NISHIO HOLDINGS (9699) FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥157.81B
• Operating Income: ¥13.33B
• Net Income: ¥8.23B
• EPS: ¥294.60

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

FY2026 Q3 was a softer quarter for Nishio Holdings, with revenue and earnings declining year over year while margins compressed at the operating and net levels. Revenue fell 3.2% YoY to ¥157.8bn, and operating income declined 9.8% YoY to ¥13.3bn. Ordinary income decreased 8.9% YoY to ¥12.9bn, and net income attributable to owners fell 12.7% YoY to ¥8.18bn (EPS ¥294.6). Gross profit rose to ¥67.1bn, lifting the gross margin by approximately 260 bps to 42.5%, but this was more than offset by higher SG&A, which increased the SG&A ratio by roughly 320 bps to 34.1%. Consequently, the operating margin contracted by about 61 bps to 8.5%, and the net margin compressed by roughly 55 bps to 5.2%. The DuPont ROE stands at 5.6%, driven by a 5.2% net margin, 0.496x asset turnover, and 2.18x financial leverage. Asset turnover weakened versus last year as the asset base expanded (notably PPE) while revenue declined, weighing on overall ROE. Non-operating items were small relative to sales (non-op income 0.8% of revenue; interest expense ¥1.59bn), and extraordinary items were immaterial on a net basis. The effective tax rate was 36.0%, with a tax burden factor of 0.635, representing a significant drag between ordinary income and net income. Liquidity remains solid (current ratio 141%, quick ratio 137%), and interest coverage is healthy at 8.4x; leverage is moderate with D/E of 1.18x and Debt/Capital of 26.1%. Segment-wise, Rental-Related is the core business, contributing 97% of revenue and 8.2% margin; the Other segment is small and saw a sharp YoY decline. Management’s full-year guidance (revenue ¥220.0bn, OP ¥20.0bn, NP ¥12.2bn, DPS ¥132) implies Q4 acceleration; Q3 cumulative progress is ~72% for revenue and ~67% for OP, modestly behind a linear 75% but within a manageable range. A notable quality flag is receivables DSO at 94 days, which is elevated for the business and merits close monitoring of working-capital discipline. Overall, near-term profitability is pressured by operating cost intensity and softer utilization, but the balance sheet capacity and guidance backstop provide scope for recovery if demand normalizes and SG&A efficiency improves.

Profitability Analysis

ROE (5.6%) decomposes into Net Profit Margin (5.2%) × Asset Turnover (0.496x) × Financial Leverage (2.18x). Versus last year, the largest adverse change was in asset turnover, which fell as revenue declined while total assets expanded (notably PPE), indicating softer fleet utilization. Net margin also contracted (~55 bps) as SG&A intensity rose ~320 bps, outweighing a ~260 bps improvement in gross margin, suggesting negative operating leverage. The business driver appears to be a combination of demand softness in the construction rental cycle and higher operating costs (personnel, corporate expenses) that did not scale down with revenue. This cost pressure looks partially cyclical (utilization) but also partially structural (personnel, compliance, and overhead); absent explicit cost actions, only the cyclicality component is likely to reverse quickly. A concerning trend is SG&A growth outpacing revenue, compressing operating margin despite better gross mix/pricing.

Growth Assessment

Top-line declined 3.2% YoY to ¥157.8bn, led by a modest dip in the core Rental-Related segment (-0.5% YoY) and a sharp contraction in the small Other segment (-27.1% YoY). Operating income decreased 9.8% YoY, reflecting negative operating leverage as SG&A intensity rose. Ordinary income (-8.9% YoY) and net income (-12.7% YoY) mirrored the operating trend, compounded by a 36% effective tax rate. Management’s full-year guidance implies Q4 improvement to achieve OP of ¥20.0bn and NP of ¥12.2bn; Q3 progress is ~71.7% for revenue and ~66.7% for OP, suggesting a needed pickup in utilization and cost control into Q4. Gross margin expansion evidences pricing/mix resilience, but sustainability hinges on utilization recovery and tighter SG&A management. With DSO at 94 days, sales growth should be balanced against disciplined collections to avoid cash drag.

Financial Health

Liquidity is sound: current ratio 140.7% and quick ratio 137.4%, with working capital of ¥377.9bn (¥37.8bn in 100M units). Cash and deposits of ¥67.5bn cover short-term loans by 12.3x, and current assets exceed current liabilities by a comfortable margin, implying low maturity mismatch risk. Solvency is solid: D/E 1.18x, Debt/Capital 26.1%, and interest coverage 8.41x, all consistent with an investment-grade profile under the stated benchmarks. Interest-bearing debt totals ¥51.6bn (LT loans ¥46.1bn; ST loans ¥5.5bn), complemented by lease obligations; the tenor structure is manageable given liquidity. Equity increased to ¥146.0bn, supporting a capital adequacy ratio of ~45.5%. Goodwill is de minimis at 0.3% of equity, indicating negligible balance sheet risk from M&A goodwill. No off-balance sheet obligations are indicated beyond disclosed lease obligations and asset retirement obligations.

Notable B/S Changes

Property, Plant & Equipment: +130.2bn (+8.0%) - Fleet and asset base expansion despite revenue softness; monitor utilization and returns. Long-Term Loans: +75.1bn (+19.5%) - Increased funding for asset base; maintain watch on interest cost and covenants. Cash & Deposits: +52.7bn (+8.5%) - Strengthened liquidity buffer. Current Liabilities: +52.1bn (+5.9%) - Higher near-term obligations, still well covered by current assets. Equity: +57.1bn (+4.1%) - Earnings retention and OCI gains supported capital base. Goodwill: -2.26bn (-36.0%) - Reduction consistent with JGAAP amortization or small divestments; negligible impairment risk given scale.

Cash Flow Quality

Cash conversion risk is signaled by elevated DSO of 94 days, which can elongate the working-capital cycle and delay cash realization from sales. Receivables and inventory both declined YoY, which is supportive for working capital. Cash-to-short-term debt coverage is robust at 12.3x, providing a buffer against timing mismatches from collections. Interest burden is modest (EBT/EBIT 0.966), and non-operating income/expenses are small relative to revenue, implying earnings are primarily operating in nature. Monitoring receivables collection discipline remains the key near-term focus for cash flow quality.

Dividend Sustainability

The company guides to a full-year DPS of ¥132, with a forecast EPS of ¥439.44, implying a payout ratio of roughly 30%, comfortably within sustainable thresholds. Balance sheet metrics (Debt/Capital 26.1%, interest coverage 8.4x, cash ¥67.5bn) support planned shareholder returns while retaining investment capacity. With moderate leverage and minimal goodwill risk, the dividend outlook appears well covered by earnings under the current guidance trajectory.

Risk Assessment

Business risks include Concentration risk: Rental-Related accounts for 97% of revenue, heightening exposure to construction rental cycles, Utilization risk stemming from demand softness, which depresses asset turnover and operating leverage, Pricing and competitive intensity in equipment rental potentially pressuring margins if utilization remains weak.

Financial risks include Receivables collection risk: DSO at 94 days may strain operating cash flow during downturns, Interest rate exposure on loans and lease obligations, though partially mitigated by strong interest coverage, Tax burden at 36% lowers net earnings conversion from ordinary income.

Key concerns include SG&A intensity rose ~320 bps YoY, compressing operating margin despite stronger gross margin, Asset turnover declined as assets expanded and revenue dipped, dampening ROE, Guidance requires Q4 acceleration from current ~67% OP progress to meet full-year targets.

Investment Implications

Key takeaways include Margins compressed at the operating and net levels despite a stronger gross margin, due to higher SG&A intensity, ROE at 5.6% is constrained mainly by lower asset turnover; leverage remains moderate, Liquidity and solvency are strong, providing resilience and optionality for disciplined capex, Receivables DSO of 94 days is a clear quality flag; collections execution will drive cash conversion, FY guidance implies a Q4 pickup; delivery depends on utilization recovery and cost control.

Metrics to watch include Utilization rates and revenue per asset (proxy: asset turnover), SG&A ratio trajectory and cost actions, DSO and overall working-capital days, Operating margin vs guidance run-rate, Interest coverage amid rate environment.

Regarding relative positioning, Within the equipment rental peer set, Nishio exhibits conservative balance sheet metrics, minimal goodwill risk, and solid interest coverage, but trails on ROE and asset turnover due to recent utilization softness and elevated SG&A intensity.