The Nisshin OilliO Group,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥269.92B
• Operating Income: ¥6.97B
• Net Income: ¥18.83B
• EPS: ¥578.64

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

FY2026 Q2 was a mixed quarter: top-line growth held up, but core profitability weakened, and bottom-line strength was largely driven by non-recurring gains rather than operating performance. Revenue rose 3.4% YoY to 2,699.21, indicating resilient demand/pricing in edible oils and related products. Gross profit reached 354.60 with a 13.1% gross margin, but operating income fell 32.6% YoY to 69.72 as SG&A of 284.88 outpaced operating leverage, compressing core margins. Operating margin declined to 2.6% from roughly 4.0% a year ago, implying a compression of about 138 bps. Ordinary income dropped 33.0% to 59.71 as non-operating expenses (notably 14.24 interest) outweighed non-operating income of 9.42. Profit before tax surged to 273.50 and net income to 185.08 (+146.1% YoY), implying sizable extraordinary gains; the 31.2% effective tax rate corroborates recognition at the PBT level. EPS was 578.64 JPY, but its quality is diluted by one-off items. Cash flow quality was weak: operating cash flow was -25.32 versus net income of 185.08 (OCF/NI -0.14x), highlighting a significant divergence and potential working capital drag. Capex was heavy at -209.41, and cash needs were met via financing inflows of 121.14, while share repurchases totaled -52.04. Liquidity remains solid (current ratio 222%, quick ratio 123%) and leverage is moderate (D/E 1.02x), though interest coverage at 4.9x sits just below the “strong” threshold. ROE was calculated at 8.7%, but ROIC of 1.7% underscores weak capital efficiency in core operations. Dividend affordability appears fine versus reported earnings (calculated payout ~33%), but is not covered by free cash flow given negative OCF and elevated capex. Looking ahead, normalization of extraordinary gains and restoration of operating margin will be pivotal; inventory discipline and pricing spread management versus raw material costs (palm/soy/rapeseed) will likely drive the recovery in cash flow and ROIC. FX and commodity volatility remain key exogenous variables for the remainder of the year. The quarter’s headline earnings strength should be treated cautiously due to its non-recurring nature, while the balance sheet offers a buffer for execution. In sum, stable revenue with pressured core profitability and low cash-flow conversion define the period’s quality mix. The company’s financial flexibility mitigates near-term risk, but improving ROIC and OCF conversion are essential to sustain shareholder returns.

Profitability Analysis

ROE (8.7%) decomposition: Net Profit Margin (≈6.9%) × Asset Turnover (0.628) × Financial Leverage (2.02x). The biggest driver this quarter was the net profit margin, which expanded due to large extraordinary gains inflating net income, despite core margin deterioration. Operating margin declined from ~4.0% to ~2.6% (≈-138 bps), reflecting gross-to-operating deleveraging as SG&A (284.88) absorbed most of the gross profit (354.60). Non-operating headwinds (interest expense 14.24 exceeding interest/dividend income 3.24) further pressured ordinary income (-33.0% YoY), before extraordinary gains lifted PBT. Business reason: input cost/pricing spread pressure and/or product mix shift likely narrowed operating profitability, while one-off gains (e.g., asset or securities-related) boosted bottom line. Sustainability: the margin uplift at the net level is not sustainable absent recurring drivers; the operating margin compression is a concern until pricing, mix, and cost management improve. Watch for SG&A growth vs revenue—current data imply SG&A intensity remains high, curbing operating leverage.

Growth Assessment

Revenue growth of 3.4% YoY to 2,699.21 indicates stable demand/pricing in core edible oils, food solutions, and potentially industrial/functional oils. Operating income fell 32.6% YoY to 69.72, signaling weaker conversion of revenue to profit; EBITDA margin stands at 4.7%, underscoring tight spreads. Ordinary income dropped 33.0% YoY to 59.71 due to net non-operating expenses, before large extraordinary gains lifted PBT and NI. Net income rose 146.1% YoY to 185.08; however, this growth is non-recurring in nature. Near-term outlook hinges on raw material cost trends (palm, rapeseed, soybean oil) and FX (yen levels) to restore spreads, plus inventory normalization to improve OCF. Capex of 209.41 suggests ongoing strategic investments; success depends on returns ramping to exceed WACC, currently challenged by a 1.7% ROIC. Absent recurring improvements, earnings growth is likely to moderate as extraordinary gains fade.

Financial Health

Liquidity is strong: current ratio 222.3% and quick ratio 122.6% comfortably above benchmarks; no warning on current ratio. Working capital is ample (1,386.36), with current assets (2,520.34) covering current liabilities (1,133.98) more than 2x. Solvency: D/E at 1.02x is moderate; interest coverage at 4.90x is slightly below the >5x strong benchmark but not a warning. Maturity profile: short-term loans of 319.87 are well covered by cash (271.25) plus receivables (956.09), limiting near-term refinancing risk; inventories (1,130.35) provide additional coverage but carry valuation risk. Long-term loans are 651.27, indicating a balanced tenor; no explicit off-balance sheet obligations disclosed in the provided data. Equity base is solid at 2,124.05, with retained earnings of 1,509.78 supporting resilience.

Cash Flow Quality

OCF was -25.32 vs net income of 185.08 (OCF/NI -0.14x), a clear red flag for earnings quality. The divergence suggests working capital build (likely inventories/receivables) and/or timing effects overshadowing reported earnings. Capex was substantial at -209.41, leading to negative implied free cash flow; financing inflows of 121.14 and buybacks of -52.04 indicate reliance on external funding amid investment and shareholder returns. With EBITDA of 126.29 and interest expense of 14.24, coverage is adequate, but cash conversion must improve. No explicit signs of working capital manipulation can be confirmed from point-in-time data, but the inventory/receivables-heavy balance sheet increases the risk of cash conversion volatility.

Dividend Sustainability

Calculated payout ratio of 32.8% appears conservative versus reported earnings; however, given extraordinary gains and negative OCF, dividend coverage by free cash flow is weak for the period. With strong liquidity and moderate leverage, the company can support dividends near term, but sustained payouts should be evaluated against normalized earnings and OCF recovery. Policy outlook likely hinges on restoring core profitability and improving ROIC toward management targets; buybacks of -52.04 this period signal ongoing shareholder return commitment, but continuation depends on cash generation improving.

Risk Assessment

Business Risks:

• Commodity price volatility in palm, rapeseed, and soybean oils impacting input costs and gross spreads
• FX fluctuations (yen weakness/strength) affecting import costs and pricing competitiveness
• Customer price pass-through lag leading to temporary margin compression
• Product mix shifts toward lower-margin SKUs or channels
• Execution risk on capex projects achieving target returns (ROIC currently 1.7%)

Financial Risks:

• Earnings quality risk: large extraordinary gains inflate NI while OCF is negative
• Interest rate risk given moderate leverage and 4.90x interest coverage
• Working capital intensity (high inventories/receivables) raising cash conversion volatility
• Potential need for continued external financing if OCF remains weak alongside capex

Key Concerns:

• Operating margin compressed by ~138 bps YoY to ~2.6%
• OCF/NI at -0.14x (well below 0.8 threshold)
• ROIC at 1.7% (<5% warning), indicating poor capital efficiency
• Dependence on non-recurring gains to achieve strong net income growth in the quarter

Investment Implications

Key Takeaways:

• Revenue growth is intact, but core profitability deteriorated and ordinary income fell materially
• Net income strength was non-recurring; normalize earnings for valuation and payout assessments
• Cash conversion is weak; improvement in inventory and receivable turns is critical
• Balance sheet provides flexibility, but interest coverage should be monitored amid higher rates
• ROIC must improve to justify ongoing capex and sustain shareholder returns

Metrics to Watch:

• Operating margin and gross-to-operating spread recovery
• OCF/NI and working capital trends (inventory and receivables levels/turns)
• Price pass-through vs raw material cost indices (palm, soy, rapeseed) and FX (USD/JPY)
• Interest coverage and debt tenor/refinancing activity
• ROIC trajectory and capex ROI realization
• Extraordinary items frequency/size and their contribution to NI

Relative Positioning: Within Japan’s edible oils and food ingredients peers, the company shows resilient top-line but weaker core margin and cash conversion this quarter; balance sheet strength is a relative positive, while ROIC and reliance on one-offs are relative negatives.

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
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis