largely due to this reversal rather than deterioration in core operations. OCF was 2.36 times Net Income attributable to owners of the parent, providing sound cash backing for accounting profit. Comprehensive Income was ¥7.95B, exceeding Net Income of ¥4.02B, due to valuation-related factors including valuation difference on securities of ¥2.16B and foreign currency translation adjustments of ¥1.39B.

Performance Forecasts and Guidance

The cumulative progress rates for the first three quarters against the company’s full-year forecasts of Revenue of ¥180.00B, Operating Income of ¥6.00B, and Ordinary Income of ¥7.00B were 69.0%, 64.2%, and 78.1%, respectively. Compared with the standard progress rate of 75%, Revenue was 6.0pt below and Operating Income was 10.8pt below, with the progress shortfall particularly significant for Operating Income. To achieve the full-year targets, fourth-quarter Revenue of ¥57.55B and Operating Income of ¥2.15B will be required. Continued profitability improvement in the Capacitor Business and a recovery in demand in the NECST Business will be the key factors for achieving the targets. The relatively high progress rate for Ordinary Income was partly supported by non-operating income, making it necessary to closely monitor improvement in core operating profit.

Shareholder Returns

The Q2 dividend was ¥18.00 per share, and the full-year dividend forecast is ¥36.00 per share. Based on the full-year forecast EPS of ¥89.34, the forecast Payout Ratio is approximately 40.3%, remaining below 60%. No share repurchases have been confirmed, and shareholder returns consist solely of dividends; therefore, evaluating returns based on the Payout Ratio is appropriate. Cumulative free cash flow for the current period of ¥4.21B exceeded dividend payments of ¥2.42B, securing cash generation to support the dividend.

Risk Factors

1. Weak demand in the NECST Business: Revenue declined -17.1% YoY to ¥48.43B, while segment profit declined -47.3% YoY to ¥1.41B. Delayed recovery in demand and profitability in this business poses a risk to company-wide performance.

2. Asset impairment in the Capacitor Business: Impairment indicators were identified for some manufacturing fixed assets, and ¥0.41B was recorded as business restructuring expenses. If assumptions regarding demand or capacity utilization deteriorate, additional impairment losses may arise.

3. Extension of the working capital cycle: An increase in trade receivables of ¥0.96B and an increase in inventories of ¥1.16B pressured OCF and contributed to the 38.2% year-on-year decline in OCF. Improvements in collection and inventory efficiency will affect cash-generation capacity going forward.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability is below the industry median in both Operating Income margin and Net Income margin.

Growth and Capital Efficiency

The Revenue growth rate is significantly below the industry median and is also below the lower bound of the IQR.

※Source: Company research

Key Points from the Financial Results

1. Despite the decline in revenue, both the gross margin and Operating Income margin improved, confirming operating leverage from improved profitability in the Capacitor Business and control of SG&A expenses.

2. The year-on-year decline of -43.8% in Net Income was primarily due to the reversal of the large gains on the sale of investment securities recorded in the same period of the previous year. It is therefore appropriate to assess underlying operating strength based on Operating Income and EBITDA.

3. Operating Income progress against the full-year plan was 64.2%, below the standard progress rate. Continued improvement in the Capacitor Business and recovery in the NECST Business during Q4 will be key to achieving the plan.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥1,521–¥1,609 for ±1% in the cost of equity capital, and ¥1,557–¥1,569 for ±0.1 in ω.

Notes:

• As forecast ROE is below the cost of equity capital, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a time lag relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings flash report 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 professionals as necessary.

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