NOF CORPORATION FY2027 Q1 Earnings Report

Quick View

Executive Summary

In Q1, Revenue increased +23.1% YoY, while both Operating Income and Net Income declined, resulting in an increase in revenue but a decrease in earnings due to a lower gross margin associated with an adverse segment mix and a higher tax burden. Revenue was ¥690.1B (¥560.6B in the same period last year, YoY +23.1%), Operating Income was ¥106.9B (¥118.5B, YoY -9.7%), Ordinary Income was ¥115.0B (¥122.7B, YoY -6.3%), and Net Income attributable to owners of the parent was ¥75.7B (¥86.1B, YoY -12.1%). The primary driver of the increase in revenue was substantial growth in the Explosives & Propellants segment; however, this segment has relatively low margins. The consolidated gross margin declined 840bp from 39.6% in the prior year to 31.2%, which could not be fully offset by the improvement in the SG&A ratio (-280bp).

Factors Affecting Earnings Performance

【Revenue】Revenue increased significantly to ¥690.1B (YoY +23.1%). On a reported-segment total basis (¥726.6B, including intersegment transactions), the composition was Functional Chemicals 55.2%, Explosives & Propellants 25.3%, Pharmaceuticals, Medical & Health 15.9%, and Other 3.5%. The main growth driver was the Explosives & Propellants Business, which expanded approximately threefold from ¥61.9B in the same period last year to ¥184.1B. Functional Chemicals also remained solid at ¥401.2B (+7.6%), while Pharmaceuticals, Medical & Health declined to ¥115.8B (-16.8%), weighing on overall revenue growth.

【Profitability】Operating Income was ¥106.9B (YoY -9.7%), Ordinary Income was ¥115.0B (YoY -6.3%), and Net Income attributable to owners of the parent was ¥75.7B (YoY -12.1%), representing declines across all three measures. The gross margin declined 840bp from 39.6% in the prior year to 31.2%, primarily due to the higher contribution of the low-margin Explosives & Propellants Business and the substantial decline in earnings in the Pharmaceuticals Business. The SG&A ratio improved by 280bp to 15.7% (18.4% in the prior year), but this was insufficient to offset the deterioration in gross margin. Non-recurring income and expenses were limited, comprising a ¥0.4B gain on the sale of fixed assets and a ¥0.8B loss on disposal, for a net loss of -¥0.4B; consequently, Ordinary Income and Profit Before Tax (¥114.6B) were nearly identical. Meanwhile, the effective tax rate increased to 33.7% from 29.6%, widening the reduction from Ordinary Income to Net Income. Overall, the Company reported higher revenue but lower earnings.

Segment Analysis

Changes in segment Operating Income (pre-adjustment total of ¥115.3B, connecting to consolidated Operating Income of ¥106.9B after a company-wide adjustment of -¥8.4B) were as follows.

• Functional Chemicals: Revenue of ¥401.2B (YoY +7.6%), Operating Income of ¥78.5B (YoY +11.0%), and a profit margin of 19.6%. The segment remained stable as the largest contributor to company-wide earnings.
• Explosives & Propellants: Revenue of ¥184.1B (YoY +197.7%) and Operating Income of ¥22.96B (a loss of -¥0.07B in the same period last year). The segment exceeded its breakeven point and returned to profitability, becoming the primary engine of revenue growth; however, its profit margin was 12.5%, lower than that of Functional Chemicals.
• Pharmaceuticals, Medical & Health: Revenue of ¥115.8B (YoY -16.8%), Operating Income of ¥12.2B (YoY -77.6%), and a profit margin that declined to 10.6%. This was the primary factor driving down the company-wide margin.
• Other: Revenue of ¥25.5B (YoY +0.2%), Operating Income of ¥1.6B (YoY -1.8%), and a profit margin of 6.4%.

The sharp expansion of Explosives & Propellants and the steep decline in Pharmaceuticals were contrasting developments. The resulting offset between the two segments and dilution of the company-wide gross margin were key features of the segment structure in the quarter.

Key Financial Metrics

【Profitability】The Operating Income margin was 15.5% (21.1% in the prior year, -5.6pt), while the Net Income margin (on an attributable-to-owners-of-the-parent basis) was 11.0% (15.4% in the prior year, -4.4pt). The effective tax rate increased to 33.7% (29.6% in the prior year, +4.1pt), contributing to the decline in the Net Income margin.【Cash Flow Quality】Cash and deposits were ¥648.5B (¥883.6B in the prior year, -26.6%). Corporate income taxes payable declined from ¥146.9B to ¥40.6B (-72.4%), suggesting that payment of corporate income taxes progressed and was one factor behind the decline in cash. Inventories increased to ¥353.6B (+9.5%), while trade receivables declined to ¥687.7B (-8.0%) and trade payables increased to ¥246.1B (+14.8%). Required working capital, measured as trade receivables + inventories - trade payables, declined 7.1% to ¥795.2B from ¥856.4B in the prior year.【Investment Efficiency】ROE was 2.6% (based on the cumulative 3-month period, before annualization), and the total asset turnover ratio was 0.18x (on the same basis), reflecting quarterly performance.【Financial Soundness】The Equity Ratio was 76.7% (74.0% in the prior year, +2.7pt), while the Current Ratio was 310.1% and the Quick Ratio was 259.5%. The Company maintained ample liquidity and a net cash financial structure in which cash and deposits exceeded interest-bearing debt.

Cash Flow Analysis

Cash and deposits were ¥648.5B, a decrease of ¥235.2B (-26.6%) from ¥883.6B in the same period last year. The primary factor was the ¥106.3B (-72.4%) decline in corporate income taxes payable from ¥146.9B to ¥40.6B, suggesting that payment of corporate income taxes related to the prior fiscal year progressed. In terms of working capital, inventories increased to ¥353.6B (+9.5%), while trade receivables declined to ¥687.7B (-8.0%) and trade payables increased to ¥246.1B (+14.8%). As a result, required working capital, measured as trade receivables + inventories - trade payables, declined 7.1% to ¥795.2B from ¥856.4B in the prior year. Although working capital is trending downward, the buildup in inventories is a drag on capital efficiency, and future inventory turnover trends will determine the Company’s cash-generation capacity.

Earnings Quality

Profit in Q1 was primarily generated by recurring operating activities. Non-operating income of ¥9.8B (1.4% of Revenue) mainly comprised dividend income of ¥5.7B and foreign exchange gains of ¥1.7B, with a limited impact on earnings quality. Non-recurring items resulted in a net loss of -¥0.4B, consisting of a ¥0.4B gain on the sale of fixed assets and a ¥0.8B loss on disposal of fixed assets. This was minor at -0.6% of Net Income, and Ordinary Income of ¥115.0B and Profit Before Tax of ¥114.6B were nearly identical. Meanwhile, the effective tax rate increased to 33.7% from 29.6% in the prior year, widening the step-down from Ordinary Income to Net Income. Comprehensive income was ¥105.6B (¥105.3B attributable to owners of the parent), 39.1% above Net Income of ¥75.7B. This increase was driven by other comprehensive income, including a +¥27.8B valuation difference on other securities and a +¥5.5B foreign currency translation adjustment. The divergence between Net Income and comprehensive income was attributable to changes in the fair value of held shares and other assets; therefore, it should be noted that it does not reflect recurring earning power itself.

Earnings Forecasts and Guidance

Progress against the full-year Company plan was 21.6% for Revenue (¥690.1B/¥3,190.0B), 21.4% for Operating Income (¥106.9B/¥500.0B), 22.6% for Ordinary Income (¥115.0B/¥510.0B), and 19.4% for Net Income attributable to owners of the parent (¥75.7B/¥390.0B). All were below the 25% benchmark for even quarterly progress, with the shortfall in Net Income particularly pronounced. No revisions were made to the earnings forecast or dividend forecast during the quarter. The full-year plan calls for revenue growth of +23.7%, Operating Income growth of +5.5%, and Ordinary Income growth of +1.3%. Progress from the second half onward will depend on the recovery of profitability in the Pharmaceuticals segment and the sustainability of the Explosives & Propellants segment’s high level of performance.

Shareholder Returns

The dividend forecast is ¥70 per year under the Company plan, and no revision was made to the dividend forecast during the quarter. Based on the Company’s planned EPS of ¥169.6, the Payout Ratio is 41.3% (¥70/¥169.6). With an Equity Ratio of 76.7% and cash and deposits of ¥648.5B against limited interest-bearing debt, the Company has a stable net cash financial position in terms of its capacity to fund dividends. However, Net Income in Q1 represented only 19.4% of the full-year plan, making the achievement of full-year earnings a key premise of the dividend plan.

Risk Factors

1. Segment Mix Risk: Operating Income in the Pharmaceuticals, Medical & Health segment declined significantly by -77.6% YoY to ¥12.2B, with its profit margin falling to 10.6%. While the contribution of the low-margin Explosives & Propellants segment (12.5% profit margin) expanded, the relative contribution of the high-margin Functional Chemicals segment (19.6%) declined, resulting in an 840bp decline in the company-wide gross margin from 39.6% in the prior year to 31.2%.

2. Working Capital and Inventory Risk: Inventories increased 9.5% YoY to ¥353.6B, building up at a pace contrasting with the decline in trade receivables to ¥687.7B (-8.0%). Required working capital, measured as trade receivables + inventories - trade payables, declined 7.1% YoY to ¥795.2B; however, the high inventory level could lead to valuation losses in the event of price declines and reduced capital efficiency.

3. Tax Burden and Cash Liquidity Volatility: The effective tax rate increased 4.1pt from 29.6% in the prior year to 33.7%, creating a factor compressing Net Income from Ordinary Income. Cash and deposits decreased 26.6% YoY to ¥648.5B, while corporate income taxes payable declined 72.4% to ¥40.6B. The extent to which cash outflows associated with tax payments are being smoothed requires monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin are both above the industry median.

Growth and Capital Efficiency

The Revenue growth rate was significantly above the industry median and ranked among the higher growth rates within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings

1. Revenue increased +23.1%, but Operating Income declined -9.7% as the gross margin fell 840bp from 39.6% in the prior year to 31.2%. The trade-off between revenue growth and profitability was a key feature of the quarter.

2. By segment, the Explosives & Propellants Business turned from a loss of -¥0.07B in the same period last year to a profit of ¥22.96B, becoming a growth driver. In contrast, Operating Income in the Pharmaceuticals, Medical & Health Business declined significantly by -77.6%, highlighting the contrasting changes in earnings across segments.

3. Progress against the full-year plan was 21.6% for Revenue, 21.4% for Operating Income, and 19.4% for Net Income, all below the 25% benchmark for even quarterly allocation. Recovery of profitability toward the second half is a prerequisite for achieving the plan.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from 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 share price or a recommendation of any specific investment action.

Sensitivity: ¥1,446–¥1,531 at ±1% for the cost of equity, and ¥1,483–¥1,494 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter 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: 2026-07 / This value does not forecast or guarantee the future share price)

---

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. 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, after consulting professionals as necessary.

---End of Report---