Nissha (7915) FY2026 Q2 Earnings Report

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Executive Summary

The key point for the first half of FY2026 is that operating results turned to a loss, driven by weak performance in Devices and an impairment loss of ¥6.759B, while revenue remained essentially flat. Revenue was ¥96.03B (down 1.0% year on year), and operating results were -¥4.5B (compared with operating income of ¥2.56B in the prior-year period, a decrease of ¥7.06B). Net income attributable to owners of the parent was -¥5.47B (compared with net income of ¥0.02B in the prior-year period), while consolidated net income was -¥5.36B. The gross margin improved to 23.9% from 23.3% in the prior-year period, indicating that the primary causes of the loss were not cost of sales but higher SG&A expenses (up 5.7% year on year) and increased other expenses. As the Company applies IFRS, results are presented using profit before tax (-¥4.81B), rather than ordinary income.

Factors Affecting Performance

【Revenue】Revenue was ¥96.03B, down 1.0% year on year, and was essentially flat. Industrial Materials grew to ¥41.15B (+9.5%, 42.8% of total revenue), while Medical grew to ¥29.03B (+8.0%, 30.2% of total revenue). In contrast, Devices fell significantly to ¥22.87B (-23.1%, 23.8% of total revenue), offsetting the revenue growth in the other two segments.

【Profit and Loss】Operating results were -¥4.5B, and the operating margin was -4.7% (compared with 2.6% in the prior-year period). Gross profit improved to ¥22.91B, but SG&A expenses rose to ¥20.41B. In addition, other expenses increased to ¥7.37B from ¥0.79B in the prior-year period, including an impairment loss of ¥6.76B. The impairment is a one-time factor, but the operating loss of ¥6.05B in Devices also points to challenges in the segment’s profitability. The loss before tax was -¥4.81B; after tax expense of ¥0.55B, the net loss attributable to owners of the parent was -¥5.47B. Overall, revenue and profit declined, with operating results turning from a profit to a loss.

Segment Analysis

Medical, with revenue of ¥29.03B (+8.0%), operating income of ¥1.91B (+11.1%), and a 6.6% margin, is the main segment delivering growth in both revenue and profit. Industrial Materials is the largest segment, with revenue of ¥41.15B (+9.5%), but operating income declined to ¥1.52B (-27.9%), with a 3.7% margin; revenue growth did not translate into higher profit. Devices had revenue of ¥22.87B (-23.1%) and an operating loss of ¥6.05B (a margin of -26.5%), making it the primary source of the Company-wide loss. Other reported revenue of ¥2.98B and an operating loss of ¥0.01B, making it approximately break-even. The margin gap between Medical and Devices reached 33.1pt, indicating a wide disparity in profitability across businesses.

Key Financial Metrics

【Profitability】The operating margin deteriorated by 7.3pt to -4.7% (from 2.6% in the prior-year period); the gross margin was 23.9%, and the SG&A ratio was 21.3%. Annualized ROE was -9.3%, reversing from positive territory in the prior-year period. Basic EPS was -¥115.44 (compared with ¥0.44 in the prior-year period). 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥5.55B (compared with ¥3.08B in the prior-year period), with non-cash expenses such as impairment accounting for the difference from the net loss. The increase in inventories resulted in a cash outflow of ¥4.76B, and the subtotal of OCF before working capital changes was ¥6.44B. 【Investment Efficiency】Capital expenditures were ¥4.63B, and acquisitions of subsidiaries were ¥5.91B, resulting in investing cash flow of -¥11.65B. FCF, combining OCF and investing cash flow, was -¥6.09B. 【Financial Soundness】The equity ratio was 45.4% (compared with 46.1% in the prior-year period). Current bonds and borrowings were ¥35.27B, against current assets of ¥110.82B. Cash was ¥29.99B, down ¥9.22B from the prior-year period. Goodwill of ¥34.41B represented 29.7% of net assets.

Cash Flow Analysis

OCF increased to ¥5.55B from ¥3.08B in the prior-year period, but this was supported by a non-cash impairment loss of ¥6.76B and does not directly indicate a recovery in the profitability of the core business. In working capital, the increase in inventories resulted in a cash outflow of ¥4.76B, partially offset by a decrease in trade receivables (¥1.96B) and an increase in trade payables (¥1.11B). Investing cash flow was -¥11.65B, primarily reflecting capital expenditures of ¥4.63B and subsidiary acquisitions of ¥5.91B. As a result, FCF was -¥6.09B. Financing cash flow was -¥4.21B; dividend payments of ¥1.18B and bond redemptions of ¥10B, among other items, were partially funded by increased short-term borrowings and bond issuance of ¥5.47B. Cash and cash equivalents declined to ¥29.99B (down ¥9.22B year on year). Acquisitions and capital spending amid rising inventories contributed to the decline in cash.

Earnings Quality

The current-period loss was significantly affected by an impairment loss of ¥6.76B, a one-time, non-cash item exceeding the net loss attributable to owners of the parent of ¥5.47B. Simply adding back the impairment to operating results would imply a profit of approximately ¥2.26B, but this would still be below the ¥2.56B recorded in the prior-year period, indicating a decline in underlying earnings power as well. Financial income of ¥0.66B and other income of ¥0.6B were modest, while financial expenses of ¥0.97B and equity-method losses of ¥0.23B were greater. Tax expense of ¥0.55B despite a loss before tax of ¥4.81B also increased the net loss. Other comprehensive income was ¥5.4B (including foreign currency translation differences of ¥1.32B, among other items), resulting in comprehensive income of ¥0.04B; however, this does not indicate a recovery in the core business. Although OCF was positive, the increase in inventories tied up cash, and the sustainability of cash conversion remains to be monitored.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥195B, an operating loss of ¥3.3B, a loss attributable to owners of the parent of ¥6.2B, and EPS of -¥130.68; the earnings forecast was revised during the current quarter. First-half revenue represented 49.2% of the full-year forecast, a standard level of progress. However, the first-half operating loss was ¥4.5B, exceeding the full-year forecast loss by ¥1.2B; this means operating income of ¥1.2B will be required in the second half. The first-half progress toward the forecast loss attributable to owners of the parent was 88.3%, leaving only ¥0.73B of allowable loss for the second half. Meeting the earnings targets will depend on improved profitability in Devices and a reduced expense burden following the impairment.

Shareholder Returns

The interim dividend was ¥25 per share (¥25 in the prior-year period), and the full-year forecast is ¥50; the dividend forecast was not revised. The Payout Ratio is not meaningful due to the net loss. Dividend payments for the current period were ¥1.18B, exceeding the ¥0.92B generated by OCF less capital expenditures. Total FCF was also negative, meaning dividends were funded by cash on hand and borrowings. No share repurchases were made (compared with ¥0.66B in the prior-year period), so total shareholder returns consisted solely of dividends.

Risk Factors

1. Profitability of the Devices business: Revenue declined 23.1% year on year, and the operating loss reached ¥6.05B. If demand recovery is delayed, achieving the ¥1.2B of operating income required in the second half will be difficult.

2. Expansion of inventories and working capital: Inventories increased to ¥37.48B (¥31.9B in the prior-year period, +17.5%), tying up cash as revenue edged down. The impact on inventory valuation and liquidity requires monitoring.

3. Goodwill and investment recovery: Goodwill of ¥34.41B represents 29.7% of net assets. The Company invested ¥5.91B in subsidiary acquisitions during the current period, and FCF was -¥6.09B. If earnings improvement is delayed, further impairment may result.

Industry Benchmarks (Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net income margin are below the industry median and below the lower bound of the IQR.

Growth and Capital Efficiency

The revenue growth rate is below the median but remains within the IQR range (above the lower bound of -3.4%).

Source: Company compilation

Key Points to Watch in the Results

1. Although the gross margin improved, higher SG&A expenses, the impairment loss, and losses in Devices combined to produce an operating loss of ¥4.5B. The one-time nature of the impairment should be distinguished from the underlying deterioration in Devices’ profitability.

2. Medical delivered growth in both revenue and profit and is the largest source of profit. However, Industrial Materials recorded higher revenue but lower profit, highlighting the Company-wide challenge of converting revenue growth into profit.

3. OCF was positive, but rising inventories and investment, including acquisitions, resulted in FCF of -¥6.09B. Achieving the full-year forecast requires operating income of ¥1.2B in the second half, making the conversion of inventories into cash and progress in recovering investment key areas of focus.

Theoretical Share Price (Reference)

Sensitivity: ¥1,462–¥1,544 for a ±1% change in the cost of equity; ¥1,475–¥1,519 for a ±0.1 change in ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).

(Valuation model: Residual income model (Ohlson type, explicit 5-year fade) / Interest rate benchmark month: 2026-08 / Mechanically calculated using only publicly disclosed data; this is not a forecast of market share prices or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI analysis of 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. You should make investment decisions at your own responsibility and consult a professional as necessary.

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