NIHON KAGAKU SANGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.29B
• Operating Income: ¥1.52B
• Net Income: ¥1.24B
• EPS: ¥64.43

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

For FY2026 Q2 (cumulative), Nippon Chemical Industrial Co., Ltd. delivered resilient topline growth with revenue up 6.2% YoY to ¥13.29bn, while operating income declined slightly by 0.6% YoY to ¥1.52bn, implying some margin pressure or cost headwinds despite higher sales. Gross profit of ¥3.13bn translates to a 23.6% gross margin, and operating margin stands at approximately 11.4%, indicating a still-solid cost structure but with limited operating leverage this half. Ordinary income of ¥1.73bn exceeded operating income, suggesting supportive non-operating items (e.g., financial income or FX gains) enhanced earnings quality beyond core operations. Net income rose 0.8% YoY to ¥1.25bn, yielding a net margin of 9.43%, demonstrating stable after-tax profitability. Depreciation and amortization were ¥0.50bn, supporting an EBITDA of ¥2.02bn and a 15.2% EBITDA margin, which provides an additional buffer to profitability. The DuPont breakdown indicates a modest ROE of 2.60%, driven by a 9.43% net margin, low asset turnover of 0.235x, and light financial leverage of 1.17x; in short, a strong balance sheet and relatively low turnover are capping ROE despite healthy margins. Liquidity is exceptionally strong, with a current ratio of 503% and a quick ratio of 467%, and working capital of ¥22.84bn underscores abundant short-term solvency. The balance sheet is conservatively structured: total liabilities are ¥7.83bn versus equity of ¥48.28bn, implying a low debt-to-equity ratio of 0.16x and an equity ratio of roughly 85% (computed as equity/total assets), although the reported equity ratio field is undisclosed. Operating cash flow was strong at ¥1.83bn, 146% of net income, pointing to solid cash conversion; investing cash flow and cash balances were not disclosed in this dataset, limiting free cash flow assessment. Interest expense is minimal at ¥3.37m, and interest coverage exceeds 450x, highlighting negligible financial risk from borrowing. The effective tax rate presented in the “Calculated Metrics” is shown as 0.0% but should be treated as a data placeholder; given disclosed income tax expense of ¥0.54bn, the effective tax rate is clearly non-zero. Dividend information (DPS and payout) was not disclosed; thus, we cannot assess distribution trends, though the balance sheet and OCF suggest capacity for shareholder returns. Overall, the company demonstrates robust financial health, strong cash generation relative to earnings, and conservative leverage, but shows limited operating leverage in the period and a structurally low asset turnover that tempers ROE. Outlook hinges on sustaining volume and pricing in key end-markets while managing input costs; non-operating gains will be a swing factor for ordinary profit. Data gaps (notably investing cash flow, cash balances, and dividend details) constrain certain conclusions, and we focus the analysis on the available non-zero data points.

Profitability Analysis

ROE decomposition (DuPont): Net margin 9.43% × Asset turnover 0.235 × Financial leverage 1.17 = ROE 2.60%. The low asset turnover is the main drag on ROE despite respectable profitability and minimal leverage. Gross margin of 23.6% and operating margin of ~11.4% indicate solid value-add and cost control, but the slight YoY decline in operating income versus +6.2% revenue suggests negative operating leverage this half (higher fixed/semivariable costs or less favorable mix). EBITDA margin of 15.2% provides headroom over operating margin, supported by D&A of ~¥0.50bn; this signals an asset base with moderate capital intensity. Ordinary income exceeds operating income by ~¥0.22bn, implying positive non-operating contributions that lifted earnings; sustainability of these items should be monitored. Net margin at 9.43% is healthy for a specialty/industrial chemical profile and consistent with a conservative balance sheet. Overall, margin quality appears sound but with tempered operating leverage in the period.

Growth Assessment

Revenue grew 6.2% YoY to ¥13.29bn, evidencing steady demand or pricing resilience. Operating income declined 0.6% YoY to ¥1.52bn, indicating mixed throughput of topline growth into profits, likely due to input cost normalization, product mix, or incremental SG&A. Net income increased 0.8% YoY to ¥1.25bn, aided by non-operating items that lifted ordinary income above operating levels. Profit quality is underpinned by a strong OCF/NI ratio of 1.46x, suggesting earnings are cash-backed. The low asset turnover (0.235x) and very strong equity base constrain ROE despite margin stability. Near-term outlook depends on maintaining pricing discipline, managing raw material/energy costs, and demand from downstream industrial/electronics customers; ordinary income sensitivity to FX/financial items is a swing factor. Given partial data, capex-driven growth visibility is limited this period; we cannot assess expansion pace without investing cash flow disclosures.

Financial Health

Liquidity is very strong: current ratio 503.3% (¥28.50bn CA vs. ¥5.66bn CL) and quick ratio 466.8%, supported by sizeable working capital of ¥22.84bn. Solvency is robust: total liabilities ¥7.83bn vs. equity ¥48.28bn, implying debt-to-equity 0.16x and a computed equity ratio near 85% (equity/total assets), notwithstanding the undisclosed equity ratio field. Interest expense is de minimis (¥3.37m), and interest coverage reaches ~451x, reflecting low financial risk. The capital structure is highly conservative, enabling resilience through cycles and optionality for investment or shareholder returns. Inventory is ¥2.06bn, a modest portion of current assets, reinforcing quick liquidity.

Cash Flow Quality

Operating cash flow of ¥1.83bn exceeds net income (¥1.25bn), yielding OCF/NI of 1.46x—indicative of good earnings quality and cash conversion. The gap between EBITDA (¥2.02bn) and OCF suggests manageable working capital dynamics and non-cash charges. Investing cash flow was undisclosed in this period; therefore, free cash flow cannot be reliably calculated from the provided dataset (the listed FCF of 0 reflects non-disclosure, not actual zero). Financing cash flow of -¥0.54bn implies outflows (e.g., debt repayment, dividends, or other distributions), but the breakdown is not provided. Overall, cash generation from operations appears solid; visibility on capex remains the key missing link to assessing sustainable FCF and reinvestment rate.

Dividend Sustainability

Dividend per share and payout ratio were not disclosed in this dataset, so we cannot directly assess distribution levels. EPS was ¥64.43 for the half-year period, and operating cash flow was strong, suggesting capacity to fund dividends if the policy so dictates. FCF coverage cannot be assessed without investing cash flow/capex disclosure; the listed FCF of 0 is a placeholder due to non-disclosure. The conservative balance sheet (debt-to-equity 0.16x) and strong liquidity provide flexibility for shareholder returns while preserving investment capacity. Outlook on policy remains uncertain pending disclosure from management; monitor guidance and capital allocation commentary.

Risk Assessment

Business Risks:

• Input cost volatility (raw materials, energy) potentially pressuring gross margins.
• End-market demand cyclicality in industrial and electronics-related applications.
• Product mix shifts affecting operating leverage and profitability.
• FX fluctuations impacting non-operating income and import costs.
• Regulatory and environmental compliance costs affecting specialty chemical operations.

Financial Risks:

• Earnings sensitivity to non-operating items that boosted ordinary income over operating income.
• Potential working capital swings that could impact operating cash flow in a downturn.
• Concentration risk if specific products/customers dominate sales (not disclosed).
• Limited ROE due to low asset turnover and low leverage may constrain capital efficiency.

Key Concerns:

• Negative operating leverage in the period despite revenue growth.
• Lack of visibility on investing cash flow and capex, limiting FCF assessment.
• Dividend policy and payout not disclosed, constraining return profile analysis.

Investment Implications

Key Takeaways:

• Topline grew 6.2% YoY to ¥13.29bn; operating income -0.6% YoY indicates modest margin pressure.
• Margins remain solid (GP 23.6%, OP ~11.4%, EBITDA 15.2%); ordinary income benefitted from non-operating gains.
• ROE is modest at 2.60%, constrained by low asset turnover (0.235x) and conservative leverage (1.17x).
• Liquidity and solvency are very strong (current ratio 503%, D/E 0.16x), minimizing financial risk.
• OCF/NI of 1.46x signals good earnings quality; capex/FCF visibility is limited due to undisclosed investing CF.

Metrics to Watch:

• Gross and operating margins (input cost pass-through, mix effects).
• Ordinary vs. operating income gap (FX/financial items sustainability).
• Working capital intensity and OCF/NI conversion.
• Capex and investing cash flows to gauge FCF and growth reinvestment.
• Asset turnover and ROE trajectory (utilization, production yields, and pricing).
• Dividend policy disclosures (DPS, payout, buybacks) and financing CF breakdown.

Relative Positioning: Financially conservative with strong liquidity and low leverage relative to typical specialty/industrial chemical peers, supporting resilience; profitability is solid but ROE is tempered by low asset turnover and minimal leverage, making operational efficiency and capital deployment key levers for improvement.

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