NICHIDEN (9902) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for Q3 resulted in higher revenue but lower earnings, with the key focus being that revenue growth has not translated into profit growth. Revenue was ¥1,028.4B (+2.8% year on year), Operating Income was ¥44.6B (-7.6%), Ordinary Income was ¥51.2B (-2.4%), and Net Income was ¥34.2B (-2.8%). Against a low-margin structure characterized by a gross profit margin of 15.1% and an Operating Income margin of 4.3%, the increase in SG&A expenses to ¥110.9B (+8.4% year on year) was the primary cause of the earnings decline.

Factors Affecting Performance

【Revenue】Revenue was ¥1,028.4B (+2.8% year on year, +¥28.4B), maintaining an uptrend in revenue that appears to have continued for three consecutive periods. Although segment-level disclosures are unavailable, the company’s business is primarily the sale of machinery and equipment-related products, including power transmission equipment, industrial equipment, and control equipment, and the expansion of transaction volume appears to have driven revenue growth.

【Profit and Loss】Operating Income declined to ¥44.6B (-7.6% year on year, -¥3.7B), and the Operating Income margin fell to 4.3% from approximately 4.8% in the previous year. While Cost of Sales increased to ¥872.9B (+2.8% year on year), roughly in line with revenue growth, SG&A expenses increased to ¥110.9B (+8.4%), outpacing revenue growth, resulting in insufficient cost absorption. Ordinary Income was ¥51.2B (-2.4%), with non-operating income, including dividend income of ¥2.9B, mitigating the extent of the decline. Net Income was ¥34.2B (-2.8%), resulting in higher revenue but lower earnings.

Key Financial Indicators

【Profitability】The Operating Income margin of 4.3% and Net Income margin of 3.3% both declined from the previous year. Under the low-margin structure represented by a gross profit margin of 15.1%, the increase in SG&A expenses (+8.4%) outpaced revenue growth (+2.8%), weighing on profitability.【Cash Flow Quality】Comprehensive Income was ¥54.0B, ¥19.8B above Net Income of ¥34.2B. The primary factor was a ¥20.4B increase in valuation differences on available-for-sale securities, and the company’s core earnings should be distinguished from gains arising from market valuation changes.【Investment Efficiency】ROE was 3.8%, which can be decomposed into a Net Income margin of 3.3% × total asset turnover of 0.81x × financial leverage of 1.43x. Low profitability was the primary cause of the low ROE, while low leverage was a limited factor.【Financial Soundness】The financial base is solid, with an Equity Ratio of 70.1%, a current ratio of 287.5%, and a debt-to-equity ratio of 0.43x. Operating Income provides substantial interest coverage relative to interest expense of ¥1.1B.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, the balance sheet movements indicate the following funding trends: cash and deposits increased to ¥196.1B from ¥155.6B in the previous year, an increase of +¥40.5B. Meanwhile, accounts receivable and notes receivable decreased to ¥203.6B from ¥219.3B in the previous year, while electronically recorded monetary claims increased to ¥223.3B from ¥199.1B. Inventories declined slightly to ¥148.3B from ¥157.5B in the previous year, suggesting that inventory reduction may have contributed to financial flexibility. Property, plant and equipment increased to ¥222.5B from ¥207.7B in the previous year, indicating that capital expenditures have continued. Overall, cash levels are trending upward, and no concerns regarding liquidity are apparent.

Quality of Earnings

The difference between Ordinary Income of ¥51.2B and Net Income of ¥34.2B was primarily attributable to income taxes of ¥17.1B (an effective tax rate of approximately 33.3%), and the impact of one-time factors was limited. Extraordinary income consisted solely of a gain on the sale of investment securities of ¥0.1B, making its contribution to pre-tax income immaterial; current-period earnings were therefore composed largely of recurring income. Dividend income of ¥2.9B accounted for the majority of non-operating income of ¥7.99B, equivalent to only 0.8% of revenue, indicating no excessive reliance on non-operating income. However, Comprehensive Income of ¥54.0B exceeded Net Income by ¥19.8B, with the market-driven factor of a ¥20.4B increase in valuation differences on available-for-sale securities making a significant contribution. This should be distinguished from core operating earnings when evaluating earnings quality.

Earnings Forecast and Guidance

The full-year company forecasts are Revenue of ¥1,400.0B (+3.9% year on year), Operating Income of ¥67.0B (-1.8%), and Ordinary Income of ¥72.0B (unchanged year on year), indicating that the company’s own plan assumes higher revenue but lower earnings. The Q3 cumulative progress rates are 73.5% for Revenue, 66.6% for Operating Income, 71.1% for Ordinary Income, and 69.9% for Net Income, with Operating Income progress below the standard 75% level. To achieve the full-year plan, Q4 Revenue of ¥371.6B and Operating Income of ¥22.4B are required, implying a required Operating Income margin of approximately 6.0% and an improvement from the cumulative actual margin of 4.3%.

Shareholder Returns

The Q2 dividend was ¥35.00 per share, and the full-year forecast dividend is ¥70.00 per share. The forecast Payout Ratio against forecast full-year EPS of ¥165.91 is approximately 42.2%, based on dividends alone as the numerator. With retained earnings of ¥706.4B and shareholders’ equity of ¥893.1B, the company has a substantial source of funds for dividends, and the Payout Ratio of 42.2% is below the 60% level generally viewed as a sustainability benchmark. However, it should be noted that achieving the full-year Net Income plan of ¥49.0B presupposes an improvement in the Q4 profit margin.

Risk Factors

1. Low-Margin Structure Risk: The gross profit margin of 15.1% and Operating Income margin of 4.3% are both low, and even small changes in pricing, procurement terms, or product mix could have a significant impact on Operating Income.

2. Risk of Declining Profit Conversion: While Revenue increased by +2.8% year on year, Operating Income declined by -7.6%, and the situation in which revenue growth fails to translate into profit growth continues.

3. Risk of Achieving the Q4 Plan: Achieving the full-year Operating Income plan requires an Operating Income margin of approximately 6.0% in Q4, making the potential for improvement from the Q3 cumulative actual margin of 4.3% a key focus.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (trading)

Profitability and Returns

The company’s Operating Income margin and Net Income margin are both above the industry median.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median, indicating a more moderate pace of revenue growth than that of peer companies.

※Source: Company research

Key Points in the Earnings Results

1. The current period resulted in higher revenue but lower earnings. Against Revenue growth of +2.8%, Operating Income declined by -7.6%; structurally, the increase in SG&A expenses (+8.4%) exceeded cost absorption under the low-margin structure represented by a gross profit margin of 15.1%.

2. The full-year Operating Income progress rate was 66.6%, below the standard 75%, and achieving the plan presupposes an improvement from the cumulative actual Operating Income margin of 4.3% to the approximately 6.0% margin required in Q4.

3. Financial soundness remains strong, with an Equity Ratio of 70.1% and a current ratio of 287.5%; no weakness in the financial base is evident in relation to the profitability challenges.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥2,613–¥2,763 at a cost of equity of ±1%, and ¥2,676–¥2,694 at ω of ±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 gap relative to the full-year forecast).
• As 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 solely from 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.)

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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 issue. 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 a professional as necessary.

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