NAGAILEBEN (7447) FY2026 Q2 Earnings Report

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Executive Summary

Cumulative results for FY2026 Q2 reflected higher revenue but lower earnings, with an increase in SG&A expenses weighing on profitability. Revenue was ¥7.86B (up +0.2% YoY), essentially flat, while Operating Income was ¥1.38B (down △7.9%), Ordinary Income was ¥1.48B (down △4.4%), and Net Income attributable to owners of the parent was ¥1.01B (down △4.5%), all declining year on year. The gross profit margin decreased to 39.4% (39.8% in the previous year), while SG&A expenses increased +6.1% YoY, which was the primary reason for the decline in Operating Income. Non-operating income provided support at the Ordinary Income level, but progress toward the full-year plan remained limited to 34.3% for Operating Income.

Factors Affecting Performance

【Revenue】Revenue was ¥7.86B, essentially flat at +0.2% YoY. The Company operates as a single segment, manufacturing and selling medical wear and related products, and does not disclose segment-specific factors affecting changes. Progress toward the full-year plan of ¥18.00B (up +6.0% YoY) was 43.7%, indicating that revenue expansion will be necessary in the second half.

【Profit and Loss】Operating Income was ¥1.38B (down △7.9% YoY), reflecting an approximately 34bp decline in the gross profit margin to 39.4%, together with SG&A expenses rising +6.1% YoY, substantially exceeding revenue growth. Ordinary Income was ¥1.48B (down △4.4% YoY), with ¥0.12B in non-operating income, mainly interest income, partially mitigating the decline in Operating Income. Extraordinary gains and losses made almost no contribution, and Net Income of ¥1.01B (down △4.5% YoY) was broadly in line with the trend in Ordinary Income. In conclusion, the current period resulted in higher revenue but lower earnings.

Segment Analysis

The Group operates as a single segment involving the manufacture and sale of medical wear and related products, and does not disclose segment-specific information.

Key Financial Indicators

【Profitability】The Operating Income margin was 17.6% (19.1% in the previous year), and the Net Income margin was 12.9% (13.5%), with both remaining at high levels but declining from the previous year. The gross profit margin was 39.4% (39.8%), while the SG&A ratio was 21.8% (20.6%); the faster increase in SG&A expenses was the primary factor behind the contraction in profit margins.【Cash Flow Quality】Operating Cash Flow (OCF) was △¥0.43B, below Net Income of ¥1.01B, as increases in accounts receivable and inventories delayed cash conversion.【Investment Efficiency】ROE (annualized) was 5.3%; despite the high profit margins, the low total asset turnover ratio constrained capital efficiency. EPS was ¥33.53 (¥34.01 in the previous year, △1.4%).【Financial Soundness】The Equity Ratio was extremely high at 92.5%, while cash and deposits were ¥19.62B, accounting for 47.3% of total assets. Liabilities were small relative to total assets, indicating a solid financial foundation.

Cash Flow Analysis

Operating Cash Flow (OCF) was △¥0.43B, deteriorating from △¥0.23B in the same period of the previous year. The primary factors were an increase in accounts receivable (△¥0.76B) and an increase in inventories (△¥0.68B), which were not fully offset by an increase in accounts payable (+¥0.17B). Investing Cash Flow was positive at ¥3.74B, largely reflecting a reallocation of funds comprising the withdrawal of ¥19.20B from time deposits and the placement of ¥15.30B into time deposits; capital expenditures were limited to ¥0.12B. Financing Cash Flow was △¥4.05B, mainly due to dividend payments of ¥3.05B and share repurchases of ¥1.00B. Although reported Free Cash Flow was ¥3.32B, it is appropriate to interpret this figure as reflecting the reallocation of funds rather than internally generated cash from operating activities themselves. If the situation in which OCF consistently falls below Net Income continues, improving working capital management will be a key focus going forward.

Earnings Quality

Current-period profit was largely unaffected by extraordinary gains and losses and was based on a recurring earnings structure supported by Operating Income and Ordinary Income. Of the ¥0.12B in non-operating income, interest income accounted for ¥0.06B; foreign exchange gains and dividend income were insignificant, and there was no excessive dependence on non-operating income. Extraordinary gains consisted solely of a ¥0.001B gain on the sale of investment securities, while extraordinary losses were also very small. On the other hand, the fact that OCF was below Net Income warrants attention from an earnings quality perspective, as changes in working capital, including increases in accounts receivable and inventories, created a divergence between accounting profit and cash receipts. Comprehensive Income was ¥1.07B, slightly above Net Income of ¥1.01B, due to valuation-related items such as valuation differences on securities; these items do not indicate the business’s intrinsic earnings power.

Earnings Forecast and Guidance

The Company’s full-year forecast is Revenue of ¥18.00B (up +6.0% YoY), Operating Income of ¥4.03B (up +12.3%), and Ordinary Income of ¥4.20B (up +13.3%). Progress for the first-half cumulative period was 43.7% for Revenue, 34.3% for Operating Income, 35.1% for Ordinary Income, and 35.0% for Net Income, all below the standard 50% level. Operating Income in particular lagged the full-year plan by 15.7 percentage points, requiring Revenue of ¥10.14B and Operating Income of ¥2.64B in the second half. This corresponds to a second-half Operating Income margin of approximately 26.1%, requiring a substantial improvement from the first-half result of 17.6%. There were no revisions to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The Company’s full-year forecast dividend is ¥60 per share, while the Q2 dividend is ¥0. Based on forecast EPS of ¥96.32, the forecast Payout Ratio is approximately 62.3%. Cash dividend payments during the current period were ¥3.05B, and share repurchases were ¥1.00B, resulting in total shareholder returns of ¥4.05B, exceeding first-half Net Income of ¥1.01B. Given that OCF was △¥0.43B, the source of funds for current-period shareholder returns depended not on operating cash flow but on the withdrawal of cash, deposits, and time deposits. The financial foundation, including an Equity Ratio of 92.5% and cash and deposits of ¥19.62B, supports the continuation of shareholder returns, but their sustainability will depend on the normalization of OCF going forward.

Risk Factors

1. Risk of funds becoming tied up in working capital: Accounts receivable increased +42.8% YoY, and inventories also increased, while OCF of △¥0.43B was below Net Income of ¥1.01B. Longer collection periods and inventory accumulation are weighing on cash generation.

2. Risk of failing to achieve the full-year earnings plan: First-half progress toward the Operating Income plan was 34.3%, and the Operating Income margin required in the second half is approximately 26.1%, substantially above the first-half result of 17.6%; therefore, an improvement in the second-half profit margin is a prerequisite for achieving the plan.

3. Ongoing pressure on the gross profit margin and SG&A ratio: The gross profit margin declined from 39.8% in the same period of the previous year to 39.4%, while the SG&A ratio increased from 20.6% to 21.8%. Cost increases amid modest revenue growth could lead to a further decline in the Operating Income margin.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

The Net Income margin exceeded the industry median by +5.9pt, indicating a high level of profitability within the industry.

Growth and Capital Efficiency

The Revenue growth rate was -4.2pt below the industry median, indicating that top-line growth was relatively moderate within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Income margin of 17.6% and Net Income margin of 12.9% were high and exceeded the industry median, but both contracted year on year due to the increase in SG&A expenses. The simultaneous decline in the gross profit margin and increase in the SG&A ratio are key points when evaluating the quality of profitability.

2. OCF was △¥0.43B, below Net Income of ¥1.01B, due to increases in accounts receivable and inventories. The fact that total shareholder returns of ¥4.05B depended on cash on hand rather than operating cash flow is an important point to confirm when considering the sustainability of shareholder returns.

3. First-half progress toward the full-year plan was limited to 34.3% for Operating Income, and the Operating Income margin required in the second half is approximately 26.1%, substantially above the first-half result. Trends in second-half Revenue and profit margins will be key to achieving the full-year plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,180–¥1,246 at a ±1% change in the cost of equity, and ¥1,210–¥1,213 at a change of ±0.1 in ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• Because 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 using only 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 earnings analysis document automatically generated by AI based on XBRL earnings summary 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 discretion and responsibility, after consulting with a professional as necessary.

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