NAGAILEBEN (7447) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending August 2026, the Company reported lower revenue and earnings. The key feature was that an improvement in the gross margin was offset by an increase in SG&A expenses. Revenue was ¥13.27B (down 0.7% year on year, or ¥0.099B), Operating Income was ¥2.81B (down 3.5%, or ¥0.102B), Ordinary Income was ¥2.96B (down 1.2%), and Net Income was ¥2.05B (down 1.0%). The primary cause of the decline in Operating Income was the increase in SG&A expenses (up 5.1% year on year), which exceeded the decline in revenue, while higher interest income narrowed the decline at the Ordinary Income level.

Factors Affecting Performance

【Revenue】Revenue was ¥13.27B, essentially flat, declining 0.7% year on year. The Company operates as a single segment (manufacture and sale of medical wear and related products), and the factors behind segment-level changes have not been disclosed. The decline was limited to ¥0.099B, and no significant deterioration in the top line occurred.

【Profitability】Gross profit improved to ¥5.31B (gross margin of 40.0%, up +40bp from 39.6% in the same period of the previous year) as a result of cost management. However, SG&A expenses increased to ¥2.50B (up 5.1% year on year), causing the SG&A ratio to rise by +100bp to 18.8%. As a result, Operating Income was ¥2.81B (down 3.5%), and the Operating Income margin was 21.2% (down 60bp). Ordinary Income declined by a smaller percentage than Operating Income, to ¥2.96B (down 1.2%), due to higher interest income (¥0.029B → ¥0.089B). Net Income was ¥2.05B (down 1.0%), including a gain on the sale of investment securities of ¥0.010B. Overall, the Company experienced lower revenue and earnings, with the increase in SG&A expenses exceeding the improvement in the gross margin and serving as the primary cause of lower profitability.

Key Financial Indicators

【Profitability】The Operating Income margin of 21.2% (21.8% in the same period of the previous year) and Net Income margin of 15.4% (15.5% previously) both remained at high levels, although they declined slightly due to the higher SG&A ratio. 【Cash Quality】Cash and deposits accounted for 51.3% of total assets, indicating exceptionally strong liquidity. However, inventories increased to ¥7.54B (up 7.0% year on year), while annualized inventory days increased to 259 days and the annualized cash conversion cycle to 272 days, highlighting issues with working capital efficiency. 【Investment Efficiency】Annualized ROE was 6.9%. The total asset turnover ratio of 0.41x was low relative to the high Net Income margin, weighing on capital efficiency. 【Financial Soundness】With an Equity Ratio of 92.3%, a current ratio of approximately 1,397%, and a debt-to-equity ratio of 0.08x, the Company has an exceptionally strong financial base.

Cash Flow Analysis

Although no cash flow statement has been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits decreased by ¥2.315B year on year to ¥21.931B, while treasury stock declined by ¥6.787B, from ¥8.108B to ¥1.321B, and retained earnings also decreased by ¥8.729B. Accordingly, capital policies involving the retirement or disposal of treasury stock appear to have contributed significantly to the decline in cash and net assets. From an operating perspective, inventories increased by ¥0.490B, while operating receivables (the combined total of accounts receivable and electronically recorded monetary claims) remained high, indicating that funds tied up in inventories and receivables are placing pressure on working capital. Accounts payable increased by ¥0.195B, but not enough to offset the increase in inventories and receivables. Overall, the accumulation of inventories is weighing on capital efficiency relative to the Company’s cash-generation capacity from operating activities.

Earnings Quality

Net Income of ¥2.05B includes a small one-time gain of ¥0.010B on the sale of investment securities, although its impact on recurring operating results is limited. Non-operating income of ¥0.18B consisted primarily of interest income of ¥0.09B, foreign exchange gains of ¥0.01B, and other items. The predominance of financial income reflects the Company’s cash-rich financial structure and should be distinguished from the earnings power of the core business. The effective tax rate was approximately 31.1%, a standard level. From an accrual perspective, inventories increased 7.0% while revenue declined slightly, suggesting that the quality of cash flow underpinning earnings may have weakened relatively by the amount of the inventory increase.

Earnings Forecast and Guidance

The full-year forecast calls for Revenue of ¥18.00B (up 6.0% year on year), Operating Income of ¥4.02B (up 12.3%), and Ordinary Income of ¥4.20B (up 13.3%), with no revisions to the earnings forecast. The cumulative Q3 progress rates were 73.7% for Revenue and 69.9% for Operating Income, with Operating Income slightly behind the standard progress benchmark of 75%. To achieve the plan, the Company must generate Revenue of ¥4.73B and Operating Income of ¥1.21B in Q4, requiring an Operating Income margin of 25.6% and an improvement above the cumulative Operating Income margin of 21.2%.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year dividend forecast is ¥70 (ordinary dividend of ¥60 plus an additional year-end dividend), representing a revision to the dividend forecast. The previous fiscal year’s year-end dividend totaled ¥100, comprising an ordinary dividend of ¥60 and a commemorative dividend of ¥40. Accordingly, the current-year forecast of ¥70 includes the loss of the commemorative dividend in the year-on-year comparison. Based on forecast Net Income of ¥2.90B and the average number of shares outstanding during the period, the forecast Payout Ratio is approximately 72.8%. This exceeds the general benchmark of 60% for dividends alone, but the Company’s financial capacity, including an Equity Ratio of 92.3% and cash and deposits of ¥21.93B, supports the financial stability of its dividend payments.

Risk Factors

1. Risk of Excessive or Slow-Moving Inventories: Inventories increased 7.0% year on year to ¥7.54B, and annualized inventory days reached 259 days. An increase in inventories amid slightly declining revenue raises the possibility of discounting or inventory valuation losses.

2. Working Capital Efficiency Risk: The annualized cash conversion cycle has lengthened to 272 days, and funds tied up in inventories and operating receivables are suppressing capital efficiency. The increase in accounts payable (up 25.5% year on year) provides only partial mitigation.

3. SG&A Absorption Risk: SG&A expenses increased 5.1% year on year while Revenue declined 0.7%, reducing the Operating Income margin by approximately 60bp. If the recovery in revenue is delayed, the burden of fixed costs could place further pressure on the profit margin.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company’s profitability is significantly above the industry median.

Growth and Capital Efficiency

Top-line growth is below the industry median and compares unfavorably with peers that are on a revenue growth trajectory.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Although the Operating Income margin of 21.2% and Net Income margin of 15.4% are significantly above the industry median, the SG&A ratio increased by +100bp year on year. The Company’s ability to absorb higher costs will determine the future direction of profit margins.

2. Annualized ROE of 6.9% is low relative to the high Net Income margin. The low total asset turnover ratio of 0.41x and substantial cash holdings create a structure that constrains capital efficiency.

3. The increase in inventories and annualized CCC of 272 days are the most important monitoring items from a working capital efficiency perspective. Improving the Q4 Operating Income margin to the required level of 25.6% will be the key to achieving the full-year Operating Income plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,207–¥1,274 at ±1% for the cost of equity, and ¥1,237–¥1,241 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is expected to be below book value per share.
• Net assets as of the quarter-end 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 / This is a mechanically calculated value based solely on publicly disclosed data; it 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 release 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 adviser as necessary.

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