NAKABAYASHI (7987) FY2026 Q3 Earnings Report

Quick View

Executive Summary

These results were characterized by a significant increase in operating income despite a decline in revenue, reflecting improved profitability through cost and fixed-cost management. Revenue was ¥444.0B (-3.6% YoY), operating income was ¥16.4B (+78.4% YoY), and ordinary income was ¥19.3B (+63.4% YoY). Quarterly net income attributable to owners of the parent was ¥8.8B (+10.0% YoY), substantially below the growth rates at the operating and ordinary income levels. This was because an impairment loss of ¥12.3B was recorded as an extraordinary loss in the Energy Business, resulting in consolidated net income (including the difference before and after the deduction of profit or loss attributable to non-controlling interests) of ¥3.7B (-53.6% YoY).

Factors Affecting Performance

【Revenue】Revenue was ¥444.0B, down 3.6% YoY, with revenue declining in all three business segments. The Business Process Solutions Business generated ¥217.7B (-5.9% YoY), the Consumer Communications Business generated ¥219.7B (-0.7% YoY), and the Energy Business generated ¥9.7B (-12.1% YoY), against a backdrop of broad-based demand deceleration.

【Income and Loss】Despite the decline in revenue, the gross margin improved to 26.1% from 24.6% in the same period last year, while SG&A expenses decreased 4.6% YoY to ¥99.4B. As a result, operating income increased to ¥16.4B (+78.4% YoY). The improvement in profitability was driven by the Consumer Communications Business, whose operating income was ¥12.1B (+81.8% YoY), accounting for 73.4% of consolidated operating income. Ordinary income reached ¥19.3B (+63.4% YoY), aided by an improvement in non-operating income and expenses. However, extraordinary losses of ¥12.3B, including the ¥12.3B impairment loss in the Energy Business, exceeded extraordinary income of ¥4.2B, compressing profit before tax to ¥11.2B. Consequently, net income attributable to owners of the parent was limited to ¥8.8B (+10.0% YoY), resulting in a decline in revenue but an increase in earnings.

Segment Analysis

The Consumer Communications Business was the largest contributor to profit, with revenue of ¥219.7B (49.5% of total) and operating income of ¥12.1B (5.5% margin). The Business Process Solutions Business generated revenue of ¥217.7B (49.0% of total) and operating income of ¥5.2B (2.3% margin), maintaining profitability despite a YoY revenue decline. The Energy Business remained weak, with revenue of ¥9.7B (2.2% of total) and operating income of ¥0.1B (1.2% margin). The recording of an impairment loss of ¥12.3B in this business created a divergence between the recovery at the operating level and final net income.

Key Financial Indicators

【Profitability】The operating margin improved to 3.7%, up 1.7pt from 2.0% in the same period last year, while the gross margin also increased 1.5pt to 26.1%. On the other hand, the net profit margin, based on net income attributable to owners of the parent, remained at approximately 2.0%, indicating that profitability is still low.【Cash Flow Quality】The extraordinary loss of ¥12.3B was attributable to the impairment of the Energy Business. Although this is a non-cash expense, it is a negative signal regarding asset profitability. When assessing the sustainability of net income, it is important to verify underlying earnings power excluding extraordinary income and expenses.【Investment Efficiency】ROE was 1.7% on an annualized basis, and the equity ratio was 53.3%, indicating that capital efficiency is constrained by low profitability. Inventories were ¥78.0B, up 17.7% YoY, and inventory accumulation amid declining revenue is a point of concern regarding working capital efficiency.【Financial Soundness】Working capital remains at a sound level, with current assets of ¥291.4B versus current liabilities of ¥149.4B. The composition of interest-bearing debt is becoming increasingly long-term, centered on long-term borrowings of ¥69.5B.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is not available, the balance sheet trends indicate that cash and deposits were ¥62.5B, down ¥14.9B from ¥77.4B in the same period last year. While inventories increased 17.7% YoY to ¥78.0B, accounts receivable decreased 8.8% YoY to ¥94.0B, and accounts payable decreased 10.2% YoY to ¥38.6B. The increase in inventories and reduction in trade payables are working to intensify the use of funds in working capital. Short-term borrowings were ¥46.2B and long-term borrowings were ¥69.5B, both down from the same period last year, indicating progress in reducing interest-bearing debt. Investment securities increased to ¥36.2B from ¥30.8B in the same period last year. Together with a gain on the sale of investment securities of ¥2.0B recorded in extraordinary income, this suggests that asset replacement took place.

Quality of Earnings

In these results, the improvement in operating income to ¥16.4B carried through to a certain extent to ordinary income of ¥19.3B. However, the quality of earnings at the net income level declined due to the impact of extraordinary income and expenses. Nearly all of the extraordinary loss of ¥12.3B consisted of the ¥12.3B impairment loss in the Energy Business, while extraordinary income of ¥4.2B included non-recurring items such as a ¥2.0B gain on the sale of investment securities and a ¥0.4B gain on the sale of fixed assets. These temporary factors reduced profit before tax to ¥11.2B, and net income attributable to owners of the parent of ¥8.8B did not fully reflect the growth at the operating and ordinary income levels. Comprehensive income was ¥6.8B. Changes in other comprehensive income, including foreign currency translation adjustments of -¥1.8B and valuation difference on available-for-sale securities of +¥4.0B, affected the difference from net income (¥3.7B on a consolidated basis). This indicates that the period's earnings remain susceptible to valuation-related and highly temporary items.

Earnings Forecast and Guidance

Progress against the full-year company forecast was 69.9% for revenue, 64.8% for operating income, 60.8% for ordinary income, and 48.9% for net income (on an attributable-to-owners-of-the-parent basis), all below the simple 75% benchmark. The particularly low progress rate for net income was significantly affected by the temporary factor of the ¥12.3B impairment loss in the Energy Business. In Q4, the Company needs to generate additional revenue of ¥191.0B and operating income of ¥8.9B. To achieve the full-year forecast, profitability above the 3.7% operating margin recorded for the cumulative Q3 period, or seasonally concentrated revenue, will be required.

Shareholder Returns

The Q2 dividend was ¥10.00 per share, and the full-year dividend forecast is ¥22.00. Based on forecast EPS of ¥65.84, the forecast payout ratio is approximately 33.4%, below the generally accepted sustainability guideline of 60%. However, net income attributable to owners of the parent in Q3 was compressed by the impairment loss in the Energy Business. Accordingly, the sustainability of the recovery in operating income will be a key focus when assessing future dividend capacity. Treasury stock increased by ¥1.9B (+28.0%) YoY, so the trend in the amount deducted from shareholders' equity should also be monitored separately from the payout ratio.

Risk Factors

1. Declining profitability and impairment in the Energy Business: The business remained weak, with revenue of ¥9.7B (-12.1% YoY) and operating income of ¥0.1B (-42.9% YoY), and recorded an impairment loss of ¥12.3B. The outlook for asset profitability and the potential for additional losses are important monitoring points.

2. Increase in inventories and inventory efficiency: Inventories increased 17.7% YoY to ¥78.0B. Inventory accumulation amid declining revenue entails the risk of gross margin deterioration through inventory write-downs and discount sales.

3. Concentration of profit in the core business: The Consumer Communications Business accounts for 73.4% of consolidated operating income, meaning that demand trends and changes in profitability in this business have a significant impact on company-wide performance.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

The Company's profitability is substantially below the industry median for both operating margin and net profit margin, placing it in the low-profitability range within the industry.

Growth and Capital Efficiency

Revenue growth is also below the industry median, with the Company experiencing a decline in revenue while the industry average is on a growth trajectory.

※Source: Company analysis

Key Points in the Financial Results

1. Despite a 3.6% decline in revenue, operating income increased 78.4% due to gross margin improvement and SG&A reductions, indicating a change in the earnings structure in which operating leverage was effective.

2. The ¥12.3B impairment loss in the Energy Business created a divergence between the recovery at the operating level and final net income, reducing the progress rate toward the full-year net income forecast to 48.9%.

3. The increase in inventories (+17.7% YoY) represents a change in working capital efficiency amid declining revenue. Future inventory trends will be a key focus in evaluating the quality of earnings.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥951–¥1,007 at cost of equity ±1%, and ¥975–¥981 at ω±0.1.

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 from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market stock price or a recommendation of any specific investment action, and does not predict or guarantee future stock prices.)

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. 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 a professional as necessary.

---End of Report---