Noritsu Koki (7744) FY2026 Q1 Earnings Report

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Executive Summary

Driven by higher revenue from the audio equipment-related business and rapid expansion in parts and materials, the Company reported higher revenue and earnings accompanied by improved margins; however, changes in its financial structure resulting from a large-scale acquisition remain a key focus. Revenue was ¥403.2B (+48.2% YoY), Operating Income was ¥84.1B (+60.5%), and Net Income was ¥56.4B (+100.4%). The primary drivers of revenue growth were expanding demand for audio equipment-related products and a substantial increase in revenue from parts and materials, while the main drivers of earnings growth were SG&A leverage and a lower R&D expense ratio. Meanwhile, the sharp increase in short-term borrowings and accumulation of goodwill resulting from large-scale investments, including the acquisition of subsidiaries, require monitoring.

Factors Affecting Earnings

【Revenue】Revenue was ¥403.2B, representing a +48.2% YoY increase. By segment, audio equipment-related revenue was ¥306.3B (76.0% of total, YoY +25.7%), while parts and materials revenue was ¥96.9B (24.0% of total, YoY +242.2%). The rapid expansion in parts and materials substantially boosted the overall revenue growth rate.

【Profit and Loss】Operating Income was ¥84.1B (YoY +60.5%), and the Operating Income margin improved to 20.9% from 19.3% in the same period of the previous year, an improvement of 1.6pt. Although the gross margin declined to 49.5% from 51.9%, a decrease of 2.4pt, R&D expenses decreased to ¥13.9B (¥15.9B in the same period of the previous year; 3.4% of revenue), and the overall increase in SG&A expenses (approximately +32.4%) was below the revenue growth rate, resulting in an improved Operating Income margin. Net Income was ¥56.4B (YoY +100.4%), and the Net Income margin improved to 14.0% from 10.3%, an improvement of 3.7pt. Even after recording income taxes and other taxes of ¥29.0B (effective tax rate: 33.9%) against Profit Before Tax of ¥85.5B, the Company maintained a high earnings growth rate, supporting the conclusion that both revenue and earnings increased.

Segment Analysis

The audio equipment-related business generated revenue of ¥306.3B (76.0% of total, YoY +25.7%) and business EBITDA of ¥88.0B (EBITDA margin: 28.7%, improved from 26.3% in the same period of the previous year), making it the core business and accounting for 79.6% of consolidated segment EBITDA. Parts and materials expanded rapidly, generating revenue of ¥96.9B (24.0% of total, YoY +242.2%) and business EBITDA of ¥22.6B (margin: 23.4%, improved from 19.8% in the same period of the previous year). Margins improved year over year in both segments, apparently due in part to the absorption of fixed costs through increased scale.

Key Financial Indicators

【Profitability】The Operating Income margin of 20.9% (19.3% in the same period of the previous year) and the Net Income margin of 14.0% (10.3% in the same period of the previous year) both improved year over year.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥36.0B, and its ratio to Net Income of ¥56.4B remained at 0.64x, as an increase of ¥23.1B in trade receivables, an increase of ¥11.1B in inventories, and payment of ¥44.3B in income taxes and other taxes constrained cash conversion.【Investment Efficiency】ROE (annualized) was 9.9%, while net asset turnover remained low due to the expansion of total assets to ¥3,636.9B as a result of the acquisition. Capital expenditures of ¥8.2B were 0.55x depreciation and amortization expenses of ¥14.8B, indicating that investment levels were below depreciation and amortization.【Financial Soundness】The Equity Ratio was 62.8%, down 12.9pt from 75.7% in the same period of the previous year. Short-term borrowings surged to ¥644.7B (YoY +345.9%), and the current ratio was 128.7%.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥36.0B, an increase of +139.9% YoY; however, cash conversion efficiency remained at 0.64x relative to Net Income of ¥56.4B. Against OCF before working capital changes of ¥80.3B, the ¥23.1B increase in trade receivables, ¥11.1B increase in inventories, and ¥44.3B payment of income taxes and other taxes constrained cash conversion. Investing Cash Flow resulted in an outflow of ¥799.9B, primarily due to the acquisition of subsidiaries for ¥634.6B and the acquisition of other financial assets for ¥184.1B. This was partially funded by Financing Cash Flow of ¥430.9B, including ¥500.0B in short-term borrowings. Free cash flow was negative ¥763.9B, indicating that the period’s investing activities were not funded by internally generated cash. Cash and cash equivalents stood at ¥645.97B at period-end, a decrease of ¥328.0B from the beginning of the period.

Earnings Quality

Operating Income of ¥84.1B was calculated after deducting adjustment items, including other operating expenses of ¥8.7B, up from ¥0.1B in the same period of the previous year, from business EBITDA of ¥107.1B (EBITDA margin: 26.6%). This increase in expenses may be temporary, and their occurrence going forward will be an indicator for assessing the sustainability of the Operating Income margin. The gap between Profit Before Tax of ¥85.5B and Net Income of ¥56.4B was attributable to income taxes and other taxes of ¥29.0B (effective tax rate: 33.9%); no exceptional one-time gains or losses were identified. With the OCF-to-Net Income ratio at 0.64x, the quality of current-period earnings should be viewed cautiously, as increased working capital has delayed cash conversion. Comprehensive Income was ¥55.5B, approximately in line with Net Income of ¥56.4B. Other comprehensive income was limited to negative ¥0.9B, resulting in only a small gap between Comprehensive Income and Net Income.

Earnings Forecast and Guidance

There were no revisions to the full-year earnings forecast or dividend forecast, which are Revenue of ¥1,676.0B, Operating Income of ¥260.0B, EPS of ¥156.43, and dividends of ¥75.0. The Q1 cumulative progress rates were 24.1% for Revenue, 32.4% for Operating Income, and 33.6% for Net Income attributable to owners of the parent, with earnings progress exceeding revenue progress. The full-year Operating Income forecast assumes YoY growth of +24.9%, substantially below the Q1 YoY growth rate of +60.5%, suggesting an assumption that the high growth achieved in the current quarter will not continue at the same level throughout the full year.

Shareholder Returns

Dividend payments in Q1 were ¥39.7B, resulting in a Payout Ratio of 70.4% relative to Net Income of ¥56.4B for the period. Including ¥15.4B in share repurchases, total returns amounted to ¥55.1B, resulting in a Total Return Ratio of 97.7%. Under the full-year forecast, the dividend per share is ¥75.0, and the Payout Ratio relative to forecast EPS of ¥156.43 is 47.9%; therefore, the full-year Payout Ratio is expected to decline. These figures reflect the July 2025 stock split, under which 1 share became 3 shares.

Risk Factors

1. Refinancing risk: Short-term borrowings surged to ¥644.7B (YoY +345.9%), and the short-term debt ratio was 81.2%. Cash and cash equivalents of ¥645.97B remained approximately equal to short-term borrowings, leaving limited excess liquidity.

2. Goodwill and M&A-related risk: Goodwill increased to ¥1,149.2B (YoY +128.3%), equivalent to 50.3% of net assets and 11.6x annualized EBITDA. If monetization of the acquired businesses does not proceed as planned, the risk of impairment under IFRS will increase.

3. Inventory and working capital risk: Inventories were ¥273.9B, up from ¥237.0B in the same period of the previous year, and annualized inventory days were approximately 123 days. OCF remained at 0.64x Net Income, with increases in trade receivables and inventories constraining the cash conversion of earnings.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability substantially exceeds the industry median, with both its Operating Income margin and Net Income margin at high levels within the industry.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeds the industry median, representing an exceptional pace of revenue growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. In addition to higher revenue and earnings, both the Operating Income margin and Net Income margin improved year over year. The rapid expansion in parts and materials and margin improvement in the audio equipment-related business were the primary changes affecting earnings.

2. Following the large-scale acquisition of a subsidiary, goodwill and short-term borrowings both increased substantially, while the Equity Ratio declined to 62.8% from 75.7% in the same period of the previous year. The change in the capital structure represents a structural turning point that will affect future financial soundness.

3. The OCF-to-Net Income ratio of 0.64x and capital expenditures-to-depreciation and amortization ratio of 0.55x indicate that cash conversion and investment levels have lagged somewhat behind the high earnings growth achieved during the period.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,976–¥2,089 at Cost of Equity ±1%, and ¥2,027–¥2,033 at ω±0.1.

Notes:

• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Goodwill represents a high proportion of net assets, and the assumptions would change substantially if impairment were recognized.
• Net assets as of the end of the quarter are used; there is a timing difference relative to the full-year forecast.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly disclosed data; this does not constitute a forecast of the market share price or a recommendation of any specific investment action, nor does it 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 discretion and responsibility, after consulting professionals as necessary.

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