NANKAI CHEMICAL COMPANY,LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.18B
• Operating Income: ¥607M
• Net Income: ¥438M
• EPS: ¥215.27

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

For FY2026 Q2 (consolidated, JGAAP), Nankai Chemical reported revenue of ¥9,176 million (+4.4% YoY), with operating income of ¥607 million (+17.6% YoY) and net income of ¥434 million (-2.8% YoY). The operating margin expanded to approximately 6.6%, reflecting effective cost control and/or improved product mix despite modest topline growth. Ordinary income of ¥626 million indicates limited non-operating noise, with interest expense of only ¥27 million and strong interest coverage. Net margin was 4.73%, and the YoY net income decline suggests tax effects or below-the-line items offsetting operating gains. The DuPont profile shows a calculated ROE of 4.91%, decomposed into 4.73% net margin, 0.401x asset turnover, and 2.59x financial leverage—signaling moderate profitability underpinned by balanced leverage but subdued asset efficiency. Gross margin of 27.9% and EBITDA margin of 12.7% are reasonable for a mid-cap chemical name, albeit not high for specialty peers. Cash conversion is a key watchpoint: operating cash flow (OCF) was ¥221 million, implying an OCF/net income ratio of 0.51, which is weak relative to earnings and below a 1.0x quality threshold. Working capital dynamics appear to have weighed on cash, evidenced by a current ratio of 96.6%, quick ratio of 84.0%, and negative working capital of ¥-332 million. The balance sheet is moderately levered with debt-to-equity of 1.58x; based on reported totals, the equity-to-asset ratio is approximately 38.6% (despite the disclosed equity ratio field showing 0.0% as unreported). Financing cash flow was positive at ¥780 million, suggesting reliance on external funding or changes in debt/capital structure in the period. Depreciation and amortization of ¥560 million indicates notable capital intensity; however, investing cash flow was shown as 0 (likely unreported), limiting visibility into capex and free cash flow. Dividend per share is disclosed as ¥0.00 with a 0% payout, signaling earnings retention amid cautious liquidity. Overall, operating trajectory is improving while bottom line is pressured by non-operating/tax items, and cash flow quality lags earnings. Near-term priorities include stabilizing working capital, restoring positive free cash flow after capex, and maintaining prudent leverage. Data limitations (e.g., unreported cash, investing CF, equity ratio, and share counts) constrain precision on liquidity buffers, capex, and per-share metrics. Nonetheless, the available figures suggest a stable core business with margin improvements but a need for better cash conversion to sustain growth investments and potential future shareholder returns.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 4.73%
• asset_turnover: 0.401x
• financial_leverage: 2.59x
• calculated_ROE: 4.91%
• commentary: ROE is driven more by leverage than asset efficiency, with a modest net margin and relatively low asset turnover for the sector. margin_quality:
• gross_margin: 27.9% (¥2,557m / ¥9,176m)
• operating_margin: 6.61% (¥607m / ¥9,176m)
• ordinary_margin: 6.82% (¥626m / ¥9,176m)
• net_margin: 4.73% (¥434m / ¥9,176m)
• EBITDA_margin: 12.7% (¥1,167m / ¥9,176m)
• insights: YoY operating income growth outpaced revenue, implying positive operating leverage and/or improved pricing vs. raw materials. Net margin compression vs. operating margin improvement suggests taxes or non-recurring items weighed on the bottom line. operating_leverage: Operating income grew +17.6% on +4.4% revenue growth, indicating favorable operating leverage. Depreciation of ¥560m versus operating income of ¥607m highlights significant fixed cost absorption; small volume/mix changes can materially affect earnings.

Growth Assessment

revenue_sustainability: Revenue increased 4.4% YoY to ¥9,176m, consistent with steady demand and/or pricing resilience. Without segment disclosures, sustainability hinges on maintaining spread over raw materials and energy, and on demand in key downstream markets. profit_quality: Operating profit improved (margin ~6.6%), while net income declined 2.8% due to below-the-line factors. Interest burden is small, so tax and other items likely drove the delta. Our inferred effective tax rate is ~23.5% (¥147m/¥626m), which aligns with normalized levels. outlook: Assuming stable macro and input costs, operating trends appear supportive of mid-single-digit revenue growth and incremental margin gains. However, cash conversion and working capital normalization are prerequisites for sustained earnings quality.

Financial Health

liquidity:

• current_ratio: 96.6%
• quick_ratio: 84.0%
• working_capital: ¥-332m
• commentary: Ratios slightly below 100% point to tight short-term liquidity; inventory at ¥1,242m is material to working capital management. solvency_capital_structure:
• total_assets: ¥22,909m
• total_liabilities: ¥13,967m
• total_equity: ¥8,838m
• debt_to_equity: 1.58x
• equity_ratio_inferred: ≈38.6% (¥8,838m/¥22,909m); disclosed equity ratio field was unreported
• interest_coverage: 22.5x (¥607m EBIT / ¥27m interest)
• commentary: Moderate leverage with strong interest coverage suggests manageable solvency risk, though tighter liquidity warrants monitoring.

Cash Flow Quality

earnings_quality:

• OCF: ¥221m
• net_income: ¥434m
• OCF_to_NI: 0.51x
• commentary: Cash conversion below 1.0x indicates working capital drag or timing issues; this weakens earnings quality. FCF_analysis:
• D&A: ¥560m
• investing_CF: 0 (unreported)
• free_cash_flow: Not reliably derivable; provided FCF metric shows 0 due to unreported capex
• commentary: Given notable D&A, underlying maintenance capex is likely meaningful; true FCF could be below OCF in periods of investment. working_capital: Negative working capital (¥-332m) and sub-1.0 current/quick ratios suggest that receivables/inventory management and payables timing are key drivers of the weak OCF.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0.00 and payout ratio is 0.0%, indicating full earnings retention amid liquidity and cash conversion constraints. FCF_coverage: Not assessable due to unreported investing cash flows; current OCF of ¥221m would need to cover maintenance capex before any distributions. policy_outlook: With moderate leverage and tighter liquidity, a conservative stance on dividends appears consistent with preserving balance sheet flexibility until OCF and FCF improve.

Risk Assessment

Business Risks:

• Raw material and energy price volatility affecting spreads and gross margin
• Demand fluctuations in downstream end-markets (industrial, construction, electronics, agriculture)
• Product mix and pricing power limitations in competitive chemical sub-segments
• Operational risks including plant outages, maintenance, and environmental compliance
• Regulatory and ESG pressures increasing capex/opex (waste, emissions, safety)

Financial Risks:

• Tight liquidity with current ratio at 96.6% and quick ratio at 84.0%
• Weak cash conversion (OCF/NI 0.51x) increasing reliance on external financing
• Moderate leverage (D/E 1.58x) could constrain flexibility if conditions weaken
• Potential capex needs (D&A ¥560m) without clear visibility on investing cash flows

Key Concerns:

• Sustained improvement in working capital is needed to align cash flow with earnings
• Visibility on capex and true FCF is limited due to unreported investing cash flows
• Maintaining operating margin gains amid input cost and FX changes

Investment Implications

Key Takeaways:

• Operating performance improved with a 6.6% operating margin and +17.6% YoY OI growth
• Net income declined 2.8% due to below-the-line factors despite stronger operations
• ROE at 4.91% reflects modest margins and asset efficiency supported by leverage
• Liquidity is tight (current ratio 96.6%, quick 84.0%) with negative working capital
• Cash conversion is weak (OCF/NI 0.51x); stronger OCF is needed to underpin FCF
• Balance sheet solvency is sound with 22.5x interest coverage and inferred ~39% equity ratio
• Dividend remains suspended (DPS ¥0), consistent with cash preservation

Metrics to Watch:

• OCF/NI and working capital turnover (receivables, inventory days, payables)
• Operating margin and gross spread versus input costs and energy
• Capex commitments and investing cash flows to gauge FCF trajectory
• Leverage (D/E) and liquidity buffers (cash, unused credit lines)
• Asset turnover improvement and utilization rates
• Tax rate normalization and non-operating income/expenses

Relative Positioning: Within Japan’s mid-cap chemicals, Nankai Chemical shows improving operating margins and solid interest coverage but trails top-tier specialty peers on cash conversion and asset efficiency; leverage is moderate, and tighter liquidity necessitates disciplined working capital and capex execution.

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