Nifco Q2 FY2027: Operating profit rises, net income slips

Nifco posted higher revenue and operating profit in the first half of FY2027, but net income declined. Higher operating profit, lower net income due to tax costs captures the impact of increased income taxes.

Efforts to contain controllable expenses contributed to the increase in operating profit. Ordinary profit grew faster, helped by foreign-exchange gains as the yen weakened. Income taxes rose to ¥10.429 billion from ¥7.249 billion a year earlier, however, weighing on net income. Investors will be watching whether revenue and operating profit growth can continue, and whether earnings can grow without relying on foreign-exchange gains.

Revenue at both Nifco's main plastics components business and its beds and furniture business rose 7.4% year on year. Demand from the automotive industry supported the core business in Japan and overseas, while conditions in the furniture business varied by region.

Plastics Components revenue increased 7.4% year on year, while segment profit rose 7.2%. In Japan, higher production volumes and operating days at major automakers contributed to growth. North America and some Asian markets also expanded. Higher prices and labor costs were a headwind, offset by improved profitability in Japan and higher earnings in North America and Asia.

Beds and Furniture revenue rose 7.4% year on year, and segment profit increased 7.6%. In Japan, sales to hotels fell short of the year-earlier level, while sales through retailers remained firm. Higher material costs pressured domestic profit. Overseas, growth in sales and profit in Hong Kong and Taiwan supported the business as sales in mainland China struggled.

Both businesses increased revenue, but their earnings drivers differ. Investors will need to monitor regional auto production trends, as well as hotel demand and material-price movements in the furniture business.

Nifco left its consolidated forecast for FY2027 unchanged from the figures announced on May 14, 2026. First-half operating profit reached 52.8% of the full-year forecast, while net income was 50.6% of the target, making the ability to sustain earnings in the second half a key focus.

The current forecast is unchanged from the previous one, with no upward revision. Revenue has reached 50.7% of the full-year target, operating profit 52.8% and net income 50.6%. Nifco cited regional differences in automotive markets and uncertainty in the global economy. Auto production in the second half, expense controls and foreign-exchange movements will influence whether it meets its forecasts.

Total assets declined from the end of the previous fiscal year, and the equity ratio also fell. Nifco directed funds to shareholder returns through a share buyback, while cash flow from operating activities exceeded the year-earlier level.

• Share buyback: Nifco acquired 7,547,500 shares under a board resolution for about ¥40 billion. The buyback ended on September 2.
• Share cancellation: On October 7, Nifco canceled 19,609,228 shares, measured on a post-split basis. The shares represented 9.78% of the total shares issued before the cancellation.
• Dividend and stock split: The interim dividend was ¥56 per share. The year-end forecast is ¥28 after the two-for-one split, equivalent to an annual dividend forecast of ¥112 without factoring in the split, up from ¥110 in the previous fiscal year.

Cash and cash equivalents stood at ¥125.122 billion at the end of the first half, down ¥16.537 billion from the previous fiscal year-end. Nifco carried out a large share buyback and subsequently canceled part of the shares, measures aimed at capital efficiency and per-share value. The equity ratio remains above 70%, but the balance between shareholder returns and investment for growth will be a focus.

Nifco cited regional differences in automotive markets and uncertainty in the global economy as business challenges. In addition to changes in the external environment, rising costs could weigh on margins.

• Slowdown in China: Continued weakness in domestic demand due to sluggish consumer spending or rising inventories could affect automotive and furniture-related sales in China.
• Regional differences in auto production: Conditions in the automotive market, Nifco's main market, vary by region. A decline in customer production volumes or operating days would weigh on revenue and profit in the plastics components business.
• Geopolitical risks and the global economy: Tensions in the Middle East and shifts in external demand could affect logistics, procurement and customers' production plans.
• Changes in AI-related investment: Nifco is monitoring trends in AI-related investment, which is supporting the global economy. A slowdown in investment could affect economic activity and demand for equipment.
• Rising prices, labor and material costs: Higher prices and labor costs are pressuring profit in the plastics components business, while rising material costs are weighing on the furniture business. Passing costs on to customers and improving productivity remain challenges.

Yen depreciation boosted ordinary profit, but foreign-exchange gains are different in nature from earnings generated by core operations. Investors will need to track regional sales trends and the company's response to rising costs to assess whether operating profit growth can be sustained.