Nissan Chemical Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥130.09B
• Operating Income: ¥29.60B
• Net Income: ¥23.16B
• EPS: ¥168.45

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

Verdict: Solid topline growth with resilient net earnings and exceptionally strong cash generation, albeit with modest operating margin compression. Revenue increased 10.1% YoY to 1,300.94 (100M JPY), while operating income rose 4.4% YoY to 295.98 and net income advanced 11.2% YoY to 228.27. Gross profit came in at 618.40, implying a gross margin of 47.5%, which remains elevated for a specialty chemicals manufacturer. Operating margin was 22.8% (295.98/1,300.94), down versus last year by an estimated 125 bps (prior ~24.0% by back-calculation), signaling some operating deleverage as costs rose faster than revenue. Net margin stood at 17.6%, supported by a small positive non-operating balance (non-op income 17.79 vs non-op expenses 15.89) and a moderate effective tax rate of 22.2%. Ordinary income was 297.88, up 6.6% YoY, indicating core profitability remained robust. EBITDA was 364.90, delivering a healthy 28.0% EBITDA margin. Cash generation was a highlight: operating cash flow of 487.11 was 2.13x net income, indicating high earnings quality and strong cash conversion. Balance sheet strength is notable with total equity of 2,413.66 (about 75% equity ratio by calculation) and D/E of 0.34x, providing ample financial flexibility. Liquidity remains ample with current ratio of 304.7% and quick ratio of 214.7%, backed by 342.74 in cash and deposits. Interest coverage is very strong at 133x, reflecting low financial risk. Estimated free cash flow (OCF minus capex) was approximately 402.34, sufficient to fund buybacks of 64.99 and leave room for potential dividends. However, the reported calculated payout ratio of 104.3% suggests a potential mismatch between dividends (or total shareholder returns) and earnings, warranting verification since dividend data are unreported. The divergence between operating and net margins implies some benefit from non-operating items and taxes that may not be fully recurring. Forward-looking, the combination of solid ROE (9.5%), robust ROIC (10.5%), and strong cash generation supports continued investment capacity in R&D and capacity enhancements, but maintaining operating discipline will be key to defend margins. Overall, the quarter underscores resilient fundamentals with excellent cash flow quality and a conservative balance sheet, offset by mild operating margin pressure and uncertainty around the actual dividend outlay.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 17.6% × 0.404 × 1.34 ≈ 9.5%. Primary driver: Profitability (net margin) is the largest contributor given a moderate asset turnover typical for specialty chemicals and low leverage. Change assessment: Operating margin compressed by ~125 bps YoY (24.0%→22.8% by estimation), while net income grew slightly faster than revenue (+11.2% vs +10.1%), implying net margin resilience supported by modest non-operating income (notably dividend income of 10.86) and a manageable tax rate (22.2%). Business reasons: Likely cost inflation (inputs/energy), product mix shifts, or higher SG&A relative to sales produced operating deleverage; the higher ordinary income growth vs operating income suggests non-operating contributions (dividend/interest) cushioned earnings. Sustainability: Non-operating income (e.g., dividends) is partly recurring but less controllable; operating margin recovery depends on pricing power, mix, and input cost trends—partly cyclical but manageable given gross margin remains high at 47.5%. Flags: Revenue grew faster than operating profit (+10.1% vs +4.4%), indicating negative operating leverage; SG&A details are unreported, but aggregate cost growth outpaced revenue at the operating level. Overall, ROE quality is solid, driven by margins and disciplined leverage.

Growth Assessment

Topline growth of 10.1% indicates healthy demand across core segments. Operating profit growth of 4.4% lagged revenue, reflecting some cost pressure or mix. Net income growth of 11.2% outpaced revenue aided by small non-operating contributions and tax. Gross margin at 47.5% remains a competitive strength, supporting reinvestment capacity. EBITDA margin of 28.0% signals continued capital efficiency for the sector. With ROIC at 10.5% (above the 8% excellence benchmark), growth appears value-accretive. Sustainability hinges on pricing discipline, stabilization of input/energy costs, and end-market demand (notably agrochemicals, high-performance materials, and electronics-related chemicals). Pipeline and capacity expansions are supported by strong OCF (487.11) and modest capex (84.77). Outlook cautious-positive: if cost pressures ease or price/mix improves, operating margin can re-expand; conversely, a demand slowdown or adverse FX/input costs could sustain margin compression.

Financial Health

Liquidity is strong: Current ratio 304.7% and quick ratio 214.7% comfortably exceed benchmarks. No warning on short-term solvency (Current ratio >> 1.0). Working capital is ample at 1,323.04 with cash and deposits of 342.74 against short-term loans of 110.73. Solvency: Debt-to-equity of 0.34x indicates conservative leverage; interest coverage is 133x, signaling minimal refinancing risk. Equity constitutes roughly 74.9% of total assets (2,413.66/3,222.38), implying a very strong capital structure. Maturity mismatch risk appears low as current assets (1,969.39) far exceed current liabilities (646.35). Off-balance sheet items are not disclosed in the provided data; no explicit contingent liabilities noted.

Cash Flow Quality

Earnings quality is high with OCF/Net Income at 2.13x (>1.0 benchmark), indicating strong cash conversion and limited accrual risk. Estimated free cash flow (OCF - capex) is approximately 402.34, comfortably positive and supportive of shareholder returns and reinvestment. Financing cash outflow of -350.41 includes buybacks of -64.99 and likely dividends and/or debt changes, but dividends are unreported. Working capital signals (AR 738.75, inventories 581.49) cannot be assessed for deltas; however, the strong OCF suggests either stable or improving working capital efficiency in the period. No signs of aggressive working capital manipulation are evident from available metrics.

Dividend Sustainability

The calculated payout ratio is shown as 104.3%, which exceeds the <60% benchmark and would be unsustainable if it reflects actual cash dividends; however, dividends paid are unreported, and the figure may stem from guidance or include special factors. Cash capacity is strong: estimated FCF of ~402.34 could cover ordinary dividends at typical payout levels and recent buybacks of 64.99, but clarity on the dividend outlay is needed. Balance sheet flexibility (low D/E, high liquidity) supports continuation of shareholder returns even through cycles. Policy outlook: Assuming a stable dividend policy, medium-term sustainability is supported by OCF, but the headline payout ratio warrants verification; monitor DPS disclosure, payout policy, and any special dividends.

Risk Assessment

Business Risks:

• Input cost and energy price volatility impacting gross and operating margins
• Demand cyclicality in agrochemicals, electronics, and performance materials end-markets
• Product mix shifts that may compress margins despite revenue growth
• R&D pipeline execution risk and time-to-market for new products
• Regulatory and environmental compliance costs

Financial Risks:

• Potential overdistribution if the 104.3% payout ratio reflects actual dividends
• FX exposure affecting both revenue and input costs (not quantified here)
• Equity securities price fluctuations affecting dividend and investment income

Key Concerns:

• Operating margin compression (~125 bps YoY) despite double-digit revenue growth
• Reliance on non-operating income (dividends, interest) to bridge net margin
• Limited disclosure on SG&A and R&D, obscuring cost drivers and growth investment

Investment Implications

Key Takeaways:

• Strong topline growth with resilient net earnings and excellent cash conversion
• Operating margin compressed; need cost discipline and/or pricing actions to re-expand
• Balance sheet is very conservative, providing strategic flexibility
• ROE 9.5% and ROIC 10.5% suggest value-accretive operations
• Shareholder returns include buybacks; dividend clarity needed given reported payout ratio

Metrics to Watch:

• Operating margin trajectory and SG&A growth vs revenue
• Working capital turns (AR and inventory days) and OCF sustainability
• Input cost trends (energy/raw materials) and pricing pass-through
• R&D intensity and new product contribution to margins
• Actual DPS and payout policy vs FCF

Relative Positioning: Within Japanese specialty chemicals, the company exhibits above-average margins, strong ROIC, and a fortress balance sheet, positioning it favorably on quality and resilience despite near-term operating margin pressure.

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