New Japan Chemical Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥15.80B
• Operating Income: ¥341M
• Net Income: ¥255M
• EPS: ¥6.41

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

Verdict: Mixed quarter with resilient core operations but headline profits weighed by non-operating losses; liquidity strong, capital efficiency weak. Revenue declined 1.9% YoY to 157.99, yet operating income rose 18.6% YoY to 3.41, indicating improved cost discipline and/or better product mix. Gross profit was 27.04 with a gross margin of 17.1%, while SG&A was 23.62, yielding an operating margin of 2.16%. Operating margin expanded by approximately 37 bps YoY (from ~1.79% to 2.16%) despite the sales contraction. Ordinary income fell 50.2% YoY to 1.86 as net non-operating loss (non-op income 1.31 vs non-op expenses 2.86) offset operating gains. Profit before tax was 2.79, implying a notable extraordinary gain (~0.93) between ordinary and pretax. Net income declined 18.3% YoY to 2.38, with an unusually low effective tax rate of 8.6%, likely due to tax attributes or discrete items. Total comprehensive income was 8.30, far exceeding net income, suggesting substantial unrealized gains (likely on investment securities of 98.64). Cash generation was strong: operating cash flow of 12.27 was 5.16x net income, indicating high earnings quality for the period. Liquidity is ample with a current ratio of 230% and quick ratio of 195%, and working capital of 111.08. Leverage is moderate on a balance-sheet basis (total liabilities/equity 0.98x), but cash earnings capacity is modest, evidenced by Debt/EBITDA of 8.76x despite low cash interest burden (interest coverage 13.1x). ROE was low at 1.2% (DuPont: NPM 1.5%, asset turnover 0.402x, leverage 1.98x), and ROIC at 1.5% remains well below the 5% warning threshold. Forward-looking, sustaining higher operating margins while normalizing non-operating items is key to lifting ROE/ROIC. The positive OCF and modest capex (-1.36) imply room to support dividends/investments, but payout visibility is limited due to unreported DPS. Overall, core operations stabilized with better margins, but non-operating volatility and low capital efficiency keep returns subdued.

Profitability Analysis

DuPont breakdown: ROE 1.2% = Net Profit Margin 1.5% × Asset Turnover 0.402 × Financial Leverage 1.98x. The largest period-on-period change appears in the net profit margin: despite operating margin expansion (~+37 bps YoY), ordinary and net margins compressed due to a swing to net non-operating losses (non-op income 1.31 vs non-op expenses 2.86). Business drivers likely include valuation/FX-related non-operating losses and modest interest expenses (0.26), offset partially by an extraordinary gain (~0.93) before tax. Asset turnover of 0.402 suggests relatively flat utilization given stable asset base and marginal sales decline; leverage near 1.98x appears broadly unchanged. The operating improvement seems sustainable near-term if input costs and product mix remain favorable; however, the non-operating drag looks episodic but volatile and can recur with market movements (securities/FX). Watch for SG&A discipline: SG&A of 23.62 against gross profit of 27.04 leaves a narrow operating spread; any SG&A growth above revenue would quickly erode margins. Overall, operating leverage is positive at current volumes, but below-scale profitability limits ROE unless either margins or turnover improve further.

Growth Assessment

Top line contracted 1.9% YoY to 157.99, indicating soft demand/pricing in core chemical products. Operating income grew 18.6% YoY to 3.41 as cost of sales fell faster than revenue, lifting operating margin to 2.16%. Ordinary income halved to 1.86 due to non-operating losses, masking underlying operating improvement. EBITDA of 7.27 (margin 4.6%) highlights a still-thin cash earnings base relative to balance sheet size. Extraordinary gains supported pretax profit (2.79), but these are non-recurring and not a durable growth driver. With comprehensive income at 8.30, market valuation gains buoyed equity—unsuitable as a core earnings pillar. Outlook hinges on maintaining improved conversion costs, stabilizing raw material prices, and reducing non-operating volatility. Absent stronger volume/mix tailwinds or portfolio upgrades, structural growth appears modest; ROIC at 1.5% underscores limited economic value creation currently.

Financial Health

Liquidity is strong: current ratio 229.9% and quick ratio 194.6%; no warning thresholds breached. Working capital of 111.08 comfortably exceeds short-term loans of 2.90 and accounts payable of 48.16, limiting maturity mismatch risk. Balance-sheet leverage is moderate: total liabilities/equity 0.98x; interest-bearing debt is ~63.68 versus cash of 57.62, implying small net debt (~6.06). Debt/EBITDA is elevated at 8.76x due to low EBITDA, though interest coverage is robust at 13.12x given low cash interest burden. Long-term loans of 60.78 dominate debt structure, reducing near-term refinancing pressure. No off-balance sheet obligations were reported in the provided data. Equity remains solid at 198.81; investment securities of 98.64 introduce valuation sensitivity but also liquidity options if needed.

Cash Flow Quality

Earnings quality is strong: OCF/Net Income at 5.16x indicates cash conversion well above benchmarks. Calculated FCF (OCF 12.27 minus capex 1.36) is approximately 10.91, suggesting ample internal funding capacity in the period. The positive financing cash flow (9.26) implies incremental borrowing or other financing inflows despite surplus FCF—use-of-proceeds not disclosed. Working capital likely contributed positively to OCF (given NI 2.38 vs OCF 12.27), potentially from receivables collection or inventory normalization; need to watch for reversals in subsequent quarters. No signs of aggressive working-capital manipulation are evident from the limited data, but concentration in receivables (65.06) vs inventories (30.21) warrants monitoring of DSO trends.

Dividend Sustainability

Payout ratio (calculated) is 62.7%, slightly above the 60% benchmark threshold; DPS itself is unreported. Based on calculated FCF of ~10.91, dividends would be covered in this period if maintained at recent levels, but the lack of disclosed total dividends paid limits precision. Given volatile non-operating results and low ROIC (1.5%), management may prioritize balance-sheet resilience and selective capex over payout expansion. Policy outlook remains uncertain without explicit guidance; sustainability hinges on maintaining positive OCF and avoiding large non-operating losses.

Risk Assessment

Business Risks:

• Commodity/feedstock price volatility affecting margins in chemical products
• Demand softness evidenced by -1.9% YoY revenue contraction
• Product mix and conversion cost risk given thin operating margin (2.16%)
• Regulatory/environmental compliance costs typical for chemicals sector

Financial Risks:

• Elevated Debt/EBITDA at 8.76x despite moderate balance-sheet leverage
• Non-operating loss volatility (FX, securities valuations) depressing ordinary income
• Valuation risk on investment securities (98.64) influencing OCI and equity
• Potential reversal of working-capital tailwinds that boosted OCF

Key Concerns:

• ROIC at 1.5% well below 5% warning threshold, indicating weak capital efficiency
• Ordinary income down 50.2% YoY despite operating improvement
• Reliance on extraordinary gains (~0.93) to bridge to pretax profit
• Low effective tax rate (8.6%) may normalize upward, pressuring net profit

Investment Implications

Key Takeaways:

• Core operations improved with a 37 bps operating margin expansion despite lower sales
• Headline profitability weakened due to sizable non-operating losses, cutting ordinary income by 50%
• Cash generation strong: OCF 12.27 and calculated FCF ~10.91 provide funding flexibility
• Balance sheet liquid and moderately leveraged, but cash earnings capacity is thin (EBITDA margin 4.6%, Debt/EBITDA 8.76x)
• Capital efficiency remains a structural challenge (ROE 1.2%, ROIC 1.5%)

Metrics to Watch:

• Ordinary income vs operating income gap (drivers: FX, securities, interest)
• Operating margin trajectory and SG&A discipline
• Working capital turns (DSO/DIO) and OCF sustainability
• Debt/EBITDA and net debt progression
• Valuation movements in investment securities and their impact on OCI/equity
• Capex plans versus cash generation and payout

Relative Positioning: Versus domestic mid-cap chemical peers, the company shows stronger near-term liquidity and acceptable balance-sheet leverage, but lags on capital efficiency and earnings stability due to non-operating volatility and low asset turnover.

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