NOF CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥109.14B
• Operating Income: ¥20.65B
• Net Income: ¥15.44B
• EPS: ¥66.60

Income Statement

Balance Sheet

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

Verdict: A solid but softer quarter, with resilient margins and strong balance sheet strength offset by mid-single digit profit declines and limited visibility on cash flow. Revenue declined 1.2% YoY to 1,091.4, while operating income fell 11.5% YoY to 206.5, indicating negative operating leverage. Gross profit was 409.6, producing a gross margin of 37.5%, broadly stable, while the operating margin stood at 18.9%. Based on last year's implied figures, the operating margin compressed by roughly 222 bps (from ~21.1% to 18.9%). Ordinary income of 216.3 (-8.3% YoY) benefited from net non-operating income of 9.8, mainly dividends (6.2) and interest (2.2), partially cushioning the operating decline. Net income decreased 9.4% YoY to 154.2, with an effective tax rate of 29.5%, leading to a net margin of 14.1%. DuPont decomposition shows ROE of 5.5% = 14.1% net margin × 0.289 asset turnover × 1.33x leverage; profitability remains the key ROE driver amid low leverage and modest asset turns. SG&A was 203.1 (18.6% of sales), suggesting limited cost flexibility relative to the revenue dip. Earnings quality cannot be fully assessed because operating cash flow is unreported; this is a key limitation. The balance sheet is very strong: current ratio 298%, quick ratio 254%, D/E 0.33x, and significant net cash (cash 917 vs total loans 39.9). Equity ratio, calculable from provided figures, is approximately 75% (2,831.5/3,775.9), underscoring conservative capitalization. Comprehensive income (192.3) exceeded net income by ~38.1, implying favorable OCI movements, likely from investment securities valuation or FX. Non-operating income accounted for 8.6% of ordinary income, a helpful but not dominant contributor. ROIC is indicated at 7.5%, around the typical target threshold, suggesting adequate capital efficiency despite the profit dip. Forward-looking, the quarter points to margin pressure likely from softer volumes and/or less favorable mix, with non-operating gains providing a buffer; restoring operating margin and sustaining ROIC ≥7–8% will be central to defending ROE amid low leverage.

Profitability Analysis

ROE (5.5%) = Net Profit Margin (14.1%) × Asset Turnover (0.289) × Financial Leverage (1.33x). The largest change appears in operating margin, which compressed by ~222 bps YoY (operating margin ~21.1% last year to 18.9% this year), driving the bulk of the ROE decline; asset turnover and leverage appear relatively stable. Business drivers likely include slight revenue decline (-1.2%) against relatively sticky SG&A (18.6% of sales) and potential mix/price-cost headwinds despite a still-solid gross margin of 37.5%. Non-operating support (dividends and interest) cushioned ordinary income, but this is not a substitute for operating leverage recovery. Sustainability: the non-operating items (dividend/interest) are recurring but can fluctuate with markets; margin pressure could be cyclical if linked to feedstock costs or end-demand softness. Concerning trends to flag: SG&A discipline lagged revenue trajectory (revenue -1.2% vs operating income -11.5%), implying negative operating leverage; continued pressure would weigh on ROE given limited leverage and modest asset turns.

Growth Assessment

Top line contracted slightly (-1.2% YoY), while operating income fell more sharply (-11.5%), indicating that cost absorption and/or mix deteriorated. Ordinary income (-8.3%) and net income (-9.4%) declines were less severe than operating income due to non-operating support (net +9.8). Gross margin held at 37.5%, suggesting pricing or product mix partially offset cost headwinds, but not enough to prevent operating margin compression to 18.9%. Revenue sustainability looks moderate near term: the small revenue decline points to softness rather than structural contraction, but restoring operating leverage requires either volume recovery or tighter SG&A control. Profit quality: non-operating income contributed meaningfully (8.6% of ordinary), a steady but variably market-linked source (dividends, interest). Outlook: key swing factors are raw material price trends, FX, and demand in core end-markets (chemicals/materials), with ROIC at 7.5% indicating acceptable capital efficiency that management should aim to maintain ≥8% through margin and asset turnover actions.

Financial Health

Liquidity is robust: current ratio 298% and quick ratio 254% far exceed benchmarks; no warning on current ratio <1.0. Solvency is strong: D/E 0.33x and equity ratio ~75% indicate conservative leverage. Interest coverage is exceptionally high at ~304x, reflecting low interest burden. Maturity profile appears conservative: short-term loans (14.9) are de minimis relative to cash (917.3) and current assets (2,169.7), implying negligible maturity mismatch risk. Total debt (short + long) of ~39.9 is dwarfed by cash, indicating a net cash position. No off-balance sheet obligations were disclosed in the provided data; absence of disclosure limits assessment of leases, guarantees, or contingent liabilities.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported, so OCF/Net Income and FCF coverage cannot be assessed—this is the main limitation to evaluating earnings quality. Without OCF, we cannot confirm cash conversion or working capital dynamics; however, the strong net cash position provides a buffer against any temporary cash shortfalls. No clear signs of working capital manipulation can be identified from point-in-time balances alone; receivables (498.4) and inventories (321.8) appear reasonable relative to sales, but turnover metrics are not available.

Dividend Sustainability

Reported DPS is unreported; a calculated payout ratio is indicated at 69.0%, slightly above the <60% benchmark for comfort. With limited visibility on FCF, strict sustainability cannot be confirmed. That said, the balance sheet’s net cash and minimal interest burden provide flexibility to maintain dividends through cycles. Key determinants will be cash generation consistency (OCF/NI when available) and capex requirements (unreported). If payout remains near ~70% while earnings face margin pressure, the cushion narrows; management may need to balance growth investments and shareholder returns to keep ROIC ≥7–8%.

Risk Assessment

Business Risks:

• Margin pressure from price-cost dynamics in chemical feedstocks (naphtha/energy-linked inputs).
• Demand softness or mix deterioration in key end-markets leading to negative operating leverage.
• Dependence on non-operating income (dividends/interest) for part of ordinary income, which can fluctuate with markets.
• Execution risk in sustaining ROIC ≥7–8% amid lower asset turnover and limited leverage.

Financial Risks:

• Limited visibility on cash flows (OCF/FCF unreported) constrains assessment of cash conversion and dividend coverage.
• Potential valuation volatility in investment securities reflected in OCI swings (comprehensive income > net income).
• FX exposure affecting revenues/costs and the value of financial assets.

Key Concerns:

• Operating margin compressed by ~222 bps YoY despite a modest revenue decline.
• SG&A ratio (18.6% of sales) limiting operating leverage in a soft top-line environment.
• Payout ratio at ~69% may exceed comfortable levels if earnings pressure persists and capex needs rise.

Investment Implications

Key Takeaways:

• Core profitability softened: operating income -11.5% on revenue -1.2%, with operating margin down ~222 bps to 18.9%.
• ROE at 5.5% is driven primarily by net margin, with low leverage (1.33x) and modest asset turnover (0.289).
• Non-operating income (8.6% of ordinary) provided a buffer via dividends and interest.
• Balance sheet is exceptionally strong (equity ratio ~75%, net cash), reducing financial risk.
• ROIC at 7.5% is acceptable but leaves limited room for further margin deterioration.

Metrics to Watch:

• Operating margin and SG&A ratio trajectory for signs of operating leverage recovery.
• OCF/Net Income and FCF (once disclosed) to validate earnings quality and dividend coverage.
• Gross margin resilience versus feedstock price moves and FX.
• Ordinary income sensitivity to non-operating items (dividend/interest income) and OCI volatility.
• ROIC versus 8%+ target level and asset turnover improvements.

Relative Positioning: Within Japanese specialty chemicals, the company exhibits stronger-than-peer balance sheet conservatism and high interest coverage, but current-period profitability momentum is weaker given operating margin compression; sustaining ROIC around 7.5% and improving asset efficiency will be key to maintaining competitive standing.

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