NAGANO KEIKI (7715) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative Q3 results for the fiscal year ending March 2026 showed declines in both revenue and earnings, with deteriorating profitability in the core pressure sensor business weighing on consolidated earnings. Revenue was ¥49.47B (down 2.3% year on year), Operating Income was ¥4.97B (down 10.7%), Ordinary Income was ¥4.92B (down 11.0%), and Net Income was ¥3.47B (down 19.2%). The decline in earnings exceeding the decline in revenue was primarily attributable to a higher fixed-cost burden and lower margins in the pressure sensor business. The fact that the decline in Net Income exceeded that in Operating Income is likely attributable to the absence of one-time gains, including gains on the sale of investment securities, recorded in the previous year.

Factors Affecting Performance

【Revenue】Revenue was ¥49.47B, down 2.3% year on year. By segment, the Pressure Gauge Business generated ¥26.48B (53.5% of the total, approximately flat year on year), the Pressure Sensor Business generated ¥14.46B (29.2%, down 9.6%), the Measurement and Control Equipment Business generated ¥3.05B (6.2%, up 9.6%), and the Die-Casting Business generated ¥4.09B (8.3%, up 5.6%). The primary factor behind the decline in consolidated revenue was demand adjustment in the core Pressure Sensor Business.

【Profitability】Operating Income was ¥4.97B (down 10.7%), and the Operating Margin declined to 10.0% from 11.0% in the previous year. While the Pressure Gauge Business secured higher earnings, with Operating Income of ¥2.26B (up 1.9%), the Pressure Sensor Business posted Operating Income of ¥2.14B (down 35.7%), and its margin fell significantly to 14.8% from 20.8% in the previous year. The Measurement and Control Equipment Business increased earnings, and the Die-Casting Business returned to profitability from a loss in the previous year; however, these improvements were insufficient to offset the decline in the Pressure Sensor Business. A gain on the sale of fixed assets of ¥0.57B was recorded as an extraordinary gain, providing a temporary boost to Profit Before Tax. Ordinary Income was ¥4.92B (down 11.0%), broadly tracking Operating Income, while Net Income was ¥3.47B (down 19.2%), with the earnings decline widening due to the absence of gains on the sale of investment securities and other items recorded in the previous year. Overall, the Company experienced declines in both revenue and earnings, primarily due to weaker demand and profitability in the Pressure Sensor Business.

Segment Analysis

Among the four segments, the Pressure Gauge Business was the largest contributor to earnings, with Revenue of ¥26.48B and Operating Income of ¥2.26B, and secured higher earnings. The Pressure Sensor Business generated Revenue of ¥14.46B and Operating Income of ¥2.14B. Although its 14.8% margin remained high within the consolidated group, it declined by approximately 6pt year on year and was the main driver of the consolidated earnings decline. The Measurement and Control Equipment Business generated Revenue of ¥3.05B and Operating Income of ¥0.28B (9.2% margin), representing an improvement in margin from the previous year. The Die-Casting Business generated Revenue of ¥4.09B and Operating Income of ¥0.17B (4.2% margin), returning to profitability from a loss in the previous year. Performance diverged across the portfolio, making recovery in demand for the Pressure Sensor Business the key to consolidated performance.

Key Financial Indicators

【Profitability】The Operating Margin declined to 10.0% from 11.0% in the previous year, while the Net Profit Margin was also below the previous year's 8.6%, at 6.8%. The Gross Margin was 31.6% and the SG&A Ratio was 21.5%. Although the earnings structure has been maintained at a certain level, the Company has not yet transitioned to a growth phase in revenue.【Cash Flow Quality】Profit Before Tax of ¥5.44B includes a gain on the sale of fixed assets of ¥0.57B, meaning that the recurring earnings level is lower than it appears. Non-operating income was ¥0.41B, equivalent to only 0.8% of revenue, indicating limited dependence on non-operating income.【Investment Efficiency】ROE was 7.4%, slightly below the general benchmark of 8%. Total assets were ¥75.01B and Net Assets were ¥47.17B, with low asset turnover acting as a constraint on capital efficiency.【Financial Soundness】The Equity Ratio remained high at 62.9%, and Current Assets of ¥43.45B substantially exceeded Current Liabilities of ¥19.14B. Interest-bearing debt consisted primarily of Short-Term Borrowings of ¥7.95B, warranting attention to the somewhat high dependence on short-term funding.

Cash Flow Analysis

Although the cash flow statement was not disclosed, trends in the balance sheet indicate that Cash and Deposits increased to ¥10.83B from ¥10.12B in the previous year. Inventories remained high at ¥16.48B, with the accumulation of working capital presenting a challenge in terms of capital efficiency. Interest-bearing debt consisted primarily of Short-Term Borrowings of ¥7.95B, while Long-Term Borrowings remained at ¥0.57B, indicating a funding structure centered on short-term financing. Given the Equity Ratio of 62.9% and ample cash and deposits, the Company retains financial flexibility.

Quality of Earnings

Profit Before Tax of ¥5.44B for the current period includes an extraordinary gain of ¥0.57B from the gain on the sale of fixed assets, elevating earnings above the level of recurring earning power. Excluding the extraordinary gain, Profit Before Tax would be below Ordinary Income of ¥4.92B, indicating that a portion of Net Income of ¥3.47B was supported by one-time factors. Non-operating income was ¥0.41B, including dividend income of ¥0.17B, and was largely offset by non-operating expenses of ¥0.46B, including interest expense of ¥0.34B. Comprehensive Income was ¥4.64B, exceeding Net Income of ¥3.47B, primarily due to an ¥1.17B increase in valuation difference on securities. The divergence between Net Income and Comprehensive Income indicates that fair-value fluctuations in financial assets had a greater impact than the Company's recurring earning power.

Earnings Forecast and Guidance

Progress against the full-year Company forecast was 73.7% for Revenue, 73.1% for Operating Income, 71.3% for Ordinary Income, and 66.3% for Net Income. Progress for Revenue and Operating Income was close to the standard 75% benchmark, while progress for Net Income was relatively low. To achieve the full-year forecast, the Company needs to generate approximately ¥17.63B in Revenue and ¥1.83B in Operating Income in Q4, assuming the maintenance of a margin comparable to the previous year. The full-year forecast incorporates declines in both revenue and earnings from the beginning of the fiscal year, with Revenue forecast at ¥67.10B (down 3.5% year on year) and Operating Income at ¥6.80B (down 11.1%).

Shareholder Returns

The Q2 dividend was ¥26.00 per share, while the full-year Company forecast calls for an annual dividend of ¥52.00 per share, implying a year-end dividend at the same level. Based on forecast Net Income of ¥5.10B, the forecast Payout Ratio is approximately 19.4%, a low level for a return metric focused solely on dividends. Given retained earnings of ¥31.93B, the Company appears to have substantial capacity to maintain dividends in the near term.

Risk Factors

1. Deteriorating profitability in the Pressure Sensor Business: Revenue declined 9.6% year on year and Operating Income declined 35.7%, with the margin falling to 14.8%, approximately 6pt below the previous year. This was the primary cause of the consolidated earnings decline, and demand trends warrant close attention.

2. Inventory accumulation: Inventories were ¥16.48B, and the high inventory level presents a challenge to working capital efficiency. If demand adjustment continues for an extended period, pressure on earnings through inventory write-downs and lower utilization rates is a concern.

3. Dependence on short-term funding: Short-Term Borrowings accounted for ¥7.95B of interest-bearing debt, substantially exceeding Long-Term Borrowings of ¥0.57B. Although Cash and Deposits of ¥10.83B exceed short-term liabilities, providing near-term funding capacity, the short-term concentration of the borrowing structure warrants attention.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Margin and Net Profit Margin exceeded the industry median, indicating that profitability was relatively high within the industry.

Growth and Capital Efficiency

Revenue growth was substantially below the industry median, indicating that the Company lagged its industry peers in terms of top-line growth.

Source: Compiled by the Company

Key Takeaways from the Financial Results

1. While the Pressure Gauge Business secured higher earnings and became the largest contributor to consolidated earnings, the margin of the high-margin Pressure Sensor Business declined by approximately 6pt from the previous year, making it the primary driver of the consolidated earnings decline. The divergence in performance across businesses is emerging as a structural feature of the portfolio.

2. Net Income includes a gain on the sale of fixed assets of ¥0.57B. Although recurring earning power may not have deteriorated to the extent indicated by the Net Income decline of △19.2%, Profit Before Tax also falls below the Ordinary Income level when the contribution from one-time gains is excluded.

3. While financial soundness is favorable, as indicated by an Equity Ratio of 62.9% and a high Current Ratio, the high inventory level and the short-term concentration of interest-bearing debt require monitoring in terms of capital efficiency and refinancing structure.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,572–¥2,726 at Cost of Equity ±1%, and ¥2,645–¥2,651 at ω±0.1.

Notes:

• Net Assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• As 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 solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast 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 a professional advisor as necessary.

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AI Financial Analysis

Executive Summary

Nagano Keiki’s FY2026 Q3 cumulative earnings show a moderate top-line contraction and more pronounced profit decline, although the group retains solid operating margins and a conservative balance-sheet base. Revenue declined 2.3% year on year to ¥49.47bn. Operating income declined 10.7% to ¥4.97bn, indicating negative operating leverage as costs did not fall in line with sales. The operating margin was 10.1%, remaining within a good manufacturing-industry range but declining by approximately 95bp from 11.0% in the prior-year period. Gross margin declined approximately 26bp to 31.6%, reflecting modest pressure at the production gross-profit level. SG&A expenses increased 1.0% to ¥10.64bn despite lower revenue. Consequently, the SG&A-to-sales ratio increased by approximately 68bp to 21.5%, which was the principal margin-compression driver. Ordinary income fell 11.0% to ¥4.92bn. Profit attributable to owners of parent declined 22.4% to ¥3.38bn, materially underperforming operating income. The larger net-income decline partly reflects a lower net extraordinary gain: gain on sale of fixed assets was ¥571m, versus prior-year extraordinary gains that included investment-security sales and business-divestiture-related gains. The current ¥515m net extraordinary gain nevertheless lifted profit before tax to ¥5.44bn, above ordinary income. The effective tax rate was 36.1%, and the 0.622 tax-burden factor constrained conversion of pre-tax earnings into net income. Pressure gauges remained the core business by segment profit contribution, generating ¥2.26bn of segment profit and improving modestly despite essentially flat sales. Pressure-sensor earnings were the main operational weakness, with segment profit declining 35.7% to ¥2.14bn on a 9.6% sales decline. Measurement and control equipment and die-casting both improved, with die-casting returning from a segment loss to profit. Balance-sheet liquidity is strong, with a 227.0% current ratio and cash exceeding short-term loans, but the 93.3% short-term debt mix creates an ongoing refinancing dependence. Manufacturing working-capital efficiency is the principal financial-operating concern, as 133 inventory days and a 154-day cash conversion cycle tie up substantial capital. Full-year guidance implies a fourth-quarter recovery in earnings conversion, while the Q3 revenue and operating-profit progress rates are broadly close to the normal 75% seasonal benchmark.

Profitability Analysis

The reported annualized ROE is 9.6%, decomposed into a 6.8% net profit margin, 0.879x asset turnover, and 1.59x financial leverage. The result places return on equity below the 10-15% range generally considered strong, but above a sub-8% concern threshold. Margin rather than leverage appears to be the primary constraint on returns: financial leverage is moderate and the balance sheet is not aggressively debt-funded. The annualized 10.1% EBIT margin and 6.8% net margin indicate that the group retains a profitable industrial-manufacturing franchise. However, operating margin compressed by about 95bp year on year, from 11.0% to 10.1%. Gross margin compressed by around 26bp to 31.6%, while SG&A increased by ¥0.10bn despite a ¥1.14bn revenue decline. This unfavorable SG&A operating leverage added roughly 68bp to the SG&A ratio and explains most of the operating-margin decline. The pressure-sensor segment was the largest negative contributor to profit momentum, with sales falling to ¥14.46bn and segment profit falling to ¥2.14bn. Its segment margin declined to 14.8% from 20.8%, a compression of roughly 600bp. In contrast, pressure gauges generated ¥26.48bn in sales and ¥2.26bn in segment profit, with margin improving slightly to 8.5%. Measurement and control equipment increased sales 9.3% to ¥3.05bn and segment profit rose to ¥0.28bn from ¥0.24bn. Die-casting sales increased 5.6% to ¥4.09bn and the segment returned to a ¥0.17bn profit from a ¥0.12bn loss, improving group diversification. The interest coverage ratio of 14.60x is strong, so interest expense of ¥0.34bn does not currently represent a material operating-profit constraint. The 1.094 interest-burden factor is elevated above 1.0 because profit before tax includes extraordinary gains, rather than indicating that financing enhanced underlying operating earnings. The 0.622 tax-burden factor is below the 0.70 normal benchmark, reflecting the relatively high 36.1% effective tax rate. Sustained ROE improvement therefore depends principally on restoring pressure-sensor profitability, preserving gross margin, and containing SG&A growth relative to revenue.

Growth Assessment

Revenue declined 2.3% year on year to ¥49.47bn, with the decline concentrated in pressure sensors, whose sales fell 9.6% to ¥14.46bn. Pressure-gauge sales were stable at ¥26.48bn, providing a resilient base but limited group growth. The combined pressure gauge and pressure sensor businesses represented approximately 82% of consolidated sales, leaving earnings materially exposed to demand conditions in these core measurement-product markets. Measurement and control equipment grew 9.3%, while die-casting grew 5.6%, showing positive momentum in smaller operations. Segment profit recovery in die-casting is particularly constructive because it moved from a loss to a ¥0.17bn profit. However, the pressure-sensor segment’s approximately ¥1.19bn profit reduction outweighed the gains in the smaller segments. The full-year revenue forecast is ¥67.10bn, implying a Q3 progress rate of 73.7%, slightly below the standard 75% pace but not a material deviation. Full-year operating-income guidance of ¥6.80bn implies a 73.1% progress rate, also broadly consistent with the standard pace. Ordinary-income progress is 71.3% against the ¥6.90bn forecast, requiring a relatively stronger fourth-quarter contribution than achieved in the first nine months. Profit attributable to owners has reached 66.3% of the ¥5.10bn full-year forecast, reflecting the weaker earnings conversion in the cumulative period. Guidance itself anticipates full-year revenue, operating income and ordinary income declines of 3.5%, 11.1% and 8.9%, respectively, so management is not forecasting a full-year recovery in underlying profitability. The key issue for revenue sustainability is whether pressure-sensor demand stabilizes and whether the margin decline in that segment can be arrested. The ¥5.71bn? No, ¥571m gain on sale of fixed assets supports reported pre-tax earnings but should not be treated as a recurring growth driver.

Financial Health

Liquidity is strong, with current assets of ¥43.45bn against current liabilities of ¥19.14bn and a current ratio of 227.0%. The quick ratio is also healthy at 140.9%, indicating that liquidity remains adequate even before relying on inventory monetization. Working capital totals ¥24.31bn. Cash and deposits of ¥10.83bn exceed short-term loans of ¥7.95bn by ¥2.88bn, and the cash-to-short-term-debt ratio is 1.36x. Total interest-bearing debt is ¥8.52bn, while the reported debt-to-equity ratio is 0.59x and debt-to-capital is 15.3%, both consistent with a manageable capital structure. Interest coverage of 14.60x provides a substantial earnings buffer against current interest obligations. Long-term loans declined ¥1.05bn year on year, or 64.7%, to ¥0.57bn. This reduction is favorable for long-term deleveraging, but it has further concentrated borrowings in short-term facilities. The 93.3% short-term debt ratio is a refinancing-risk alert because the group must regularly roll over a large share of its debt rather than funding it through matched long-term maturities. This short-term funding profile is somewhat mitigated by cash exceeding short-term loans and by the strong current and quick ratios. Lease obligations total ¥3.83bn across current and non-current portions, representing an additional fixed contractual funding commitment alongside interest-bearing loans. Total equity increased to ¥47.17bn from ¥44.66bn, supported by retained earnings and positive comprehensive income. Investment securities account for 14.7% of total assets, providing potential financial flexibility but also exposing equity to valuation movements. Valuation differences on securities increased to ¥5.90bn from ¥4.74bn, contributing to comprehensive income of ¥4.64bn, above net income of ¥3.47bn. Treasury stock increased by ¥1.19bn to negative ¥1.51bn, reducing reported equity but potentially improving per-share metrics. Asset retirement obligations of ¥0.33bn are immaterial relative to total liabilities.

Notable B/S Changes

Treasury stock: increased by ¥1.19bn to negative ¥1.51bn (365.8% larger negative balance) - reduces reported equity and indicates a more active capital-allocation posture; monitor the scale of repurchases relative to recurring earnings and working-capital needs. Long-term loans: decreased by ¥1.05bn (-64.7%) to ¥0.57bn - improves long-term leverage but leaves funding concentrated in short-term borrowings, reinforcing refinancing-risk monitoring. Investment securities: increased by ¥1.68bn (+18.0%) to ¥11.00bn - now represent 14.7% of total assets and raise sensitivity of equity and comprehensive income to market valuation changes. Construction in progress: decreased by ¥0.70bn (-53.5%) to ¥0.61bn - suggests lower unfinished capital-project exposure and may indicate completion or normalization of the investment pipeline. Provision for bonuses: decreased by ¥0.43bn (-29.7%) to ¥1.01bn - lowers current liabilities and may reflect changes in accrued compensation timing or expected bonus obligations.

Cash Flow Quality

The most important cash-conversion issue is the 154-day annualized cash conversion cycle, which exceeds the 120-day warning benchmark. Inventory days of 133 are also above both the 90-day general warning threshold and the 60-day manufacturing efficiency benchmark. The duplicate high-inventory-day alerts point to the same underlying concern: ¥16.48bn of inventories, equal to 22.0% of total assets, represents a substantial commitment of capital and increases exposure to demand shortfalls, production-mix changes and inventory obsolescence. The high inventory level is particularly relevant given consolidated revenue declined 2.3% year on year. A prolonged inventory cycle can delay conversion of accounting profits into operating cash and can require additional short-term funding during weaker demand periods. Trade receivables were ¥10.09bn and electronically recorded monetary claims were ¥5.32bn, making collection discipline important to working-capital release. Trade payables were ¥4.35bn, limiting the extent to which supplier credit offsets inventory and receivable funding needs. The 154-day cash conversion cycle alert reflects this combined working-capital burden and is material for a manufacturing group with short-term-debt reliance. Reported net income includes a ¥571m gain on sale of fixed assets, while net extraordinary income was approximately ¥515m after disposal-related losses. This gain supported pre-tax profit but is non-recurring and should be separated from recurring operating cash-generation capacity. Core operating income of ¥4.97bn remains the more relevant recurring earnings indicator. The working-capital trend, particularly inventory days and the cash conversion cycle, should be monitored for evidence that production and procurement are aligning with end-demand.

Dividend Sustainability

The interim dividend was ¥26.00 per share, compared with ¥24.00 per share in the prior-year period. The full-year dividend forecast is ¥52.00 per share, implying an unchanged second-half dividend of ¥26.00 per share if achieved. Based on forecast EPS of ¥263.98, the indicated full-year dividend payout ratio is approximately 19.7%. This is conservative relative to the 60% sustainability benchmark and leaves substantial earnings retention capacity. The calculated payout ratio based on the interim dividend was 15.0%. Forecast dividends at ¥52.00 per share would amount to approximately ¥0.99bn using the current average-share base, compared with forecast profit attributable to owners of ¥5.10bn. Retained earnings of ¥31.93bn and total equity of ¥47.17bn provide a strong capital base for the stated dividend level. Dividend coverage should remain resilient provided operating margins do not deteriorate materially further and working-capital requirements do not rise further. The increase in treasury stock should be monitored as a capital-allocation item because it can add to shareholder distributions beyond ordinary dividends.

Risk Assessment

Business risks include Pressure-sensor weakness is the highest operational risk: sales declined 9.6% and segment profit fell 35.7%, with margin compressing by roughly 600bp., Inventory risk is elevated: 133 inventory days exceed both the 90-day warning level and the 60-day manufacturing benchmark, increasing exposure to obsolescence, discounting and inventory write-downs if demand remains soft., The 154-day annualized cash conversion cycle exceeds the 120-day warning threshold, indicating that procurement, production, shipment and collection cycles absorb substantial capital., The core pressure gauge and pressure sensor operations account for approximately 82% of sales, creating concentration in industrial measurement-product demand., Manufacturing operations remain exposed to input-cost volatility, supply-chain disruption, product-quality issues and customer demand cyclicality in industrial and automotive-related end markets., Foreign-exchange losses of ¥13m were immaterial in the period, but cross-border manufacturing and sales activities can create earnings sensitivity to currency movements..

Financial risks include The 93.3% short-term debt ratio is a refinancing-risk alert. Although liquidity coverage is strong, regular renewal of short-term facilities exposes the group to changes in bank credit conditions and borrowing costs., Short-term loans of ¥7.95bn are substantial relative to recurring working-capital needs, particularly given the elevated inventory cycle., Investment securities of ¥11.00bn represent 14.7% of total assets; changes in market valuations can affect comprehensive income and equity., Lease obligations of ¥3.83bn add fixed payment commitments beyond conventional interest-bearing debt..

Key concerns include Priority 1: Restore pressure-sensor revenue and profitability, as this segment drove the majority of the consolidated operating-income decline., Priority 2: Reduce inventory days and shorten the 154-day cash conversion cycle to improve cash efficiency and lessen short-term funding reliance., Priority 3: Manage refinancing exposure created by the predominantly short-term debt structure, notwithstanding cash coverage of 1.36x., Priority 4: Distinguish recurring earnings from gains on asset sales, as the ¥571m fixed-asset-sale gain supported current pre-tax income..

Investment Implications

Key takeaways include The group remains profitably positioned, with a 10.1% operating margin, 14.60x interest coverage and 9.6% annualized ROE., Earnings momentum is negative: revenue declined 2.3%, operating income declined 10.7%, and profit attributable to owners declined 22.4%., Pressure gauges are the core business by segment profit and remained resilient, while pressure sensors were the principal earnings drag., Strong liquidity and low debt-to-capital provide balance-sheet resilience, but the debt maturity mix remains heavily short term., The conservative approximately 19.7% forecast dividend payout ratio supports dividend capacity, subject to working-capital discipline., The largest operational opportunity is inventory and cash-cycle normalization, which could improve capital efficiency without requiring revenue growth..

Metrics to watch include Pressure-sensor sales growth and segment margin, Consolidated gross margin and SG&A-to-sales ratio, Inventory days, inventory balance and the annualized cash conversion cycle, Short-term-loan balance, cash-to-short-term-debt coverage and refinancing terms, Fourth-quarter progress toward ¥67.10bn revenue and ¥6.80bn operating-income guidance, Recurring earnings excluding gains on fixed-asset sales, Investment-security valuation movements and their effect on comprehensive income.

Regarding relative positioning, Nagano Keiki combines good mid-tier operating profitability, strong liquidity and modest balance-sheet leverage with below-strong-threshold annualized ROE. Relative positioning is supported by the resilience of its pressure-gauge franchise and conservative dividend payout, but is tempered by pressure-sensor margin deterioration and working-capital efficiency that is weak against manufacturing benchmarks.