NEG Q2 FY2026: Operating Profit Falls 32%, Full-Year Outlook Slashed

NEG’s revenue for the first half rose 2% to ¥156.4 billion, delivering the first top-line growth in two periods, supported by steady display glass demand. However, operating profit plunged 32% to ¥11.3 billion as costs mounted for converting to all-electric melting at display plants, periodic repairs, and the ramp-up of medical glass equipment at a Malaysian subsidiary.

Ordinary profit did grow 15% to ¥16.2 billion thanks to foreign exchange gains, but net income attributable to owners of the parent fell 36% to ¥6.4 billion. The main drag was a ¥12.9 billion business structure improvement expense recognized as an extraordinary loss, tied to the production halt and transfer of a U.S. subsidiary in the composite materials segment announced in July.

As a result, NEG slashed its full-year consolidated forecasts: revenue now seen at ¥300.0 billion (down ¥20.0 billion), operating profit at ¥20.0 billion (down ¥13.0 billion), and net profit at ¥15.0 billion (down ¥8.0 billion).

NEG operates a single glass segment, but breaks out results into two product categories.

Electronics & Information: Revenue rose 6% to ¥88.7 billion, accounting for 57% of total sales. The display business benefited from healthy demand for TV and monitor glass substrates, pushing revenue above the year-earlier level. Electronic devices saw stronger data center product sales but weaker semiconductor shipments, leaving the overall unit flat. Profit was pressured by higher conversion and repair costs.

Functional Materials: Revenue slipped 3% to ¥67.6 billion, or 43% of total. Composite materials sales continued to fall, still reflecting the prior year’s cessation of operations at a UK subsidiary. Medical, heat-resistant, and construction glass demand remained broadly stable. The bottom line was weighed down by launch costs at the Malaysian medical glass facility and the extraordinary loss from the composite materials restructuring.

The restructuring aims to improve functional materials profitability by shutting down and transferring U.S. production. Going forward, composite materials sales will shrink further, but NEG is working to cultivate new fields, including low-dielectric glass fiber for electronic materials.

NEG cut its FY2026 guidance substantially, citing China’s economic slowdown, Middle East tensions pushing up raw material and fuel costs, higher repair expenses in the display segment, and restructuring charges.

Revenue was revised down 6% from the previous forecast to ¥300.0 billion; operating profit was cut 39% to ¥20.0 billion; ordinary profit lowered 24% to ¥25.0 billion; and net profit reduced 35% to ¥15.0 billion.

Prior-year actuals refer to the full year ended December 2025. The downward revision makes a revenue-increase, profit-decrease scenario clear, highlighting the urgency of rebuilding the earnings structure.

Total assets at the half-year end stood at ¥674.4 billion, down ¥26.9 billion from the previous fiscal year-end, with an equity ratio of 73.6%, reflecting a sound financial base. Cash and deposits fell ¥20.0 billion to ¥100.6 billion. Operating cash flow was a positive ¥24.1 billion, but higher capex and share buybacks pushed investing cash flow to -¥9.6 billion and financing cash flow to -¥36.0 billion, leaving cash equivalents at ¥100.2 billion.

NEG raised its interim dividend by ¥10 to ¥80 and plans a full-year dividend of ¥160 per share, up from ¥150 last year, marking two consecutive years of increases. The company also executed ¥10.0 billion in share buybacks during the half (full-year plan: ¥20.0 billion), aiming to offset the drop in earnings per share and enhance shareholder value.

Interest-bearing debt shrank as short-term borrowings decreased, but free cash flow weakened due to higher capex, warranting attention to future investment capacity.

Key risks and challenges identified by NEG include:

• Geopolitical risk: Escalating Middle East tensions could raise raw material and fuel costs, pressuring margins.
• China economic slowdown: A demand downturn in one of its largest markets would hit Electronics & Information sales.
• Forex volatility: While a weak yen is a tailwind, abrupt swings can affect overseas subsidiaries’ finances and pricing competitiveness.
• Restructuring execution risk: Near-term costs are elevated, and the targeted profitability improvement for composite materials remains uncertain.
• Technology and competition: Intense rivalry in display glass demands continuous equipment upgrades.
• Supply chain disruption: Raw material procurement and logistics interruptions could hamper production and sales.

The outcome of the restructuring will determine NEG’s future earnings base, making progress from Q3 onward a critical focus for investors.