NIPPON SHOKUBAI CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The first quarter recorded increases in both revenue and profit, driven by improved raw-material spreads and fixed-cost leverage, with particularly strong growth on the profit side. Revenue was ¥1,213.2B (¥1,012.5B in the previous year, +19.8%), operating income was ¥121.4B (¥43.0B in the previous year, +182.7%), and profit before tax was ¥141.6B (¥62.8B in the previous year, +125.3%). Net income attributable to owners of the parent was ¥103.8B (¥44.3B in the previous year, +134.0%). While revenue increased 19.8%, operating income grew nearly threefold, indicating that improvements in the cost ratio, in addition to the revenue growth effect, supported performance.

Factors Driving Performance Changes

【Revenue】Revenue was ¥1,213.2B (+19.8%). By segment, Materials led growth with revenue of ¥878.9B (72.4% of the total, +25.9%), while Solutions remained solid at ¥334.2B (27.6% of the total, +6.3%). Growth in Materials was the central driver of overall growth.

【Profit and Loss】With cost of sales of ¥943.2B, the gross profit margin was 22.3%, a significant improvement from the previous year (estimated at approximately 18.0%). SG&A expenses were ¥150.5B (SG&A ratio of 12.4%); against revenue growth of +19.8%, SG&A growth was contained at approximately +6.5%, resulting in positive operating leverage. The operating margin improved to 10.0% (4.2% in the previous year). Net financial income was positive, with financial income of ¥9.0B exceeding financial expenses of ¥2.3B, while the equity in earnings of affiliates of ¥13.5B also boosted profit before tax. Profit before tax was ¥141.6B (+125.3%); after income taxes and other taxes of ¥35.1B (effective tax rate of 24.8%), net income attributable to owners of the parent was ¥103.8B (+134.0%). The company achieved increases in both revenue and profit as improvements in the cost ratio and expense structure compounded the effect of revenue growth.

Segment Analysis

Materials generated revenue of ¥878.9B (+25.9%) and operating income of ¥87.6B (+185.9%), with its margin improving significantly to 10.0% (approximately 3.3% in the previous year), making it the core contributor to profit growth. Solutions generated revenue of ¥334.2B (+6.3%) and operating income of ¥46.6B (+97.6%), maintaining a high margin of 13.9% (approximately 5.9% in the previous year), above that of Materials. Materials accounts for more than 70% of the revenue mix, meaning that overall performance is highly correlated with market conditions and spread trends in Materials. Meanwhile, the high margin of Solutions supports the quality of the earnings portfolio.

Key Financial Indicators

【Profitability】The operating margin improved significantly to 10.0% (4.2% in the previous year), while the gross profit margin improved to 22.3% (approximately 18.0% in the previous year), reflecting a lower cost ratio and control of SG&A expenses. The net profit margin, based on net income attributable to owners of the parent, increased to 8.6% (4.4% in the previous year). 【Cash Flow Quality】Operating cash flow (OCF) was ¥131.4B, or 1.23 times net income (consolidated net income of ¥106.5B), indicating sound cash support for earnings. 【Investment Efficiency】ROE was 2.6% (quarterly actual result, before annualization), remaining at a level with room for improvement given the substantial capital base represented by an equity ratio of 65.8%. Asset turnover efficiency relative to total assets is gradually improving alongside revenue growth. 【Financial Soundness】The equity ratio was 65.8% (down from 68.4% in the previous year), while the current ratio remained high at approximately 206% (current assets of ¥2,693.2B / current liabilities of ¥1,304.7B). Short-term borrowings increased to ¥331.4B (+43.4% year on year), and trade payables also expanded to ¥660.9B (+27.9%), indicating increased working capital requirements accompanying growth.

Cash Flow Analysis

Cash flow from operating activities was ¥131.4B, down 11.0% from ¥147.6B in the same period of the previous year, but remained above net income of ¥106.5B, indicating generally sound earnings quality. By component, increases in inventories (▲¥93.8B) and trade receivables (▲¥122.9B) absorbed cash, while an increase in trade payables (+¥141.4B) offset these effects. The expansion of working capital accompanying revenue growth therefore weighed on OCF. Cash flow from investing activities was ▲¥128.2B, primarily due to capital expenditures of ¥133.3B. As a result, free cash flow (OCF + investing CF) was limited to ¥3.2B. Cash flow from financing activities was ▲¥23.7B; dividend payments of ¥93.1B were partially offset by an increase in short-term borrowings (+¥48.1B), among other items. Cash and cash equivalents were ¥501.6B, representing a decrease from the same period of the previous year. Funding for dividends and investments during the period was supplemented by short-term financing in addition to OCF.

Earnings Quality

The increase in profit during the period was primarily driven by recurring factors—improvements in raw-material spreads and the expense structure—and no clearly identifiable one-time items corresponding to extraordinary gains or losses were disclosed. Net financial income was positive, comprising financial income of ¥9.0B and financial expenses of ¥2.3B; it was small relative to revenue (approximately 0.7%) and was not large enough to materially distort earnings quality. However, equity in earnings of affiliates of ¥13.5B accounted for approximately 9.5% of profit before tax of ¥141.6B, requiring attention as a factor subject to fluctuations in the performance of external affiliates. OCF of ¥131.4B exceeded net income of ¥106.5B, and the cash support for earnings can be viewed as sound from an accruals perspective, namely the difference between accounting profit and cash. However, the pressure on OCF from working capital—namely increases in trade receivables and inventories—should be monitored as a temporary use of funds associated with revenue growth.

Earnings Forecasts and Guidance

Against the full-year plan of revenue of ¥4,550.0B, operating income of ¥210.0B, EPS of ¥139.71, and DPS of ¥140, Q1 progress rates were 26.7% for revenue, 57.8% for operating income, and 50.6% for net income attributable to owners of the parent (¥103.8B / ¥205.0B). Compared with the simple quarterly progress benchmark of 25%, both operating income and net income are significantly ahead of schedule, suggesting that improvements in raw-material spreads, expense controls, and contributions from equity-method earnings may have been concentrated in the first half. The company revised its earnings forecast and dividend forecast, reflecting an upward revision to the full-year outlook. Toward the second half, the high profit margins recorded in the first half may normalize due to normalization of market conditions and scheduled equipment maintenance. The pace of full-year progress therefore requires close monitoring.

Shareholder Returns

The full-year dividend forecast is ¥140 per share (¥50 in the previous year), implying a payout ratio of approximately 100% against the full-year EPS forecast of ¥139.71. Dividend payments during Q1 were ¥93.1B, substantially exceeding free cash flow of ¥3.2B for the quarter. On a standalone quarterly basis, therefore, free cash flow was insufficient to fund dividends, which were supplemented by accumulated OCF, cash on hand, and borrowings. The substantial capital base, represented by an equity ratio of 65.8%, supports the continuation of dividends. However, given the high payout ratio, trends in OCF and working capital efficiency need to be monitored because they will affect future dividend capacity.

Risk Factors

1. Market Conditions and Spread Volatility Risk: The core Materials Business, which accounts for 72.4% of total revenue, is susceptible to fluctuations in raw-material and energy prices, including acrylic acid. If the improvement in the operating margin to 10.0% includes temporary market-driven factors, there is a risk of reversal from the second half onward.

2. Working Capital Expansion and Dependence on Short-Term Financing: Short-term borrowings increased to ¥331.4B (+43.4% year on year), while trade payables expanded to ¥660.9B (+27.9%). Together with trade receivables of ¥1,040.8B and inventories of ¥956.1B, the working capital tied up in association with revenue growth is weighing on OCF, increasing the importance of liquidity management.

3. Factors Affecting Equity-Method Investment Income: Equity in earnings of affiliates was ¥13.5B, accounting for approximately 9.5% of profit before tax. Consequently, fluctuations in the performance of affiliates affect the company’s overall profit and loss.

Industry Benchmark (Reference; Company Analysis)

Profitability and Return

Both profitability metrics exceed the manufacturing-industry median, placing the company in the upper tier of its industry.

Growth and Capital Efficiency

The revenue growth rate was significantly above the industry median and exceeded the upper bound of the IQR, representing high growth.

※Source: Company analysis

Key Points from the Earnings Results

1. Quality of Revenue and Profit Growth: Operating income increased sharply by +182.7% against revenue growth of 19.8%, confirming positive operating leverage from improvements in the cost ratio (gross profit margin of 22.3%) and control of SG&A expenses. The fact that OCF exceeded net income also indicates sound cash support for earnings.

2. Changes in Working Capital and Financing Structure: Increases in short-term borrowings (+43.4%) and trade payables (+27.9%) indicate that the expansion of working capital accompanying revenue growth is being funded with short-term financing. Free cash flow was limited to ¥3.2B, making the accumulation of OCF critical to securing funding for dividends (¥93.1B) and capital expenditures (¥133.3B).

3. Ahead-of-Schedule Full-Year Progress: The operating income progress rate of 57.8% and net income progress rate of 50.6% both substantially exceeded the quarterly benchmark of 25%, and the earnings and dividend forecasts were revised. Whether the favorable factors from the first half, such as improved spreads, continue into the second half is a key structural consideration affecting the pace of full-year progress.

Theoretical Stock Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market price or a recommendation to take any specific investment action.

Sensitivity: ¥2,396–¥2,527 at ±1% for the cost of equity, and ¥2,452–¥2,465 at ±0.1 for ω.

Notes:

• Because net income progress against the full-year forecast is 51%, exceeding the standard benchmark of 25%, forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of schedule tend to exceed forecasts; the adjustment may be excessive for highly seasonal businesses).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used, creating a timing difference relative to the full-year forecast.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee future stock prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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