NIKKATO CORPORATION: Q1 FY2027 Earnings Deep Dive Report

1. Executive Summary

NIKKATO CORPORATION (Securities Code: 5367) achieved significant growth in both revenue and profit for the first quarter (Q1) of the fiscal year ending March 31, 2027. This performance was driven by a robust recovery in demand from the core electronic components industry, alongside steady capital expenditure demand in the automotive and heavy machinery sectors.

Consolidated financial results for Q1 show net sales of 3.175 billion yen (up 30.2% YoY) , operating profit of 441 million yen (up 136.4% YoY) , ordinary profit of 478 million yen (up 120.6% YoY) , and quarterly net profit of 330 million yen (up 171.2% YoY) . All profit metrics more than doubled compared to the same period last year.

The progress rate against the full-year earnings forecast reached 28.9% for net sales and 40.1% for operating profit at the end of Q1, indicating a strong start for the first year of the company's mid-to-long-term growth strategy, "CONNECT30."

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2. Business Overview and Competitive Advantages

NIKKATO operates primarily in two segments: the Ceramics Business (78% of sales) and the Engineering Business (22% of sales) .

• Ceramics Business : Manufacturing and sales of industrial ceramics featuring wear resistance, heat resistance, and high functionality. The company's flagship grinding balls have secured a high market share among major domestic manufacturers as the de facto industry standard for production processes of Multi-Layer Ceramic Capacitors (MLCCs) and battery materials—critical components for smartphones, EVs, and 5G communication equipment.
• Engineering Business : Design, manufacturing, and sales of industrial heating equipment, temperature sensors, and measuring instruments.

The company’s core strength lies in its "manufacturing components and process technology," which supports the production lines of a wide range of manufacturers, from cutting-edge technology firms to core industrial players.

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3. Mid-Term Management Plan "CONNECT30" and Capital Efficiency Initiatives

NIKKATO is promoting its mid-term management plan, "CONNECT30," under the long-term vision of becoming a "Reliable Company" needed by society.

Three Key Strategies of "CONNECT30"

1. Review of Product Strategy (Strengthening earning power: Reviewing unprofitable products and restructuring the product portfolio)
2. Expansion of Strategic Investment (New investments: Improving production efficiency, developing new technologies, and investing in human capital)
3. Acceleration of Sustainable Management (Sustainable growth: Environmental investment, strengthening governance, and building BCP systems)

Capital Efficiency and Shareholder Value Enhancement (ROE/PER Targets)

Recognizing that its PBR remains low at around 0.59x (as of the end of March 2026), the company has prioritized the improvement of capital efficiency.

• ROE (Return on Equity) Target : 8% or higher (FY2030 target: 10%)
• PER (Price-to-Earnings Ratio) Target : 13–15x
• Specific Measures : The company is integrally promoting profitability improvements (cost reduction and inventory compression), capital efficiency enhancements (reduction and review of cross-shareholdings), strengthened IR activities, and the expansion of stable shareholder returns.

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4. Q1 FY2027 Earnings Highlights and P/L Details

The Q1 performance and progress against the full-year forecast are as follows:

Significance of the Slide and Background (P/L Overview)

The slide above (PAGE_11) clearly illustrates a profit structure where revenue growth has led to a dramatic improvement in profit margins. Against Q1 net sales of 3.175 billion yen (an increase of 736 million yen YoY), the cost of sales ratio improved by 4.7 percentage points, falling from 77.6% to 72.9% in the same period last year. This is attributed to an increase in factory utilization rates driven by higher orders in the core Ceramics Business. Furthermore, the SG&A ratio declined by 1.6 percentage points from 14.7% to 13.1% , resulting in a significant increase in the operating profit margin from 7.7% to 13.9% (+6.2pt). The Q1 progress rate against the full-year plan (operating profit of 1.1 billion yen) reached 40.1% , demonstrating exceptionally high profitability for the first quarter.

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5. Segment Analysis

(1) Ceramics Business: Demand Recovery and Improved Utilization

• Net Sales : 2.484 billion yen (up 30.3% YoY)
• Segment Operating Profit : 391 million yen (up 136.2% YoY)
• Segment Profit Margin : 15.8% (compared to 8.7% in the same period last year)

By product category, driven by the market recovery in the electronic components industry, wear-resistant ceramics reached 1.641 billion yen (up 27.4% YoY) , and heat-resistant ceramics (such as heat treatment components) grew significantly to 660 million yen (up 50.6% YoY).

Significance of the Slide and Background (Ceramics Business Performance)

The slide above (PAGE_13) shows the quarterly performance trend of the Ceramics Business, NIKKATO's earnings pillar. Of particular note is the surge in the operating profit margin (15.8%) shown in the graph on the right. This is a remarkably high level compared to the profit margins of the past few quarters (6.6%–12.6%). This is due to the inventory adjustment cycle for general electronic components (55.4% of the market mix) —the primary end-demand for the company's ceramics—having concluded, leading to a full-scale recovery in demand. Additionally, the results of the review of unprofitable products and cost control measures outlined in the mid-term plan are beginning to materialize.

(2) Engineering Business: Revenue and Profit Growth Driven by Sustained Capex

• Net Sales : 690 million yen (up 30.0% YoY)
• Segment Operating Profit : 50 million yen (up 137.3% YoY)
• Segment Profit Margin : 7.3% (compared to 4.0% in the same period last year)

Against the backdrop of strong capital investment in the automotive/heavy machinery sectors (38.4% of the mix) and the electronic components/semiconductor fields, measuring instruments and others grew significantly to 680 million yen (up 33.6% YoY) , contributing to the improvement in profit margins.

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6. Analysis of Operating Profit Variance

The process of increasing operating profit from 186 million yen in the same period last year to 441 million yen this period is broken down by the following factors:

Significance of the Slide and Background (Operating Profit Variance)

The waterfall chart in the slide above (PAGE_17) visualizes the key drivers of profit growth. The primary driver of the profit increase was the boost from higher sales in the Ceramics Business (+577 million yen) , which, combined with the sales increase in the Engineering Business (+159 million yen), generated substantial marginal profit. Despite negative factors such as increased cost of sales due to rising raw material and energy prices (Ceramics: -308 million yen; Engineering: -115 million yen) and increased SG&A expenses due to personnel and R&D costs (-58 million yen), the expansion in sales volume (volume effect) far outweighed these factors , causing operating profit to swell to more than 2.5 times the level of the same period last year.

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7. Financial Position, Cash Flow, and Shareholder Return Policy

Financial Position (B/S) and Cash Flow (C/F)

• Assets : Total assets as of the end of June 2026 were 19.155 billion yen (up 1.6% from the end of the previous fiscal year). The main factors were an increase in inventories due to higher orders (2.933 billion yen) and an increase in investment and other assets due to the valuation gain of investment securities (3.46 billion yen).
• Net Assets/Equity : Net assets reached 14.664 billion yen (up 3.7%), maintaining a solid financial foundation.
• Cash Flow : Operating cash flow secured a surplus of 1.675 billion yen for the previous full fiscal year, and the company maintains a healthy level of cash and deposits (approx. 4.034 billion yen) while proceeding with the review of investment securities.

Shareholder Returns (Dividend Forecast)

NIKKATO bases its policy on appropriate profit distribution and stable dividends, targeting a dividend payout ratio of 30–50%.

• FY2027 Annual Dividend Forecast : 23 yen per share (a 2-yen increase from the previous year's 21 yen)
• Forecasted Dividend Payout Ratio : 34.4%

Against the backdrop of earnings growth, the company continues its proactive stance on shareholder returns.

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8. Full-Year Earnings Forecast and Outlook

FY2027 Full-Year Earnings Forecast

• Net Sales : 11.0 billion yen (up 11.4% YoY)
• Operating Profit : 1.1 billion yen (up 20.3% YoY)
• Ordinary Profit : 1.15 billion yen (up 17.0% YoY)
• Net Profit : 800 million yen (up 15.5% YoY)

Summary and Key Focus Areas Based on Q1 Progress

In the first quarter, the company significantly outperformed its internal Q1 forecasts (net sales of 2.75 billion yen, operating profit of 300 million yen), achieving 115.5% of the sales target and 147.2% of the operating profit target. The progress rate against the full-year plan exceeds 40% on an operating profit basis, indicating an extremely smooth trajectory. Moving forward, key points for sustainable corporate value enhancement include the sustainability of MLCC demand for smartphones and AI servers, the progress of cost reduction measures, the development of high-value-added products based on the mid-term plan, and the strengthening of BCP systems.