Nice (8089) FY2026 Q3 Earnings Report

Quick View

Executive Summary

For the cumulative Q3 period of FY2026, Revenue and earnings both increased, with earnings indicators from Operating Income onward improving at a pace substantially exceeding Revenue growth. Revenue was ¥1887.1B (+10.4% YoY), Operating Income was ¥28.2B (+95.9%), Ordinary Income was ¥27.1B (+104.8%), and Net Income was ¥17.6B (+281.8%). The decline in the SG&A ratio accompanying Revenue growth and the recognition of extraordinary income supported earnings expansion, indicating the emergence of operating leverage.

Factors Affecting Performance

【Revenue】Revenue increased 10.4% YoY to ¥1887.1B. By segment, Building Materials accounted for ¥1477.3B (78.3% of total), while Housing accounted for ¥349.7B (18.5%), with Building Materials remaining the core source of Revenue. The Housing Business increased Revenue YoY, and segment profit also grew substantially, confirming the resilience of housing demand.

【Profit and Loss】Operating Income increased 95.9% YoY to ¥28.2B, substantially exceeding the Revenue growth rate. Under a gross margin of 13.8% and an SG&A ratio of 12.3%, the Operating Income margin improved to 1.5% (up from approximately 0.8% in the previous year). By segment, the Housing Business made the largest profit contribution at ¥16.8B, with a profit margin of 4.8%, exceeding the 1.1% margin of Building Materials. Ordinary Income was ¥27.1B (+104.8%), while Net Income was ¥17.6B (+281.8%); however, part of the growth in Net Income was attributable to extraordinary income, including a ¥1.2B gain on the sale of investment securities, a temporary factor, and therefore exceeded the growth in recurring earnings power to some extent. In conclusion, both Revenue and earnings increased.

Segment Analysis

The Building Materials Business continued to operate as a low-margin trading business, with Revenue of ¥1477.3B (78.3% of total), Operating Income of ¥16.1B, and a profit margin of 1.1%. The Housing Business generated Revenue of ¥349.7B (18.5% of total), Operating Income of ¥16.8B, and a profit margin of 4.8%. Although its Revenue scale is smaller, its profit contribution was approximately at the same level as Building Materials, making a substantial contribution to the improvement in consolidated profitability. Operating Income for the Housing Business more than doubled from ¥7.4B in the previous year period to ¥16.8B, making it the primary driver of earnings growth.

Key Financial Indicators

【Profitability】The Operating Income margin was 1.5%, improving from 0.8% in the previous year period, while the gross margin of 13.8% reflects the low-margin trading business structure, and the Net Income margin remained at 0.9%. 【Cash Quality】Cash and deposits were ¥222.6B, compared with accounts receivable and notes receivable of ¥316.1B and accounts payable and notes payable of ¥239.1B. Working capital had a ¥302.0B cushion, based on current assets of ¥1121.5B and current liabilities of ¥819.5B. 【Investment Efficiency】ROE was 2.7%, with the low Net Income margin being the primary factor constraining capital efficiency. EPS was ¥137.19 (up +309.3% from ¥33.52 in the previous year), and BPS was ¥4,906.77. 【Financial Soundness】The Equity Ratio was 35.8%. Interest-bearing debt, including long-term borrowings of ¥216.4B, accounted for a certain proportion of total assets, while the debt structure had a high weighting of short-term borrowings.

Cash Flow Analysis

As individual data from the cash flow statement has not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits were ¥222.6B, down from ¥255.7B in the previous year period, while inventories, including real estate held for sale, and investment securities increased. Short-term borrowings increased from ¥192.3B in the previous year to ¥276.1B, suggesting that part of the asset expansion may have been financed with short-term funding. Accounts payable and notes payable were ¥239.1B, slightly down from ¥248.5B in the previous year, indicating a slight decline in reliance on trade payables for funding.

Quality of Earnings

Net Income increased substantially by +281.8% YoY, but it is important to note that this growth included temporary factors. Of the ¥1.7B in extraordinary income, the gain on the sale of investment securities accounted for ¥1.2B, equivalent to approximately 4.3% of pre-tax income of ¥28.5B. In non-operating income and expenses, dividend income of ¥2.0B was recorded against interest expenses of ¥6.3B, indicating the continuation of a structure in which financial expenses exceed financial income. Comprehensive income was ¥32.2B, exceeding Net Income of ¥17.6B, with the difference primarily attributable to a ¥14.1B increase in valuation difference on securities, a factor separate from the business’s recurring earnings power. Based on the above, the improvement in Operating Income and Ordinary Income was largely driven by business activities, but the extent of Net Income growth also included the impact of temporary income recognition.

Earnings Forecasts and Guidance

Progress toward the full-year forecasts of Revenue of ¥2600.0B, Operating Income of ¥48.0B, and Ordinary Income of ¥44.0B was 72.6% for Revenue, 58.8% for Operating Income, and 61.6% for Ordinary Income. While Revenue progress was close to the standard level for cumulative Q3 performance, with 75% as a benchmark, progress on earnings indicators was relatively low, requiring approximately ¥19.8B in additional Operating Income in Q4. Neither the earnings forecasts nor the dividend forecasts have been revised, and the full-year outlook remains unchanged.

Shareholder Returns

The Q2 dividend was ¥28 per share, and the full-year dividend forecast is ¥72. Based on Net Income for the period, the Payout Ratio is approximately 28.6%, calculated using the forecast dividend of ¥72 against forecast EPS of ¥251.93 for the full year. As the dividend forecast has not been revised and no disclosure has been made regarding share repurchases, shareholder returns are evaluated using the Payout Ratio.

Risk Factors

1. Dependence on short-term funding: Short-term borrowings were ¥276.1B, increasing from the previous year. Compared with cash and deposits of ¥222.6B, this creates a structure in which changes in the refinancing environment could readily affect financial costs.

2. Earnings vulnerability due to the low-margin structure: With a gross margin of 13.8% and an Operating Income margin of 1.5%, the earnings buffer is thin, making earnings particularly sensitive to fluctuations in raw material prices, logistics expenses, and labor costs.

3. Sustainability of Net Income: The substantial increase in Net Income included temporary factors such as the ¥1.2B gain on the sale of investment securities. The difference from recurring earnings growth excluding extraordinary income and expenses should continue to be monitored.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

Profitability underperformed the industry median, reflecting the low-margin trading business structure.

Growth and Capital Efficiency

The Revenue growth rate exceeded the industry median, placing the expansion of the top line in a relatively favorable position within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The Operating Income margin improved to 1.5% and rose from the previous year, but remained low compared with the industry median of 3.3%. Even amid continued Revenue growth, margin improvement will remain an important structural area to monitor.

2. Operating Income for the Housing Business doubled from the previous year, exceeding the Building Materials Business in terms of profit contribution. The impact of changes in the weighting of the Housing Business within the business portfolio on the earnings structure warrants attention.

3. Progress toward the full-year earnings forecasts—58.8% for Operating Income and 61.6% for Ordinary Income—was lower than Revenue progress of 72.6%, confirming a high concentration of profit recognition in Q4.

---

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

---End of Report---

---

AI Financial Analysis

Executive Summary

FY2026 Q3 cumulative performance was materially stronger year on year, led by revenue growth and a sharp recovery in operating profitability, although absolute margins and capital returns remain modest. Revenue increased 10.4% YoY to ¥188.7bn. Operating income nearly doubled, rising 95.9% YoY to ¥2.82bn. Ordinary income rose 104.8% YoY to ¥2.71bn. Profit attributable to owners of parent increased 311.6% YoY to ¥1.63bn, equivalent to EPS of ¥137.19. Gross profit expanded 11.4% YoY to ¥26.12bn, slightly outpacing sales growth. The gross margin improved by approximately 12bp YoY to 13.8%. The operating margin improved by approximately 65bp YoY to 1.5%, reflecting substantial operating leverage from the higher gross profit base. SG&A expenses rose only 5.0% YoY to ¥23.29bn, materially below the 10.4% revenue growth rate. This cost discipline was the principal driver of the operating-profit recovery. Building Materials remained the largest business by revenue and segment profit contribution, while Housing delivered the strongest earnings growth. The reported annualized ROE was 3.4%, showing that the earnings rebound has not yet translated into strong returns on shareholders' capital. The annualized ROIC of 2.6% is also below a level that would indicate adequate returns for an asset- and debt-intensive business model. Profit before tax was supported by ¥0.17bn of net extraordinary gains, including a ¥0.12bn gain on sales of investment securities, but this was not the main driver of the earnings recovery. Full-year guidance implies that Q4 operating income will need to improve substantially versus the Q3 cumulative run rate, as nine-month operating-income progress is only 58.8% against the full-year target. The FY dividend forecast of ¥72 per share implies a payout ratio of approximately 28.6% based on forecast EPS of ¥251.93, leaving scope for earnings retention if the forecast is achieved. The central issues into Q4 are conversion of sales growth into a sustainably higher operating margin, execution in the Housing segment, and management of increased short-term funding dependence.

Profitability Analysis

The reported annualized DuPont ROE of 3.4% decomposes into a 0.9% net profit margin, annualized asset turnover of 1.406x, and financial leverage of 2.79x. The dominant constraint on ROE is the low net margin rather than weak asset turnover. Financial leverage provides a meaningful uplift to equity returns, but it does not overcome the thin underlying earnings margin. Gross margin improved to 13.8% from approximately 13.7% in the prior-year period, a modest improvement of about 12bp. Operating margin expanded more materially to 1.5% from 0.8%, or approximately 65bp, because SG&A growth of 5.0% was well below revenue growth of 10.4%. This favorable operating leverage is encouraging and suggests that the earnings recovery was driven primarily by improved cost absorption rather than by a large change in gross-margin structure. Nevertheless, the 1.5% EBIT margin remains well below the 5% threshold typically associated with satisfactory operating efficiency. This low operating-efficiency quality alert is material: modest changes in procurement conditions, housing demand, selling prices, or logistics costs could have a disproportionate effect on profit. The 13.8% gross margin also remains below the 20% reference level, highlighting the structurally low-margin nature of the distribution-led business model and limiting capacity to absorb cost inflation. Interest expense of ¥0.63bn consumed a significant portion of operating income, with interest coverage of 4.50x; this is serviceable but below the 5x level associated with stronger debt protection. The tax burden ratio of 57.3% is below the normal 70% reference point, indicating that only a limited portion of pre-tax income converted into earnings attributable to owners. Tax expense represented 38.0% of profit before tax, and the tax burden remains an earnings-conversion consideration despite the strong YoY increase in net profit. The annualized ROIC of 2.6% is below the 5% warning threshold, indicating that operating returns remain low relative to the capital deployed in property, inventories, receivables, and the business portfolio. Improving ROE sustainably therefore requires further margin expansion and/or improved capital productivity, rather than additional balance-sheet leverage.

Growth Assessment

Revenue growth was broad-based across the principal operating segments. Building Materials external revenue increased 7.1% YoY to ¥145.83bn, while segment profit declined 2.2% to ¥1.61bn; its segment margin therefore compressed from approximately 1.2% to 1.1%. As the largest contributor to revenue and segment profit, Building Materials is the core business, and its modest profit decline despite higher sales indicates that procurement, pricing, mix, or distribution costs require close monitoring. Housing external revenue increased 23.4% YoY to ¥34.89bn. Housing segment profit more than doubled to ¥1.68bn from ¥0.74bn, lifting its segment margin to approximately 4.8% from 2.6%. Other businesses increased external revenue 24.5% YoY to ¥7.99bn and segment profit 106.7% to ¥0.87bn, producing a segment margin of approximately 10.8%. The stronger profitability of Housing and Other more than offset the slight earnings decline in Building Materials at the segment level. Consolidated operating-income growth also benefited from lower corporate costs, which decreased to ¥1.34bn from ¥1.40bn. Full-year revenue guidance is ¥260.0bn, and Q3 cumulative revenue progress is 72.6%, slightly below the standard 75% progress rate. Q3 cumulative operating income represents 58.8% of the ¥4.8bn full-year forecast, 16.2 percentage points below standard seasonal progress. Ordinary income progress is 61.6% versus the ¥4.4bn forecast, also below the 75% reference. Profit attributable to owners has reached 54.4% of the ¥3.0bn forecast. Accordingly, achievement of guidance depends on a considerably stronger Q4 profit contribution than the cumulative nine-month profile suggests. Management has not revised its earnings forecast, indicating confidence in the final-quarter outlook, but the implied Q4 operating income requirement is approximately ¥1.98bn.

Financial Health

Liquidity is adequate on reported balance-sheet measures, with a current ratio of 136.9% and a quick ratio of 126.0%. Current assets of ¥112.15bn exceed current liabilities of ¥81.95bn by ¥30.20bn. The current ratio is above 1.0x, so there is no immediate current-liability coverage warning. However, the funding structure carries a notable refinancing risk because short-term loans increased 43.6% YoY to ¥27.61bn. Short-term loans account for 56.1% of interest-bearing debt, above the 40% quality-alert threshold, meaning a substantial portion of funding must be renewed or repaid within a relatively short period. Cash and deposits of ¥22.26bn cover only 0.81x of short-term loans, below full cash coverage. This does not indicate an immediate liquidity shortfall given working capital and receivables, but it increases sensitivity to banking conditions and seasonal working-capital needs. Total interest-bearing debt was ¥49.25bn, comprising ¥27.61bn of short-term loans and ¥21.64bn of long-term loans. Debt-to-equity was 1.79x, below the explicit 2.0x aggressive-leverage warning level but still elevated relative to a conservative capital structure. Debt represented 43.4% of total capital, moderately above the 40% investment-grade reference. Net debt was approximately ¥26.99bn after cash, equivalent to roughly 0.42x total equity. Equity increased 4.1% YoY to ¥64.16bn, supported in part by comprehensive income of ¥3.22bn and positive valuation differences on securities. Non-controlling interests totaled ¥5.62bn, so owners' equity was ¥58.54bn. Real estate for sale increased ¥135.71bn YoY to ¥305.86bn, increasing capital tied to property inventory and making project turnover and valuation discipline important. The defined-benefit liability was ¥1.52bn and is a manageable long-term obligation relative to total equity.

Notable B/S Changes

Short-term loans: +¥8.38bn (+43.6%) to ¥27.61bn - increased short-term funding reliance elevates refinancing and interest-rate sensitivity. Real estate for sale: +¥135.71bn (+60.7%) to ¥305.86bn - substantially more capital is committed to property inventory, increasing the importance of sales velocity and valuation discipline. Investment securities: +¥18.01bn (+17.1%) to ¥123.15bn - alongside positive valuation differences on securities, this contributed to stronger comprehensive income and increases exposure to market-value movements. Cash and deposits: -¥3.30bn (-12.9%) to ¥222.63bn - lower cash alongside higher short-term loans reduced cash coverage of short-term debt to 0.81x.

Cash Flow Quality

Dividend Sustainability

The company paid an interim dividend of ¥28 per share and maintains a full-year dividend forecast of ¥72 per share. Based on forecast EPS of ¥251.93, the forecast dividend payout ratio is approximately 28.6%. This is below the 60% sustainability reference level and indicates that the stated dividend is conservatively covered by forecast accounting earnings. The interim dividend represents 38.9% of the planned full-year DPS, implying a ¥44 per share year-end dividend under the unchanged forecast. Retained earnings totaled ¥199.96bn, providing a substantial accounting-equity buffer relative to the planned dividend. Dividend sustainability is nevertheless linked to delivery of the back-end-loaded full-year profit forecast, since nine-month profit attributable to owners represents 54.4% of the full-year target. Capital allocation should also be considered in the context of the ¥49.25bn interest-bearing debt balance, ¥30.59bn real-estate-for-sale balance, and increased reliance on short-term loans. The forecast payout level leaves room to prioritize balance-sheet resilience and working-capital funding while maintaining the current dividend plan.

Risk Assessment

Business risks include Building Materials, the core business, increased revenue 7.1% YoY but saw segment profit decline 2.2%, exposing the group to margin pressure from procurement costs, pricing competition, freight costs, and customer mix., The 13.8% gross margin and 1.5% EBIT margin leave limited buffer against construction-demand volatility, housing-market weakness, input-cost inflation, or delays in passing costs through to customers., Real estate for sale increased ¥135.71bn YoY to ¥305.86bn, creating exposure to property-market conditions, project execution, inventory turnover, and potential valuation pressure., Housing drove a large portion of segment-profit growth; sustaining group earnings therefore depends on continued project execution and demand in the residential market..

Financial risks include Short-term loans rose 43.6% YoY to ¥27.61bn and represented 56.1% of interest-bearing debt, creating elevated refinancing risk and reliance on continued bank funding., Cash covered only 0.81x of short-term loans, so liquidity management depends on receivable collection, inventory turnover, and access to external funding., Debt-to-equity of 1.79x is below the 2.0x explicit warning level but remains elevated, while debt/capital of 43.4% is above the 40% investment-grade reference., Interest coverage of 4.50x is adequate but below the 5x strong-coverage reference; higher interest rates or lower operating income would reduce debt-service headroom., Annualized ROIC of 2.6% is below the 5% warning threshold, indicating that returns on capital remain insufficiently robust for the balance-sheet intensity of the group..

Key concerns include HIGH_TAX_BURDEN: the 57.3% tax-burden ratio is below the normal 70% benchmark, reducing conversion of pre-tax earnings into profit attributable to owners. The impact is material because a thin-margin business requires efficient earnings conversion to build capital internally., LOW_OPERATING_EFFICIENCY: the 1.5% EBIT margin is below the 5% reference threshold. While the margin improved by approximately 65bp YoY, the current level remains vulnerable to relatively small adverse movements in costs or sales mix., REFINANCING_RISK: the 56.1% short-term debt ratio is above the 40% alert threshold. This funding mix may be common for working-capital-intensive distribution and real-estate activities, but the 43.6% YoY rise in short-term loans increases exposure to lending terms and interest rates., CAPITAL_EFFICIENCY: annualized ROIC of 2.6% is below the 5% warning level. The improvement in operating profit is positive, but the group must improve margins and asset turnover to earn adequate returns on its property, receivables, and debt-funded capital base., LOW_GROSS_MARGIN: gross margin of 13.8% is below the 20% alert reference. The modest 12bp YoY improvement is constructive, but the low-margin structure constrains resilience and makes disciplined SG&A management essential., Full-year operating-income progress of 58.8% at Q3 is 16.2 percentage points below standard seasonal progress, requiring a strong final quarter to meet unchanged guidance..

Investment Implications

Key takeaways include Revenue growth of 10.4% and operating-income growth of 95.9% demonstrate a meaningful earnings recovery, supported by favorable SG&A leverage., Housing and Other businesses generated the strongest segment-profit growth, whereas the core Building Materials segment recorded lower profit despite higher revenue., Margins remain structurally thin, with a 13.8% gross margin, 1.5% operating margin, and 0.9% net margin., The balance sheet is liquid on current and quick ratios, but the increase in short-term borrowing and the 56.1% short-term debt mix heighten refinancing sensitivity., The unchanged full-year forecast requires a strong Q4, particularly for operating income and profit attributable to owners..

Metrics to watch include Building Materials segment margin and segment-profit trend, Housing segment revenue, margin, and project profitability, Q4 operating income versus the approximately ¥1.98bn implied requirement for full-year guidance, Short-term loans, cash/short-term debt coverage, and interest coverage, Real estate for sale turnover and valuation, Annualized ROIC and operating-margin progression, Tax burden and conversion of pre-tax income into earnings attributable to owners.

Regarding relative positioning, The company shows improving earnings momentum and adequate reported liquidity, but its profitability and capital efficiency remain weak relative to broad corporate benchmarks. Its low-margin, working-capital-intensive profile makes cost control, asset turnover, and funding discipline more important than topline growth alone.