Noritsu Koki Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

Profit expanded at a faster pace than Revenue, indicating a strong earnings performance characterized by both Revenue growth and profit growth, as well as improved margins. Revenue was ¥825.0B (+47.8% YoY), Operating Income was ¥182.9B (+64.7%), and Net Income was ¥124.0B (+70.8%). The primary drivers of Revenue growth were the M&A impact from the acquisition of consolidated subsidiaries and the expansion of the AudioEquipmentPeripherals Business. The Operating Income margin improved to 22.2% from 19.9% in the same period of the previous year. Meanwhile, Investing CF resulted in an outflow of ¥838.4B due to a large-scale acquisition, and the Company’s reliance on short-term borrowings for financing is a key area of financial focus.

Factors Affecting Earnings

【Revenue】Revenue was ¥825.0B, representing a +47.8% YoY increase. By segment, AudioEquipmentPeripherals generated ¥611.1B (74.1% composition ratio, YoY +21.9%), while PartsMaterials generated ¥213.8B (25.9% composition ratio, YoY +275.3%). The sharp expansion of PartsMaterials is believed to reflect the impact of the acquisition of consolidated subsidiaries.

【Profit and Loss】Operating Income was ¥182.9B (YoY +64.7%), and the Operating Income margin of 22.2% improved from 19.9% in the same period of the previous year. The gross profit margin declined slightly to 49.7% from 50.5% in the same period of the previous year. Accordingly, the increase in Operating Income was driven primarily by operating leverage resulting from the relative compression of SG&A expenses, rather than by an improvement in gross profit. An effective tax rate of 32.9% was applied to Profit Before Tax of ¥184.8B, resulting in Net Income of ¥124.0B (YoY +70.8%). Both Revenue and profit posted substantial growth, resulting in a strong increase in Revenue and profit.

Segment Analysis

The Company operates under a two-segment structure. AudioEquipmentPeripherals is the earnings pillar, generating Revenue of ¥611.1B (YoY +21.9%) and Operating Income of ¥178.0B (YoY +38.7%, margin 29.1%). PartsMaterials expanded sharply, generating Revenue of ¥213.8B (YoY +275.3%) and Operating Income of ¥51.9B (YoY +295.7%, margin 24.3%), with a significant contribution believed to have come from the acquisition of consolidated subsidiaries. Both segments delivered Revenue and profit growth, with the profit growth rate of PartsMaterials particularly driving overall growth.

Key Financial Indicators

【Profitability】The Operating Income margin was 22.2% (19.9% in the same period of the previous year), the Net Income margin was 15.0% (13.0%), and annualized ROE was 10.7%, confirming improvement across all indicators from the previous year. The gross profit margin was 49.7%, slightly below 50.5% in the same period of the previous year, indicating that the increase in the cost ratio was absorbed through SG&A expense reductions.【Cash Flow Quality】Operating CF was ¥115.4B, or only 0.93 times Net Income of ¥124.0B, indicating that not all profit was converted into cash. The OCF/EBITDA ratio was relatively low at 0.54 times, with tax payments and changes in working capital constraining cash conversion.【Investment Efficiency】Research and development expenses were ¥30.5B, equivalent to 3.7% of Revenue, down from 4.8% in the same period of the previous year. R&D investment growth was therefore moderate relative to Revenue growth.【Financial Soundness】The Equity Ratio declined to 63.4% from 75.7% in the same period of the previous year. Short-term borrowings surged to ¥782.6B (+441.3% YoY), with nearly all interest-bearing debt consisting of short-term funding. Cash and cash equivalents of ¥649.5B were below short-term borrowings, making refinancing trends a key financial focus.

Cash Flow Analysis

Operating CF increased by +53.4% YoY to ¥115.4B, after deducting corporate income tax payments of ¥55.5B and lease payments of ¥8.6B. Investing CF resulted in an outflow of ¥838.4B, including ¥634.6B for the acquisition of consolidated subsidiaries and the acquisition of other financial assets. The primary driver was M&A-related expenditure, which was substantially larger than capital expenditures of ¥31.2B. As a result, Free Cash Flow, calculated as the sum of Operating CF and Investing CF, was negative ¥723.0B. However, after capital expenditures, Operating CF exceeded capital expenditures, maintaining a positive level. Financing CF was positive ¥388.2B, centered on funding through short-term borrowings, indicating that part of the investment funding was covered by short-term liabilities. Shareholder returns, consisting of dividend payments of ¥39.7B and share repurchases of ¥30.1B, continued, while Cash and cash equivalents declined to ¥649.5B. A notable characteristic is that the center of cash funding shifted from operating activities to financing activities.

Quality of Earnings

Comprehensive Income of ¥121.8B was slightly below Net Income of ¥124.0B, with Other Comprehensive Income of negative ¥2.2B. This difference was attributable to Other Comprehensive Income items, including a negative ¥31.5B change in financial assets measured at fair value. Fluctuations in the market value of financial assets held temporarily reduced earnings quality. The increase in Operating Income was accompanied by a decline in the gross profit margin and was driven by operating leverage resulting from a lower SG&A ratio rather than recurring cost improvements. This should be viewed with consideration that it may represent a temporary effect during a period of Revenue growth. The Accrual Ratio remained low, and signs of excessive recognition of accrual-based profit were limited. However, the fact that Operating CF was below Net Income and that the cash conversion rate was low suggests a time lag between profit generation and cash creation.

Earnings Forecast and Guidance

The Full-Year Company forecast remains unchanged at Revenue of ¥1,676.0B, Operating Income of ¥260.0B (YoY +24.9%), and Net Income of ¥168.0B (YoY +7.4%). Progress against the first-half results was 49.2% for Revenue, 70.4% for Operating Income, and 73.8% for Net Income, with profit progress substantially exceeding the standard 50% level. Based on these results, the Operating Income margin for the second half would be approximately 9.1%, implying a substantial decline from the first-half result of 22.2%. Potential factors include integration-related expenses and changes in the product mix during the second half, as well as the possibility that the forecast was set conservatively.

Shareholder Returns

The dividend per share at the end of Q2 was ¥37.00, and the Full-Year forecast dividend is ¥75.00. The Payout Ratio against cumulative Net Income for the current period of ¥124.0B was 32.5%, based on dividend payments of ¥39.7B. Including share repurchases of ¥30.1B, total shareholder returns amounted to ¥69.9B, resulting in a Total Return Ratio of approximately 56.3% relative to Net Income. On July 1, 2025, a 3-for-1 stock split was implemented, and the disclosed period-end and annual dividends reflect the impact of this split.

Risk Factors

1. Refinancing risk: Short-term borrowings increased by +441.3% YoY to ¥782.6B, with nearly all interest-bearing debt concentrated in short-term funding. Cash and cash equivalents of ¥649.5B were below short-term borrowings, indicating high sensitivity to refinancing terms and changes in the financial environment.

2. Goodwill and intangible asset concentration risk: Goodwill reached ¥1,153.8B (+129.2% YoY), accounting for 49.6% of net assets. The combined balance of goodwill and intangible fixed assets amounted to 54.7% of total assets, creating a structure in which the realization of earnings from acquired businesses determines the underlying durability of the assets.

3. Risk of a decline in second-half profit margins: Achieving the Full-Year forecast assumes a second-half Operating Income margin of approximately 9.1%, substantially below the first-half result of 22.2%. It remains uncertain whether the high profitability achieved in the first half can be sustained throughout the full year.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin substantially exceeded the industry median, placing the Company’s profitability in the upper tier of the industry.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeded the upper end of the industry range, indicating that the Company’s growth pace, including M&A, was exceptional within the industry.

※Source: Company research

Key Takeaways from the Earnings Results

1. The Operating Income margin of 22.2% and Net Income margin of 15.0% both substantially exceeded the industry median, confirming profit growth that outpaced Revenue growth. The key feature of the earnings results was that profit growth amid a slight decline in the gross profit margin was primarily driven by operating leverage resulting from a lower SG&A ratio.

2. Large-scale investments centered on the acquisition of consolidated subsidiaries caused Goodwill to surge by +129.2% YoY, while increasing reliance on short-term borrowings for funding. Although the Equity Ratio of 63.4% indicates capital capacity, the maturity profile of liabilities is concentrated in the short term.

3. First-half progress against the Full-Year forecast was high at 70.4% for Operating Income and 73.8% for Net Income. However, it should be noted that this assumes a plan under which the second-half profit margin declines substantially from the first-half level.

Theoretical Share Price (For Reference)

Sensitivity: ¥2,021–¥2,137 at cost of equity ±1%, and ¥2,074–¥2,080 at ω±0.1.

Notes:

• Because progress of Net Income against the Full-Year forecast (74%) exceeds the standard level (50%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with leading progress tend to outperform forecasts; the adjustment may be excessive for businesses with strong seasonality).
• 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 materially if impairment were recognized.
• Net assets at the end of Q2 are used (there is a time gap 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 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 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 a professional as necessary.

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