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

Financial Highlights

• Net Sales: ¥15.80B
• Operating Income: ¥341M
• Net Income: ¥311M
• 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

Shin Nihon Rika Co., Ltd. (TSE: 44060) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥15.80bn, down 1.9% YoY, while operating income rose 18.6% YoY to ¥0.34bn, indicating meaningful cost discipline and/or favorable mix despite softer top line. Gross profit was ¥2.57bn for a gross margin of 16.2%, suggesting a modest improvement in margin quality relative to the topline trend. Operating margin reached 2.2%, which, while still modest for specialty/functional chemicals, represents resilience in a soft demand environment. Ordinary income of ¥0.19bn was below operating income, implying net non-operating losses (e.g., forex, equity-method, or other financial items), which partially offset operating gains. Net income came in at ¥0.24bn, down 18.3% YoY, with EPS of ¥6.41; this implies an estimated share count of roughly 37 million shares, given share data were not disclosed in the XBRL. DuPont decomposition shows a net margin of 1.51%, asset turnover of 0.402x, and financial leverage of 1.98x, resulting in a reported ROE of 1.20%, which is low and below typical cost of equity benchmarks. Liquidity remains solid with a current ratio of 193.7% and a quick ratio of 161.3%, supported by working capital of ¥8.51bn, indicating ample near-term solvency. Capital structure is moderate with a debt-to-equity ratio of 0.93x and strong interest coverage of 15.5x (EBIT/interest), suggesting manageable financial risk at current earnings levels. Cash flow quality is a weak spot: operating cash flow was -¥0.61bn despite positive earnings, pointing to a working capital build or timing effects; financing cash inflow of ¥0.69bn likely bridged the OCF shortfall. Free cash flow was not determinable from disclosures given unreported investing cash flows; the reported FCF figure of zero reflects non-disclosure rather than true zero. Dividend DPS was undisclosed and recorded as zero; payout ratio similarly shows as zero, implying no current distribution policy in effect or not disclosed. Overall, the quarter reflects effective cost control and margin resilience in the face of slight revenue contraction, but earnings quality is tempered by negative OCF and reliance on financing cash inflows. Balance sheet strength and interest coverage mitigate solvency concerns, yet sustained improvements in working capital efficiency are needed to translate earnings into cash. Given several unreported items (equity ratio, cash balance, investing CF, share count), conclusions rely on available metrics and should be revisited when fuller disclosures are available. Near-term focus should be on cash conversion, the trajectory of non-operating items affecting ordinary income, and demand normalization in end markets.

Profitability Analysis

ROE (DuPont) is 1.20% = 1.51% net margin × 0.402x asset turnover × 1.98x financial leverage, underscoring that low margin and low asset turnover are the main constraints, not leverage. Operating margin is 2.2% (¥341m/¥15,799m), up YoY given operating income growth against a slight revenue decline; this indicates positive operating leverage from cost control and mix. Gross margin at 16.2% supports the view that input cost pressures are manageable, though still leaves limited headroom after SG&A. EBITDA of ¥726m implies an EBITDA margin of 4.6%, providing a reasonable buffer over interest expense (¥22m), as evidenced by 15.5x interest coverage on EBIT. Ordinary income (¥186m) below operating income points to net non-operating headwinds that diluted profitability; monitoring forex, valuation losses, or equity-method results is important. Effective tax rate is shown as 0.0% in the calculated metrics, but taxes booked were ¥65m; given data limitations, interpret tax rate with caution. Overall profitability is stabilizing on the cost side, but structurally modest margins and low asset turnover cap returns.

Growth Assessment

Revenue declined 1.9% YoY to ¥15.80bn, suggesting modest demand softness or pricing pressure. Despite this, operating income rose 18.6% YoY to ¥341m, indicating effective cost management and/or a favorable shift in product mix. Net income fell 18.3% YoY to ¥238m, reflecting non-operating losses and possibly higher tax expense, which offset operating improvements. The sustainability of revenue will likely hinge on end-market conditions for functional and specialty chemical products, feedstock cost pass-through, and customer inventory cycles. Profit growth quality is mixed: operating performance improved, but ordinary income softness and negative operating cash flow lower quality. Outlook near term: cautious but not bearish—if cost controls persist and demand normalizes, operating profits can hold; however, net profits will remain sensitive to non-operating items and working capital swings.

Financial Health

Liquidity is strong with current ratio at 193.7% and quick ratio at 161.3%, supported by ¥8.51bn in working capital. Inventories of ¥2.94bn are a manageable 16.7% of current assets, which limits inventory risk relative to many chemical peers. Solvency indicators are reasonable: debt-to-equity at 0.93x suggests moderate leverage, and EBIT interest coverage of 15.5x indicates comfortable serviceability. Total assets stand at ¥39.32bn against equity of ¥19.88bn (financial leverage 1.98x), a balanced capital structure for the sector. Equity ratio was not disclosed (reported as 0.0%); based on totals, implied equity ratio is approximately 50.6% (¥19.88bn/¥39.32bn), but treat this as indicative given data limitations. Financing cash inflow of ¥0.69bn offset negative OCF, implying incremental reliance on external funding during the period, but not yet a solvency concern given coverage and leverage metrics.

Cash Flow Quality

Operating cash flow was -¥613m versus net income of ¥238m, yielding an OCF/NI ratio of -2.58, which indicates poor cash conversion this period. The shortfall likely stems from working capital expansion (receivables collection timing and/or inventory build) or tax/interest timing, though component details were not disclosed. Depreciation and amortization of ¥385m and EBITDA of ¥726m suggest adequate non-cash earnings support, but this did not translate into cash due to working capital. Investing cash flow was unreported (shown as zero), so free cash flow cannot be reliably calculated; the reported FCF of zero reflects non-disclosure rather than actual zero. Financing cash flow of ¥691m suggests debt drawdown or other financing to fund the OCF gap. Sustainability of earnings will depend on normalization of working capital and consistent OCF generation in subsequent quarters.

Dividend Sustainability

Annual DPS is shown as 0.00 and payout ratio as 0.0%, indicating no dividend or undisclosed dividend for the period. With negative operating cash flow and unreported investing cash flows, free cash flow coverage of dividends cannot be assessed; the reported FCF coverage of 0.00x is not meaningful. Given modest profitability (ROE 1.2%) and interim reliance on financing inflows, capacity to initiate or increase dividends would depend on a sustained improvement in cash generation and visibility on capex. Company policy outlook is unclear from the data; monitoring management guidance and capital allocation disclosures will be key.

Risk Assessment

Business Risks:

• End-market demand softness and customer inventory adjustments affecting volumes and pricing
• Raw material and energy cost volatility impacting gross margins and pricing pass-through
• Exposure to foreign exchange fluctuations if imports/exports are material
• Product mix shifts and competitive pricing pressure in functional/specialty chemicals
• Potential environmental/regulatory compliance costs and carbon-related expenses

Financial Risks:

• Negative operating cash flow and working capital volatility
• Moderate leverage (D/E ~0.93x) requiring continued earnings support
• Non-operating losses depressing ordinary income and net profit
• Refinancing or liquidity risk if cash conversion does not improve, despite currently strong ratios
• Tax and other below-the-line items introducing earnings volatility

Key Concerns:

• OCF/Net Income at -2.58 indicates weak cash conversion
• Ordinary income significantly below operating income, implying non-operating headwinds
• Low ROE at 1.20% due to thin margins and low asset turnover
• Reliance on financing cash inflows to offset negative OCF in the period

Investment Implications

Key Takeaways:

• Resilient operating profit (+18.6% YoY) despite a 1.9% YoY revenue decline points to effective cost control
• Margins remain thin: operating margin 2.2%, net margin 1.51%, capping ROE at 1.20%
• Liquidity is solid (current ratio 193.7%, quick ratio 161.3%) and interest coverage strong at 15.5x
• Cash conversion is weak (OCF -¥613m), with financing inflows bridging the gap
• Non-operating items are diluting earnings (ordinary income below operating income)

Metrics to Watch:

• Operating cash flow and OCF/NI ratio
• Working capital trends: receivable days, inventory days, payable days
• Ordinary income drivers: forex gains/losses and other non-operating items
• Gross margin vs. feedstock and energy cost trends
• Capex levels (once investing cash flows are disclosed) and resulting FCF
• Leverage (D/E) and interest coverage to gauge balance sheet resilience

Relative Positioning: Relative to domestic chemical peers, the company shows moderate leverage and strong liquidity, but lower profitability and cash conversion in this period; execution on working capital and stabilization of non-operating items will be critical to close the 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
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