NICHIHA CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Despite a decline in revenue, the Company achieved substantial profit growth. In particular, the sharp increase in net income was significantly driven by a temporary boost from gains on the sale of non-current assets. Revenue was ¥339.9B (¥348.7B in the previous year, YoY -2.5%), Operating Income was ¥18.9B (¥11.6B in the previous year, YoY +62.6%), Ordinary Income was ¥19.1B (¥9.5B in the previous year, YoY +100.4%), and Net Income attributable to owners of the parent was ¥24.0B (¥6.95B in the previous year, YoY +245.5%). The primary drivers of profit growth were improved gross margin and enhanced operating profitability resulting from SG&A expense controls. In addition, the recognition of a ¥13.3B gain on the sale of non-current assets (extraordinary income) resulted in particularly strong growth in net income.

Factors Behind Changes in Performance

【Revenue】Revenue was ¥339.9B, representing a YoY decline of -2.5%. The core Exterior Materials Business declined to ¥319.9B (YoY -2.5%), while Other Businesses declined to ¥26.8B (YoY -4.2%). Both businesses recorded declines, and Exterior Materials accounted for a high 92.3% of total reportable segment revenue. Since both segments recorded declines at similar rates, the background is considered to be softening demand across the overall business rather than an isolated factor attributable to a specific segment.

【Profit and Loss】Gross margin improved to 36.6% from 34.5% in the previous year, an improvement of +2.1pt, while the SG&A expense ratio edged down to 31.0% from 31.2%. As a result, the Operating Income margin improved by +2.2pt to 5.6% (3.3% in the previous year), and Operating Income increased +62.6% despite the decline in revenue. At the Ordinary Income level, lower interest expenses and foreign exchange gains contributed to a +100.4% increase in Ordinary Income. In addition, the recognition of a ¥13.3B gain on the sale of non-current assets (extraordinary income) resulted in a +245.5% increase in net income. This was a case of declining revenue but rising profits, with profit growth supported by both improved operating profitability and temporary extraordinary income.

Segment Analysis

The Exterior Materials Business generated revenue of ¥319.9B (YoY -2.5%), Operating Income of ¥25.4B (YoY +37.8%), and a profit margin of 7.9% (5.6% in the previous year), demonstrating improved profitability and representing the core business with 98.2% of reportable segment profit. Other Businesses (fiberboard, construction, FP, etc.) generated revenue of ¥26.8B (YoY -4.2%) and Operating Income of ¥0.5B (YoY +650.0%), expanding its profit despite lower revenue. Both segments showed the same direction of change—declining revenue and rising profit—suggesting that price maintenance and control of costs and expenses were effective across segments. Adjustments for Company-wide expenses and other items were -¥7.0B, accounting for the difference between total reportable segment profit of ¥25.9B and consolidated Operating Income of ¥18.9B.

Key Financial Indicators

【Profitability】The Operating Income margin of 5.6% improved by +2.2pt from 3.3% in the previous year, while the Net Income margin (based on income attributable to owners of the parent) rose by +5.1pt to 7.1% from 2.0%. However, the increase in the Net Income margin includes the contribution from extraordinary income, and the adjusted Net Income margin excluding extraordinary income and loss remains approximately 4.2%. 【Cash Quality】Trade receivables increased to ¥192.1B (+¥12.5B, +7.0%), and inventories increased to ¥186.1B (+¥8.3B, +4.7%), while trade payables decreased to ¥115.8B (-¥6.3B, -5.2%). This suggests that an increase in working capital may have constrained the conversion of profit into cash. 【Investment Efficiency】ROE was 2.0%, and asset efficiency remained relatively subdued under a capital structure with a high Equity Ratio of 73.3%. 【Financial Soundness】The Equity Ratio was 73.3%, up +1.3pt from 72.0% in the previous year. The Current Ratio was 318% and the Quick Ratio was 242%, maintaining a high level of short-term payment capacity. Cash and deposits of ¥221.0B exceeded interest-bearing debt of ¥157.0B, while Operating Income provided approximately 29.6 times coverage of interest expenses of ¥0.6B.

Cash Flow Analysis

Cash and deposits were ¥221.0B, down ¥25.96B (-10.5%) from ¥246.96B at the end of the same period of the previous year. While trade receivables increased to ¥192.1B (+¥12.5B, +7.0%) and inventories increased to ¥186.1B (+¥8.3B, +4.7%), trade payables decreased to ¥115.8B (-¥6.3B, -5.2%), indicating that the increase in working capital absorbed funds. Interest-bearing debt was ¥157.0B, nearly unchanged from ¥156.7B at the end of the same period of the previous year, suggesting limited dependence on financing through financial activities. Although a ¥13.3B gain on the sale of non-current assets was recognized as extraordinary income, the balance of property, plant and equipment remained broadly unchanged at ¥691.1B, compared with ¥693.3B in the previous year, indicating a limited impact of the transaction on the asset structure. Overall, while the accumulation of working capital associated with operating activities was a headwind to cash generation, cash and deposits remained well above short-term borrowings of ¥26.9B, preserving financial flexibility.

Earnings Quality

Recurring earnings power was largely concentrated in Operating Income of ¥18.9B. Non-operating income of ¥1.6B and non-operating expenses of ¥1.4B were both minor relative to revenue, and the difference from Ordinary Income of ¥19.1B was small. Meanwhile, the recognition of extraordinary income, primarily the ¥13.3B gain on the sale of non-current assets, lifted net income to ¥24.0B. Net extraordinary income and loss of ¥13.1B accounted for approximately 40.7% of pre-tax income of ¥32.2B and approximately 54.6% of net income of ¥24.0B. Adjusted pre-tax income excluding extraordinary income and loss was approximately ¥19.1B; applying an effective tax rate of 25.2% results in estimated adjusted net income of approximately ¥14.3B and an adjusted Net Income margin of approximately 4.2%. Although improvement is also confirmed on an adjusted basis compared with the Net Income margin of 2.0% in the same period of the previous year, the improvement was not as large as the reported Net Income margin of 7.1%. Accordingly, attention should be paid to the somewhat higher dependence of current-period earnings on non-recurring factors.

Earnings Forecast and Guidance

Progress against the full-year Company plan was 24.1% for revenue (¥339.9B against the plan of ¥1,410.0B), 19.7% for Operating Income (¥18.9B against the plan of ¥96.0B), 19.5% for Ordinary Income (¥19.1B against the plan of ¥98.0B), and 30.0% for net income (¥24.0B against the plan of ¥80.0B). While revenue was broadly in line with a levelized quarterly progression, Operating Income and Ordinary Income were below the simple prorated benchmark of 25%, indicating somewhat slower progress. The 30.0% progress for net income was primarily due to the upside from recognition of the ¥13.3B gain on the sale of non-current assets, and differs in nature from underlying earnings progress. No revisions were made to the earnings forecast (revenue and profit) during the quarter; however, the dividend forecast was revised to include a 70th anniversary commemorative dividend.

Shareholder Returns

The Company forecasts annual dividends of ¥121 for the fiscal year ending March 2027. The planned dividend for the end of Q2 (interim dividend) is ¥64, comprising an ordinary dividend of ¥57 plus a 70th anniversary commemorative dividend of ¥7. While the dividend forecast was revised to include the commemorative dividend, the earnings forecast itself (revenue and profit) was not revised. The Payout Ratio calculated from the annual dividend forecast of ¥121 against the Company’s forecast EPS of ¥240.94 is approximately 50.2%. Given the conservative financial foundation of cash and deposits of ¥221.0B and an Equity Ratio of 73.3%, no significant concern is apparent regarding dividend sustainability. There has been no disclosure regarding share repurchases, and shareholder returns are centered on dividends.

Risk Factors

1. Demand fluctuation risk: The Exterior Materials Business accounts for a high 92.3% of total reportable segment revenue, and revenue from this business declined -2.5% YoY. Because the business portfolio is concentrated in a single segment, fluctuations in housing-related demand may have a relatively significant impact on overall performance.

2. Working capital deterioration risk: Trade receivables increased +¥12.5B (+7.0%) and inventories increased +¥8.3B (+4.7%), while trade payables decreased -¥6.3B (-5.2%). Increases in receivables and inventories during a period of declining revenue could place pressure on cash-generation capacity.

3. Earnings quality risk: Approximately 54.6% of net income of ¥24.0B was derived from the gain on the sale of non-current assets (extraordinary income of ¥13.3B). This factor has low repeatability, and the sustainability of the accumulation of underlying Operating Income and Ordinary Income throughout the full year will be a key monitoring point.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Operating Income margin was 5.6%, improving by +2.2pt from 3.3% in the previous year, driven by an improvement in gross margin (+2.1pt) and a slight decline in the SG&A expense ratio. The improvement in the profit margin despite lower revenue suggests that fixed-cost controls and price and mix management were effective to a certain extent.

2. Approximately 54.6% of net income of ¥24.0B depended on the ¥13.3B gain on the sale of non-current assets. Estimated adjusted net income excluding extraordinary income and loss was approximately ¥14.3B, with an adjusted Net Income margin of approximately 4.2%. The 30.0% progress toward the full-year net income forecast was primarily due to this temporary factor, and a divergence from the progress rates for Operating Income and Ordinary Income, both in the 19% range, is evident.

3. Trade receivables and inventories increased (total increase of +¥20.8B), while trade payables decreased (-¥6.3B). Changes in working capital therefore warrant attention when assessing cash-generation capacity.

Theoretical Stock Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market stock price or a recommendation of any specific investment action.

Sensitivity: ¥3,353–¥3,545 at ±1% for the Cost of Equity, and ¥3,439–¥3,452 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the Cost of Equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not forecast or guarantee future stock prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL financial results summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available financial results data. Investment decisions should be made at your own discretion and responsibility, after consulting with professionals as necessary.

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