NIHON PLAST (7291) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for Q3 of FY2026 were characterized by lower revenue and lower earnings. While profitability continued to decline at the operating level, Net Income exceeded the previous year due to extraordinary income. Revenue was ¥845.8B (-6.1% YoY), Operating Income was ¥15.7B (-26.6%), and Ordinary Income was ¥13.7B (-18.4%). Net Income increased to ¥15.4B (+20.5% YoY), but this was driven by ¥4.8B in extraordinary income, including a ¥1.6B gain on the sale of investment securities, rather than by an improvement in operating earnings.

Factors Affecting Performance

【Revenue】Revenue was ¥845.8B, down 6.1% YoY. By segment, North America was the only relatively solid region, generating ¥438.0B in revenue (up from ¥427.8B in the previous year), while Japan generated ¥346.9B (¥364.9B in the previous year), China generated ¥77.8B (¥103.9B in the previous year), and Southeast Asia recorded a significant decline. Weak demand in Japan and China weighed on overall results.

【Profitability】Operating Income was ¥15.7B (-26.6% YoY), and the Operating Income margin declined to 1.9%. The gross margin of 9.7% is low for a manufacturing company, suggesting that the pass-through of higher raw material and manufacturing costs may not have progressed sufficiently. Ordinary Income was ¥13.7B (-18.4% YoY), while non-operating expenses of ¥7.6B, including ¥6.4B in interest expenses, represented a burden. Net Income of ¥15.4B was up 20.5% YoY, but it depended on ¥4.8B in extraordinary income (equivalent to approximately 31.4% of Net Income), which must be distinguished from recurring earnings power. Overall, the company recorded lower revenue and lower earnings.

Segment Analysis

The main sources of segment profit were Southeast Asia (profit of ¥8.1B, profit margin of 8.1%) and North America (profit of ¥7.4B, profit margin of 1.7%), with both regions supporting company-wide profit. Japan generated only ¥2.0B in profit (profit margin of 0.6%), a significant decline from ¥10.1B in the previous year. China reported an Operating Loss of ¥2.1B (profit margin of -2.7%), which narrowed from the ¥3.1B loss recorded in the previous year but continues to weigh on profitability. By region, the company has a structure in which the more profitable overseas operations (Southeast Asia and North America) offset the low profitability of Japan and China.

Key Financial Indicators

【Profitability】ROE was 4.4%, the Operating Income margin was 1.9%, and the Net Income margin was 1.8%, all indicating substantial room for improvement in profitability. Total asset turnover was approximately 1.05x, while financial leverage was 2.31x, indicating that ROE was supplemented to a certain extent by leverage.【Cash Quality】Extraordinary income accounted for ¥4.8B (approximately 31.4%) of Net Income of ¥15.4B, resulting in reported earnings exceeding recurring earnings power.【Investment Efficiency】ROIC was 3.9%, indicating a low level of profit generation relative to invested capital.【Financial Soundness】The Equity Ratio was 43.4% (improving from 41.3% in the previous year), while the current ratio was approximately 133.1%, securing a certain level of liquidity. However, cash and deposits were ¥121.0B against short-term borrowings of ¥157.2B, leaving cash coverage of short-term liabilities at only 0.77x. Interest coverage was approximately 2.4x, indicating relatively high sensitivity to interest expenses.

Cash Flow Analysis

As figures from the statement of cash flows are not included in the disclosed data, the company’s funding position is assessed based on balance sheet trends. Cash and deposits were ¥121.0B, down from ¥149.4B in the previous year, while accounts receivable increased to ¥170.7B (¥145.5B in the previous year), suggesting delays in cash collection amid declining revenue. Inventories totaled ¥144.8B, primarily consisting of ¥117.2B in raw materials, accounting for approximately 17.9% of total assets. Interest-bearing debt, comprising ¥157.2B in short-term borrowings and ¥61.5B in long-term borrowings, reached ¥218.7B, indicating a structure with a high level of borrowing dependence relative to cash and deposits. Property, plant and equipment, which indicates capital investment trends, totaled ¥277.1B, down from ¥297.2B in the previous year, suggesting restrained investment.

Earnings Quality

Net Income for the current period was ¥15.4B, up 20.5% from the previous year. However, Ordinary Income, which indicates recurring earnings power, remained at ¥13.7B (-18.4% YoY), while the difference from Profit Before Tax of ¥18.5B was primarily attributable to the ¥4.8B increase from extraordinary income (comprising a ¥1.6B gain on the sale of investment securities and a ¥0.5B gain on the sale of fixed assets). Among non-operating income and expenses, dividend income of ¥1.3B and foreign exchange gains of ¥2.0B were the main components of non-operating income of ¥5.6B, and these factors differ from the earning power of the core business. Meanwhile, non-operating expenses of ¥7.6B, including ¥6.4B in interest expenses, weighed on Ordinary Income. The decline from Operating Income of ¥15.7B to Ordinary Income of ¥13.7B reflects the burden of financial expenses. Comprehensive Income was ¥8.2B, below Net Income of ¥15.4B, mainly due to foreign currency translation adjustments of -¥11.8B. Foreign-exchange valuation of overseas assets caused the divergence between Net Income and Comprehensive Income. Overall, the increase in earnings for the current period was highly dependent on temporary factors, and earnings quality declined from the previous year.

Earnings Forecast and Guidance

Progress toward the full-year earnings forecast was 74.9% for Revenue, 65.4% for Operating Income, 85.4% for Ordinary Income, and 118.6% for Net Income. Revenue progress was nearly at the standard level of 75%, but Operating Income progress was below the standard level at 65.4%, making an improvement in profitability in Q4 necessary to achieve the full-year forecast of ¥24.0B. Net Income has already exceeded the full-year forecast of ¥13.0B, but because of its substantial dependence on extraordinary income, this excess does not indicate upside in operating performance. The higher progress rate for Ordinary Income than for Operating Income was attributable to the contribution from non-operating income.

Shareholder Returns

The Q2 dividend was ¥10 per share, and the full-year dividend forecast is ¥20 per share. Based on the full-year forecast dividend of ¥20, the Payout Ratio against current-period Net Income of ¥15.4B (EPS of ¥81.35 per share) is approximately 24.6%. As there is no disclosure regarding share repurchases, the return should be evaluated as a dividend-only Payout Ratio. Given that approximately 31.4% of Net Income was boosted by extraordinary income, the Payout Ratio based on recurring earnings may be higher than the disclosed figure. Whether Operating Income recovers will therefore be a key point in assessing dividend sustainability.

Risk Factors

1. Profitability and pricing pass-through risk: The gross margin is low at 9.7%, and the Operating Income margin remains at only 1.9%. If increases in raw material and manufacturing costs cannot be passed through sufficiently, profits may come under further pressure during a period of declining revenue.

2. Financial and refinancing risk: Cash and deposits of ¥121.0B are below short-term borrowings of ¥157.2B, leaving cash coverage of short-term liabilities at only 0.77x. Interest coverage is approximately 2.4x, below 3x, and rising interest rates or deterioration in refinancing terms could increase the burden of financial expenses.

3. Regional profitability concentration risk: China reported an Operating Loss of ¥2.1B, while Japan also remained weak with a profit margin of 0.6%, resulting in a structure dependent on North America and Southeast Asia for profits. Any fluctuation in the profitability of these two regions could have a significant impact on company-wide performance.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

The company’s profitability is significantly below the industry median, indicating a low relative level of profitability within the manufacturing industry.

Growth and Capital Efficiency

The Revenue growth rate is also below the industry median, with the company experiencing declining revenue while its peers are generally trending toward revenue growth.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The 20.5% YoY increase in Net Income was primarily attributable to ¥4.8B in extraordinary income, including gains on the sale of investment securities, while Ordinary Income declined 18.4% YoY. The financial results indicate an increase in earnings without an accompanying improvement at the operating level.

2. By regional segment, North America and Southeast Asia were the main sources of profit, while declining profitability in Japan and China weighed on company-wide earnings. In particular, China continues to report an Operating Loss.

3. Cash and deposits were ¥121.0B against short-term borrowings of ¥157.2B, while Interest coverage was approximately 2.4x, confirming from the financial results the burden of financial expenses and the company’s dependence on refinancing.

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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 a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q3 performance was operationally weaker despite higher reported net income, as lower sales and margin compression were partly offset by extraordinary gains. Revenue declined 6.1% year on year to ¥84.58bn. Operating income fell 26.6% to ¥1.57bn, substantially underperforming the sales trend. Ordinary income declined 18.4% to ¥1.37bn. Net income nevertheless rose 20.5% to ¥1.54bn. The divergence was driven by ¥4.84bn of extraordinary income, which lifted profit before tax to ¥1.85bn. Disclosed gains included ¥1.61bn on sales of investment securities and ¥0.47bn on sales of non-current assets. Gross margin was broadly flat at 9.7%, down approximately 4bp year on year. Operating margin compressed by approximately 52bp to 1.9% from 2.4%, reflecting the inability to reduce SG&A, which remained flat at ¥6.64bn despite the sales decline. The 1.9% EBIT margin is below the 5% concern threshold and confirms low operating efficiency. Annualized ROE was 5.9%, supported by 2.31x financial leverage rather than a strong net margin. ROIC of 3.9% also indicates that operating returns remain weak relative to the capital deployed in the business. North America was the only major region to deliver both sales growth and a material profit improvement. Japan, China and Southeast Asia recorded lower external sales, with Japan's segment profit falling sharply and China remaining loss-making. The balance sheet remains liquid, with a 133.1% current ratio, but 71.9% of interest-bearing debt is short term and interest coverage is only 2.44x. The full-year operating-income forecast requires a fourth-quarter recovery, while the full-year net-income forecast of ¥1.30bn is already below the ¥1.54bn booked through Q3, implying that extraordinary-income support is not expected to recur. The central forward implication is that sustainable earnings improvement depends on restoring regional operating profitability, especially in Japan and China, and improving the conversion of gross profit into EBIT.

Profitability Analysis

The annualized 5.9% ROE decomposes into a 1.8% net profit margin, 1.398x asset turnover and 2.31x financial leverage. The principal constraint is the very low net margin, while leverage provides a meaningful portion of the reported equity return. Asset turnover remains comparatively solid for a manufacturing business, but it is insufficient to compensate for a 1.9% EBIT margin. Gross margin was 9.7%, essentially unchanged from approximately 9.7% in the prior-year period, indicating that the main deterioration occurred below gross profit. SG&A expense was unchanged at ¥6.64bn while revenue fell ¥5.49bn, raising the SG&A-to-sales ratio to 7.8% from 7.4%, or approximately 47bp of negative operating leverage. As a result, operating income declined ¥0.57bn, or 26.6%, and operating margin fell approximately 52bp. The DuPont five-factor data show a tax burden of 0.833, which is favorable, and an interest burden above 1.0 because extraordinary income lifted pre-tax income above EBIT; this should not be interpreted as evidence of low financing burden. Interest expense of ¥0.64bn consumed 41% of EBIT, consistent with the modest 2.44x interest-coverage ratio. Reported net income was enhanced by ¥4.84bn of extraordinary income, so the 1.8% annualized net margin is not fully representative of recurring profitability. ROIC of 3.9% is below the 5% warning threshold, reinforcing that the operating business is generating weak returns on its capital base. The low gross margin quality alert is material: at 9.7%, modest input-cost, pricing, utilization or foreign-exchange changes can have an outsized effect on EBIT. The low operating-efficiency alert is therefore rooted in both a thin gross-profit pool and weak fixed-cost absorption. Sustainable ROE improvement requires EBIT-margin recovery rather than additional balance-sheet leverage.

Growth Assessment

Revenue contraction was broad based, with external sales declining 6.1% to ¥84.58bn. North American external sales increased 2.3% year on year to ¥43.79bn and segment profit more than doubled to ¥0.74bn from ¥0.32bn. Japan's external sales declined 7.9% to ¥30.85bn, while segment profit fell 80.0% to ¥0.20bn, indicating substantial earnings sensitivity to lower domestic volume. China's external sales declined 30.2% to ¥7.26bn; its segment loss narrowed to ¥0.21bn from ¥0.31bn but remains a drag on consolidated profitability. Southeast Asian external sales decreased 20.9% to ¥2.68bn and segment profit declined 32.6% to ¥0.81bn. Southeast Asia is the core business by segment-profit contribution, producing the largest segment profit despite being the smallest external-sales region; its implied segment margin on total segment sales was about 8.1%. North America generated an implied segment margin of about 1.7%, Japan about 0.6%, and China remained negative at about 2.7%, illustrating the material regional profitability dispersion. Management's full-year forecast calls for revenue of ¥113.00bn, operating income of ¥2.40bn, ordinary income of ¥1.60bn and net income of ¥1.30bn. Q3 cumulative revenue represents 74.8% of the full-year forecast, broadly in line with the standard 75% progress rate. Operating-income progress is 65.4%, 9.6 percentage points below the standard pace and therefore requires improved fourth-quarter profitability. Ordinary-income progress is 85.4%, 10.4 percentage points ahead of the standard pace, mainly reflecting items outside recurring operations. Net income has already reached 118.6% of the full-year forecast, confirming that the Q3 cumulative result includes gains not embedded in the full-year earnings outlook. The forecast implies a fourth-quarter operating income of ¥0.83bn but a net loss of approximately ¥0.24bn, highlighting the expected absence or reversal of Q3 non-recurring profit support.

Financial Health

Liquidity is adequate but not ample: current assets of ¥46.48bn cover current liabilities of ¥34.93bn, producing a 133.1% current ratio and an equivalent quick ratio. Working capital was positive at ¥11.55bn. Cash and deposits totaled ¥12.10bn, equivalent to 77% of short-term loans of ¥15.72bn. Interest-bearing debt was ¥21.87bn, comprising ¥15.72bn of short-term loans and ¥6.15bn of long-term loans. The short-term debt ratio of 71.9% is a refinancing-risk alert because a substantial proportion of funding must be rolled over within one year. This maturity concentration is significant even though the current ratio remains above 1.0, because cash alone does not fully cover short-term borrowings. Debt-to-equity was 1.31x, below the 2.0x aggressive-leverage warning level but above the conservative 1.0x benchmark. Debt-to-capital was 38.4%, narrowly within the sub-40% investment-grade benchmark. Interest coverage of 2.44x is below the 3x concern threshold, leaving limited protection against a further operating-profit decline or higher borrowing costs. Total equity increased ¥0.47bn year on year to ¥35.00bn, while total assets decreased ¥3.02bn to ¥80.69bn. Long-term loans increased ¥0.85bn year on year, while short-term loans decreased ¥0.73bn, representing a modest improvement in debt maturity structure but not enough to eliminate refinancing dependence. Net defined-benefit liability was ¥1.87bn and should remain part of the fixed-obligation assessment.

Notable B/S Changes

Accounts receivable: +¥2.52bn (+17.3%) - increased despite a 6.1% sales decline; annualized receivable days rose to approximately 55 days, requiring monitoring of collection quality. Total assets: -¥3.02bn (-3.6%) - balance-sheet contraction reflects lower current and non-current asset balances despite higher receivables. Property, plant and equipment: -¥2.01bn (-6.8%) to ¥27.71bn - lower productive-asset balance may reflect depreciation or asset disposals and should be assessed against production-capacity needs. Raw materials: -¥1.11bn (-8.7%) to ¥11.72bn - inventory reduction was broadly consistent with lower sales and improved annualized inventory days. Short-term loans: -¥0.73bn (-4.4%) to ¥15.72bn, while long-term loans increased ¥0.85bn (+16.0%) to ¥6.15bn - modest maturity extension, although short-term debt remains 71.9% of total interest-bearing debt. Deferred tax liabilities: +¥0.79bn (+4.8%) to ¥1.74bn - increase alongside higher valuation differences on securities may reflect unrealized investment-security gains. Investment securities: +¥0.59bn (+16.8%) to ¥4.10bn - portfolio value increased while the company also recognized ¥0.16bn of gains on investment-security sales.

Cash Flow Quality

Working-capital indicators point to a deterioration in customer cash conversion despite lower sales. Accounts receivable increased 17.3% year on year to ¥17.07bn while cumulative revenue declined 6.1%. Annualized receivable days increased to approximately 55 days from approximately 44 days in the prior-year period, exceeding the 45-day manufacturing efficiency benchmark. This change raises the risk that cash conversion will lag accounting revenue if collections do not normalize. Total disclosed raw materials, work in process and finished goods declined 6.7% to ¥14.68bn. Annualized inventory days were approximately 53 days, modestly improved from approximately 53 days in the prior-year period and within the 60-day benchmark. Raw materials represented about 79.8% of disclosed inventory, while work in process represented about 7.2% and finished goods 11.6%, indicating that inventory is concentrated in production inputs rather than finished-goods stock. Annualized payable days were approximately 35 days, compared with approximately 36 days in the prior-year period and within the 30-60 day benchmark range. The resulting annualized cash conversion cycle was approximately 73 days, versus approximately 61 days a year earlier, with the deterioration driven principally by receivables. The increase in receivables alongside falling sales is a working-capital item requiring monitoring. Reported earnings quality is also reduced by extraordinary income of ¥4.84bn, which exceeded reported net income and means the cumulative net-income increase does not reflect core operating momentum.

Dividend Sustainability

The company paid an interim Q2 dividend of ¥10.00 per share. Based on Q3 cumulative net income, the calculated interim dividend payout ratio was 12.6%, leaving substantial accounting earnings coverage at this stage. The full-year dividend forecast is ¥20.00 per share, implying a year-end dividend of ¥10.00 per share if the interim dividend is maintained. Against forecast EPS of ¥68.66, the forecast dividend payout ratio is approximately 29.1%. This is below the 60% sustainability benchmark and is modest in relation to the stated full-year earnings outlook. However, dividend capacity should be assessed against recurring profitability rather than the Q3 cumulative net-income figure, because that result was supported by extraordinary gains. The ¥1.30bn full-year net-income forecast is lower than Q3 cumulative net income of ¥1.54bn, indicating that management does not expect the current earnings run-rate to persist through year-end. The combination of 2.44x interest coverage and a 71.9% short-term debt ratio argues for continued balance-sheet discipline. The projected dividend level appears proportionate to forecast earnings, but its sustainability is most sensitive to operating-margin recovery and refinancing conditions.

Risk Assessment

Business risks include Margin risk: the 9.7% gross margin and 1.9% EBIT margin leave limited capacity to absorb changes in automotive production volumes, customer pricing, material costs, labor costs, energy costs or plant utilization., Regional execution risk: Japan segment profit fell 80.0% to ¥0.20bn, China remained loss-making at ¥0.21bn, and Southeast Asian profit declined 32.6%; recovery is dependent on restoring profitability across these operations., Automotive-industry risk: customer production schedules, model-cycle changes, supply-chain disruptions, electrification-related component redesign and OEM price-down pressure can affect volumes and margins., Foreign-exchange risk: foreign-exchange gains of ¥0.20bn were recorded in non-operating income, and foreign currency translation adjustment reduced OCI by ¥1.18bn, demonstrating material exposure to currency movements., Collection risk: annualized receivable days rose to approximately 55 days from approximately 44 days while sales declined, which may signal slower customer collections..

Financial risks include Refinancing risk is elevated because 71.9% of interest-bearing debt is short term; cash covers only 0.77x of short-term loans., Interest coverage of 2.44x is below the 3x concern threshold, so further EBIT pressure or higher interest rates could constrain financial flexibility., Debt-to-equity of 1.31x is manageable but above the conservative benchmark, and financial leverage of 2.31x contributes materially to annualized ROE., Comprehensive income fell 64.5% to ¥0.82bn because OCI was negative ¥0.72bn, primarily reflecting foreign-currency translation movements..

Key concerns include High impact/high likelihood: recurring operating earnings weakened materially, with operating income down 26.6% against a 6.1% revenue decline., High impact/medium likelihood: the full-year profit outcome depends on fourth-quarter operating-profit delivery, while non-recurring gains are not expected to support the year-end result., Medium impact/high likelihood: thin gross margins and unchanged SG&A create high operating leverage to volume and pricing changes., Medium impact/medium likelihood: receivable-days expansion may prolong the cash conversion cycle and reduce balance-sheet flexibility..

Investment Implications

Key takeaways include Reported net-income growth of 20.5% does not reflect core earnings momentum: operating income declined 26.6% and extraordinary income lifted pre-tax profit., North America is the principal positive contributor, with sales growth of 2.3% and segment profit rising to ¥0.74bn., Southeast Asia remains the largest segment-profit contributor, but its sales and profit both declined., Japan's sharp profit decline and China's continuing loss are the key operational turnaround requirements., Liquidity is above minimum thresholds, but short-term debt concentration and low interest coverage constrain financial flexibility., Annualized ROE of 5.9% and ROIC of 3.9% indicate subpar capital efficiency..

Metrics to watch include Consolidated operating margin and SG&A-to-sales ratio, Japan and China segment profit or loss, North America segment-margin sustainability, Accounts receivable and annualized receivable days, Short-term loan balance, cash-to-short-term-debt ratio and interest coverage, Fourth-quarter operating-income delivery versus the ¥2.40bn full-year forecast, Extent of extraordinary gains relative to net income.

Regarding relative positioning, The company has adequate near-term liquidity and a moderate debt-to-capital ratio, but its 1.9% EBIT margin, 3.9% ROIC and 5.9% annualized ROE place operating and capital efficiency below standard profitability benchmarks for manufacturing companies. Relative resilience is concentrated in North America and Southeast Asia, while Japan and China weaken the consolidated earnings profile.