Nippon Chemical Industrial Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥21.00B
• Operating Income: ¥1.39B
• Net Income: ¥1.63B
• EPS: ¥152.79

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

Nippon Chemical Industrial Co., Ltd. (4092) reported FY2026 Q2 consolidated results under JGAAP showing modest top-line growth but significant margin compression. Revenue grew 1.5% YoY to ¥20.998bn, while operating income declined 42.1% YoY to ¥1.390bn, indicating weaker operating leverage and/or cost pressure. Net income fell 18.2% YoY to ¥1.336bn, cushioned by low non-operating drag and limited interest burden. Gross margin was 24.0%, and operating margin contracted to 6.6%, implying SG&A inflation or unfavorable product mix beyond gross cost dynamics. Ordinary income was close to operating income (¥1.374bn vs. ¥1.390bn), suggesting minimal non-operating volatility. DuPont analysis yields a net margin of 6.36%, asset turnover of 0.277x, and financial leverage of 1.58x, resulting in a calculated and reported ROE of 2.80%. ROA is approximately 1.76% (NI/Assets), reflecting a conservative balance sheet with modest turnover. Liquidity appears solid with a current ratio of 156% and quick ratio of 129%, supported by working capital of ¥11.342bn. Solvency looks strong: total equity of ¥47.791bn implies an equity ratio of about 63% (calculated), despite the reported equity ratio field being unreported in XBRL. Interest coverage is robust at 24.4x, indicating low financial risk from debt service. Cash flow quality was strong in the half: operating cash flow of ¥3.132bn equates to 2.34x net income, supported by ¥1.791bn in D&A and likely favorable working capital. Free cash flow cannot be assessed because investing cash flows were not disclosed; hence FCF-based dividend coverage is indeterminable. Dividend information (DPS, payout) is not disclosed for the period; EPS was ¥152.79 but share count and BVPS were not reported in the XBRL extract. Overall, the period demonstrates resilient cash generation but pressured profitability, with strong balance sheet health mitigating near-term financial risk. Outlook hinges on input cost normalization, product mix recovery, and throughput to restore operating margins. Data limitations (notably cash and investing CF, dividends, share data) temper the precision of certain assessments, but the core picture of margin compression amid solid liquidity and cash conversion remains clear.

Profitability Analysis

roe_decomposition: ROE 2.80% = Net Profit Margin 6.36% × Asset Turnover 0.277 × Financial Leverage 1.58. ROA ~1.76% (1,336/75,694), suggesting value creation is currently limited by low turnover and compressed margins rather than leverage. margin_quality: Gross margin 24.0% (¥5.039bn/¥20.998bn) is reasonable for specialty/inorganic chemicals, but operating margin fell to 6.6% (¥1.390bn/¥20.998bn) from an implied ~11–12% last year, pointing to higher SG&A, energy/raw material headwinds, or weaker mix. Net margin at 6.36% remains close to ordinary margin (6.55%), indicating limited non-operating noise. operating_leverage: Revenue grew 1.5% YoY, while operating profit fell 42.1% YoY—clear negative operating leverage. Fixed cost absorption likely deteriorated, and cost inflation was not fully passed through. Interest burden (¥57m) is small, so leverage effects stem from operations rather than financing.

Growth Assessment

revenue_sustainability: Top-line grew modestly (+1.5% YoY to ¥20.998bn). Absent segment disclosures, sustainability appears dependent on end-market demand in chemicals and the company’s pricing power to offset input costs. profit_quality: Net income decline (-18.2% YoY) was less severe than operating income due to minimal non-operating drag. Margin compression at operating level indicates underlying pressure; however, the close alignment of operating and ordinary results suggests profit quality remains operationally driven, not reliant on one-offs. outlook: To stabilize earnings, the company likely needs improving product mix, cost normalization (energy, feedstock), and potentially incremental price increases. Operating leverage can turn positive with volume recovery, but near-term visibility is limited without order/backlog disclosure.

Financial Health

liquidity: Current assets ¥31.448bn vs. current liabilities ¥20.106bn implies a current ratio of 1.56x and quick ratio of 1.29x, supporting healthy short-term coverage. Working capital stands at ¥11.342bn. solvency: Total equity ¥47.791bn vs. total assets ¥75.694bn implies an equity ratio of ~63.1% (calculated), despite an unreported equity ratio field. Debt-to-equity at 0.60x and interest coverage of 24.4x signify low insolvency risk. capital_structure: Leverage (Assets/Equity) at 1.58x is conservative. Ordinary income near operating income shows limited dependence on financial income/expenses; financing CF of -¥0.875bn suggests moderate distributions or debt service, but details are limited.

Cash Flow Quality

earnings_quality: OCF ¥3.132bn vs. NI ¥1.336bn yields OCF/NI of 2.34x, supported by D&A of ¥1.791bn. This indicates strong cash conversion and low accrual intensity for the half. fcf_analysis: Investing cash flow was not disclosed (shown as 0), so free cash flow cannot be reliably computed. If we approximated FCF as OCF minus capex, the absence of capex data prevents assessment of structural FCF. working_capital: Quick ratio of 1.29x and inventories at ¥5.47bn (17% of current assets) indicate manageable inventory intensity. The strong OCF implies either stable working capital or a release; detailed movements are not available.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio are not disclosed for the period (zeros indicate non-reporting). With EPS at ¥152.79, theoretical capacity exists, but actual payout policy cannot be inferred here. fcf_coverage: FCF coverage cannot be determined due to missing investing cash flow data; any 0.00x indicator in the extract should be treated as not available rather than zero. policy_outlook: Given strong balance sheet and cash generation, the company has flexibility; however, the sharp operating margin compression could bias policy toward conservatism until earnings visibility improves. No formal guidance or policy data are provided in the extract.

Risk Assessment

Business Risks:

• Input cost volatility (energy, electricity, and key chemical feedstocks) compressing margins
• Product mix deterioration and limited pricing power in certain commodity-like lines
• Demand cyclicality in end-markets (electronics, autos, industrials) affecting volumes and utilization
• Regulatory and environmental compliance costs potentially rising
• Supply chain and logistics disruptions impacting delivery and costs
• Foreign exchange exposure on raw materials and exports

Financial Risks:

• Earnings sensitivity to fixed-cost absorption given recent negative operating leverage
• Potential capex requirements (unreported) that could absorb OCF and constrain FCF
• Working capital swings impacting cash conversion in cyclical conditions

Key Concerns:

• Operating margin fell to 6.6% despite positive revenue growth
• Limited transparency on capex and investing cash flows restricts FCF assessment
• Dividend data not disclosed, limiting payout sustainability analysis

Investment Implications

Key Takeaways:

• Modest revenue growth (+1.5% YoY) but significant operating margin compression (-42.1% YoY in OI)
• Strong cash conversion (OCF/NI 2.34x) supported by material D&A
• Conservative balance sheet (calculated equity ratio ~63%, interest coverage 24.4x)
• ROE at 2.8% constrained by low asset turnover and compressed margins
• FCF and dividend assessments limited by unreported investing CF and DPS data

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio
• Gross margin vs. energy/feedstock price trends and pricing actions
• Investing cash flows and capex guidance to frame FCF
• Working capital intensity (inventories and receivables turnover)
• Order trends/end-market indicators for volume recovery
• ROE drivers: asset turnover and margin recovery

Relative Positioning: Within Japanese chemical peers, the company exhibits stronger-than-average balance sheet resilience and cash conversion this half, but weaker near-term operating leverage and returns due to margin pressure. Recovery in margins and visibility on capex/FCF will be key to narrowing the gap with higher-ROE specialty peers.

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
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