NAKANISHI INC. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥58.75B
• Operating Income: ¥10.54B
• Net Income: ¥8.08B
• EPS: ¥73.85

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Nakanishi (7716) reported FY2025 Q3 (cumulative) revenue of ¥58.752 billion, up 3.8% YoY, indicating modest topline growth despite a tougher operating backdrop. Gross profit was ¥32.925 billion, implying a high gross margin of 56.0%, which underscores strong product economics and pricing power in its niche. Operating income declined 7.5% YoY to ¥10.54 billion, compressing the operating margin to roughly 17.9%, suggesting rising operating costs (e.g., SG&A, logistics, or R&D) or a less favorable mix. Ordinary income reached ¥10.934 billion, exceeding operating income by ¥0.394 billion, pointing to small net non-operating gains that partially offset a higher cost base. Net income fell 23.5% YoY to ¥6.181 billion, with a net margin of 10.52%, evidencing a sharper squeeze at the bottom line than at the operating line. The implied effective tax rate is approximately 35.9% (¥3.921 billion tax on ¥10.934 billion pre-tax), a key driver of the disproportionate decline in net profit; the “0.0%” effective tax rate shown in automated metrics reflects data limitations rather than reality. DuPont analysis indicates ROE of 5.17% (net margin 10.52% × asset turnover 0.362 × equity multiplier 1.36), constrained by a very conservative balance sheet and modest asset turnover. Liquidity is robust with a current ratio of 304% and a quick ratio of approximately 258%, supported by ¥84.886 billion in current assets and only ¥27.925 billion in current liabilities. Leverage is low, with total liabilities of ¥37.10 billion against equity of ¥119.564 billion (D/E ~0.31x), and interest coverage is a very comfortable ~252x, reflecting minimal interest burden. Inventory of ¥12.978 billion represents about 15.3% of current assets, indicating manageable inventory exposure. Asset efficiency remains modest (asset turnover 0.362x), consistent with a high cash/asset base or capital deployed ahead of growth; however, cash and cash flows were not disclosed (zeros indicate non-disclosure). Equity ratio is effectively strong at ~73.6% (equity/assets), even though the reported figure shows 0.0% due to disclosure limitations. EBITDA-related metrics are not meaningful this period because depreciation and amortization were not disclosed. Overall, the company maintains excellent financial health but is navigating margin headwinds and a higher tax burden that depress ROE and net income growth. The quality of earnings appears solid given the dominance of operating profit in ordinary income, but the absence of operating cash flow disclosure limits a full earnings quality assessment. We caution that several zeros (OCF, investing/financing CF, DPS, equity ratio, shares) are placeholders for unreported items rather than true zeros, and conclusions are drawn only from available non-zero data.

Profitability Analysis

ROE is 5.17% via DuPont: net profit margin 10.52% × asset turnover 0.362 × financial leverage 1.36. Net margin remains healthy in absolute terms but declined YoY given the 23.5% net income drop versus +3.8% revenue, indicating margin compression. Gross margin of 56.0% is strong, suggesting sustained product differentiation and pricing, though operating margin of ~17.9% is down YoY (operating income -7.5%), implying elevated SG&A or cost inflation. The spread between gross profit (¥32.925b) and operating income (¥10.54b) implies operating costs of roughly ¥22.385b, an estimated 38.1% of sales, signaling cost intensity increased relative to growth. Ordinary income exceeded operating income by ¥0.394b, indicating modest net non-operating gains (e.g., FX or interest income) that are not the primary earnings driver. Interest expense is minimal at ¥41.8m, yielding an interest coverage of ~252x, so financial expenses did not impair profitability. The implied effective tax rate of ~35.9% materially reduced net income; tax effects are a key swing factor this period. Operating leverage appears unfavorable in the period: revenue growth (+3.8%) translated into a decline in operating profit (-7.5%), indicating fixed cost absorption and/or higher variable costs outweighed pricing/mix benefits. Overall profitability remains solid at the gross level but exhibits pressure at the operating and net levels, compressing ROE given a conservative capital structure.

Growth Assessment

Topline growth of 3.8% YoY to ¥58.752b suggests steady demand but not enough to offset rising costs. Operating income decline (-7.5% YoY) and net income decline (-23.5% YoY) point to margin-driven earnings pressure rather than a volume contraction. Revenue sustainability appears supported by strong gross margins (56.0%), indicating continued customer value proposition, but further growth likely requires either improved operating efficiency or stronger pricing/mix. Profit quality is anchored in core operations since ordinary income only modestly exceeds operating income; however, the higher tax rate suppressed bottom-line conversion. Without cash flow disclosure, we cannot corroborate earnings with operating cash generation; working capital dynamics (e.g., inventory at ¥12.978b) seem manageable but may have contributed to margin and cash conversion if turns slowed. Outlook hinges on stabilizing SG&A intensity, maintaining gross margin through pricing and mix, and normalizing the tax rate; small revenue gains can translate into better profit growth if cost discipline improves. Key near-term focus: SG&A ratio trajectory, tax rate normalization, and any updates on production efficiency or cost containment.

Financial Health

Liquidity is strong: current ratio ~304% (¥84.886b CA / ¥27.925b CL), quick ratio ~258% after excluding inventories. Working capital is ¥56.961b, providing ample buffer for operations and procurement. Solvency is robust: total liabilities ¥37.10b vs equity ¥119.564b (D/E ~0.31x) and an implicit equity ratio of ~73.6% (equity/assets), notwithstanding a reported 0.0% due to non-disclosure artifacts. Interest coverage is ~252x, reflecting negligible interest burden and substantial headroom. Asset turnover is modest at 0.362x, which, combined with high equity, depresses ROE but signals a highly conservative balance sheet. No cash and cash equivalents were disclosed; therefore, net cash position cannot be determined from this dataset, though low leverage implies limited refinancing risk. Overall, the company exhibits very low financial risk and high resilience to shocks.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed for the period (zeros denote non-disclosure). As such, OCF/Net Income and FCF cannot be reliably assessed. From the income statement, earnings quality appears primarily operational, given ordinary income only slightly exceeds operating income by ¥0.394b and interest expense is minimal. Working capital: inventories are ¥12.978b (about 15.3% of current assets), which looks reasonable but, without turnover and receivables/payables detail, we cannot judge cash conversion cycle changes. Depreciation and amortization were not disclosed; thus, we cannot reconcile EBITDA or assess non-cash expense contribution to earnings. Key data gaps limit definitive conclusions on cash conversion and free cash flow, though the strong balance sheet mitigates near-term liquidity concerns.

Dividend Sustainability

Dividend data (DPS and payout) are not disclosed in this dataset; the zeros provided indicate non-reporting rather than actual zero dividends. Without DPS and cash flow data, payout ratio assessment and FCF coverage cannot be computed. Based on net income of ¥6.181b (9M cumulative) and very low leverage (D/E ~0.31x), capacity to sustain reasonable shareholder returns appears supported by the balance sheet quality, but this cannot substitute for cash flow evidence. Policy outlook cannot be inferred from the provided data; monitoring official guidance and year-end dividend announcements will be important. Until OCF and CAPEX are disclosed, dividend sustainability analysis remains constrained.

Risk Assessment

Business Risks:

• Margin pressure from rising SG&A, logistics, or input costs reducing operating leverage
• Product mix shifts and pricing dynamics impacting gross margin sustainability
• Demand volatility across regions and end-markets affecting revenue growth
• Regulatory and quality/compliance risks inherent to medical/dental device categories
• Supply chain and component availability constraints that could disrupt production
• Competitive technology advances and potential price competition in handpieces and related equipment

Financial Risks:

• High effective tax rate (~35.9%) depressing net income and ROE
• Asset turnover at 0.362x limiting returns despite solid margins
• Cash flow non-disclosure limits visibility on cash conversion and FCF
• Currency fluctuations potentially affecting ordinary income and margins (export exposure typical for the sector)
• Potential working capital build (inventory/receivables) that could weigh on OCF if demand slows

Key Concerns:

• Decline in operating income (-7.5% YoY) despite revenue growth indicates cost pressure
• Net income down 23.5% YoY, magnified by a higher effective tax rate
• Absence of cash flow disclosure prevents validation of earnings quality and dividend coverage

Investment Implications

Key Takeaways:

• Topline growth of 3.8% YoY but operating deleverage led to a 7.5% decline in operating profit
• High gross margin (56.0%) underscores strong product economics, though operating costs rose
• Net profit margin of 10.52% and a high effective tax rate pushed ROE down to 5.17%
• Balance sheet strength is a key positive: current ratio ~3.0x, D/E ~0.31x, interest coverage ~252x
• Ordinary income modestly above operating income indicates limited reliance on non-operating gains
• Data gaps (cash flows, D&A, DPS) restrict FCF and dividend analysis

Metrics to Watch:

• SG&A ratio and operating margin trajectory
• Effective tax rate normalization vs. current ~35.9%
• Gross margin resilience amid input cost and mix shifts
• Asset turnover and inventory turns
• Operating cash flow, CAPEX, and free cash flow once disclosed
• Order intake/backlog and regional sales mix
• FX impacts on ordinary income

Relative Positioning: Within Japan-listed precision/medical device peers, Nakanishi exhibits superior gross margins and an exceptionally conservative balance sheet, but currently lags on bottom-line momentum and ROE due to operating cost pressure and a higher tax rate; visibility on cash conversion is currently limited due to non-disclosure.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis