Nippon Dry-Chemical CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥26.60B
• Operating Income: ¥3.39B
• Net Income: ¥2.41B
• EPS: ¥326.41

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A strong Q2 FY2026 with double-digit top-line growth and substantial margin-driven earnings expansion, tempered by weaker cash conversion. Revenue rose 12.4% YoY to 266.0, while operating income surged 54.0% YoY to 33.9, and net income advanced 43.4% to 21.9. Gross margin printed at 28.0%, operating margin at 12.7%, ordinary margin at 13.4%, and net margin at 8.2%. Using back-solved priors, operating margin expanded by roughly 344 bps and net margin by about 178 bps YoY, underscoring operating leverage and disciplined cost control. Ordinary margin expanded even more, by about 413 bps, aided by positive non-operating contribution (non-op net +1.84). SG&A of 40.5 was well contained versus gross profit of 74.4, supporting the margin step-up. ROE came in at 6.6% via a DuPont mix of 8.2% net margin, 0.506x asset turnover, and 1.58x leverage; ROIC at 9.0% indicates healthy core returns above common 7–8% targets. Liquidity remains robust with a 215% current ratio and 191% quick ratio; leverage is conservative (D/E 0.58x) and interest coverage is very strong at 52.8x. Cash quality is the main blemish: operating cash flow of 15.5 covers only 0.71x net income, indicating working capital absorption or timing effects in H1. Proxy FCF (OCF–Capex) was about 13.3, implying comfortable capacity to fund maintenance capex and a modest dividend. The effective tax rate of 32.6% weighed on the bottom line but remains within a normal range. Balance sheet safety is high: cash of 100.6 comfortably exceeds short-term loans of 17.6 and long-term loans of 4.5. With strong order momentum implied by revenue growth and improved margins, the near-term outlook is constructive if cash conversion normalizes. Key forward watchpoints are OCF recovery vs. NI, working capital dynamics (receivables and inventory), and sustainability of pricing/mix that drove margin gains. Absent evidence of one-off gains, the expansion appears mainly operational, but verification across H2 is needed. Overall, execution quality improved, returns strengthened, and financial resilience remains solid despite cash flow softness.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.6% = Net Profit Margin 8.2% × Asset Turnover 0.506 × Financial Leverage 1.58x. The largest driver of YoY improvement is the net profit margin, inferred from profit growth (NI +43.4%) materially outpacing revenue (+12.4%), alongside operating income growth of +54.0%. Business reasons: improved operating leverage (SG&A discipline relative to gross profit), favorable pricing/mix in fire protection products/installations, and a modest tailwind from non-operating items (net +1.84). Sustainability: Core operating improvements appear repeatable if demand and pricing hold; the non-operating uplift is smaller and less dependable. Warning flags: None on cost blowout, but data gaps limit confirmation; we cannot test whether SG&A growth exceeded revenue as prior SG&A is unreported. Margins: current operating margin 12.7% vs. back-solved prior ~9.3% (≈+344 bps), net margin 8.2% vs. ~6.4% (≈+178 bps), ordinary margin 13.4% vs. ~9.3% (≈+413 bps). Operating leverage evidenced by operating profit growth > revenue growth. ROIC at 9.0% indicates efficient deployment of invested capital, above typical 7–8% targets.

Growth Assessment

Top line grew 12.4% YoY to 266.0, reflecting healthy demand in fire protection equipment/services. Operating income rose 54.0% to 33.9, signaling strong operating leverage and improved pricing/mix. Ordinary income (+62.3%) benefitted from positive non-operating contributions (dividends 0.46, interest 0.25) and low non-operating expenses (0.77). Net income increased 43.4% to 21.9 despite a 32.6% effective tax rate. Revenue sustainability: likely supported by construction and retrofit demand, but subject to project timing and building starts. Profit quality: majority of the YoY delta is operational; non-operating contribution (net +1.84) is supportive but not the main driver. Outlook: If order intake/backlog remains solid and cost inflation is managed, mid-teens EBIT margins may be defensible near term; watch for normalization of H1 seasonality in H2. Key swing factors: raw material costs (steel, chemicals), labor availability, and pass-through effectiveness.

Financial Health

Liquidity is strong: current ratio 215.4% and quick ratio 191.1%, well above healthy thresholds; no warning (both >1.0). Solvency is conservative with D/E 0.58x and interest coverage 52.75x. Cash and deposits (100.62) exceed short-term loans (17.58) and cover total borrowings (short 17.58 + long 4.53 = 22.11) multiple times, mitigating refinancing risk. Working capital is ample (189.94), with current assets (354.48) comfortably exceeding current liabilities (164.54), limiting maturity mismatch risk. No off-balance sheet obligations are disclosed in the provided data. Balance sheet flexibility supports ongoing capex (2.26 in H1) and potential shareholder returns without stressing leverage.

Cash Flow Quality

OCF/NI at 0.71x flags weaker cash conversion versus the >1.0x benchmark, suggesting working capital absorption or timing of receivable collections in H1. Proxy FCF (OCF 15.54 – Capex 2.26) is ~13.28, positive and ample relative to likely dividend needs, but investing CF details are unreported (data limitation). Earnings quality: elevated gap between NI and OCF warrants monitoring; there are no explicit signs of aggressive working capital manipulation in the disclosed figures, but rising receivables (118.82 current balance) relative to sales could be an area to watch. Sustainability: If H2 collections normalize, full-year OCF/NI should improve; otherwise, continued WC build could pressure cash yields and FCF.

Dividend Sustainability

The calculated payout ratio is 23.0%, comfortably below the <60% benchmark. With proxy FCF of ~13.28 and estimated dividends of ~5.0 (23% of NI 21.87), FCF coverage is approximately 2.6x, indicating good headroom despite OCF softness. Financing CF was -6.65 (likely debt repayments/dividends), but total dividends paid are unreported. Balance sheet strength (net cash position when netting cash vs. total borrowings) further supports dividend resilience. Policy outlook: With ROIC at 9.0% and modest capex, the company has capacity to maintain or gradually increase dividends provided cash conversion normalizes.

Risk Assessment

Business Risks:

• Project timing risk in installation/maintenance businesses affecting quarterly revenue recognition and cash collection
• Raw material cost volatility (steel, chemicals) potentially pressuring gross margins
• Labor availability and subcontractor cost inflation impacting execution margins
• Demand sensitivity to construction cycles and building starts, including retrofit spending

Financial Risks:

• OCF/NI at 0.71 indicates cash conversion risk and potential working capital build
• Receivables concentration/collection timing given AR 118.82 vs. quarterly sales run-rate
• Interest rate normalization risk, albeit mitigated by low leverage and strong interest coverage
• Tax rate variability (effective 32.6%) affecting net profitability

Key Concerns:

• Earnings quality flagged by OCF lagging NI in H1
• Sustainability of margin expansion after a sharp YoY step-up
• Data limitations (unreported investing CF, detailed SG&A and R&D) constrain deeper diagnostics

Investment Implications

Key Takeaways:

• Strong operational execution with operating margin expansion (~+344 bps) drove outsized profit growth vs. revenue
• Balance sheet is robust with ample liquidity and low leverage; refinancing risk is minimal
• Cash conversion is the main watchpoint (OCF/NI 0.71); normalization in H2 is key to sustaining higher payouts/investment
• ROIC at 9.0% indicates attractive returns on capital relative to common targets
• Non-operating tailwinds are supportive but not central to the earnings story

Metrics to Watch:

• OCF/Net Income and working capital turns (AR and inventory days)
• Operating margin sustainability and gross margin trajectory
• Order intake/backlog indicators and project mix
• Capex vs. maintenance needs and ROIC progression
• Effective tax rate and any changes to financial policy (dividends/repurchases)

Relative Positioning: Among domestic fire safety and equipment peers, the company demonstrates above-average margin momentum and a strong balance sheet, with ROIC firmly above target ranges; ROE at 6.6% remains mid-pack and could improve further if cash conversion and asset turnover strengthen.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
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