NIPPON KAYAKU CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The key takeaway from these results is that demand expansion and cost-efficiency improvements progressed simultaneously, resulting not only in revenue growth but also in a clear improvement in the operating margin. Revenue was ¥67.40B (+23.1% YoY), Operating Income was ¥6.74B (+54.3%), Ordinary Income was ¥7.39B (+81.7%), and Net Income attributable to owners of the parent was ¥6.08B (+41.7%). Both the gross margin of 31.0% (+0.7pt YoY) and the SG&A ratio of 21.0% (-1.3pt) improved, lifting the operating margin to 10.0% (+2.0pt). In addition, extraordinary income, including a gain on the sale of investment securities of ¥1.72B, boosted Profit Before Tax and expanded the increase in profit.

Factors Affecting Results

【Revenue】All three business segments recorded double-digit revenue growth. Mobility & Imaging generated ¥26.93B (40.0% composition ratio, +20.3%), Fine Chemicals generated ¥20.56B (30.5%, +22.6%), and Life Sciences generated ¥19.92B (29.6%, +27.2%), with Life Sciences recording the highest growth rate. The double-digit growth across all three areas suggests a demand recovery without concentration in any particular business.

【Profit and Loss】Operating Income was ¥6.74B (+54.3%), with an operating margin of 10.0% (+2.0pt), reflecting operating leverage driven by both gross margin improvement (+0.7pt) and a decline in the SG&A ratio (-1.3pt). Segment Operating Income was ¥3.39B for Mobility & Imaging (12.6% margin, +43.9%), ¥3.32B for Fine Chemicals (16.2%, +33.2%, highest margin), and ¥2.18B for Life Sciences (11.0%, +17.2%). Ordinary Income exceeded the growth in Operating Income, reaching ¥7.39B (+81.7%) after deducting non-operating expenses of ¥0.34B (including ¥0.23B in interest expenses) from non-operating income of ¥0.99B (including ¥0.37B in dividend income and ¥0.25B in foreign exchange gains). Profit Before Tax reached ¥8.89B after adding net extraordinary income of ¥1.50B—extraordinary income of ¥1.83B, primarily consisting of a ¥1.72B gain on the sale of investment securities, less extraordinary losses of ¥0.33B. This temporary factor accounted for 16.9% of Profit Before Tax. After deducting income taxes of ¥2.80B (effective tax rate of 31.5%), Net Income attributable to owners of the parent was ¥6.08B (+41.7%). Both revenue and profit increased.

Segment Analysis

By profit amount, Mobility & Imaging ranked first at ¥3.39B, while Fine Chemicals recorded the highest margin at 16.2%; both segments drove consolidated profit. Mobility & Imaging secured Operating Income growth of +43.9% against revenue growth of +20.3% to ¥26.93B, indicating progress in profitability improvement. Fine Chemicals generated revenue of ¥20.56B (+22.6%) and Operating Income of ¥3.32B (+33.2%), stably maintaining the highest profitability among the three segments. Life Sciences recorded the highest revenue growth rate, with revenue of ¥19.92B (+27.2%), while Operating Income of ¥2.18B (+17.2%) lagged revenue growth, leaving its margin at 11.0%, the lowest among the three segments. Adjustments for corporate expenses and other items were negative ¥2.16B, and consolidated Operating Income of ¥6.74B was calculated by deducting this amount from the segment total of ¥8.90B.

Key Financial Indicators

【Profitability】The operating margin improved to 10.0% (up +2.0pt from 8.0% in the year-ago period), while the net profit margin improved to 9.0% (based on Net Income attributable to owners of the parent, up +1.2pt from 7.8%). There was no deterioration in profitability accompanying revenue growth; rather, profit margins stepped up. 【Cash Quality】Cash and deposits were ¥51.05B (+2.0% compared with the end of the previous fiscal year), accounts receivable were ¥68.35B (+1.2%), and inventories were ¥55.79B (+4.8%), all progressing at rates below revenue growth (+23.1%), indicating that a sharp buildup in working capital was limited. 【Investment Efficiency】ROE was 2.1% (based on quarterly results), while total assets increased 5.3% to ¥419.88B (from ¥398.74B in the year-ago period) and Net Income rose +41.7%, substantially outpacing asset growth. This indicates a phase in which asset efficiency is improving through profit growth. 【Financial Soundness】The Equity Ratio was 67.6% (down -2.4pt from 70.0% in the year-ago period), while the current ratio was 270.5% and the quick ratio was 202.1%, maintaining a robust financial foundation. However, interest-bearing debt increased +38.6% to ¥68.18B from ¥49.18B in the year-ago period (short-term debt of ¥31.02B, long-term debt of ¥23.17B, and bonds of ¥14.00B). In particular, short-term borrowings surged +181.6% from ¥11.01B in the year-ago period, reaching 45.5% of interest-bearing debt.

Cash Flow Analysis

Cash and deposits increased only +2.0% from the end of the previous fiscal year to ¥51.05B, with no significant cash surplus or shortfall observed. Although accounts receivable of ¥68.35B (+1.2%) and inventories of ¥55.79B (+4.8%) increased, their growth rates remained below revenue growth (+23.1%), suggesting that pressure on cash flow from working capital was limited. Meanwhile, short-term borrowings increased by +¥20.00B (+181.6%) from the previous year to ¥31.02B, potentially indicating that short-term financing was used to reinforce on-hand liquidity. Treasury shares declined 82.5% to ¥2.89B from ¥16.50B in the previous year, suggesting that capital reduction through cancellation or other measures progressed. Investments and other assets expanded +35.1% to ¥72.76B, reflecting an increase in investment assets, including investment securities of ¥34.15B. Long-term prepaid expenses rose substantially to ¥22.35B (+229% from ¥6.79B in the previous year), indicating that the prepayment of future expenses accounted for part of the use of funds.

Quality of Earnings

Operating Income, which indicates recurring earnings power, was ¥6.74B, while non-operating income of ¥0.99B (1.5% of revenue) remained modest, indicating good quality of Ordinary Income. Extraordinary income of ¥1.83B primarily consisted of a ¥1.72B gain on the sale of investment securities. After deducting extraordinary losses of ¥0.33B, net extraordinary income of ¥1.50B accounted for 16.9% of Profit Before Tax of ¥8.89B, indicating a relatively significant contribution from temporary factors. Excluding these extraordinary gains and losses, the equivalent Profit Before Tax was broadly in line with Ordinary Income of ¥7.39B, while the recurring earnings base itself achieved growth of +81.7% YoY. Comprehensive income was ¥11.55B, exceeding Net Income attributable to owners of the parent of ¥6.08B by ¥5.47B. The primary factors were positive valuation changes of +¥3.15B in foreign currency translation adjustments and +¥2.48B in valuation differences on securities. This divergence reflects valuation-related factors, such as yen depreciation and an increase in unrealized gains on held equities, and should be distinguished from realized gains and losses for the current period.

Earnings Forecast and Guidance

Progress against the full-year plan was 24.9% for Revenue (¥67.40B/¥270.90B), 24.7% for Operating Income (¥6.74B/¥27.30B), 27.4% for Ordinary Income (¥7.39B/¥27.00B), and 26.6% for Net Income (¥6.08B/¥22.90B). All were around the 25% level based on simple progress, indicating performance in line with the plan. However, while the full-year Ordinary Income plan calls for growth of only +6.0% YoY, the current Q1 recorded growth of +81.7%, substantially exceeding that level. The full-year outlook may therefore reflect a conservative assumption incorporating the reversal of temporary factors, such as the gain on the sale of investment securities recorded in Q1. The earnings forecast was revised during the current quarter.

Shareholder Returns

The full-year dividend forecast is ¥66 per share, an increase from the plan of ¥30 as of the year-ago period. The Payout Ratio against the company’s forecast EPS of ¥158.66 is 41.6% (¥66/¥158.66). Given the company’s financial soundness (Equity Ratio of 67.6% and current ratio of 270.5%), sustainability is considered secured, assuming achievement of the plan. Treasury shares declined 82.5% from ¥16.50B at the end of the previous fiscal year to ¥2.89B, suggesting a change in the company’s shareholder return policy through cancellation or other measures. It should be noted that the level of total shareholder returns, combining the Payout Ratio and the reduction in treasury shares, may be higher than the dividend-only figure. No revision was made to the dividend forecast during the current quarter.

Risk Factors

1. Greater reliance on short-term funding: Short-term borrowings were ¥31.02B, increasing +181.6% from ¥11.01B in the previous year and accounting for 45.5% of total interest-bearing debt of ¥68.18B. The interest-bearing debt-to-equity ratio rose to 24.0% from 17.6% in the previous year, requiring monitoring of refinancing costs and refinancing timing in an environment of rising interest rates.

2. Earnings volatility due to reliance on extraordinary income: Net extraordinary income, primarily consisting of gains on the sale of investment securities, accounted for 16.9% of Profit Before Tax of ¥8.89B. If this factor falls away, growth in Profit Before Tax relative to Ordinary Income may slow.

3. Working capital buildup: Accounts receivable of ¥68.35B (+1.2%) and inventories of ¥55.79B (+4.8%) are both on an increasing trend. In the event of demand fluctuations, inventory adjustments or delays in collections could affect the timing of cash generation.

Industry Benchmark (Reference; Company Analysis)

Profitability and Return

Both the operating margin and net profit margin exceed the median for the manufacturing industry, placing profitability at an upper level within the industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median and indicates high growth above the upper bound of the IQR.

Source: Company compilation

Key Takeaways from the Financial Results

1. Structural drivers of profitability improvement: The improvement in the operating margin to 10.0% from 8.0% in the year-ago period was driven by both an increase in gross margin and a decline in the SG&A ratio, suggesting structural margin improvement rather than temporary dilution accompanying revenue growth.

2. Impact of extraordinary income and conservatism of the full-year outlook: While extraordinary income, including a ¥1.72B gain on the sale of investment securities, boosted Profit Before Tax, the full-year Ordinary Income growth rate of +6.0% is substantially below the current Q1 result of +81.7%, potentially indicating a conservative assumption incorporating the reversal of temporary factors.

3. Simultaneous changes in the financial structure: A sharp increase in short-term borrowings (+181.6%) and a substantial decrease in treasury shares (-82.5%) occurred simultaneously, indicating changes in both the funding structure and shareholder return policy.

Theoretical Share 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 five-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,857–¥1,965 for cost of equity ±1%, and ¥1,909–¥1,910 for ω±0.1.

Notes:

• 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 (there is a timing difference relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value does not forecast or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. 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, where necessary, after consulting with a professional.