NAGANO KEIKI CO.,LTD. FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, Revenue was ¥676.9B (YoY -¥18.5B -2.7%), Operating Income was ¥69.8B (YoY -¥6.8B -8.8%), Ordinary Income was ¥68.6B (YoY -¥7.1B -9.4%), and Net Income attributable to owners of the parent was ¥53.97B (YoY -¥6.0B -10.9%), indicating declines in both sales and profits. The core Pressure Sensor business fell sharply (Revenue -8.9% YoY, Operating Income -31.7% YoY), depressing group profitability, while the Pressure Gauge business reported Operating Income growth (+7.1%) and the Die-cast business showed a large increase in Operating Income (+547.6%), creating a mixed picture across segments. Operating margin was 10.3%, down 0.7pp from 11.0% a year earlier. Gross margin held steady at 32.0%, but SG&A ratio rose to 21.7% (prior year 20.9%), pressuring profitability. Extraordinary gains of ¥11.9B (gain on sale of investment securities ¥6.2B, gain on sale of fixed assets ¥5.7B) supported Net Income, and relative to full-year guidance the company outperformed on all items: Revenue +0.3%, Operating Income +2.6%, Ordinary Income +7.2%, Net Income +25.5%. Operating Cash Flow (OCF) was ¥76.2B (YoY +25.0%), Free Cash Flow was ¥79.0B, and cash and deposits increased to ¥138.6B (YoY +¥37.5B) while paying a dividend of ¥52 (payout ratio 18.2%) and conducting share buybacks of ¥12.0B. ROE of 11.0% remained at industry-standard levels, although declines in Net Profit Margin and Total Asset Turnover (0.94 → 0.89) were headwinds.

Factors Affecting Performance

[Revenue] Revenue was ¥676.9B, down 2.7% YoY. By major segment, the Pressure Sensor business was the largest drag at ¥194.8B (-8.9%). Sales volumes of core products decreased due to demand adjustments in the automotive and industrial machinery markets. Conversely, the Pressure Gauge business recorded ¥364.7B (-1.4%) and contained decline, with Operating Income up 7.1% as profitability improved. Price revisions and product mix corrections were effective. The Measurement & Control Instruments business achieved double-digit growth at ¥44.7B (+10.3%) driven by expanded sales of application-developed products. The Die-cast business was steady at ¥54.9B (+4.4%) with order recovery tailwinds. Other businesses were ¥18.2B (-4.3%). Overall, declines in the Sensor businesses were not fully offset by other businesses, resulting in a YoY revenue decline.

[Profitability] Cost of sales was ¥460.1B, a cost ratio of 67.9%, and gross profit was ¥216.8B (gross margin 32.0%), essentially unchanged from the prior year. SG&A was ¥147.0B (SG&A ratio 21.7%), up ¥1.4B YoY, primarily due to higher R&D expenses of ¥14.5B (2.1% of sales), personnel expenses, and depreciation. As a result, Operating Income was ¥69.8B (Operating margin 10.3%), down 0.7pp YoY. Non-operating income was ¥4.8B (including dividend income ¥1.7B, interest income ¥0.3B, equity-method investment income ¥0.9B), and non-operating expenses were ¥6.0B (primarily interest paid ¥4.7B), yielding Ordinary Income of ¥68.6B (YoY -9.4%). Extraordinary gains totaled ¥11.9B (gain on sale of investment securities ¥6.2B, gain on sale of fixed assets ¥5.7B), which materially boosted Net Income as a one-off factor. After subtracting Extraordinary losses of ¥0.6B, profit before income taxes was ¥80.0B, income taxes ¥24.6B (effective tax rate 30.7%), and non-controlling interests ¥1.4B, resulting in Net Income attributable to owners of the parent of ¥53.97B (YoY -10.9%). Net profit margin declined to 8.0% (prior year 8.7%). The divergence between Ordinary Income and Net Income was largely due to Extraordinary gains; core net income excluding Extraordinary items is approximately ¥42B, slightly down from about ¥45B a year earlier. In conclusion, despite declines in revenue and profit, Extraordinary gains mitigated the Net Income decline relative to Ordinary Income.

Segment Analysis

The Pressure Gauge business recorded Revenue ¥364.7B (YoY -1.4%), Operating Income ¥31.4B (+7.1%), and Operating margin 8.6%, achieving increased profit despite lower sales. Price adjustments and improved product mix enhanced profitability. The Pressure Sensor business posted Revenue ¥194.8B (-8.9%), Operating Income ¥29.6B (-31.7%), and Operating margin 15.2% (prior year 20.3%), a significant decline in profit. Reduced end-market demand and price competition pressured margins. The Measurement & Control Instruments business was strong with Revenue ¥44.7B (+10.3%), Operating Income ¥5.1B (+69.2%), and Operating margin 11.4%, aided by expanded sales of application-developed products. The Die-cast business had Revenue ¥54.9B (+4.4%), Operating Income ¥2.3B (prior year ¥0.4B, +547.6%), and Operating margin 4.2%, showing large improvement as order recovery and cost reductions strengthened profitability. Other businesses (real estate leasing, automotive electrical components) had Revenue ¥18.2B (-4.3%), Operating Income ¥1.4B (-0.1%), and Operating margin 7.5%, remaining stable. Contribution to consolidated Operating Income: Pressure Gauge 45.0%, Pressure Sensor 42.4%, Measurement & Control 7.3%, Die-cast 3.3%, Other 2.0%, indicating continued dependence on the two core businesses.

Key Financial Metrics

[Profitability] Operating margin 10.3%, Net profit margin 8.0%, ROE 11.0%, ROA 7.2%. Operating margin fell 0.7pp from 11.0% due mainly to higher SG&A ratio (21.7% vs. 20.9% prior year). Net profit margin declined 0.7pp from 8.7%, but Extraordinary gains of ¥11.9B (approx. 22% of Net Income) provided support and partially offset the decline in core earnings. ROE of 11.0% fell 3.5pp from 14.5%, driven by lower Net profit margin (8.0% vs. 8.7%) and slower Total Asset Turnover (0.89x vs. 0.94x). Financial leverage decreased to 1.56x (prior year 1.67x), reducing its contribution to ROE. EBITDA was ¥88.4B (EBITDA margin 13.1%), including depreciation of ¥18.6B, indicating a stable business base. [Cash Quality] OCF ¥76.2B is 141% of Net Income ¥53.97B, indicating good conversion of profit to cash. OCF/EBITDA of 0.86x is slightly below the benchmark (≥0.9) but within an acceptable range. Accrual ratio -2.9% indicates high quality, and concerns about earnings inflation from accrual accounting are limited. FCF ¥79.0B covered capital expenditures of ¥14.6B, dividends ¥9.6B, and share buybacks ¥12.0B, while increasing cash and deposits by ¥37.5B. [Investment Efficiency] Total Asset Turnover 0.89x (prior year 0.94x), Days Inventory Outstanding (DIO) 130 days (prior year 124 days), Days Sales Outstanding (DSO) 94 days (prior year 96 days), Days Payable Outstanding (DPO) 73 days (prior year 80 days), resulting in CCC 151 days (prior year 140 days), an extension of 11 days. Slower inventory turnover pressured asset efficiency and increased working capital tie-up. [Financial Soundness] Equity Ratio 62.9% (prior year 58.8%), Current Ratio 304%, Quick Ratio 250%, Debt/EBITDA 0.91x, Interest Coverage 18.9x, indicating very strong financial health. Long-term borrowings increased to ¥44.7B (prior year ¥16.2B) to diversify maturities, while short-term borrowings halved to ¥36.0B (prior year ¥74.8B), reducing short-term borrowing dependence. Cash and deposits ¥138.6B are 3.05x short-term interest-bearing debt (short-term borrowings + long-term borrowings due within one year ¥45.4B), indicating ample liquidity.

Cash Flow Analysis

OCF was ¥76.2B (YoY +25.0%), resulting from profit before income taxes ¥80.0B plus depreciation ¥18.6B and adjustments for changes in working capital. Subtotal (before working capital changes) was ¥108.6B, supported by decreases in inventories ¥15.2B and trade receivables ¥9.4B, while a decrease in trade payables ¥14.0B was a negative contributor. After subtracting income taxes paid ¥30.3B, final OCF was ¥76.2B. Investing Cash Flow was positive ¥2.8B, reflecting proceeds from sale of investment securities ¥9.5B and sale of fixed assets ¥8.5B, offset by capital expenditures ¥14.6B. Free Cash Flow (OCF + Investing CF) was a healthy ¥79.0B, and the company used it for dividends ¥9.5B, share buybacks ¥12.0B, and long-term borrowings repayment ¥11.0B. Financing Cash Flow was -¥42.5B, primarily due to net decrease in short-term borrowings ¥38.3B, new long-term borrowings ¥39.1B and repayments ¥11.0B, and lease liabilities repayments ¥10.7B. Including net changes in time deposits, net increase in cash and cash equivalents was ¥37.8B, bringing ending balance to ¥134.9B (YoY +¥42.2B). OCF/Net Income ratio 141% and FCF/Dividend ratio 824% demonstrate robust cash generation; even considering working capital efficiency issues (CCC 151 days), cash-based profitability is strong. Variations in time deposits and decreases in accounts payable reflect temporary changes in working capital management, with no persistent signs of manipulation.

Quality of Earnings

Quality of earnings is generally sound, though one-off contributions are significant. Operating Income of ¥69.8B forms the core earnings base, and after netting non-operating income ¥4.8B and non-operating expenses ¥6.0B, Ordinary Income was slightly depressed to ¥68.6B. Non-operating income breakdown: dividend income ¥1.7B, interest income ¥0.3B, equity-method investment income ¥0.9B, other ¥1.6B, representing 0.7% of Revenue and small in scale. Non-operating expenses were led by interest paid ¥4.7B, including fees ¥0.2B and foreign exchange losses ¥0.4B. Extraordinary gains ¥11.9B (gain on sale of investment securities ¥6.2B, gain on sale of fixed assets ¥5.7B) comprised about 22% of Net Income ¥53.97B, leaving core Net Income at approximately ¥42B. These one-off gains stem from asset disposals and have low likelihood of recurrence next fiscal year. Comprehensive income ¥65.9B is about 1.22 times Net Income ¥53.97B, mainly due to other comprehensive income items (foreign currency translation adjustments ¥3.6B, valuation difference on available-for-sale securities ¥6.0B, deferred hedge gains/losses ¥0.9B, retirement benefit adjustments -¥0.5B, attributable OCI of equity-method investees ¥0.5B). Accumulated other comprehensive income of ¥67.2B is recognized in equity and is unrealized until disposal. Accrual ratio (Net Income - OCF)/Total Assets = -2.9% is negative, indicating OCF exceeds Net Income, a marker of high quality. OCF/EBITDA 0.86x is slightly below the benchmark (≥0.9) but acceptable when considering temporary working capital movements. Recurring earnings are primarily driven by Operating Income; non-operating items have minor impact. Core earnings should be based on Operating Income ¥69.8B, and caution is warranted when incorporating Extraordinary gains (about 22% of Net Income) into next-year forecasts.

Forecasts & Guidance

Compared to full-year guidance (Revenue ¥675.0B, Operating Income ¥68.0B, Ordinary Income ¥64.0B, Net Income ¥43.0B, EPS ¥227.60), actuals outperformed across the board: Revenue ¥676.9B (+0.3%), Operating Income ¥69.8B (+2.6%), Ordinary Income ¥68.6B (+7.2%), Net Income attributable to owners of the parent ¥53.97B (+25.5%), EPS ¥285.75 (+25.6%). The outperformance amounted to +¥4.6B for Ordinary Income and +¥11.0B for Net Income; the large Net Income upside was driven mainly by Extraordinary gains of ¥11.9B. Operating Income progress was 102.6%, supported by stronger-than-expected profitability improvements in Measurement & Control Instruments and Die-cast businesses and price revision effects in the Pressure Gauge business. Guidance assumed no explicit exchange rate, but the positive foreign currency translation adjustment of ¥3.6B suggests limited yen depreciation impact. Relative to guidance, both core business improvements and one-off gains drove the upside; for sustainability, next fiscal year should assume reversal of Extraordinary gains and rely on the pace of core business profitability recovery.

Shareholder Returns

Annual dividend was maintained at ¥52 (interim ¥26, year-end ¥26), unchanged from the prior year. Payout ratio was 18.2% (prior year 15.1%), remaining low. Total dividends relative to Net Income ¥53.97B amounted to about ¥9.6B, and including share buybacks ¥12.0B, total return ratio was about 40.1%. Total shareholder returns of ¥21.6B against Free Cash Flow ¥79.0B imply FCF coverage of about 3.7x, indicating ample capacity. A payout ratio of 18.2% is conservative and dividend sustainability is very high. Cash and deposits ¥138.6B equate to roughly 14.4 years of annual dividends, limiting downside risk to dividend cuts even in downturns. Share buybacks were executed against a cash-rich balance sheet to improve capital efficiency and strengthen shareholder returns. No explicit future shareholder return policy was provided, but there is room to raise payout ratio toward the 20–30% range, and management is expected to maintain a stable dividend policy balancing FCF and dividend growth.

Risk Factors

1. Demand cycle deterioration and price competition risk in the Pressure Sensor business: Pressure Sensors reported Revenue ¥194.8B (YoY -8.9%) and Operating Income ¥29.6B (YoY -31.7%), a significant decline. Operating margin fell from 20.3% to 15.2% (-5.1pp), reflecting demand-supply adjustments and intensified price competition in the automotive and industrial machinery markets. This business accounts for 42.4% of consolidated Operating Income and is a core segment; delayed demand recovery or failed price adjustments could materially impair group profitability. Inventory turnover extended to 130 days (+6 days YoY), raising the risk of inventory buildup associated with weak sales.

2. Deterioration in inventory efficiency and working capital constraint risk: Although Inventories decreased to ¥81.2B from ¥93.8B a year earlier, DIO extended to 130 days (prior year 124 days), indicating slower turnover. Finished goods ¥81.2B, work in progress ¥46.4B, raw materials ¥35.8B show accumulation at each production stage. CCC extended to 151 days (prior year 140 days), tightening working capital cash tie-up and increasing obsolescence and impairment risk. DPO shortened to 73 days (prior year 80 days), suggesting reduced supplier bargaining power.

3. R&D underinvestment and medium-to-long-term competitiveness risk: R&D expense was ¥14.5B, or 2.1% of sales, below typical manufacturing industry levels (roughly 3–5%). The Pressure Gauge and Sensor markets are characterized by rapid technological evolution and differentiation competition; insufficient R&D may delay new-product development and weaken the ability to meet customer needs. It is unclear whether the Extraordinary gains of ¥11.9B will be reinvested into R&D or capex; prioritizing short-term shareholder returns over reinvestment could jeopardize medium-to-long-term competitiveness. Capital expenditures of ¥14.6B were below depreciation of ¥18.6B, indicating focus on maintenance rather than growth investment.

Industry Benchmark (Reference — Company Analysis)

Profitability & Returns

Profitability exceeds the industry median, and Operating Margin places the company within the top 30% of peers. Product differentiation and price management are effective.

Growth & Capital Efficiency

Revenue growth lags the industry median by 6.4pp, placing the company in the bottom 30% due to deteriorating demand cycles. Recovery of growth is a key challenge.

※Source: Company aggregation

Earnings Callout Points

1. Pace of profitability recovery in core businesses is a key monitor: The Pressure Sensor business saw Operating margin plunge from 20.3% to 15.2%, compressing corporate margins. Order trends, ASPs (average selling prices), and normalization of inventory turnover in this business will be critical for restoring group profitability. Continued Operating Income improvement in the Pressure Gauge business (+7.1%) would help underpin consolidated profits. From next fiscal year onward, assuming reversal of Extraordinary gains ¥11.9B, trends in Operating and Ordinary Income will determine Net Income sustainability.

2. Strong cash generation and scope to optimize capital allocation: With OCF ¥76.2B and FCF ¥79.0B, the company funded dividends ¥9.6B, share buybacks ¥12.0B, and capex ¥14.6B while increasing cash by ¥37.5B. With payout ratio 18.2% and total return ratio 40.1%, there is room to raise dividends while strengthening R&D and capex. Cash ¥138.6B and low leverage (Debt/EBITDA 0.91x) provide flexibility for M&A funding. However, R&D intensity at 2.1% is below industry norms and likely needs increase to maintain long-term competitiveness.

3. Inventory efficiency and CCC improvement as catalysts for higher asset turnover: With DIO 130 days and CCC 151 days trending longer, Total Asset Turnover fell to 0.89x (prior year 0.94x). Reducing inventory and accelerating turnover, along with strengthening receivables collection, would improve working capital efficiency and ROE. ROE 11.0% is decomposed as Net profit margin 8.0% × Total Asset Turnover 0.89 × Financial leverage 1.56, and a 0.1 improvement in turnover could raise ROE by approximately 1.2pp. Given the upside to full-year guidance, management’s cost control and pricing negotiation capabilities are creditable, but the focus going forward should be on restoring sales growth and improving asset efficiency.

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This report was automatically generated by AI analyzing XBRL financial report data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are compiled by the Company based on publicly available financial statements and are provided for reference. Investment decisions are your responsibility; please consult a professional advisor as necessary.

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