NIPPON KAYAKU CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥113.58B
• Operating Income: ¥10.62B
• Net Income: ¥6.01B
• EPS: ¥75.07

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 Kayaku (TSE:4272) reported FY2026 Q2 consolidated results under JGAAP with steady top-line growth and mixed profit dynamics. Revenue was ¥113.6bn, up 4.1% YoY, indicating resilient demand across its portfolio. Gross profit was ¥34.8bn, implying a gross margin of 30.7%, a solid level for a diversified chemicals/pharma-oriented franchise. Operating income declined 4.9% YoY to ¥10.6bn, compressing the operating margin to about 9.4%, suggesting cost pressures or unfavorable mix despite sales growth. Ordinary income reached ¥10.8bn, indicating stable non-operating items relative to operating profit. Net income surged 95.7% YoY to ¥11.7bn, materially outpacing operating trends and pointing to below-the-line support (e.g., non-recurring gains) and/or tax effects. Interest expense remained very light at ¥0.08bn, yielding an excellent interest coverage of 136.1x and underscoring a conservative financial structure. Depreciation and amortization totaled ¥6.7bn, bringing EBITDA to ¥17.3bn and an EBITDA margin of 15.3%, which supports the view of reasonable operating efficiency. DuPont analysis shows ROE of 4.34% driven by a net margin of 10.29%, asset turnover of 0.290x, and financial leverage of 1.46x—highlighting modest efficiency and conservative leverage as the primary ROE constraints. Liquidity is strong, with a current ratio of 372% and a quick ratio of 291%, supported by ¥206.8bn of current assets and ¥55.6bn of current liabilities. The balance sheet is conservative with total liabilities of ¥105.2bn against equity of ¥269.2bn (D/E of 0.39x). Operating cash flow was ¥14.8bn versus net income of ¥11.7bn (OCF/NI 1.26x), indicating reasonable earnings-to-cash conversion. Working capital is ample at ¥151.2bn, supporting ongoing operations and supply chain resilience. Reported effective tax rate appears misaligned in the summary metrics; using disclosed figures, tax expense of ¥2.6bn on ordinary income of ¥10.8bn implies an approximate effective tax rate in the low‑20s percent. Several line items, including investing cash flows, cash and equivalents, equity ratio, and share-related metrics, are not disclosed in the dataset and thus limit certain analyses (e.g., FCF and per-share book metrics). Overall, the company exhibits solid liquidity, low financial risk, and improving bottom-line figures, but ROE remains modest given conservative leverage and moderate asset turnover.

Profitability Analysis

ROE is 4.34%, decomposed as Net Profit Margin 10.29% × Asset Turnover 0.290× × Financial Leverage 1.46×. The operating margin is approximately 9.35% (¥10.6bn OI on ¥113.6bn sales), below the net margin due to favorable non-operating/tax items this period. Gross margin of 30.7% indicates decent value add, but the YoY decline in operating income despite higher revenue suggests some margin pressure from costs or mix. EBITDA margin at 15.3% signals adequate operating efficiency and buffer against cost volatility. Interest burden is negligible (interest expense ¥0.08bn; coverage 136.1x), so financial structure is not diluting profitability. The YoY net income surge (+95.7%) contrasts with the OI decline (−4.9%), pointing to transitory boosts below the operating line; core profitability trends appear flatter than the headline bottom line. Operating leverage appears moderate: incremental revenue of +4.1% did not translate to higher operating income, implying cost growth matched or slightly exceeded revenue growth. Ordinary income margin (~9.55%) is close to operating margin, suggesting limited non-operating drag in the core, with the net margin elevation likely tax/extraordinary related.

Growth Assessment

Revenue grew 4.1% YoY to ¥113.6bn, a steady single-digit expansion consistent with stable end-market demand. The decline in operating income (−4.9% YoY) indicates that revenue growth did not fully drop through to profits, likely due to input cost inflation, product mix, or increased SG&A. Net income growth of +95.7% YoY appears non-core given the divergence from operating trends; sustainability of such bottom-line growth is uncertain. EBITDA of ¥17.3bn (+ implied via OI and D&A) reflects a resilient operating cash earnings base, albeit with limited margin expansion. Asset turnover at 0.290x is modest, constraining ROE and indicating scope to improve capital efficiency. Given the healthy liquidity and low leverage, the company has room to invest for growth without stressing the balance sheet. Outlook hinges on margin normalization and cost pass-through; absent visible catalysts, core profit growth likely tracks revenue rather than accelerates meaningfully. Limited disclosure on investing cash flows this period constrains visibility into growth capex and M&A/R&D investments. Inventory of ¥44.9bn suggests working capital tied to operations; managing inventory turns will be important to support growth without cash drag.

Financial Health

Liquidity is strong: current ratio 371.9% (¥206.8bn CA / ¥55.6bn CL) and quick ratio 291.1% after excluding inventories (¥161.9bn quick assets / ¥55.6bn CL). Working capital is ample at ¥151.2bn, offering significant cushion against short-term shocks. Solvency is conservative with total liabilities ¥105.2bn versus equity ¥269.2bn, equating to a D/E ratio of 0.39x. Interest expense of ¥0.08bn and coverage of 136.1x indicate minimal refinancing risk under normal conditions. Total assets are ¥391.9bn, with current assets comprising ¥206.8bn, underscoring balance sheet flexibility. Equity ratio was not disclosed in the dataset; however, liabilities-to-assets suggest low leverage. No material strain is evident from the liability structure given sizable equity. Overall, the capital structure supports resilience and optionality for investment or shareholder returns.

Cash Flow Quality

Operating cash flow was ¥14.8bn versus net income of ¥11.7bn, yielding OCF/NI of 1.26x, which indicates decent cash realization of earnings. Depreciation and amortization of ¥6.7bn support non-cash components of EBITDA, and cash conversion appears reasonable for the period. Free cash flow cannot be reliably calculated because investing cash flows are not disclosed in the dataset (reported as 0, which indicates unreported). Working capital appears robust with inventories at ¥44.9bn; absent detailed movement data, we cannot assess inventory build or release, but the strong liquidity metrics imply no acute working capital stress. Financing cash flow was an outflow of ¥9.6bn, suggesting net debt reduction, dividends, or buybacks, but the detailed components are not provided. Cash and equivalents are not disclosed, limiting end-of-period liquidity reconciliation. Overall, earnings quality looks fair, but the lack of investing CF data constrains a full FCF assessment.

Dividend Sustainability

Annual DPS and payout ratio are shown as 0.00 in the dataset, which indicates non-disclosure rather than actual zero; therefore, we cannot infer the dividend level or policy from these fields. With EPS at ¥75.07 and OCF at ¥14.8bn, capacity to fund distributions appears supported by cash generation, but without investing CF and actual DPS, payout sustainability cannot be quantified. FCF coverage is shown as 0.00x due to unavailable investing cash flows; hence FCF-based payout coverage is not assessable. The conservative balance sheet (D/E 0.39x) and strong liquidity would generally support stable dividends if the company so chooses. In the absence of disclosed dividend policy or actual DPS, we assume a neutral policy outlook pending additional disclosures.

Risk Assessment

Business Risks:

• Margin pressure from raw material and energy cost volatility affecting gross and operating margins
• Product mix and pricing power limitations leading to weaker operating leverage despite revenue growth
• Regulatory and quality risks inherent to chemicals/pharmaceutical-related businesses
• Demand cyclicality across industrial and healthcare end-markets
• Foreign exchange exposure impacting revenues and input costs (not disclosed but typical for the sector)

Financial Risks:

• Potential working capital swings given sizable inventories (¥44.9bn)
• Visibility risk from limited disclosure of investing cash flows, obscuring FCF and capex commitments
• Earnings volatility from non-operating or extraordinary items driving net income divergence from operating income
• Reinvestment risk if asset turnover (0.290x) remains low, constraining ROE improvement

Key Concerns:

• Operating income fell 4.9% YoY despite 4.1% revenue growth, implying cost/mix headwinds
• ROE remains modest at 4.34%, limited by low asset turnover and conservative leverage
• Net income growth (+95.7% YoY) appears non-core and may not be sustainable
• Lack of investing CF data prevents assessment of capex intensity and FCF

Investment Implications

Key Takeaways:

• Top-line growth of 4.1% YoY to ¥113.6bn with gross margin at 30.7%
• Operating margin compressed to ~9.4% and OI down 4.9% YoY
• Net income rose 95.7% YoY to ¥11.7bn, likely aided by below-the-line items
• ROE at 4.34% driven by NPM 10.29%, ATO 0.290x, leverage 1.46x
• Strong liquidity (current ratio 372%, quick ratio 291%) and low D/E of 0.39x
• OCF/NI at 1.26x indicates decent earnings-to-cash conversion
• Interest coverage at 136x underscores minimal financial risk

Metrics to Watch:

• Operating margin trajectory and SG&A/R&D efficiency
• Gross margin versus input cost trends
• Asset turnover improvement (inventory turns and receivables collection)
• Normalized effective tax rate and non-operating/extraordinary items
• Investing cash flows and capex to assess true FCF
• OCF/NI ratio sustainability and working capital movements

Relative Positioning: Versus typical diversified chemical and healthcare peers, the company shows strong balance sheet conservatism and liquidity but delivers modest ROE driven by low asset turnover and limited operating leverage; sustaining or improving margins and enhancing capital efficiency would be key to narrowing the performance gap.

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