NICHIMO CO.,LTD. FY2027 Q1 Earnings Report

Quick View

Executive Summary

Despite higher revenue, earnings declined due to deterioration in the gross margin and operating margin, highlighting that top-line growth has not been sufficient to absorb rising costs. Revenue increased to ¥37.76B (+6.9% YoY), while Operating Income declined to ¥0.81B (-21.9%), Ordinary Income to ¥1.02B (-13.3%), and Net Income to ¥0.73B (-14.1%). Revenue growth in the Food and Materials segments and higher earnings in the Ocean Business provided support, but declines in revenue and earnings in the Machinery Business, together with company-wide cost increases, resulted in a higher-revenue, lower-earnings structure.

Factors Affecting Performance

【Revenue】Revenue increased 6.9% YoY to ¥37.76B. By segment, Food was the largest at ¥24.35B (+9.5%), Materials achieved strong growth at ¥2.95B (+18.3%), and Ocean also grew to ¥6.72B (+7.1%). In contrast, Machinery declined to ¥3.48B (-11.4%), showing a trend contrasting with the other businesses in terms of demand.

【Profit and Loss】Operating Income declined significantly by 21.9% YoY to ¥0.81B. The gross margin declined by approximately 0.9pt from the previous year to 8.7%, while SG&A expenses increased 5.4% to ¥2.48B, putting pressure on operating-level margins. By segment, Ocean was the largest contributor to earnings growth, with Operating Income increasing 27.9% to ¥0.43B. However, Food declined 9.2% to ¥0.39B and Machinery declined 30.1% to ¥0.37B, directly contributing to the company-wide decline in Operating Income. Ordinary Income declined 13.3% to ¥1.02B, with dividend income of ¥0.18B and an increase of ¥0.14B in equity-method investment gains/losses partially offsetting the decline in Operating Income. Net Income declined 14.1% to ¥0.73B. Extraordinary losses of ¥0.06B, including losses on disposal of fixed assets, were recorded as a temporary factor, but the amount was small and its impact on earnings was limited. Overall, the results reflected higher revenue but lower earnings, as rising costs and deteriorating profitability in certain segments reduced margins.

Segment Analysis

The Ocean Business was the largest earnings contributor, with Operating Income of ¥0.43B (+27.9% YoY) and a 6.3% margin; it also recorded the highest earnings growth rate among all segments. The Food Business was overwhelmingly the largest in terms of scale, with revenue of ¥24.35B (+9.5%), but its Operating Income declined 9.2% to ¥0.39B, with a low 1.6% margin, making it the primary cause of the higher-revenue, lower-earnings result. The Machinery Business recorded declines in both revenue and earnings, with revenue of ¥3.48B (-11.4%) and Operating Income of ¥0.37B (-30.1%). Although its 10.7% margin was the highest, the reversal of operating leverage due to declining demand had a negative impact. The Materials Business achieved higher revenue and earnings, with revenue of ¥2.95B (+18.3%) and Operating Income of ¥0.14B (+27.1%). Biotics (-¥0.015B) and Logistics (-¥0.004B) recorded losses despite their small scale. The segment mix indicates a structure in which a lower weighting of the high-margin Machinery and Ocean businesses places downward pressure on overall profitability.

Key Financial Indicators

【Profitability】The Operating Income margin was 2.1%, down approximately 0.8pt from 2.9% in the previous year, while the Net Income margin also contracted to 1.9% from 2.4%. The gross margin declined to 8.7% from 9.6% in the previous year, with rising costs outweighing the benefits of controlling SG&A expenses.【Cash Quality】Non-operating income was ¥0.37B, mainly consisting of dividend income of ¥0.18B and equity-method investment gains/losses of ¥0.14B. As this represented only approximately 1.0% of revenue, its impact on Ordinary Income was limited. Inventories increased approximately 22% YoY to ¥37.54B, and the buildup of working capital has become a factor delaying the conversion of earnings into cash.【Investment Efficiency】ROE was 2.1%, and total assets expanded to ¥99.47B from ¥90.52B in the previous year. However, Net Income growth has not kept pace with asset growth, leaving capital efficiency at a low level.【Financial Soundness】The Equity Ratio declined to 35.1% from 37.8% in the previous year, as interest-bearing debt increased and assets expanded. Cash and deposits increased YoY to ¥8.57B, indicating that a certain level of liquidity has been maintained.

Cash Flow Analysis

As detailed disclosure of the cash flow statement is not available, funding trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥8.57B from ¥6.90B in the previous year, strengthening on-hand liquidity. Meanwhile, inventories increased 22% YoY to ¥37.54B, and the expansion in working capital requirements placed a certain burden on cash management. Current liabilities increased significantly to ¥43.28B from the previous year, suggesting that the buildup of inventories and asset expansion were supported through the use of short-term financing. Long-term borrowings were ¥8.66B, a slight decrease from the previous year, indicating a trend toward a shorter-term funding structure. Overall, the expansion of working capital associated with higher inventories and increased reliance on short-term funding will be factors affecting future cash-generation capacity.

Quality of Earnings

The composition of current-period earnings shows that, in addition to profit from operating activities, dividend income of ¥0.18B and equity-method investment gains/losses of ¥0.14B supported Ordinary Income. These non-operating sources of income amounted to only approximately 1.0% of revenue, and their contribution to Ordinary Income was limited, although they partially offset the decline in Operating Income. Extraordinary items were small, comprising extraordinary income of ¥0.003B and extraordinary losses of ¥0.06B, including losses on disposal of fixed assets, and therefore had only a minor distorting effect on Net Income. The difference between Ordinary Income of ¥1.02B and Profit Before Tax of ¥0.96B was mainly attributable to consolidation adjustments related to dividends received and equity-method investments, and does not represent a significant structural gap. Meanwhile, the substantial increase in inventories suggests a potential accumulation of future accruals. Improvement in operating-level margins and normalization of working capital will be key points of focus in assessing future earnings quality.

Earnings Forecasts and Guidance

Q1 progress against the Full-Year forecast was 26.0% for Revenue, 25.2% for Operating Income, 28.3% for Ordinary Income, and 28.0% for Net Income, representing a standard quarterly progress level of approximately 25%. The Full-Year forecasts are Revenue of ¥145.00B (+3.7% YoY), Operating Income of ¥3.20B (+16.0%), and Ordinary Income of ¥3.60B (+19.3%), reflecting a plan to recover to earnings growth toward the second half of the fiscal year. As of the current quarter, no revisions have been made to the earnings or dividend forecasts, and the company has maintained its annual plan. In light of the earnings decline in Q1, progress in improving the gross margin and enhancing inventory efficiency in the second half will be important factors in assessing the achievement of the Full-Year plan.

Shareholder Returns

The Full-Year dividend forecast is ¥100 per share, representing an increase from the previous year's annual dividend, including the cumulative interim dividend. Based on the Full-Year forecast EPS of ¥310.31, the Payout Ratio is approximately 32.2%, indicating a policy of allocating a certain portion of earnings growth to shareholders. As of the current quarter, there has been no revision to the dividend forecast, and the established policy remains in place. No disclosure regarding share repurchases has been made, and dividends remain the primary form of shareholder returns.

Risk Factors

1. Deterioration in working capital efficiency: Inventories increased 22% YoY to ¥37.54B, and the buildup of inventory is putting pressure on capital efficiency. If inventory remains stagnant, future margins could be affected through higher storage costs and the risk of price declines.

2. Increasing reliance on short-term funding: Current liabilities expanded to ¥43.28B, and the proportion of financing through short-term borrowings, commercial paper, and other instruments has increased. In a rising interest-rate environment, higher funding costs could become an additional source of earnings pressure.

3. Variation in segment profitability: The Food Business is the largest segment by revenue at ¥24.35B, but has a low 1.6% margin, while the Machinery Business has fallen into a situation of lower revenue and earnings, with revenue down 11.4% and earnings down 30.1%. If margin improvement in the core businesses does not progress, overall profitability may continue to face downward pressure.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

The profitability metrics are below the industry median, placing the company in the low-profitability group within the industry.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median, placing the company in the upper tier of the industry in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The top line remained solid, with revenue growth of 6.9%. However, the decline in the gross margin to 8.7% from 9.6% in the previous year, combined with higher SG&A expenses, led to a 21.9% decline in Operating Income, highlighting challenges in absorbing costs.

2. In terms of segment mix, the Ocean Business supported performance with a 6.3% margin and 27.9% earnings growth, while the Food Business, the largest segment by revenue, had a margin of only 1.6%. This clearly demonstrates that differences in profitability among businesses are determining overall profitability.

3. The 22% increase in inventories and expansion of short-term liabilities are key points to monitor regarding capital efficiency and inventory management toward achieving the Full-Year plan. Q1 progress itself is on track, with Revenue at 26.0% and Net Income at 28.0% of the plan.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from 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 share price or a recommendation of any specific investment action.

Sensitivity: ¥3,711–¥3,923 at ±1% for the cost of equity, and ¥3,804–¥3,822 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 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 / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee the future share price)

---

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 with professionals as necessary.

---End of Report---

---

AI Financial Analysis

Executive Summary

Nichimo delivered revenue growth in FY2027 Q1, but profit performance was weak as gross-margin compression and higher corporate costs outweighed sales expansion. Revenue increased 6.9% YoY to ¥37.76bn. Operating income fell 21.9% to ¥0.81bn, reducing the operating margin by 80bp to 2.1%. Ordinary income declined 13.3% to ¥1.02bn. Net income attributable to owners decreased 14.0% to ¥0.73bn, with the net margin declining 47bp to 1.9%. Gross profit fell 2.9% to ¥3.29bn despite the higher sales base. The gross margin contracted 89bp to 8.7%, indicating that procurement costs, selling prices, product mix, or a combination of these factors were unfavorable. SG&A rose 5.4% to ¥2.48bn, slower than revenue growth but faster than gross profit growth. Segment profit before corporate-cost allocation fell 7.1% to ¥1.33bn, while company-wide expenses rose 31.5% to ¥0.52bn. Food remained the largest revenue segment at ¥24.25bn, while Marine generated the largest segment profit at ¥0.43bn and is therefore the core business by operating-income contribution. Marine was the major positive contributor, with segment profit rising 27.9% and margin expanding by about 100bp. Machinery was the principal operational drag, as its revenue declined 11.4%, segment profit fell 30.1%, and segment margin compressed by roughly 285bp. The balance sheet expanded sharply, led principally by a ¥6.85bn YoY increase in inventories, which absorbed capital and heightened working-capital execution risk. Liquidity is adequate on a current-ratio basis at 159.3%, but the 72.6% quick ratio shows that liquidity depends materially on inventory realization. The full-year plan calls for operating income growth of 16.0% despite the Q1 decline, implying that gross-margin recovery, Machinery stabilization, and restraint in corporate costs are necessary over the remaining quarters. Q1 progress against the annual operating-income forecast is 25.2%, broadly in line with the standard 25% first-quarter run rate, so the guidance is not yet mathematically impaired.

Profitability Analysis

Annualized ROE is 8.3%, decomposed into a 1.9% net profit margin, 1.518x annualized asset turnover, and 2.85x financial leverage. The weakest DuPont component is the net margin, which is below the 3% level generally associated with a low-margin earnings profile. Financial leverage is the most meaningful support for the reported ROE, rather than a high underlying return on sales. The largest YoY deterioration was in operating profitability: operating margin declined to 2.1% from 2.9%, while gross margin declined to 8.7% from 9.6%. This indicates that the revenue increase was not translated into gross profit, with gross profit declining 2.9% despite sales growth of 6.9%. SG&A-to-sales improved modestly by about 10bp to 6.6%, but this was insufficient to offset the 89bp gross-margin decline. Corporate costs increased to ¥0.52bn from ¥0.40bn, reducing the conversion of segment profit into consolidated operating income. The extended DuPont tax burden was 0.762, equivalent to a 23.6% effective tax rate and not an unusual tax drag. The interest burden was 1.186x because non-operating income exceeded interest expense; dividend income of ¥0.18bn and equity-method income of ¥0.14bn supported earnings. Interest coverage was 5.80x, which remains above the 5x strength threshold but leaves less room for operating-profit volatility than a higher-margin business would have. The low 2.1% EBIT margin is a material efficiency concern, particularly because the company operates with substantial inventory and debt financing. Annualized ROIC is approximately 5.0%, at the threshold flagged as weak and below the 7-8% return range generally sought for capital-intensive trading operations. Sustainability of profitability improvement depends primarily on restoring merchandise gross margins and maintaining Marine’s improved segment profitability.

Growth Assessment

Revenue growth was broad but uneven across the operating portfolio. Food revenue rose 9.8% YoY to ¥24.25bn, maintaining its position as the largest sales business, although its segment profit declined 9.2% to ¥0.39bn and margin narrowed to 1.6% from 2.0%. Marine revenue increased 7.8% to ¥6.69bn and segment profit rose 27.9% to ¥0.43bn, lifting its margin to 6.4% from 5.4%. Materials revenue increased 10.8% to ¥2.68bn, while segment profit increased 27.1% to ¥0.14bn and margin improved to 5.1%. Machinery revenue declined 11.4% to ¥3.48bn, with segment profit down 30.1% to ¥0.37bn; its still-high 10.7% margin nevertheless fell substantially from 13.6%. Biotics remained loss-making, with a ¥0.02bn segment loss, compared with a ¥0.01bn loss a year earlier. Logistics revenue declined 3.4% to ¥0.57bn and shifted to a ¥0.04bn loss from a ¥0.01bn profit. Full-year revenue guidance is ¥145.0bn, and Q1 progress is 26.0%, only modestly above the standard 25% pace. Full-year operating-income guidance is ¥3.20bn, and Q1 progress is 25.2%, broadly normal. Ordinary-income progress is 28.3% against the ¥3.60bn full-year forecast, aided by non-operating income. Net-income progress is 28.0% against the ¥2.60bn forecast. The forecast therefore assumes a recovery from the Q1 operating-income decline, but does not require an unusually high pace of earnings accumulation solely on a first-quarter progress basis. The central growth-quality issue is that sales expansion currently appears inventory-intensive and gross-profit dilutive rather than margin-accretive.

Financial Health

The current ratio of 159.3% is above the 1.0x warning threshold and indicates adequate coverage of current liabilities by current assets. However, the quick ratio is only 72.6%, meaning that a significant portion of working-capital liquidity is tied to inventory rather than cash and receivables. Inventories represented 37.7% of total assets and totaled ¥37.54bn, exceeding cash and deposits of ¥8.57bn by a wide margin. Interest-bearing debt was ¥22.95bn and the debt-to-equity ratio was 1.85x, elevated but below the explicit 2.0x aggressive-leverage warning threshold. Debt-to-capital was 39.6%, near the 40% investment-grade reference boundary. The short-term debt ratio was 62.3%, which is high and creates a clear refinancing-risk exposure. Cash covered only 0.60x of short-term debt, so continued access to bank and capital-market funding is important. Short-term loans were ¥14.29bn, while commercial paper was ¥8.00bn and current maturities of bonds and long-term loans added further near-term funding requirements. Current assets exceeded current liabilities by ¥25.67bn, but this working-capital surplus relies substantially on inventory monetization. Total equity increased ¥0.69bn YoY to ¥34.96bn, while total liabilities increased ¥8.25bn, lowering the capital adequacy ratio to 35.1% from 37.8%. Investment securities of ¥18.41bn, or 18.5% of total assets, provide asset backing but also expose equity to market-value movements. Deferred tax liabilities were ¥2.66bn, largely consistent with the sizeable portfolio of investment securities and unrealized valuation gains.

Notable B/S Changes

Total assets: +¥8.95bn YoY (+9.9%) to ¥99.47bn - balance-sheet expansion was driven primarily by working capital. Inventories: +¥6.85bn YoY (+22.3%) to ¥37.54bn - materially outpaced revenue growth, raising turnover, valuation, and funding-risk considerations. Current liabilities: +¥8.21bn YoY (+23.4%) to ¥43.28bn - liability growth exceeded current-asset growth, reflecting increased operating and financing requirements. Total liabilities: +¥8.25bn YoY (+14.7%) to ¥64.51bn - grew far faster than equity, reducing the capital adequacy ratio to 35.1% from 37.8%. Cash and deposits: +¥1.71bn YoY (+24.8%) to ¥8.57bn - improved absolute liquidity, but remains modest relative to short-term debt. Short-term loans: -¥1.05bn YoY (-6.8%) to ¥14.29bn - conventional short-term bank borrowing declined, although overall near-term funding exposure remains elevated. Investment securities: +¥0.49bn YoY (+2.7%) to ¥18.41bn - remain a significant 18.5% of total assets and expose equity to valuation movements. Total equity: +¥0.69bn YoY (+2.0%) to ¥34.96bn - equity growth lagged asset and liability growth, contributing to higher balance-sheet leverage.

Cash Flow Quality

The Q1 earnings profile warrants close working-capital scrutiny because inventories increased ¥6.85bn YoY, equivalent to 22.3% growth, while revenue grew 6.9%. Inventory days were flagged at 110 days and 99 days under alternative calculations, both above their relevant alert thresholds. This inventory build may reflect deliberate stocking, price movements, or slower inventory turnover; in each case, it raises the amount of capital needed to support sales. Trade receivables declined ¥0.78bn YoY to ¥14.75bn, partially offsetting the inventory-led working-capital burden. Accounts payable increased ¥0.86bn YoY to ¥11.04bn, providing some supplier-financing support. Electronically recorded obligations increased to ¥2.39bn from ¥2.16bn, also supporting operating financing. The combination of sharply higher inventory and greater short-term funding makes cash conversion and inventory normalization key operating variables. Annualized asset turnover of 1.518x is reasonable for a trading-oriented business, but the inventory intensity limits the quality of that turnover. The low gross margin means that even modest inventory markdowns, procurement-cost increases, or turnover deterioration could have a disproportionate effect on earnings. Dividend income of ¥0.18bn and equity-method income of ¥0.14bn supplemented Q1 earnings, while operating income was only ¥0.81bn. Accordingly, operating profit and working-capital discipline should remain the principal indicators of underlying earnings quality.

Dividend Sustainability

The company forecasts a full-year dividend per share of ¥100. Based on forecast EPS of ¥310.31, the implied dividend payout ratio is approximately 32.2%. This is below the 60% sustainability benchmark and leaves a meaningful portion of earnings available for debt reduction, inventory funding, and retained capital. Using average shares of 8.40 million, the forecast cash dividend requirement is approximately ¥0.84bn. Forecast net income attributable to owners of ¥2.60bn would cover that dividend requirement by about 3.1x. The planned dividend therefore appears earnings-covered under the company forecast. Sustainability nevertheless depends on delivery of the forecast operating-income recovery, given the current low-margin profile, high inventory requirements, and sizeable short-term debt reliance. No share buyback has been identified in the supplied period data; therefore, the relevant shareholder-return measure is the dividend payout ratio rather than a total return ratio.

Risk Assessment

Business risks include Gross-margin risk: the gross margin contracted 89bp to 8.7%, and a low-margin distribution model has limited capacity to absorb procurement-cost inflation, pricing pressure, or unfavorable product mix., Inventory and turnover risk: inventories increased 22.3% YoY to ¥37.54bn, while high inventory-day alerts of 110 days and 99 days indicate risks of slower sell-through, price corrections, markdowns, and higher funding needs., Machinery recovery risk: revenue fell 11.4% and segment profit fell 30.1%, with margin declining about 285bp; recovery in this formerly high-margin segment is important to the consolidated earnings plan., Food profitability risk: Food produced 64.2% of consolidated revenue but a segment margin of only 1.6%, so relatively small cost or pricing changes can materially affect group profit., Marine concentration risk: Marine is the core business by segment-profit contribution at ¥0.43bn; maintaining its 27.9% profit growth and 6.4% margin is important to offset weakness elsewhere., Trading-company market risk: commodity procurement prices, foreign-exchange movements, customer demand, and supplier conditions can affect merchandise margins and inventory values..

Financial risks include Refinancing risk: 62.3% of debt is short term, including ¥14.29bn of short-term loans and ¥8.00bn of commercial paper, increasing sensitivity to funding-market access and borrowing costs., Liquidity-quality risk: while the current ratio is 159.3%, the quick ratio is 72.6% and cash covers only 0.60x of short-term debt, making inventory liquidation and refinancing capacity important., Leverage risk: D/E of 1.85x is elevated, and the capital adequacy ratio declined to 35.1% from 37.8% as liabilities grew more rapidly than equity., Interest-rate risk: interest expense increased 28.7% YoY to ¥0.14bn, and interest coverage of 5.80x could tighten if operating income remains under pressure., Investment-security valuation risk: investment securities total ¥18.41bn, and changes in their market valuation can affect comprehensive income and balance-sheet resilience..

Key concerns include LOW_OPERATING_EFFICIENCY: EBIT margin of 2.1% is below the 5% concern threshold. The low margin makes earnings highly sensitive to relatively small gross-margin or SG&A movements; the Q1 decline confirms this sensitivity., LOW_GROSS_MARGIN: Gross margin of 8.7% is below the 20% alert benchmark and declined from 9.6% a year earlier. The impact is a reduction in operating-profit conversion despite 6.9% sales growth., REFINANCING_RISK: The 62.3% short-term debt ratio exceeds the 40% alert threshold. This is material because cash covers only 0.60x of short-term debt and working capital is heavily inventory-based., CAPITAL_EFFICIENCY: Annualized ROIC of approximately 5.0% is around the warning boundary and below the preferred 7-8% trading-company range. Capital tied up in inventory and investments must generate better operating returns to improve this metric., HIGH_INVENTORY_DAYS: The 110-day and 99-day inventory alerts both point to slow or capital-intensive stock turnover. The ¥6.85bn YoY inventory increase amplifies the cash and valuation implications..

Investment Implications

Key takeaways include Q1 revenue momentum was positive at +6.9% YoY, but operating income declined 21.9% because gross-margin deterioration outweighed sales growth., Marine was the strongest operating contributor, with segment profit up 27.9%, while Machinery, Food-margin deterioration, Biotics losses, and Logistics losses constrained group profitability., Annualized ROE of 8.3% is supported substantially by 2.85x financial leverage; the 1.9% net margin and approximately 5.0% annualized ROIC indicate limited underlying capital efficiency., The inventory build to ¥37.54bn and high inventory-day alerts are central issues for both earnings quality and liquidity., The FY2027 forecast remains attainable on Q1 progress rates, but it requires operating-margin recovery and better conversion of revenue growth into gross profit..

Metrics to watch include Gross margin and operating margin, especially whether the 8.7% gross margin and 2.1% operating margin recover in subsequent quarters, Machinery segment revenue, segment profit, and margin, Marine segment margin durability after its improvement to 6.4%, Inventory balance, inventory days, and inventory growth relative to revenue, Short-term debt ratio, cash-to-short-term-debt coverage, and refinancing conditions, Interest expense and interest coverage, Progress toward full-year operating income guidance of ¥3.20bn and net income guidance of ¥2.60bn.

Regarding relative positioning, Nichimo exhibits the characteristics of a low-margin, working-capital-intensive trading and distribution business. Its current ratio is adequate and forecast dividend payout is moderate, but its quick ratio, short-term funding dependence, sub-5%-range ROIC, and 2.1% operating margin compare less favorably with higher-margin and less inventory-intensive peers.