NICHICON CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

The defining feature of the quarter was a substantial improvement in profit margins in addition to revenue growth, with operating leverage taking effect through improved gross margins and a lower SG&A ratio. Revenue was ¥447.1B (up +12.9% YoY), Operating Income was ¥28.4B (up +292.1%), and Ordinary Income was ¥35.0B (up +233.0%). Consolidated Net Income was ¥26.0B (up +97.6%), of which Net Income attributable to owners of the parent was ¥24.7B (up +108.1%). The primary drivers of profit growth were increased revenue in both the Capacitor and NECST businesses, together with the emergence of operating leverage resulting from improvements in the cost and SG&A structure.

Factors Affecting Results

【Revenue】Revenue was ¥447.1B, up +12.9% YoY. By segment, the Capacitor Business generated ¥276.5B (61.9% revenue composition, YoY +12.9%), while the NECST Business generated ¥171.3B (38.3% composition, YoY +12.0%), with both businesses securing double-digit revenue growth.

【Profit and Loss】Operating Income was ¥28.4B (YoY +292.1%), and the Operating Income margin was 6.4%, improving by +4.5pt from 1.8% in the prior year. The gross margin improved to 19.4% (up +3.5pt from 15.9% in the prior year), while the SG&A ratio declined to 13.1% (down -1.0pt from 14.1% in the prior year). Improvements in both costs and SG&A contributed to the operation of operating leverage. Ordinary Income was ¥35.0B (YoY +233.0%); in addition to the growth in Operating Income, the increase in non-operating income of ¥7.8B, primarily consisting of dividend income of ¥5.3B, provided an additional boost. Consolidated Net Income was ¥26.0B (YoY +97.6%), while Net Income attributable to owners of the parent was ¥24.7B (YoY +108.1%). Although extraordinary income of ¥2.1B, including a gain on the sale of investment securities of ¥2.0B, was recorded, its impact on Net Income was limited. The Company achieved both revenue and profit growth, with the primary driver of profit growth being improved profitability in the core business.

Segment Analysis

The Capacitor Business generated revenue of ¥276.5B (61.9% composition, YoY +12.9%) and Operating Income of ¥15.2B (YoY +131.0%), with a 5.5% margin (improved from 2.7% in the prior year), securing both revenue and profit growth as the core business. The NECST Business generated revenue of ¥171.3B (38.3% composition, YoY +12.0%) and Operating Income of ¥13.2B (YoY +1959.4%), with a 7.7% margin (a sharp improvement from 0.4% in the prior year), demonstrating a substantial improvement in profitability. Margins expanded in both businesses, but the recovery in the profitability of the NECST Business made a particularly significant contribution to the improvement in the Company-wide Operating Income margin.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 6.4% (1.8% in the prior year), the Ordinary Income margin to 7.8% (2.6% in the prior year), and the Net Income margin, based on income attributable to owners of the parent, to 5.5% (3.0% in the prior year), with improvement at each stage compared with the prior year. ROE was 2.0%, based on Net Income attributable to owners of the parent and average equity during the period. 【Cash Flow Quality】Operating CF of ¥58.8B was approximately 2.4 times Net Income attributable to owners of the parent of ¥24.7B, while the Operating CF ratio to EBITDA of ¥48.9B (EBITDA margin of 10.9%) was approximately 1.2 times, indicating strong cash conversion. 【Investment Efficiency】Capital expenditures of ¥12.8B were 0.63 times depreciation and amortization expense of ¥20.4B, remaining at a level centered on replacement investment. 【Financial Soundness】The Equity Ratio was 62.7% and the current ratio was 225.4%, indicating ample capital strength and short-term funding capacity.

Cash Flow Analysis

Operating CF was ¥58.8B, up +106.6% from ¥28.5B in the prior year, indicating enhanced cash-generation capacity from the core business. In terms of working capital, an increase in inventories was a ¥18.9B drag, while an increase in trade payables of ¥8.0B partially offset this effect. Investing CF was -¥10.5B, with capital expenditures of ¥12.8B representing the primary use of funds. Financing CF was -¥20.1B, mainly reflecting dividend payments of ¥12.8B and other items. Free CF, calculated as the sum of Operating CF and Investing CF, was ¥48.3B, securing a level sufficient to cover the combined amount of capital expenditures and dividends.

Quality of Earnings

Although extraordinary income of ¥2.1B, including a ¥2.0B gain on the sale of investment securities, and extraordinary losses of ¥0.1B were recorded, their impact on consolidated Net Income of ¥26.0B was limited, and the majority of earnings was based on recurring business activities. Non-operating income of ¥7.8B was primarily composed of dividend income of ¥5.3B, representing approximately 1.7% of Revenue; accordingly, the primary driver of the improvement in Ordinary Income was the growth in Operating Income. The effective tax rate was 29.7%, calculated as income taxes of ¥11.0B ÷ Profit Before Tax of ¥37.0B, representing a standard level. Operating CF reached approximately 2.4 times Net Income attributable to owners of the parent, indicating strong cash conversion. Comprehensive Income was ¥68.1B, exceeding consolidated Net Income of ¥26.0B. This difference resulted from increases in other comprehensive income, such as valuation difference on securities of ¥32.9B and foreign currency translation adjustments of ¥8.9B, which are separate from business earnings and should be noted as such.

Earnings Forecast and Guidance

Progress against the Full-Year plan was 24.2% for Revenue, at ¥447.1B / ¥1850.0B; 32.7% for Operating Income, at ¥28.4B / ¥87.0B; 38.9% for Ordinary Income, at ¥35.0B / ¥90.0B; and 36.9% for Net Income attributable to owners of the parent as projected, at ¥24.7B / ¥67.0B. While Revenue is progressing close to plan, each profit measure is progressing at a pace exceeding one-quarter of the plan. The improvement in gross margins and the recovery in the profitability of the NECST Business are believed to be behind the progress exceeding plan. No revisions were made to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The annual dividend forecast announced by the Company is ¥39 per share. The Payout Ratio against forecast EPS of ¥99.76 is approximately 39.1% (¥39 ÷ ¥99.76), representing a level consistent with the total dividends based on the Full-Year Net Income plan. Share repurchases were negligible (¥0.0B), and shareholder returns are centered on dividends. The quarter’s Free CF of ¥48.3B significantly exceeded dividend payments of ¥12.8B, and no concerns are evident regarding the sustainability of dividends from a cash flow perspective.

Risk Factors

1. Concentration of the business portfolio: The Capacitor Business accounts for 61.9% of Revenue, indicating a high degree of dependence on a single business. The structure is susceptible to demand cycles and price competition in this business, while growth and sustained profitability in the NECST Business would contribute to diversification of Company-wide performance.

2. Expansion of working capital: Inventories increased to ¥159.9B, while accounts payable increased to ¥177.7B (up +33.9% YoY). Although this reflects the expansion of procurement and production activities accompanying the recovery in demand, if it is not accompanied by improved inventory turnover, it may lead to increased funding requirements in the future.

3. Price volatility of investment securities: Investment securities totaled ¥343.9B, accounting for 16.8% of total assets. During the quarter, an increase in valuation differences contributed to an increase in Comprehensive Income; however, during market fluctuations, reversals in valuation differences could become a source of changes in equity.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin were below the industry median. Although profitability improved substantially from the prior year, it remains relatively low within the industry.

Growth and Capital Efficiency

The Revenue growth rate was significantly above the industry median, representing a high pace of revenue growth within the industry.

※Source: Compiled by the Company

Key Highlights of the Results

1. The improvement in the Operating Income margin from 1.8% in the prior year to 6.4%, or +4.5pt, together with the simultaneous progress in improved gross margins and a lower SG&A ratio resulting in operating leverage, is notable as evidence of a qualitative change in the earnings structure.

2. The Operating Income margin of the NECST Business sharply improved from 0.4% in the prior year to 7.7%, demonstrating higher profitability than the Capacitor Business (5.5%). A change in the earnings composition within the portfolio can be confirmed.

3. Progress against the Full-Year plan was 24.2% for Revenue, compared with 32.7% for Operating Income, 38.9% for Ordinary Income, and 36.9% for Net Income. Profit measures are ahead of Revenue, indicating that profits are being accumulated ahead of schedule in the first half.

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 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,658–¥1,754 at ±1% for the cost of equity, and ¥1,698–¥1,710 at ±0.1 for ω.

Notes:

• Since progress in Net Income against the Full-Year forecast (37%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of schedule tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Since 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 from the Full-Year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model used: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not predict or guarantee the future share price)

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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. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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