NICHICON (6996) FY2027 Q1 Earnings Report

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Executive Summary

This quarter saw substantial improvements in profitability in both the Capacitor Business and the NECST Business, resulting in profit growth outpacing revenue growth. Revenue was ¥44.71B (+12.9% YoY), Operating Income was ¥2.84B (+292.1%), Ordinary Income was ¥3.50B (+233.0%), and Net Income attributable to owners of the parent was ¥2.47B (+108.1%). In addition to gross profit improvement resulting from a lower cost-of-sales ratio, selling, general and administrative expenses were kept below the rate of revenue growth, bringing operating leverage to the fore.

Factors Affecting Business Performance

【Revenue】Revenue was ¥44.71B, representing a 12.9% YoY increase. Both businesses achieved double-digit growth, with the Capacitor Business reaching ¥27.58B (+13.5%) and the NECST Business reaching ¥17.13B (+12.0%), driving the overall increase in revenue.

【Profit and Loss】The gross margin improved to 19.4% from 15.9% in the same period last year, while the SG&A expense ratio declined to 13.1%. As a result, Operating Income increased substantially faster than revenue, reaching ¥2.84B (+292.1%). Ordinary Income was ¥3.50B (+233.0%), with non-operating income of ¥0.78B, including ¥0.53B in dividend income, contributing to the increase. Profit Before Tax, including ¥0.21B in extraordinary income, most of which comprised ¥0.20B in gains on sales of investment securities, was ¥3.70B. However, this extraordinary income was a one-time factor and must be evaluated separately from core operating earnings. Consolidated Net Income was ¥2.60B, while the amount attributable to owners of the parent was ¥2.47B (+108.1%), resulting in an earnings report featuring both revenue and profit growth.

Segment Analysis

The Capacitor Business generated revenue of ¥27.58B (+13.5%), Operating Income of ¥1.52B (+131.0%), and an operating margin of 5.5% (2.7% in the prior year), reflecting improved profitability. The NECST Business generated revenue of ¥17.13B (+12.0%), Operating Income of ¥1.32B (+1959.4%), and an operating margin of 7.7% (0.4% in the prior year), representing a significant recovery. While accounting for approximately 38% of revenue, it contributed approximately 46% of segment profit, driving the improvement in company-wide profitability together with the Capacitor Business.

Key Financial Metrics

【Profitability】The Operating Income margin of 6.4% improved by approximately 4.5pt from 1.8% in the same period last year, while the Net Income margin also increased to 5.8% from approximately 3.0% in the same period last year. Annualized ROE of 8.1% represents a level showing improvement compared with the previous quarter.【Cash Flow Quality】Operating Cash Flow (OCF) of ¥5.88B was more than double Net Income of ¥2.47B, indicating solid cash backing for earnings. However, the figure was supported by an ¥1.89B decrease in inventories and a ¥0.80B increase in accounts payable, requiring confirmation of the sustainability of working capital factors from the next quarter onward.【Investment Efficiency】Capital expenditures of ¥1.28B were below depreciation and amortization expenses of ¥2.04B, a level at which the balance between investment and replacement requires monitoring.【Financial Soundness】The Equity Ratio was 62.7%. Current assets of ¥112.85B compared with current liabilities of ¥50.07B resulted in a high current ratio of approximately 225%, indicating substantial short-term financial capacity.

Cash Flow Analysis

OCF was ¥5.88B, approximately 2.4 times Net Income attributable to owners of the parent of ¥2.47B, indicating a favorable level of cash conversion. Investing Cash Flow was an outflow of ¥1.05B, primarily due to ¥1.28B in capital expenditures. Financing Cash Flow was an outflow of ¥2.01B, including ¥1.28B in dividend payments and ¥0.63B in repayments of long-term borrowings. Free Cash Flow (OCF + Investing Cash Flow) was positive at ¥4.83B, securing cash generation substantially exceeding capital expenditures and dividend payments. The increase in OCF included working capital factors consisting of an ¥1.89B decrease in inventories and a ¥0.80B increase in accounts payable; whether these represent temporary cash inflows or structural improvements remains a point for future confirmation.

Earnings Quality

Non-operating income of ¥0.78B remained approximately 1.7% of revenue, indicating no excessive dependence; however, its primary component was ¥0.53B in dividend income, meaning that income from held investments contributed to a certain extent to Ordinary Income of ¥3.50B. Most of the ¥0.21B in extraordinary income comprised ¥0.20B in gains on sales of investment securities and should be treated as a temporary item separate from recurring operating profit and loss. OCF of ¥5.88B exceeded Net Income attributable to owners of the parent of ¥2.47B, demonstrating strong cash backing for accounting earnings. However, as it included working capital cash inflows from lower inventories and higher accounts payable, the company’s normalized cash-generating capacity needs to be assessed based on trends from the next quarter onward.

Earnings Forecasts and Guidance

The full-year forecast is revenue of ¥185.00B (YoY+9.0%), Operating Income of ¥8.70B (+34.8%), and Ordinary Income of ¥9.00B (+8.1%). Q1 progress rates were 24.2% for revenue, 32.7% for Operating Income, and 38.9% for Ordinary Income. While revenue was in line with the standard progress rate of approximately 25%, profits were progressing at a faster pace. The full-year forecast Operating Income margin of 4.7% is below the Q1 actual result of 6.4%, suggesting that the company’s plan incorporates normalization of profitability and higher costs in the second half. It should be noted that the high progress rate for Ordinary Income includes temporary factors such as dividend income and gains on sales of investment securities. There were no revisions to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The full-year dividend forecast is ¥39.00 per share. Based on the period-average number of shares outstanding of 67,158,583 shares, the estimated total dividend payment is approximately ¥2.62B, resulting in a Payout Ratio of approximately 39.1% against the full-year forecast Net Income attributable to owners of the parent of ¥6.70B. Q1 OCF of ¥5.88B and Free Cash Flow of ¥4.83B substantially exceeded the dividend payment of ¥1.28B during the quarter, indicating that dividend funding capacity is sound. Share repurchases were ¥0.00B and were limited in scale; shareholder returns during the period were primarily in the form of dividends.

Risk Factors

1. Demand Fluctuations and Profitability Sustainability: The Capacitor Business and NECST Business are susceptible to end demand, customer inventory adjustments, and product mix. The Q1 Operating Income margin of 6.4% exceeded the full-year forecast of 4.7%, making the sustainability of this improvement throughout the full year a key focus.

2. Capital Efficiency (Collections and Inventory): Accounts receivable of ¥42.35B accounted for 20.6% of total assets, and annualized DSO and CCC are considered to be at cautionary levels compared with manufacturing-industry averages. The improvement in OCF included working capital factors consisting of lower inventories and higher accounts payable, creating a risk of cash flow volatility if these trends reverse.

3. Dependence on Investment Securities: Investment securities of ¥34.39B accounted for 16.8% of total assets. Through dividend income of ¥0.53B and valuation differences, Ordinary Income and comprehensive income are structurally affected by fluctuations in market prices.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (manufacturing)

Profitability and Returns

The profitability metrics are both below the industry median, although the degree of improvement from the same period last year was substantial.

Growth and Capital Efficiency

The revenue growth rate substantially exceeded the industry median and was in a high-growth range close to the upper limit of the IQR.

※Source: Company research

Key Takeaways from the Financial Results

1. The Operating Income margin improved by approximately 4.5pt YoY, and segment profit margins increased in both the Capacitor Business and NECST Business. In particular, the NECST Business improved from 0.4% to 7.7%, making a significant contribution to the improvement in company-wide profitability.

2. The high growth in Ordinary Income and Net Income included non-core income such as ¥0.53B in dividend income and ¥0.20B in gains on sales of investment securities. When evaluating earnings quality, it is necessary to distinguish the improvement on an Operating Income basis from temporary factors.

3. OCF exceeded twice Net Income, indicating sound cash conversion quality; however, the contribution from working capital factors—lower inventories and higher accounts payable—was significant. The extent to which this cash generation pattern normalizes can be confirmed in future quarters.

Theoretical Share Price (Reference Value)

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 of 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 running ahead of forecast progress tend to exceed forecasts. Adjustments 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 at the end of the quarter 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 at a somewhat high level.

(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 predict or guarantee future share prices.)

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This report is an automatically generated earnings analysis document created 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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