Nissan Chemical Corporation FY2027 Q1 Earnings Report

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Executive Summary

Revenue and profit both achieved double-digit growth, resulting in higher revenue and earnings, with the high-margin Functional Materials and Agricultural Chemicals segments driving the improvement in profitability. Revenue was ¥787.9B (¥698.7B in the same period of the previous year, +12.8%), Operating Income was ¥219.1B (¥181.0B, +21.1%), Ordinary Income was ¥236.4B (¥181.4B, +30.3%), and Net Income attributable to owners of the parent was ¥168.4B (¥138.9B, +21.2%). The gross profit margin improved to 50.6% from the previous year, with pricing policies and an improved product mix serving as the primary drivers of earnings growth.

Factors Affecting Business Performance

【Revenue】Revenue was ¥787.9B (+12.8%). Wholesale Business increased substantially to ¥383.5B (+27.9%), while Functional Materials rose to ¥326.0B (+26.1%), driving overall company growth. Agricultural Chemicals was ¥266.0B and remained largely flat (+0.0%), indicating that growth was dependent on other segments. Healthcare was a small-scale business at ¥18.6B (+18.2%) but achieved high growth.

【Profit and Loss】Operating Income was ¥219.1B (+21.1%), and the Operating Margin improved to 27.8% from 25.9% in the previous year. The Cost of Sales ratio declined, improving the gross profit margin by +180bp to 50.6% from 48.8% in the previous year, while the SG&A ratio remained broadly flat at 22.7%, demonstrating continued cost discipline. Ordinary Income was ¥236.4B (+30.3%), supported by non-operating income including dividend income of ¥9.5B and foreign exchange gains of ¥4.3B. Functional Materials (32.8% margin) and Agricultural Chemicals (33.2%) maintained high profitability and supported overall earnings, whereas Wholesale Business had a thin 3.6% margin, meaning that despite having the largest share of revenue, its contribution to profit was limited. The results were characterized by higher revenue and earnings, as well as a structural improvement in profit margins.

Segment Analysis

The Functional Materials Business generated revenue of ¥326.0B (+26.1%), Operating Income of ¥106.9B (+30.3%), and a 32.8% margin, making it the company’s largest profit-contributing segment. The Agricultural Chemicals Business maintained high profitability with a 33.2% margin despite revenue of ¥266.0B (+0.0%), making its lack of volume growth a point to monitor going forward. The Wholesale Business had the largest revenue scale at ¥383.5B (+27.9%), but its margin was low at 3.6%; the gross presentation of agent transactions resulted in a significant difference between revenue scale and profit contribution. The Healthcare Business was small in scale but demonstrated the highest profitability, with a 39.8% margin, and also achieved the fastest growth (+50.2%).

Key Financial Indicators

【Profitability】Both the Operating Margin of 27.8% (25.9% in the previous year) and the Net Profit Margin of 21.4% (19.9% in the previous year) improved, primarily due to the improvement in the gross profit margin to 50.6% from 48.8%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥212.2B, or 1.26 times Net Income of ¥168.4B, indicating a favorable level of earnings cash conversion. 【Investment Efficiency】ROE was 6.7%. Given the conservative capital structure, with an Equity Ratio of 70.9%, the leverage effect was limited. EPS expanded to ¥125.74 (¥102.20 in the previous year, +23.0%), exceeding the pace of earnings growth. 【Financial Soundness】The Equity Ratio was 70.9%, and the company held cash and deposits of ¥351.8B. Bonds outstanding had doubled year on year to ¥200.0B. Total assets were ¥3599.5B and net assets were ¥2551.7B, representing a balanced structure in terms of capital efficiency and financial soundness.

Cash Flow Analysis

Operating Cash Flow was ¥212.2B (+29.9% year on year), demonstrating strong cash generation that exceeded Net Income of ¥168.4B. In terms of working capital, inventories and trade receivables made negative contributions of ¥15.4B and ¥28.6B, respectively. Although the accumulation of inventories and receivables associated with higher revenue somewhat restrained OCF growth, the ¥11.1B increase in trade payables partially offset this effect. Investing Cash Flow was an outflow of ¥61.5B, primarily reflecting capital expenditures of ¥41.6B. CapEx exceeded depreciation and amortization of ¥36.0B, indicating the continuation of replacement and growth investments. Free Cash Flow was secured at ¥150.8B, but Financing Cash Flow was an outflow of ¥167.2B. In addition to share repurchases of ¥47.1B, the payment of the year-end dividend resulted in a modest decline in cash and deposits during the quarter. This concentration of funding needs was largely seasonal and does not represent a major concern in light of the company’s full-year OCF generation capacity.

Earnings Quality

Of Ordinary Income of ¥236.4B, non-operating income of ¥21.2B consisted primarily of dividend income of ¥9.5B and foreign exchange gains of ¥4.3B. Both were income derived from non-operating activities and had only a limited impact, equivalent to 2.7% of revenue. Equity-method income provided a positive contribution of ¥4.0B, and the performance of affiliated companies also supported Ordinary Income. Comprehensive Income was ¥180.0B, of which ¥176.8B was attributable to owners of the parent. The difference from Net Income of ¥168.4B was primarily attributable to an ¥8.7B increase in valuation difference on securities, representing a valuation fluctuation factor separate from the earning power of the core business. Although OCF exceeded Net Income, increases in trade receivables and inventories represented accrual factors. Given that these increases were natural asset growth associated with higher revenue, earnings quality can generally be assessed as favorable.

Earnings Forecast and Guidance

Against the full-year plan, revenue was ¥78.8B out of ¥287.0B, representing progress of 27.2%; Operating Income was ¥219.1B out of ¥668.0B, representing progress of 32.8%; and Ordinary Income was ¥236.4B out of ¥688.0B, representing progress of 34.4%. All exceeded the quarterly benchmark of 25%. In particular, progress on profit indicators exceeded that of revenue, raising the question of whether the factors boosting profitability in the first half will continue into the second half and beyond, or whether the full-year plans themselves were set conservatively. No revisions were made to the earnings forecast or dividend forecast as of the full-year financial results announcement.

Shareholder Returns

The full-year dividend forecast is ¥212, implying a Payout Ratio of approximately 54.8% against forecast EPS of ¥387.11, which is not excessive. During the quarter, the company conducted share repurchases of ¥47.1B, and including the year-end dividend payment, approximately ¥166.7B of funds flowed out through Financing Cash Flow. Dividends have been paid continuously, with the annual dividend plan expanding from ¥70 per share in the previous year to ¥212 this fiscal year. Total shareholder returns, including dividends and share repurchases, exceeded quarterly Free Cash Flow of ¥150.8B. This was attributable to the timing of the year-end dividend payment and its seasonal nature; considering the company’s full-year OCF generation capacity, there is no significant concern regarding sustainability.

Risk Factors

1. Declining working capital efficiency: Trade receivables and inventories increased by ¥28.6B and ¥15.4B, respectively, partially offsetting OCF growth. Although these increases were natural consequences of higher revenue, trends in inventory and collection cycles should be monitored going forward.

2. Imbalance in the earnings structure across segments: Wholesale Business accounted for 48.7% of the revenue mix (¥383.5B), but had a thin 3.6% margin. The gross presentation of agent transactions resulted in a significant difference between revenue scale and profit contribution.

3. Dependence on short-term funding structure: Short-term borrowings stood at ¥165.5B, compared with only ¥3.9B in long-term borrowings, resulting in a funding structure biased toward the short term. Cash and deposits of ¥351.8B provide a certain level of buffer.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability substantially exceeds the industry median and places it among the high-profitability group within the manufacturing industry.

Growth and Capital Efficiency

The growth rate also exceeds the industry median but remains within the IQR upper bound of 14.6%.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Both the gross profit margin and Operating Margin improved from the previous year, and the expansion in the revenue mix of high-margin segments such as Functional Materials and Agricultural Chemicals may be contributing structurally to the improvement in the company-wide earnings profile.

2. Full-year progress is advancing at a faster pace for profit indicators than for revenue (Operating Income at 32.8% versus revenue at 27.2%), indicating a concentration of profitability in the first half. Changes in the pace of progress during the second half and thereafter will be a key point of focus.

3. Although Wholesale Business has the largest share of revenue, its margin is low at 3.6%, and its contribution to company-wide profit is limited. Differences in the earnings structure by segment warrant close monitoring as a potential factor affecting future changes in the company-wide profit margin.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson type; explicit 5-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥2,569–¥2,717 at Cost of Equity ±1%, and ¥2,624–¥2,668 at ω±0.1.

Notes:

• Goodwill amortization of ¥0.5 per share is added back to earnings (as a non-cash expense and for comparability with IFRS companies).
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL financial results data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available financial results data. Investment decisions should be made at your own responsibility, and after consulting with a professional advisor as necessary.

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