Nissha Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥145.27B
• Operating Income: ¥3.51B
• Net Income: ¥827M
• EPS: ¥10.66

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

NISSHA (79150) reported FY2025 Q3 consolidated results under IFRS with revenue of 1,452.7 (100M JPY), declining 2.1% YoY, reflecting a softer demand environment and/or pricing pressure. Gross profit was 340.84, implying a gross margin of 23.5%, which is adequate but shows limited buffer to absorb SG&A in a downcycle. Operating income dropped sharply to 35.08 (-40.6% YoY), compressing the operating margin to approximately 2.4%, indicating notable operating deleverage. Net income fell to 5.05 (-88.2% YoY), weighed by a high effective tax rate of 42.3% and below-the-line items including equity-method losses (-2.28). Total comprehensive income was negative at -9.96, suggesting OCI losses (e.g., FX translation or securities valuation) that reduced equity beyond the weak net result. DuPont analysis highlights a very low net margin of 0.3%, modest asset turnover of 0.588x, and financial leverage of 2.17x, culminating in a subdued ROE of 0.4%. Despite weak earnings, cash generation was solid: operating cash flow reached 147.47 and free cash flow was positive at 74.63, supported by strong working capital movements and non-cash add-backs (D&A of 71.96). The balance sheet remains sound with total assets of 2,470.77 and equity of 1,137.01 (equity ratio 44.9%), while reported debt metrics are incomplete; the reported debt-to-equity ratio of 1.20x likely reflects total liabilities to equity rather than net financial debt. Liquidity looks adequate with cash and equivalents of 509.70, receivables of 375.88, and inventories of 357.30, though current liabilities are unreported, limiting ratio analysis. Shareholder returns continued via share repurchases of 16.40; dividends are unreported, but the calculated payout ratio of 503.5% indicates dividends exceeded earnings due to depressed profit, albeit seemingly covered by free cash flow (FCF coverage 2.93x). EBITDA was 107.04 (margin 7.4%), implying meaningful fixed cost absorption challenges as revenue softened. The sharp earnings decline vs. relatively resilient gross margin suggests SG&A rigidity and/or mix shifts toward lower-margin business. OCI losses driving negative comprehensive income add to equity headwinds this period. Overall, profitability metrics deteriorated materially, but cash flow and balance sheet resilience provide near-term flexibility. Data gaps (e.g., interest expense, current liabilities, DPS) constrain full ratio diagnostics; analysis focuses on available non-zero disclosures.

Profitability Analysis

ROE sits at 0.4%, decomposed into a 0.3% net margin, 0.588x asset turnover, and 2.17x financial leverage, signaling that margin compression is the primary drag rather than capital intensity or leverage. Operating margin is approximately 2.4% (35.08/1,452.70), down significantly YoY, consistent with a 40.6% decline in operating income versus a 2.1% revenue decrease, evidencing negative operating leverage. Gross margin of 23.5% remains reasonable, but the drop from gross profit (340.84) to operating income (35.08) indicates SG&A intensity (271.52) at 18.7% of revenue, leaving a thin operating spread. EBITDA margin of 7.4% reflects modest buffer from depreciation and amortization (71.96, roughly 5.0% of revenue), but the EBITDA-to-OP delta underscores elevated fixed costs. The high effective tax rate (42.3%) and equity-method losses (-2.28) exacerbated the decline from operating profit to net income. Comprehensive income turned negative (-9.96), pointing to OCI headwinds that further dilute total returns to equity. Overall, profitability quality is pressured by deleveraging on a slightly smaller revenue base, SG&A rigidity, and unfavorable below-the-line items.

Growth Assessment

Revenue declined 2.1% YoY to 1,452.70, indicating end-market softness or adverse mix. Operating income fell 40.6% YoY to 35.08, far outpacing the revenue decline, confirming negative operating leverage. Net income collapsed 88.2% YoY to 5.05, as high taxes and non-operating items magnified the drop. EBITDA of 107.04 and D&A of 71.96 indicate that the earnings contraction is not driven by unusually high non-cash charges alone; rather, it is operating performance and deleverage. Equity-method income was negative (-2.28), contributing to the profit shortfall. Total comprehensive income of -9.96 suggests additional pressure from OCI items in this period. Near-term outlook hinges on stabilization in demand and improved cost discipline; any rebound in volumes should disproportionately help margins given the fixed cost base, but visibility is limited from the disclosed data. The sustainability of revenue will depend on order momentum in key end-markets and pricing; current figures imply a cautious stance on near-term growth without clear catalysts in the data. Mix management and SG&A containment are critical to restoring operating leverage.

Financial Health

Total assets were 2,470.77 and total equity 1,137.01, yielding an equity ratio of 44.9%, a solid buffer for cyclical volatility. Total liabilities of 1,360.64 imply a liabilities-to-equity ratio of roughly 1.20x (as reported); interest-bearing debt specifics are unreported, limiting solvency precision and interest coverage analysis. Cash and equivalents stood at 509.70, providing meaningful liquidity; current assets were 1,286.27, but current liabilities were unreported, so current and quick ratios cannot be calculated from disclosed items. Receivables (375.88) and inventories (357.30) are sizable, underscoring working capital intensity; accounts payable of 321.29 partially offsets this. Negative total comprehensive income reduces equity this period via OCI, but overall capitalization remains moderate with financial leverage (assets/equity) at 2.17x. Absent interest expense disclosure, we cannot assess debt service coverage; however, strong OCF in the period supports near-term financial flexibility. Overall, balance sheet strength is adequate, with data limitations around debt composition and maturities.

Cash Flow Quality

Operating cash flow was robust at 147.47, materially exceeding net income of 5.05 (OCF/NI = 29.20x), indicating strong cash conversion driven by working capital release and non-cash charges (D&A 71.96). EBITDA of 107.04 reconciles to OCF above EBITDA, supporting the view that working capital movements were favorable in the period. Free cash flow was positive at 74.63, after investing outflows including capital expenditures of 48.69; the gap between OCF - CapEx (≈98.78) and reported FCF (74.63) suggests additional investing outflows beyond CapEx included in FCF. Investing CF totaled -72.84, implying disciplined capital spending and portfolio movements; details are not disclosed. Financing CF was +19.34, with share repurchases of -16.40; dividends were unreported. Cash and equivalents closed at 509.70, providing ample liquidity relative to quarterly needs. Overall earnings quality appears better than headline net profit suggests, as cash generation is solid; however, sustainability depends on whether working capital tailwinds persist.

Dividend Sustainability

Dividend per share and total dividends were not disclosed; however, the calculated payout ratio of 503.5% indicates dividends exceeded earnings due to depressed net income. Free cash flow coverage of dividends was 2.93x, implying that, despite low earnings, dividends appeared covered by FCF in this period. Given the large disconnect between earnings and cash flows, the current payout optics are distorted by temporarily low profit rather than cash constraints. Share repurchases of 16.40 also indicate continued shareholder returns. Without explicit DPS and policy guidance, we cannot ascertain whether the current payout is intended to be maintained; under IFRS, profit volatility and OCI impacts can make payout ratios noisy in downcycles. If earnings normalize and working capital benefits fade, dividend cover will depend on sustaining OCF above CapEx. We therefore view dividend affordability as currently supported by cash generation but sensitive to profit recovery and working capital trends, acknowledging the data limitations.

Risk Assessment

Business Risks:

• End-market cyclicality leading to revenue volatility (-2.1% YoY revenue decline).
• Operating deleverage from a fixed cost base, compressing margins (OP margin ~2.4%).
• Pricing and mix shifts reducing profitability despite relatively stable gross margin.
• Exposure to equity-method investee performance (equity-method loss of -2.28).
• FX and OCI volatility impacting comprehensive income (total comprehensive income -9.96).
• Working capital intensity (large receivables and inventories) affecting cash conversion if conditions reverse.

Financial Risks:

• Elevated effective tax rate (42.3%) depressing net income and ROE.
• Limited visibility on interest-bearing debt and interest expenses, constraining coverage analysis.
• Potential reversal of working capital tailwinds that supported OCF (OCF/NI = 29.2x).
• Thin operating margin and low ROE (0.4%) reduce cushion against shocks.
• Possible equity dilution risks are unknown; treasury shares exist (3,505,406), but issuance activity not disclosed.

Key Concerns:

• Sustained margin pressure and negative operating leverage.
• High tax burden and below-the-line drags on net income.
• Negative comprehensive income weakening equity beyond net profit.
• Dependence on working capital release to sustain cash flow.
• Inadequate disclosures on debt, interest, and dividends limiting visibility.

Investment Implications

Key Takeaways:

• Profitability weakened: OP -40.6% YoY to 35.08; net income -88.2% YoY to 5.05.
• ROE is very low at 0.4%, primarily due to a thin net margin of 0.3%.
• Gross margin held at 23.5%, but SG&A intensity (18.7% of sales) drove operating margin to ~2.4%.
• Cash generation is strong relative to earnings: OCF 147.47, FCF 74.63, OCF/NI 29.2x.
• Balance sheet is moderately leveraged with an equity ratio of 44.9% and financial leverage of 2.17x.
• Comprehensive income turned negative (-9.96), adding pressure to equity beyond weak net profit.
• Shareholder returns continued via buybacks (-16.40); dividends unreported but implied payout exceeded earnings.

Metrics to Watch:

• Order trends and revenue trajectory to assess recovery potential.
• Operating margin and SG&A ratio for evidence of operating leverage improvement.
• Working capital metrics (AR, inventory, AP turnover) to gauge sustainability of OCF.
• Effective tax rate normalization and equity-method contributions.
• CapEx discipline and FCF sustainability.
• OCI drivers (FX, securities) given negative comprehensive income.
• ROE and asset turnover progression relative to peers.

Relative Positioning: Within TSE-listed industrial/electronics components peers, NISSHA currently exhibits weaker profitability (OP margin ~2.4%, ROE 0.4%) but comparatively solid cash generation and a sound equity base (equity ratio 44.9%). Sustained improvement hinges on restoring operating leverage and stabilizing below-the-line items.

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