Nozaki Insatsu Shigyo Co.,Ltd. FY2026 Q3 Earnings Report

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Executive Summary

In FY2026 Q3 (cumulative 9 months), Nozaki Insatsu Shigyo’s consolidated results were Revenue of ¥107.3B (YoY -¥5.1B -4.6%), Operating Income of ¥3.9B (YoY -¥2.4B -37.7%), Ordinary Income of ¥4.3B (YoY -¥2.4B -35.5%), and Net Income of ¥2.6B (YoY -¥2.0B -44.1%). With the decline in revenue, the operating margin contracted to 3.6% (down 2.0pt from 5.6% a year earlier), leading to a significant deterioration in profitability versus the prior-year period. The company’s full-year guidance assumes a recovery in Q4, with Revenue of ¥140.0B (YoY -3.9%) and Operating Income of ¥4.7B (YoY -31.8%). Short-term borrowings increased by ¥7.3B YoY to ¥17.7B, indicating a change in funding conditions.

Key Financial Metrics

[Profitability] ROE 5.2% (down from 5.8% a year earlier), Operating Margin 3.6% (down 2.0pt from 5.6% a year earlier), Net Margin 2.3% (down 1.6pt from 3.9% a year earlier). Gross margin was limited to 19.4%; with SG&A expenses at ¥16.9B remaining nearly flat, the revenue decline drove negative operating leverage. Return on Assets was 2.2% (down from 4.1% a year earlier). [Cash Quality] Cash and Cash Equivalents of ¥16.0B and cash coverage of 0.55x against Short-term Liabilities of ¥29.0B. Interest Coverage is approximately 25x, maintaining capacity to service interest. [Investment Efficiency] Total Asset Turnover 0.98x (down from 1.05x a year earlier), Financial Leverage 2.32x. Trade Receivables and Contract Assets of ¥23.6B and Inventories of ¥7.8B remained elevated, weakening asset efficiency. [Financial Soundness] Equity Ratio 43.1% (roughly flat vs. 43.4% a year earlier), Current Ratio 110.0%, Quick Ratio 95.8%, Debt-to-Equity Ratio 1.32x. Of the ¥32.4B in Interest-bearing Debt, Short-term Borrowings surged to ¥17.7B (YoY +70.3%), raising the short-term debt ratio to 54.7%.

Cash Flow Analysis

Cash and deposits were nearly flat at ¥16.0B, down ¥0.2B YoY. Short-term borrowings increased from ¥10.4B a year earlier to ¥17.7B, up ¥7.3B, suggesting higher working capital needs or a decline in operating cash generation. Trade Receivables and Contract Assets increased from ¥22.8B to ¥23.6B (+¥0.8B); an increase in receivables amid declining revenue suggests lengthening collection cycles. Inventories were ¥7.8B, up ¥0.5B from ¥7.4B a year earlier, indicating slower inventory turnover tying up cash. Trade Payables decreased from ¥9.4B to ¥9.0B (-¥0.4B), reducing scope to utilize supplier credit. Fixed Assets increased from ¥65.0B to ¥66.4B (+¥1.4B), indicating continued capital expenditures. Cash coverage versus Short-term Liabilities of ¥29.0B is 0.55x, reflecting tight liquidity.

Quality of Earnings

Against Ordinary Income of ¥4.3B, Operating Income was ¥3.9B, implying approximately ¥0.4B in net non-operating income. Non-operating income is presumed to be mainly financial income such as dividend income, while non-operating expenses include ¥0.2B in interest expense. The net amount of non-operating income and expenses is a positive approximately ¥0.4B, which is modest at around 0.4% relative to Revenue of ¥107.3B. The cost of goods sold ratio remained high at approximately 80.6%, with manufacturing cost pressures weighing on the gross margin. The burden rate of taxes and non-controlling interests was approximately 39.3% relative to Net Income of ¥2.6B, with the effective tax rate at a largely standard level. As Operating Cash Flow (OCF) data is not disclosed, cash backing cannot be directly assessed; however, the upward trend in short-term borrowings suggests potential delays in cash conversion relative to profit.

Risk Factors

1. Refinancing Risk: Short-term borrowings surged to ¥17.7B, up +70.3% YoY, pushing the short-term debt ratio to 54.7%. Sensitivity to short-term funding stress and changes in lenders’ credit policies has increased.
2. Deterioration in Asset Efficiency: Total Asset Turnover declined to 0.98x (from 1.05x), with increases in receivables and inventories tying up assets. If revenue declines persist, chronic declines in ROE and ROIC may result.
3. Profitability Pressure: The 3.6% Operating Margin is well below the industry median of 7.3%; to achieve the full-year Operating Income guidance of ¥4.7B, a substantial recovery is required in Q4, which appears challenging under the current trend.

Industry Benchmarks (Reference; In-house Research)

[Positioning within Industry] (Reference Information; In-house Research) Profitability: The Operating Margin of 3.6% is 3.7pt below the industry median of 7.3% (IQR 4.6%-12.0%, 2025 Q3, N=65 companies), placing profitability at a low level within the industry. The Net Margin of 2.3% is also 3.1pt below the industry median of 5.4% (IQR 3.5%-8.9%). ROE of 5.2% slightly exceeds the industry median of 4.9% (IQR 2.8%-8.2%), but sits near the first quartile, at a mid-to-lower level within the industry. Soundness: The Equity Ratio of 43.1% is 20.8pt below the industry median of 63.9% (IQR 51.5%-72.3%), indicating higher leverage. The Current Ratio of 1.10x is well below the industry median of 2.67x (IQR 2.00-3.56x), with short-term liquidity lagging peers. Efficiency: Return on Assets of 2.2% is 1.1pt below the industry median of 3.3% (IQR 1.8%-5.1%), indicating somewhat lower asset efficiency within the industry. Growth: Revenue growth of -4.6% is 7.4pt below the industry median of +2.8% (IQR -0.9% to +7.9%), showing a pronounced decline relative to peers. Note: Industry: Manufacturing (N=65 companies), Comparison: 2025 Q3 reporting period, Source: In-house compilation

Key Takeaways from Earnings

1. Addressing the Decline in Asset Turnover: The drop in Total Asset Turnover to 0.98x is mainly due to lower revenue and increases in fixed assets and receivables. Revenue recovery or asset rationalization (inventory reduction, accelerated receivables collection) will be key to improving ROE going forward.
2. Structural Shift in Surging Short-term Borrowings: Short-term borrowings expanded rapidly, up +70.3% YoY. Disclosure on refinancing terms and borrowing purposes (working capital vs. capex) is awaited. Rebalancing toward long-term debt or clarifying the repayment plan is essential to mitigate liquidity risk.
3. Assumptions to Achieve Full-year Guidance: To achieve full-year Operating Income of ¥4.7B (¥3.9B cumulative through Q3), approximately ¥0.8B in Operating Income is required in Q4 alone. Absent seasonality or order recovery, downside risk is elevated. The Payout Ratio is about 46.4% on a full-year basis; if earnings fall short, the dividend burden could become heavy.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled in-house from publicly available financial statements. Investment decisions are your own responsibility; consult a professional as needed before making any decisions.