NIPPON SHOKUBAI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥200.20B
• Operating Income: ¥9.01B
• Net Income: ¥7.97B
• EPS: ¥50.43

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

Verdict: A soft FY2026 Q2 with margin compression and lower earnings YoY, but cash generation was solid and balance sheet remains conservative. Revenue declined 3.2% YoY to 2,001.97, with operating income down 13.8% to 90.11 and net income down 14.7% to 76.12. Gross profit was 369.65, implying an 18.5% gross margin, and EBITDA reached 249.05 for a 12.4% margin. Using the reported YoY rates, operating margin compressed by roughly 56 bps YoY to about 4.5% (from ~5.1% estimated), and net margin compressed by approximately 51 bps to 3.8% (from ~4.3% estimated). Profit before tax was 107.95, with an effective tax rate of 26.2%. ROE was a muted 1.9% driven by low net margin (3.8%), modest asset turnover (0.374), and low financial leverage (1.37x). ROIC was 1.5%, well below the 7–8% target range and flagged for weak capital efficiency. Equity-method income was modest at 5.90 (5.5% of profit), indicating limited contribution from affiliates. Cash flow quality was strong: OCF of 255.40 was 3.36x net income and comfortably funded capex of 211.55, producing positive FCF of 47.99. However, shareholder returns (dividends 90.91 and buybacks 52.20) exceeded FCF, with an FCF coverage ratio of 0.27x, and the calculated payout ratio was elevated at 233.6%. The balance sheet is robust with equity ratio at 71.0% and D/E at 0.37x; Debt/EBITDA at 1.75x indicates low leverage risk. Investment CF was -207.41 reflecting ongoing capex, while financing CF was -135.47 due to dividends and buybacks. Earnings quality is decent given OCF outpaced NI, but sustainability of distributions depends on a stronger H2 rebound in margins. Forward-looking, recovery hinges on product spread improvement (notably acrylic acid/SAP chain), stabilization of input costs, and demand normalization, with FX and energy costs as key variables.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.9% = Net Profit Margin (3.8%) × Asset Turnover (0.374) × Financial Leverage (1.37x). The primary drag YoY was margin compression: operating income fell 13.8% on a 3.2% revenue decline, implying operating margin compressed by ~56 bps to ~4.5%. Net margin also compressed by ~51 bps to 3.8%. Business drivers likely include weaker product spreads and price-cost lag amid soft demand in key segments (e.g., SAP and acrylic derivatives) and possibly higher energy/utility costs. Asset turnover remains modest (0.374), reflecting a capital-intensive footprint and inventory intensity; no evidence points to a major utilization improvement. Leverage stayed low (1.37x), providing stability but limiting ROE uplift. The margin pressure appears cyclical rather than structural, tied to commodity/feedstock and demand cycles; sustainability of improvement depends on spread recovery and cost pass-through. Watch for concerning trends: SG&A (285.79) is high relative to gross profit (369.65), leaving limited operating leverage; given revenue fell 3.2% while OP fell 13.8%, cost base flexibility looks constrained in the quarter.

Growth Assessment

Top-line contracted 3.2% YoY to 2,001.97 amid softer volumes/pricing in core chemicals. Operating profit declined 13.8% to 90.11 and net profit fell 14.7% to 76.12, indicating negative operating leverage. EBITDA of 249.05 suggests cash earnings resilience, but not enough to offset margin pressure. Equity-method income was 5.90, a small share of profit (5.5%), so affiliate tailwinds were limited. Revenue sustainability hinges on end-market demand for SAP/diaper-related materials, coatings, and industrial chemicals, and on pricing discipline relative to feedstock costs. Profit quality: OCF/NI at 3.36x signals robust cash conversion in H1, likely supported by working capital release, but the durability is unclear absent detailed working capital movements. Outlook: Recovery requires improved spreads in the acrylic acid chain and normalization of energy costs; a weaker yen can aid export competitiveness but may lift import costs for feedstocks. Capex intensity (211.55) suggests ongoing strategic investments; medium-term growth will depend on returns from these projects against a low current ROIC of 1.5%.

Financial Health

Liquidity: Current ratio not calculable due to unreported current liabilities; no explicit red flag. Working capital (current assets) totals 2,380.63, including inventories of 839.88. Solvency: Total liabilities are 1,459.52 versus equity of 3,900.30 (equity ratio 71.0%), indicating a conservative structure. Debt: Short-term loans 193.60 and long-term loans 243.11; D/E is 0.37x and Debt/EBITDA is 1.75x—both conservative. Maturity mismatch: With significant current assets and relatively modest short-term loans, near-term refinancing risk appears low, though cash and current liabilities are unreported, limiting precision. Interest coverage cannot be calculated due to missing interest expense, but low leverage implies headroom. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Earnings quality is strong with OCF of 255.40 at 3.36x net income (76.12), well above the 1.0x quality threshold. FCF was positive at 47.99 after capex of 211.55, indicating investments are largely internally funded. Financing outflows of -135.47 reflect dividends (-90.91) and buybacks (-52.20), exceeding FCF. Potential working capital tailwinds may have boosted OCF, but we lack receivables/payables detail to confirm; inventories stand at 839.88, with no prior-period comparator to gauge change. No signs of aggressive cash flow management are apparent from available data. Sustainability: Given FCF coverage of distributions at 0.27x, either H2 cash generation must improve or shareholder returns may need recalibration to avoid incremental leverage.

Dividend Sustainability

Calculated payout ratio stands at 233.6%, signaling an overstretch versus earnings, although annual DPS is unreported. Dividends paid in the period were 90.91 against FCF of 47.99, implying FCF dividend coverage below 1x and reliant on cash on hand or incremental debt. Including buybacks, total shareholder returns (143.11) significantly exceed FCF, and the provided FCF coverage metric is 0.27x. Balance sheet capacity (equity ratio 71%, D/E 0.37x) offers flexibility short term, but with ROIC at 1.5%, sustaining elevated payouts could impair reinvestment/ROIC recovery. Policy outlook: Unless H2 earnings and cash flow improve materially via margin recovery, a more balanced approach—prioritizing capex and maintaining dividend rather than buybacks—may be prudent. Data caveat: DPS is unreported; payout ratio may reflect different bases (e.g., annualized), so interpret with caution.

Risk Assessment

Business Risks:

• Commodity/feedstock price volatility impacting acrylic acid/SAP spreads.
• Demand softness in hygiene (diapers) and industrial applications affecting volumes and pricing.
• Energy and utility cost inflation compressing margins.
• Execution risk on ongoing capex (211.55) with ROIC currently at 1.5%.

Financial Risks:

• Shareholder returns exceeding FCF (coverage 0.27x) could pressure cash if H2 does not improve.
• Interest coverage unobservable due to missing data; although leverage is low, rising rates could increase finance costs.
• Potential working capital volatility given inventory intensity (839.88) and cyclical end-markets.

Key Concerns:

• ROE at 1.9% and ROIC at 1.5% well below cost of capital benchmarks.
• Margin compression (~56 bps OP, ~51 bps net) on modest revenue decline underscores weak operating leverage.
• Limited contribution from equity-method income (5.90; 5.5% of profit) reduces diversification benefits.
• Data gaps (current liabilities, interest expense, DPS) constrain full assessment.

Investment Implications

Key Takeaways:

• Soft H1 with revenue -3.2% YoY and operating income -13.8% YoY; operating margin ~4.5%.
• Cash generation strong (OCF/NI 3.36x), but shareholder returns exceed FCF (coverage 0.27x).
• Balance sheet conservative: equity ratio 71%, D/E 0.37x, Debt/EBITDA 1.75x.
• Capital efficiency weak: ROE 1.9%, ROIC 1.5% flagged.
• Earnings sensitivity to spread recovery in acrylic acid/SAP and energy cost normalization.

Metrics to Watch:

• Operating margin trajectory and gross margin versus feedstock/energy costs.
• OCF and FCF trends, particularly working capital movements.
• Capex execution and incremental ROIC on new projects.
• Shareholder return pace (dividends/buybacks) versus FCF.
• FX (JPY) impact on input costs and export pricing.

Relative Positioning: Within Japanese chemical peers, Nippon Shokubai exhibits conservative leverage and solid cash conversion but currently lags on capital efficiency (ROIC 1.5%) and margin resilience, making a near-term recovery dependent on spread normalization and disciplined cost control.

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