NAGANO KEIKI CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Q1 of the fiscal year ending March 2027 delivered increases in both revenue and earnings, with the key highlight being earnings growth exceeding revenue growth. Revenue was ¥178.8B (+12.6% YoY), Operating Income was ¥20.4B (+51.6%), Ordinary Income was ¥21.4B (+64.3%), and Net Income was ¥15.0B (+37.4%; Net Income attributable to owners of the parent was ¥14.8B, +41.2%). The Operating Income margin improved to 11.4% from approximately 8.5% in the same period of the previous year, primarily due to improved profitability in pressure sensors and measurement and control equipment.

Factors Affecting Performance

【Revenue】Revenue increased 12.6% YoY to ¥178.8B. The two core businesses both expanded, with the largest segment, pressure gauges, at ¥94.2B (+13.7%) and pressure sensors at ¥54.6B (+10.9%). Measurement and control equipment recorded the highest growth rate, at ¥11.1B (+30.2%). Meanwhile, other businesses declined to ¥4.7B (-4.0%).

【Profit and Loss】Operating Income was ¥20.4B (+51.6%), Ordinary Income was ¥21.4B (+64.3%), and Net Income attributable to owners of the parent was ¥14.8B (+41.2%). The gross profit margin was 33.7% and the SG&A expense ratio was 22.3%; SG&A expense growth was contained relative to revenue growth, resulting in operating leverage. Ordinary Income expanded after adding ¥2.2B in non-operating income, including ¥0.9B in dividends received and ¥0.7B in share of profit or loss of equity-method affiliates. Extraordinary income of ¥2.8B, primarily a ¥2.8B gain on the sale of shares in a subsidiary, was a temporary factor that boosted Profit Before Tax to ¥23.9B. After deducting income taxes of ¥8.9B (effective tax rate: 37.3%), Net Income declined by approximately 31% compared with Ordinary Income, indicating that the tax burden constrained the conversion into Net Income. In conclusion, the company achieved increases in both revenue and earnings, led by improved core-business profitability.

Segment Analysis

Pressure gauges were the largest source of profit, with segment profit of ¥7.7B accounting for approximately 37.7% of the total. Pressure sensors maintained the highest profitability, with revenue of ¥54.6B, profit of ¥10.4B, and a profit margin of 19.1%. Measurement and control equipment recorded profit of ¥1.4B (+1420.5% YoY) and a profit margin of 12.9%, a significant improvement from 1.1% in the same period of the previous year, making it an important upside factor for company-wide earnings growth. Die-casting generated revenue of ¥14.3B, profit of ¥0.5B, and a profit margin of 3.2%, remaining substantially less profitable than the other segments. The gap in profit margins between segments reached approximately 1,590bp between pressure sensors and die-casting, clearly indicating variability in profitability within the business portfolio.

Key Financial Metrics

【Profitability】The Operating Income margin was 11.4% (improved from approximately 8.5% in the same period of the previous year), the gross profit margin was 33.7%, and the Net Income margin was 8.3% (improved from approximately 6.6% in the same period of the previous year), indicating margin expansion as earnings growth exceeded revenue growth. 【Cash Flow Quality】Inventories of ¥168.2B accounted for 20.7% of total assets, representing a relatively high inventory level for a manufacturer. Including electronic receivables in addition to accounts receivable of ¥113.8B, receivables from customers are substantial, making collection management a key issue for capital efficiency. 【Investment Efficiency】ROE (quarterly basis) was 2.9%, while annualized ROE based on Q1 profit was approximately 11.7%. Total asset turnover was only 0.221 times on a quarterly basis. 【Financial Soundness】The Equity Ratio was 63.6%, the current ratio was 288.5%, and the quick ratio was 188.3%, all at high levels, indicating a solid short-term financial foundation. The company held cash and deposits of ¥135.0B against long-term borrowings of ¥40.1B, and its interest expense burden was limited.

Cash Flow Analysis

Although disclosure of the cash flow statement is limited, the balance sheet indicates an expanding trend in working capital. Inventories of ¥168.2B and accounts receivable of ¥113.8B both increased from the same period of the previous year, suggesting increased working capital requirements accompanying revenue growth. Meanwhile, cash and deposits remained at ¥135.0B, and the company maintained substantial liquidity, with current assets of ¥484.1B significantly exceeding current liabilities of ¥167.8B. As inventories are substantial relative to accounts payable of ¥45.3B, the offsetting effect of trade payables on cash management is limited; reducing inventories and trade receivables will be key to improving capital efficiency.

Earnings Quality

Profit Before Tax was ¥23.9B compared with Ordinary Income of ¥21.4B, with net extraordinary gains and losses of ¥2.5B serving as an upward factor. The principal component of extraordinary income of ¥2.8B was a ¥2.8B gain on the sale of shares in a subsidiary, a temporary factor that should be distinguished from recurring earnings. Nevertheless, as both Operating Income (+51.6%) and Ordinary Income (+64.3%) increased significantly, the underlying improvement in core-business profitability is clear. Non-operating income of ¥2.2B represented only 1.2% of revenue, with dividends received of ¥0.9B and share of profit or loss of equity-method affiliates of ¥0.7B as the main components. Net Income attributable to owners of the parent of ¥14.8B was approximately 31% below Ordinary Income, primarily due to the tax burden from income taxes of ¥8.9B (effective tax rate: 37.3%), which does not impair earnings quality. Comprehensive Income was ¥29.8B, substantially exceeding Net Income, largely due to a ¥10.6B gain on valuation differences on available-for-sale securities; this should be noted as a valuation-related factor separate from business earnings.

Earnings Forecast and Guidance

The full-year company forecasts call for revenue of ¥675.0B (-0.3% YoY), Operating Income of ¥68.0B (-2.6%), and Ordinary Income of ¥64.0B (-6.7%), representing a conservative plan that anticipates declines from the previous year across all three metrics. The Q1 progress rates were 26.5% for revenue, 30.0% for Operating Income, 33.5% for Ordinary Income, and 34.4% for Net Income, ahead of the standard 25% pace. However, because the full-year plan itself assumes declines in both revenue and earnings, it should not be assumed that Q1’s high earnings growth rate will continue throughout the full year. Progress should be monitored in light of product mix and cost trends during the fiscal year. Neither the earnings forecast nor the dividend forecast was revised during the quarter.

Shareholder Returns

The full-year dividend forecast is ¥60.00 per share. Based on the full-year EPS forecast of ¥227.60, the forecast Payout Ratio is approximately 26.4%, indicating that the dividend burden is not substantial relative to earnings. The financial foundation, including retained earnings of ¥337.7B and cash and deposits of ¥135.0B, also supports continued dividend payments. Based on comparison with the dividend paid in the same period of the previous year (interim dividend of ¥26), the company appears to be moving toward a dividend increase. No share repurchases were confirmed, and because shareholder returns are centered on dividends, the company is evaluated using the Payout Ratio rather than the Total Return Ratio.

Risk Factors

1. Inventory and working capital accumulation: Inventories amounted to ¥168.2B, accounting for 20.7% of total assets, and annualized inventory days were 129 days, exceeding the general level for manufacturers. Risks include inventory write-downs during demand fluctuations and the lock-up of working capital.

2. Profitability gap by business: The segment profit margin of die-casting was 3.2%, substantially below the company-wide average of 11.4%, indicating relatively high earnings sensitivity to fluctuations in raw material and energy prices and capacity utilization.

3. Reliance on temporary gains: The principal component of extraordinary income of ¥2.8B was a gain on the sale of shares in a subsidiary, and part of Net Income was supported by non-recurring factors. Operating Income and Ordinary Income should be prioritized when evaluating full-year progress.

Industry Benchmark (Reference; Company Analysis)

Profitability and Returns

Profitability exceeds the industry median and is positioned in the upper range.

Growth and Capital Efficiency

The growth rate also substantially exceeds the industry median and is near the upper limit of the IQR.

※Source: Company compilation

Key Points from the Earnings Results

1. The Operating Income margin improved by approximately 2.9pt YoY to 11.4%. The sharp improvement in the profit margin of measurement and control equipment (1.1%→12.9%) made a significant contribution to company-wide earnings growth. Whether this improvement is temporary or structural will be a key focus going forward.

2. While the full-year company forecast assumes declines in both revenue and earnings, Q1 results showed increases in both revenue and earnings, with profit-related progress rates ahead of schedule. For an accurate assessment of the underlying situation, progress should be monitored on an Operating Income and Ordinary Income basis rather than based on Net Income, which includes extraordinary income (the ¥2.8B gain on the sale of shares in a subsidiary).

3. Revenue growth was accompanied by increases in inventories and trade receivables, and the high number of inventory days remains an issue for capital efficiency. Alongside the sustainability of revenue growth, trends in working capital efficiency will be an important point of focus in assessing financial soundness.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,629–¥2,784 at Cost of Equity ±1%, and ¥2,702–¥2,706 at ω±0.1.

Notes:

• Because 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 time lag relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Valuation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / 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 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 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 discretion and responsibility, after consulting with professionals as necessary.

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AI Financial Analysis

Executive Summary

FY2027 Q1 was a strong operating quarter for Nagano Keiki, with revenue growth translating into substantially faster operating-profit growth. Revenue increased 12.6% year on year to JPY17.88bn. Operating income rose 51.6% to JPY2.04bn, outpacing sales through improved gross profitability and operating leverage. Gross profit increased to JPY6.02bn from JPY4.87bn, lifting the gross margin by 310bp to 33.7%. SG&A expenses increased 13.1% to JPY3.98bn, broadly in line with sales growth and therefore did not dilute the gross-margin gain. The operating margin expanded by 290bp to 11.4%, placing profitability within the good 8-15% benchmark range. Ordinary income increased 64.3% to JPY2.14bn, aided by improved equity-method earnings and a swing to a small foreign-exchange gain. Net income attributable to owners increased 41.2% to JPY1.48bn, equivalent to EPS of JPY79.63. Reported quarterly net income includes JPY2.79bn of extraordinary income, predominantly a JPY2.78bn gain on sale of subsidiary shares, against JPY0.29bn of extraordinary losses. This transaction lifted profit before tax to JPY2.39bn and means net income is less indicative of underlying recurring profitability than operating income. The effective tax rate was elevated at 37.3%, resulting in a tax burden of 0.618x. Total comprehensive income of JPY2.98bn materially exceeded net income, supported primarily by a JPY1.06bn increase in the valuation difference on securities. The balance sheet remains conservative, with a 288.5% current ratio, 0.57x debt-to-equity ratio, and JPY13.50bn of cash and deposits. However, inventories were JPY16.82bn and the reported annualized inventory days of 129 days and annualized cash conversion cycle of 153 days require close monitoring. Against the full-year plan, Q1 progress was ahead of a standard seasonal run-rate in profit terms, while management maintained both earnings and dividend forecasts. The core investment debate is therefore whether the sharp sensor and measurement-control earnings improvement can be sustained while inventory conversion normalizes.

Profitability Analysis

The annualized DuPont ROE is 11.5%, comprising an 8.3% net profit margin, 0.882x asset turnover, and 1.57x financial leverage. This is a good ROE outcome under the 10-15% benchmark range, achieved with moderate leverage rather than aggressive balance-sheet gearing. The principal Q1 improvement came from profitability: the gross margin rose to 33.7% from 30.6%, a 310bp improvement, and the operating margin increased to 11.4% from 8.5%, a 290bp expansion. Revenue grew 12.6%, whereas operating income grew 51.6%, demonstrating favorable operating leverage after gross-margin expansion. SG&A rose 13.1%, marginally faster than revenue, but the increase was more than absorbed by the JPY1.16bn rise in gross profit. The pressure sensor business was the core business by segment-profit contribution, generating JPY1.04bn, or 51% of consolidated segment profit, on sales of JPY5.46bn. Pressure sensors also produced the highest segment margin at 19.1%, up from 13.9% a year earlier. Pressure gauges generated JPY0.77bn of segment profit on JPY9.42bn of sales, with margin improving to 8.2% from 7.0%. Measurement-control equipment showed the largest relative turnaround, with sales rising 29.9% to JPY1.11bn and segment profit rising to JPY0.14bn from JPY0.01bn; margin improved to 12.9% from 1.1%. Die-casting sales increased 7.4% to JPY1.43bn, but its segment margin remained low at 3.2% versus 3.4% a year earlier. Financial leverage is not the driver of returns, as debt/capital is only 13.9% and interest coverage is 18.63x. The reported annualized 0.882x asset turnover indicates that the high inventory balance constrains capital efficiency despite the strong margin outcome.

Growth Assessment

Growth was broad-based across the principal operating segments. Pressure-gauge sales increased 13.7% year on year to JPY9.42bn, while pressure-sensor sales increased 10.9% to JPY5.46bn. Measurement-control equipment delivered the fastest reported sales growth at 29.9%, while die-casting grew 7.4%. Segment-profit growth was particularly strong in pressure sensors, where profit increased 52.3%, and in measurement-control equipment, where the increase was approximately fifteenfold from a low prior-year base. The sales mix and margin profile indicate that pressure sensors and the recovered measurement-control business accounted for most of the operating-margin expansion. The full-year forecast calls for revenue of JPY67.50bn, down 0.3% year on year, and operating income of JPY6.80bn, down 2.6%. Q1 revenue progress is 26.5% of the full-year target, modestly above the 25% standard Q1 pace. Q1 operating-income progress is 30.0%, 5.0 percentage points above the standard pace, and net-income progress is 34.4% of the JPY4.30bn forecast, 9.4 percentage points above standard. Ordinary-income progress is 33.5% of forecast, also ahead of the standard Q1 pace. The maintained forecast suggests management has not yet assumed that Q1’s margin gains will persist in full. The JPY2.78bn gain on the sale of subsidiary shares supports reported Q1 profit but does not support recurring revenue or operating-profit growth. Sustainable growth will depend principally on maintaining the pressure-sensor margin improvement, converting measurement-control momentum into recurring orders, and avoiding inventory accumulation ahead of demand.

Financial Health

Financial health is strong. Current assets of JPY48.41bn exceeded current liabilities of JPY16.78bn by JPY31.63bn, producing a current ratio of 288.5% and a quick ratio of 188.3%. Cash and deposits of JPY13.50bn covered short-term loans of JPY4.32bn by 3.13x. Interest-bearing debt was JPY8.33bn, equivalent to 0.57x total equity and 13.9% of total capital. Interest coverage of 18.63x indicates a substantial ability to service interest costs from operating profit. Short-term loans increased by JPY0.72bn year on year to JPY4.32bn, while long-term loans decreased by JPY0.46bn to JPY4.01bn. The short-term debt ratio of 51.8% is a refinancing-risk alert because more than half of debt is short term, although the sizeable cash balance, strong current ratio, and cash/short-term-debt coverage substantially mitigate immediate maturity-mismatch risk. Total equity increased JPY2.49bn year on year to JPY51.59bn, while total assets increased JPY4.62bn to JPY81.10bn. The equity ratio was 62.3%, only slightly below 62.9% a year earlier, preserving a robust capital buffer. Lease obligations totaled JPY3.93bn across current and non-current liabilities and should be considered alongside borrowings in assessing fixed financing commitments. Defined-benefit liabilities were JPY2.34bn, while investment securities represented 14.0% of total assets, increasing sensitivity of equity and comprehensive income to market valuation movements.

Notable B/S Changes

Total assets: +JPY4.62bn (+6.0%) to JPY81.10bn - balance-sheet expansion was led by working capital and investment securities. Trade receivables: +JPY1.75bn (+18.2%) to JPY11.38bn - customer credit increased faster than sales and should be assessed together with inventory conversion. Inventories: +JPY1.65bn (+10.1%) to JPY16.82bn - the balance remains high at 20.7% of assets and is consistent with the 129-day annualized inventory warning. Electronically recorded monetary claims: +JPY1.00bn (+20.4%) to JPY5.92bn - additional customer-related working capital increases the importance of collection performance. Investment securities: +JPY1.45bn (+14.7%) to JPY11.34bn - portfolio valuation and investment exposure are material at 14.0% of total assets. Short-term loans: +JPY0.72bn (+20.1%) to JPY4.32bn - increases the short-term debt share to 51.8%, although liquidity coverage remains strong. Long-term loans: -JPY0.46bn (-10.3%) to JPY4.01bn - partly offsets the short-term borrowing increase but shifts the debt maturity profile shorter. Total equity: +JPY2.49bn (+5.1%) to JPY51.59bn - supported by earnings and positive other comprehensive income, preserving a strong 62.3% equity ratio.

Cash Flow Quality

The quarterly cash-flow statement is not provided, so cash conversion, operating-cash-flow coverage of net income, free cash flow, and cash-flow funding of capital expenditure cannot be assessed. Earnings quality can nevertheless be assessed from the income statement and balance sheet. Net income was supported by a JPY2.78bn gain on sale of subsidiary shares within JPY2.79bn of extraordinary income, making the headline Q1 profit materially non-recurring. The operating result itself was stronger, with JPY2.04bn of operating income and a 290bp operating-margin improvement. Inventories increased by JPY1.65bn year on year to JPY16.82bn and represented 20.7% of total assets. Reported annualized inventory days of 129 exceed both the 90-day quality-alert threshold and the 60-day manufacturing efficiency benchmark. The reported annualized cash conversion cycle of 153 days also exceeds the 120-day warning threshold, indicating a material amount of capital tied up in operations. These indicators may reflect production planning, component availability, or demand preparation, but they create a risk that accounting earnings will not translate into cash at the same pace. Trade receivables increased JPY1.75bn year on year to JPY11.38bn, while electronically recorded monetary claims increased JPY1.00bn to JPY5.92bn. Trade payables increased JPY0.69bn to JPY4.53bn, which only partly offsets the increase in customer-related and inventory working capital. The priority for future cash-flow assessment is whether inventory and receivable growth moderates relative to sales growth.

Dividend Sustainability

The full-year dividend forecast is JPY60 per share, unchanged at Q1. Based on forecast EPS of JPY227.60, the implied dividend payout ratio is 26.4%, which is conservative relative to the 60% sustainability benchmark. Q1 EPS of JPY79.63 represents 35.0% of forecast full-year EPS, while the planned dividend is supported by the company’s strong equity base and liquidity. The balance sheet provides substantial flexibility, with JPY13.50bn of cash and deposits, a 62.3% equity ratio, and debt/capital of 13.9%. Retained earnings were JPY33.77bn, further supporting the capacity to maintain ordinary dividends. The dividend outlook should be assessed primarily against recurring operating earnings rather than the Q1 extraordinary gain on sale of subsidiary shares. The maintained dividend forecast alongside maintained earnings guidance indicates no disclosed deterioration in management’s distribution stance. Sustainability remains dependent on inventory normalization and future operating cash conversion, given the long annualized cash conversion cycle.

Risk Assessment

Business risks include Inventory and demand risk: annualized inventory days of 129 and an annualized cash conversion cycle of 153 days indicate elevated stockholding relative to manufacturing benchmarks. If end-demand weakens or product mix changes, inventory could require markdowns, write-downs, or slower cash conversion., Segment concentration risk: pressure sensors generated 51% of segment profit and had a 19.1% margin; a reversal in this segment’s demand, pricing, or input-cost position would have a disproportionate impact on consolidated profit., Manufacturing-cycle risk: pressure gauges, sensors, measurement-control equipment, and die-casting are exposed to customer production volumes, industrial capital expenditure, automotive demand, component availability, and raw-material and energy-cost volatility., Margin sustainability risk: Q1 operating-margin expansion was substantial, but the full-year operating-income forecast still implies a year-on-year decline. This creates risk that Q1 mix, pricing, or cost benefits are not sustained., Market-value risk: investment securities totaled JPY11.34bn, and valuation gains on securities were a major contributor to other comprehensive income; changes in equity-market prices can affect comprehensive income and equity..

Financial risks include Refinancing risk: the 51.8% short-term debt ratio exceeds the 40% quality-alert threshold. The risk is mitigated by cash/short-term-debt coverage of 3.13x, but short-term funding conditions should be monitored., Working-capital funding risk: inventory and receivable growth can absorb liquidity even though current liquidity is currently strong., Lease and pension obligations: lease obligations of JPY3.93bn and net defined-benefit liabilities of JPY2.34bn add to fixed financing and long-term obligation exposure., Tax-rate variability: the Q1 effective tax rate was 37.3%, above a typical Japanese statutory range, reducing conversion of pretax income to net income..

Key concerns include The JPY2.78bn subsidiary-share sale gain means Q1 net income does not fully represent recurring profitability., The annualized 129-day inventory period is above both reported quality-alert thresholds; it is the most material operational balance-sheet indicator to monitor., The annualized 153-day cash conversion cycle suggests potentially weak near-term cash conversion if inventory growth is not reversed., Short-term debt increased year on year despite total debt remaining manageable, warranting monitoring of refinancing composition., The low-margin die-casting segment, at a 3.2% segment margin, remains more vulnerable to cost and volume volatility than the sensor business..

Investment Implications

Key takeaways include Q1 operating performance was strong: sales grew 12.6%, operating income grew 51.6%, and operating margin expanded 290bp to 11.4%., Pressure sensors are the core earnings contributor, with JPY1.04bn of segment profit and a sector-leading 19.1% segment margin., Measurement-control equipment made a meaningful margin recovery, though its smaller scale means sustainability must be established over subsequent quarters., The balance sheet is conservative, with 288.5% current ratio, 0.57x debt/equity, and 18.63x interest coverage., Headline net income contains a large non-recurring gain on sale of subsidiary shares and should not be extrapolated directly., Working-capital efficiency is the key offset to strong profitability, given 129 annualized inventory days and a 153-day annualized cash conversion cycle., Q1 profit progress is ahead of the standard seasonal pace versus the maintained full-year forecast, implying either management conservatism or expected margin normalization later in the year..

Metrics to watch include Pressure-sensor sales growth and segment margin versus the Q1 19.1% level, Measurement-control equipment profitability after the Q1 margin recovery to 12.9%, Inventory balance and annualized inventory days relative to the 129-day Q1 level, Annualized cash conversion cycle relative to the 153-day Q1 level, Short-term debt ratio and cash/short-term-debt coverage, Recurring ordinary and operating income excluding gains on disposal of investments or subsidiaries, Progress toward full-year revenue of JPY67.50bn, operating income of JPY6.80bn, and EPS of JPY227.60, Changes in the valuation of JPY11.34bn of investment securities.

Regarding relative positioning, Nagano Keiki combines good annualized ROE of 11.5%, an 11.4% operating margin, and conservative leverage, positioning its financial profile favorably versus a typical cyclical manufacturer. Its differentiating earnings strength is the high-margin pressure-sensor operation. Relative weaknesses are capital efficiency and earnings purity: the inventory cycle is long, and Q1 reported net income was materially affected by a non-recurring subsidiary-share sale gain.