Nippon Soda Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥67.07B
• Operating Income: ¥7.05B
• Net Income: ¥6.80B
• EPS: ¥124.10

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 quarter with flat revenue but stronger below-the-line contributions lifting ordinary and net profits, while cash flow quality and balance sheet strength remain high. Revenue was 670.69, essentially flat YoY (-0.0%). Operating income was 70.53 (-0.3% YoY), implying operating profit held steady despite a challenging backdrop. Ordinary income rose 16.5% YoY to 97.42, driven by robust non-operating income of 33.40 and controlled non-operating expenses of 6.51. Net income increased 7.0% YoY to 67.93, translating to a net margin of 10.1%. Gross profit was 206.31, with a gross margin of 30.8%, indicating a healthy mix and/or input cost control. Operating margin was about 10.5% (70.53/670.69), effectively flat with a slight compression estimated at roughly 2 bps YoY given the -0.3% OI on flat sales. Ordinary income margin expanded materially by about 206 bps YoY to 14.5%, reflecting the step-up in non-operating gains. Net margin expanded by roughly 60–70 bps YoY to 10.1%, as ordinary gains more than offset a normalized tax burden (effective tax rate 29.0%). Earnings quality is high: operating cash flow of 126.13 was 1.86x net income, signaling strong cash conversion and limited accrual risk. The balance sheet is conservative with a current ratio of 234% and D/E of 0.49x, and interest coverage is very strong at 23.4x. ROE is modest at 3.5% and ROIC at 2.2% (warning), indicating capital efficiency remains the main structural challenge. Non-operating income accounted for a high share of profit (non-operating income ratio ~49%), introducing volatility risk if external financial gains normalize. Capex was 69.85, leaving an estimated core FCF (OCF – capex) of about 56.3, sufficient to fund the 26.57 of share repurchases and still deleverage or invest selectively. The reported payout ratio (calculated) of 167.2% appears elevated relative to net income, though dividend amounts are unreported and this figure may reflect partial or timing effects. Forward-looking, sustaining profit growth will likely require continued mix improvement in higher-margin chemicals and agrochemicals, disciplined capex, and better asset turnover to lift ROIC closer to the cost of capital.

Profitability Analysis

ROE (3.5%) decomposes into Net Profit Margin (10.1%) × Asset Turnover (0.232) × Financial Leverage (1.49x). The primary driver of YoY improvement appears to be the net profit margin, which expanded as ordinary income grew 16.5% on flat sales, while operating income was flat to slightly down and leverage remained conservative. Business reason: non-operating income (33.40) rose, including higher dividends (4.94), interest income (0.61), and likely other financial/FX-related gains (details unreported), pushing ordinary and net margins higher. Asset turnover remains low at 0.232, reflecting a sizeable asset base (total assets 2,885.60) relative to sales and significant inventories (578.13). Financial leverage at 1.49x is restrained, limiting ROE magnification but contributing to stability. Sustainability: margin uplift tied to non-operating items is less predictable and may not be fully repeatable; operating margin was essentially flat and remains the more durable profitability anchor. Watch for SG&A discipline: with OI -0.3% on flat revenue, any SG&A growth outpacing sales could pressure operating leverage; detailed SG&A breakdown is unreported, so we cannot confirm mix or one-offs. Overall, the ROE profile is constrained by low asset turnover and low leverage; improving core operating margin and asset efficiency is key to sustainable ROE expansion.

Growth Assessment

Top-line growth was flat (-0.0% YoY), indicating a stable but subdued demand environment. Operating profit was effectively unchanged (-0.3% YoY), suggesting limited operating leverage this quarter. Ordinary income growth (+16.5% YoY) and net income growth (+7.0% YoY) were driven by stronger non-operating contributions rather than core operating expansion. Gross margin at 30.8% and EBITDA margin at 16.5% indicate a healthy mix/cost position, but the lack of operating profit growth points to either price/mix offsets by cost inflation or higher SG&A. With asset turnover at 0.232 and ROIC at 2.2%, capital efficiency remains below desired thresholds, which could cap medium-term EPS growth unless the company improves utilization or rationalizes assets. Outlook hinges on sustaining non-operating income (uncertain) and executing on margin initiatives and mix shift in core chemicals/agrochemicals. Near-term growth visibility is moderate: stable revenue base, operating margin stable, but earnings sensitivity to financial/other income is elevated.

Financial Health

Liquidity is strong: current ratio 234.2% and quick ratio 119.6% both exceed healthy benchmarks. No warnings: current ratio well above 1.0 and D/E at 0.49x well below 2.0. Interest coverage is robust at 23.43x, indicating low near-term refinancing risk. Maturity/mismatch: short-term loans of 244.01 are well covered by cash (226.75) and receivables (291.16), and further supported by inventories (578.13), mitigating rollover risk. Total liabilities stand at 950.14 against total equity of 1,935.45, reflecting a conservative capital structure. Off-balance sheet obligations are not disclosed in the provided data; no lease or guarantee details available, so contingent liabilities cannot be assessed. Overall solvency and liquidity profiles are strong, providing flexibility for capex and shareholder returns.

Cash Flow Quality

OCF was 126.13 versus net income of 67.93, yielding an OCF/NI of 1.86x, which is strong and indicates high-quality earnings with healthy cash conversion. While full investing cash flow is unreported, capex of 69.85 suggests an estimated core FCF (OCF – capex) of ~56.3, positive and supportive of capital allocation. Financing CF was -55.55, including share repurchases of 26.57; debt service appears manageable given strong coverage. Working capital: inventories are sizable (578.13), but the strong OCF implies either stable working capital or some release; detailed working capital movements are not provided, so we cannot confirm the driver. No obvious signs of working-capital-driven earnings management given cash conversion above 1.0x. Sustainability: if OCF remains near current run-rate, the company can fund maintenance capex and modest shareholder returns without stressing the balance sheet.

Dividend Sustainability

The reported calculated payout ratio is 167.2%, which, if accurate, would be above sustainable levels and exceed typical benchmark thresholds (<60%). However, dividends paid and DPS are unreported, so this figure may reflect partial-period factors or special items; interpret with caution. Based on estimated core FCF of ~56.3, ordinary dividends could be sustainable if sized conservatively, but an elevated payout above net income would not be covered by earnings. Share repurchases of 26.57 were funded within overall financing capacity and appear covered by FCF this period. Policy outlook cannot be inferred from the data provided; monitor for full-year DPS guidance and any special distributions. Key constraint on long-term dividend growth is low ROIC (2.2%); improving capital efficiency would enhance dividend sustainability.

Risk Assessment

Business Risks:

• Reliance on non-operating income to lift ordinary profit; potential volatility if financial/FX gains normalize
• Low ROIC at 2.2% indicates underutilized assets or low-return projects, constraining value creation
• Commodity and raw material price volatility affecting chemical margins
• Demand cyclicality in chemicals/agrochemicals end markets
• Potential regulatory and environmental compliance costs in chemical operations

Financial Risks:

• Inventory concentration (578.13) raises risk of valuation losses if prices fall or demand slows
• Short-term borrowings (244.01) introduce some refinancing exposure, though currently well covered
• Payout ratio (calculated) at 167.2% suggests possible overdistribution risk if sustained
• Earnings sensitivity to interest rate and FX movements via non-operating items

Key Concerns:

• Capital efficiency: ROE 3.5% and ROIC 2.2% are well below typical targets
• Operating margin flat despite stable revenue, indicating limited operating leverage
• High non-operating income ratio (~49%) raises quality-of-earnings concerns if one-off
• Data gaps (dividends, investing CF detail, SG&A breakdown) limit visibility into sustainability

Investment Implications

Key Takeaways:

• Underlying operations stable; operating income essentially flat on flat sales
• Earnings growth driven by non-operating gains, boosting ordinary and net margins
• Cash conversion strong (OCF/NI 1.86x) and balance sheet conservative (D/E 0.49x)
• ROE/ROIC remain low; improving asset efficiency and core margins is critical
• Estimated core FCF positive, supporting buybacks and potentially dividends, subject to policy

Metrics to Watch:

• Ordinary vs operating income mix; detail of non-operating income components
• OCF/NI ratio and working capital movements (especially inventories)
• Operating margin trajectory and SG&A growth vs revenue
• ROIC progress and asset turnover improvements
• Dividend policy disclosures and full-year payout guidance
• Short-term debt rollovers and interest rate sensitivity

Relative Positioning: Within Japanese chemical peers, the company exhibits strong balance sheet health and cash conversion but lags on capital efficiency (ROIC/ROE). Profitability at the operating level is steady, while heavier reliance on non-operating income increases earnings volatility relative to peers with more purely operational profit bases.

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