NICHIDEN Corporation FY2027 Q1 Earnings Report

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Executive Summary

In Q1, the Company reported higher revenue and profits, with growth rates in Operating Income and Net Income substantially exceeding revenue growth. Revenue was ¥398.6B (¥332.6B in the previous year, YoY +19.8%), Operating Income was ¥20.2B (¥12.9B in the previous year, YoY +57.1%), Ordinary Income was ¥22.6B (¥15.1B in the previous year, YoY +49.5%), and Net Income attributable to owners of the parent was ¥17.0B (¥10.2B in the previous year, YoY +65.6%). The main driver of profit growth was the dilution of fixed costs resulting from an improvement in the SG&A ratio (9.9% versus 11.0% in the previous year). In addition, the ¥3.3B gain on the sale of investment securities, a temporary factor, boosted the growth rate of Net Income.

Factors Affecting Business Performance

【Revenue】Revenue increased 19.8% year on year to ¥398.6B. The Company operates as a single segment selling machinery equipment-related products, including power transmission equipment, industrial equipment, and control equipment. Although detailed increases and decreases by business are not disclosed, overall expansion in demand is reflected in the revenue growth.

【Profit and Loss】The gross profit margin was 14.9%, essentially unchanged from 14.9% in the previous year. However, the SG&A ratio improved by 1.1pt to 9.9% from 11.0% in the previous year, resulting in an improvement in the Operating Income margin to 5.1% from 3.9%. Ordinary Income reached ¥22.6B due to the recognition of ¥3.1B in non-operating income, including ¥1.6B in dividend income. In addition, the recognition of a ¥3.3B gain on the sale of investment securities as extraordinary income, a temporary factor, resulted in Profit Before Tax of ¥25.9B and Net Income of ¥17.0B. The increase in revenue and profits was driven by both SG&A efficiency gains amid a flat gross margin and a temporary extraordinary gain.

Key Financial Indicators

【Profitability】Both the Operating Income margin, at 5.1% (3.9% in the previous year, +1.2pt), and the Net Income margin, at 4.3% (3.1% in the previous year, +1.2pt), improved, indicating progress in margin expansion primarily through greater SG&A efficiency. 【Cash Flow Quality】Comprehensive Income was ¥47.9B, exceeding Net Income of ¥17.0B by ¥30.9B. The primary factor behind this difference was valuation differences on securities of +¥30.2B. This valuation gain is a non-recurring element linked to market fluctuations and should be distinguished from recurring earnings capacity. 【Investment Efficiency】ROE was 1.8% (actual result for the quarter). Given the high Equity Ratio of 72.6% (72.0% in the previous year), there remains room for improvement in capital efficiency. 【Financial Soundness】With an Equity Ratio of 72.6%, a current ratio of approximately 318% (current assets of ¥819.8B / current liabilities of ¥257.6B), and interest coverage of approximately 65 times based on Operating Income (Operating Income of ¥20.2B / interest expense of ¥0.3B), the financial foundation is extremely robust.

Cash Flow Analysis

Because cash flow statement items have not been disclosed, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits decreased by ¥31.8B (-18.2%) year on year to ¥142.7B, while investment securities increased by ¥43.7B (+24.8%) to ¥219.7B, and total fixed assets expanded by ¥56.7B (+12.9%) to ¥497.9B. Although accounts receivable increased by 4.0% to ¥228.7B and inventories increased by 7.7% to ¥164.8B, both growth rates were below the revenue growth rate of +19.8%; therefore, a sharp deterioration in working capital accompanying revenue expansion appears limited. Overall, a shift in the allocation of funds is observable, with a portion of cash on hand being allocated to investment securities and fixed assets.

Quality of Earnings

Net Income of ¥17.0B includes a ¥3.3B gain on the sale of investment securities as extraordinary income; excluding this item, income at the Ordinary Income level was ¥22.6B. Of the ¥3.1B in non-operating income, the ¥1.6B in dividend income represents relatively stable income from held shares, whereas gains on the sale of investment securities are one-time in nature. Comprehensive Income of ¥47.9B substantially exceeded Net Income of ¥17.0B, and the primary factor behind the difference, valuation differences on securities of +¥30.2B, represents market-linked valuation gains and losses. Accordingly, when assessing recurring earnings capacity, these temporary and valuation-related elements should be evaluated separately.

Earnings Forecast and Guidance

Progress against the Full-Year earnings forecast was 24.9% for Revenue (¥398.6B / ¥1,600.0B), 24.1% for Operating Income (¥20.2B / ¥84.0B), 25.1% for Ordinary Income (¥22.6B / ¥90.0B), and 27.8% for Net Income (¥17.0B / ¥61.0B). The relatively high progress rate for Net Income compared with the other indicators was attributable to the contribution of the temporary gain on the sale of investment securities. During the quarter, the Company revised its earnings forecast and dividend forecast.

Shareholder Returns

The Full-Year dividend forecast is ¥120 per share. Based on the average number of shares outstanding during the period of 29,538 thousand shares, the estimated annual total dividend amount is approximately ¥35.5B, resulting in an estimated Payout Ratio of approximately 58% against the Full-Year Net Income forecast of ¥61.0B. Given the robust financial foundation, reflected in an Equity Ratio of 72.6%, there appears to be no significant concern regarding the sustainability of a Payout Ratio at this level.

Risk Factors

1. Demand fluctuation risk: As the Company’s core business involves the sale of power transmission equipment, industrial equipment, and control equipment, changes in capital investment trends and production activity directly affect Revenue.

2. Dependence on temporary earnings factors: Net Income for the current period of ¥17.0B includes a ¥3.3B gain on the sale of investment securities, and the profit growth rate would be reduced if this gain were excluded. Removing this temporary factor is necessary to assess recurring earnings capacity.

3. Risk of valuation fluctuations in securities: Investment securities increased to ¥219.7B (+¥43.7B year on year), while valuation differences on securities of +¥30.2B, a factor affecting Comprehensive Income, could decrease or reverse due to market fluctuations.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

Profitability is above the industry median for both the Operating Income margin and the Net Income margin.

Growth and Capital Efficiency

The Revenue growth rate is substantially above both the industry median and the upper bound of the IQR.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The improvement in the SG&A ratio (9.9%, -1.1pt year on year) was the primary factor behind the improvement in the Operating Income margin (5.1%, +1.2pt), indicating that fixed-cost dilution accompanying revenue expansion is progressing.

2. The growth rate of Net Income (+65.6%) exceeded the growth rate of Operating Income (+57.1%). The contribution of temporary factors, including gains on the sale of investment securities, should be considered when evaluating earnings quality.

3. Against the backdrop of a robust financial foundation, with an Equity Ratio of 72.6% and a current ratio of approximately 318%, progress against the Full-Year earnings forecast for each profit indicator has been approximately 24–28%, generally within a standard range.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type model with an explicit five-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,897–¥3,061 at ±1% for the cost of equity, and ¥2,969–¥2,983 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 end of the quarter are used (there is a timing gap relative to 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: 2026-06 / This value does not forecast or guarantee the future share price)

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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 discretion and responsibility, after consulting a professional adviser as necessary.

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