NICHIHA (7943) FY2026 Q3 Earnings Report

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Executive Summary

The Company delivered earnings with improved profitability despite lower revenue, as control of costs and fixed expenses drove profit growth. Revenue was ¥10.930B (-2.5% YoY), Operating Income was ¥6.27B (+12.3% YoY), Ordinary Income was ¥6.74B (+8.3% YoY), and Net Income was ¥4.54B (+20.7% YoY). The primary factors behind the improvement in margins were the maintenance of unit prices for domestic ceramic siding and the absorption of manufacturing fixed costs through changes in inventory levels.

Factors Affecting Earnings

【Revenue】Revenue was ¥10.930B, down 2.5% YoY. The domestic business recorded lower revenue due to sluggish housing starts and a decline in sales volume of metal-based exterior materials; the U.S. business was affected by weak demand for housing, while the Chinese business was impacted by the prolonged downturn in the real estate market. Meanwhile, domestic non-residential applications grew 14.0% YoY, and U.S. premium commercial products also recorded revenue growth on a local-currency basis, indicating that certain business areas continued to grow.

【Profit and Loss】Operating Income was ¥6.27B (+12.3% YoY), and the Operating Income margin improved to 5.7% from approximately 5.0% in the previous year. Profit growth was supported by securing a gross margin of 35.1% while controlling the SG&A expense ratio at 29.4%; improvements in manufacturing fixed-cost absorption through changes in domestic business inventory levels and stable materials costs also contributed. Ordinary Income was ¥6.74B (+8.3% YoY), supported by non-operating income, including a foreign exchange gain of ¥0.25B. Extraordinary losses of ¥0.25B, mainly consisting of ¥0.23B in losses on disposal of fixed assets, were temporary factors and affected Net Income attributable to owners of the parent by only approximately 5%. Overall, the Company delivered lower revenue but higher profits.

Segment Analysis

The only disclosed segment is Exterior Building Materials, with revenue of ¥10.291B, Operating Income of ¥0.819B, and a profit margin of 8.0%, making it the core business and accounting for more than 94% of total Company revenue. According to the regional breakdown disclosed in the PDF materials, the domestic business led profit growth, with Operating Income increasing to ¥4.7B (+20.1%), supported by manufacturing fixed-cost absorption through changes in inventory levels and improvements in logistics costs. The U.S. business recorded lower Operating Income of ¥0.8B (-43.8%) on a yen basis, but improved by +25.7% on a local-currency basis, indicating that the stronger yen pushed down the yen-converted figure. The Chinese business recorded Operating Income of ¥0.28B (+215.7% on a local-currency basis) and returned to profitability compared with Q2 despite the prolonged weakness in the real estate market.

Key Financial Indicators

Profitability: ROE of 3.8% and Operating Income margin of 5.7% (improved from approximately 5.0% in the previous year)
Cash quality: Cash and deposits of ¥1.925B decreased by ¥7.2B YoY, primarily due to the reduction of short-term borrowings and payment of corporate taxes and other taxes
Investment efficiency: While capital expenditure trends are limited based on the disclosed data, tangible fixed assets of ¥7.097B account for 41.6% of total assets, indicating an asset-intensive structure
Financial soundness: Equity Ratio of 70.6% (70.2% in the previous year) and current ratio of 272.4%

Cash Flow Analysis

Cash and deposits were ¥1.925B, down ¥7.2B YoY. Short-term borrowings were reduced to ¥0.277B from ¥0.422B in the previous year, indicating conservative financial management. Long-term borrowings increased to ¥1.302B from ¥1.164B in the previous year, suggesting that the Company is extending the maturity of its funding. Inventory levels—finished products of ¥1.906B, raw materials of ¥0.703B, and work in process of ¥0.311B—should continue to be monitored for their impact on working capital from the perspective of inventory turnover efficiency. Cash generation is assessed as standard, given that cash and deposits declined despite profit growth.

Earnings Quality

The gap between Ordinary Income of ¥6.74B and Net Income of ¥4.54B was primarily attributable to corporate taxes and other taxes of ¥1.96B, resulting in an effective tax rate of approximately 30.2%. Non-operating income of ¥0.83B amounted to only 0.8% of revenue, indicating limited reliance on non-operating items. Extraordinary losses of ¥0.25B, mainly consisting of losses on disposal of fixed assets, should be treated as temporary factors and do not affect recurring earnings power. Comprehensive income was ¥2.62B, ¥1.93B below Net Income of ¥4.54B, primarily due to foreign currency translation adjustments of -¥2.95B. The impact of foreign exchange fluctuations on net assets requires continued monitoring.

Earnings Forecast and Guidance

Progress against the full-year forecast was 75.4% for revenue (generally consistent with standard progress of 75%), 62.7% for Operating Income, and 65.4% for Ordinary Income, all below standard progress. Meanwhile, cumulative Net Income of ¥4.54B had already exceeded the full-year forecast of ¥3.00B, suggesting that the full-year plan may be conservative and incorporates one-time expenses and other factors in Q4. The full-year forecast calls for substantial YoY profit growth of +43.8% for Operating Income and +42.0% for Ordinary Income, premised on the continued improvement of profit margins in the second half.

Shareholder Returns

The Q2 dividend was ¥57.00 per share, while the full-year forecast dividend is ¥114.00 (interim ¥57 and year-end ¥57). The forecast Payout Ratio against forecast EPS of ¥89.07 is approximately 128.0%, a level at which dividends cannot be fully funded by full-year Net Income alone. Nevertheless, retained earnings of ¥90.36B and cash and deposits of ¥1.925B provide substantial internal reserves and sufficient capacity to fund dividends in the near term. No disclosure regarding share buybacks was identified; accordingly, this report evaluates only the Payout Ratio.

Catalysts

【Short term】The key focus is how Q4 results will compare with the full-year plan (Operating Income of ¥10.0B and Net Income of ¥3.0B), particularly the consistency of a plan under which Net Income falls below the Q3 cumulative result. 【Long term】Attention will focus on the sustainability of growth areas that offset weak housing market conditions, including expansion in domestic non-residential applications (+14.0% YoY) and growth in U.S. premium commercial products.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability is below the industry median.

Growth and Capital Efficiency

Revenue growth is significantly below the industry median and is near the lower bound of the IQR.

※Source: Compiled by the Company

Risk Factors

1. Inventory accumulation risk: The Company holds finished-product inventory of ¥1.906B, raw materials of ¥0.703B, and work in process of ¥0.311B, creating risks of inventory write-downs and funds becoming tied up during periods of demand volatility.

2. Foreign exchange risk: While the Company recorded a foreign exchange gain of ¥0.25B, foreign currency translation adjustments were -¥2.95B, reducing Comprehensive Income by ¥1.93B. The yen-converted results of the U.S. and Chinese businesses are susceptible to foreign exchange movements.

3. Risk of weak regional demand: Weak domestic new housing starts, a delayed recovery in the U.S. housing market, and the prolonged downturn in the Chinese real estate market continue to affect sales volumes in the core Exterior Building Materials business.

Key Points in the Earnings

1. Despite lower revenue, the Operating Income margin improved. The contribution of manufacturing fixed-cost absorption through changes in inventory levels and the maintenance of prices to improved profitability is noteworthy as a qualitative change in the earnings structure.

2. The full-year Net Income forecast of ¥3.00B is below the Q3 cumulative result of ¥4.54B, indicating a conservative outlook that incorporates expenses and other items in Q4. This is an important consideration when interpreting the guidance.

3. The forecast Payout Ratio is high at approximately 128.0%, but the Company plans to pay a dividend of ¥114 against retained earnings of ¥90.36B. The sustainability of dividend funding should be monitored in balance with fluctuations in earnings.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,899–¥3,057 at ±1% for the cost of equity, and ¥2,957–¥2,989 at ±0.1 for ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burdens, acquisition-related expenses, and non-controlling interests (Net Income ÷ Operating Income 30%). This value reflects that compression at face value; if these factors are temporary, normalized earnings power may be higher.
• 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 mismatch with the full-year forecast).

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not 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 through an integrated analysis of XBRL earnings summary data and PDF earnings presentation materials. 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 responsibility, after consulting professionals as necessary.

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