NIPPON PAINT HOLDINGS CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥1.32T
• Operating Income: ¥190.58B
• Net Income: ¥136.26B
• EPS: ¥57.19

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: A strong profitability quarter with clear margin expansion and double-digit earnings growth, but cash flow conversion lagged and free cash flow was negative. Revenue rose 7.8% YoY to 13,183.78, while operating income climbed 36.4% YoY to 1,905.79, highlighting robust operating leverage. Net income increased 38.6% YoY to 1,343.36, with EPS at 57.19 JPY. Gross margin stood at 37.2% and operating margin was approximately 14.5%, implying material efficiency gains. Based on growth rates, we estimate operating margin expanded by roughly 300–310 bps YoY (from about 11.4% to ~14.5%). EBITDA reached 2,373.11 with an 18.0% margin, supporting the margin expansion narrative. ROE was 8.2% via DuPont (10.2% net margin × 0.347 asset turnover × 2.33x leverage), consistent with the reported figure. ROIC of 9.4% exceeds the 8% excellence benchmark, indicating improved capital efficiency. Equity method income was modest at 20.41, only 1.1% of profit—performance is driven by core operations rather than affiliates. Earnings quality is a watch point: OCF was 662.26, only 0.49x net income, signaling weak cash conversion this period. Free cash flow was -150.21 after capex of 357.85; dividends paid were 351.56, exceeding FCF. The balance sheet is solid with a 42.4% equity ratio and D/E of 1.33x, but goodwill is high at 15,238.84 (about 40% of assets), elevating impairment sensitivity. Tax rate was reasonable at 19.6%, and non-operating contributions appear limited (non-operating items largely unreported). Liquidity assessment is constrained due to unreported current liabilities; however, accounts receivable and inventory balances suggest working capital tied up. Overall, near-term outlook benefits from sustained pricing/mix and cost discipline, but conversion of earnings to cash and working capital normalization will be critical to sustain dividends and investment.

Profitability Analysis

ROE decomposition: 8.2% = 10.2% Net Profit Margin × 0.347 Asset Turnover × 2.33x Financial Leverage. The biggest driver versus revenue growth was margin expansion: operating income +36.4% against revenue +7.8% implies significant uplift in operating margin (~+303 bps YoY by estimate). Business drivers likely include improved pricing/mix, easing raw material input costs (e.g., resins, solvents, TiO2) and SG&A discipline. Asset turnover remains modest at 0.347, typical for a brand and distribution-heavy coatings business with substantial intangibles; no clear evidence of a turnover inflection. Financial leverage at 2.33x provided a stable, moderate boost to ROE without excessive balance sheet risk. The margin gains look partly sustainable if pricing discipline and cost tailwinds persist, but are susceptible to raw material and FX volatility. Watch for SG&A growth relative to revenue; current SG&A ratio is ~27.1% of sales, and further deleveraging would support margin durability. No evidence of unusual non-operating boosts; equity method income contributed only 1.1% of profit, indicating core operating strength.

Growth Assessment

Top-line growth of 7.8% appears broad-based with healthy pricing/mix, consistent with margin expansion. Operating income growth of 36.4% significantly outpaced sales, pointing to operating leverage and likely cost tailwinds. Net income growth of 38.6% benefited from the stronger operating result and a manageable tax rate of 19.6%. Equity method income was limited (20.41), suggesting minimal reliance on affiliates for growth. Sustainability hinges on maintaining price realization amid potential normalization of raw materials and FX headwinds; demand in housing/industrial and China recovery remain key variables. ROIC at 9.4% indicates value-accretive growth above the 8% benchmark, supportive of continued investment. Outlook is constructive if working capital can be normalized to translate earnings into cash and support capex and dividends.

Financial Health

Equity ratio is 42.4%, indicating a solid capital base. Debt-to-equity is 1.33x, within conservative thresholds (<1.5x benchmark). Current ratio is not calculable due to unreported current liabilities; therefore, we cannot opine on near-term liquidity buffers. Cash and equivalents were 3,496.46, offering some flexibility, but OCF softness reduces self-funding capacity in the near term. Accounts receivable (4,782.62) and inventories (2,123.02) versus payables (3,063.92) suggest working capital absorption, potentially impacting short-term liquidity. Maturity mismatch risk cannot be assessed given unreported short- vs long-term debt detail. No off-balance sheet obligations were disclosed in the provided data. Warning thresholds: Current Ratio not assessable; D/E well below the 2.0x caution threshold.

Cash Flow Quality

OCF/Net Income is 0.49x, below the 0.8 threshold, indicating weak cash conversion this period. Free cash flow was -150.21 after capex of 357.85, implying that dividends (351.56) exceeded FCF, funded likely by cash on hand or financing. The divergence between OCF and NI is likely driven by working capital build, given higher receivables and inventories relative to payables; seasonality may also play a role in Q3. There is no evidence of aggressive working capital manipulation in the disclosed data, but the magnitude of the OCF shortfall merits close monitoring. Sustained margin strength should translate to improved OCF if receivables collections normalize and inventory levels are managed down. Near-term funding flexibility exists via cash balances, but repeated FCF deficits would constrain capital allocation.

Dividend Sustainability

The calculated payout ratio is 26.5%, which is conservative and supportive on an earnings basis. However, FCF coverage is -0.42x this period as FCF was negative, indicating dividends were not covered by free cash flow. With cash and equivalents of 3,496.46, the company has room to maintain dividends near term despite temporary cash flow softness. Sustainability medium term hinges on OCF normalization and capex discipline; current profitability could support higher distributions if cash conversion improves. Policy outlook likely remains stable given strong earnings and ROIC, but management may prioritize reinvestment and balance sheet resilience if working capital remains elevated.

Risk Assessment

Business Risks:

• Raw material price volatility (e.g., titanium dioxide, resins, solvents) impacting gross margin
• Demand cyclicality in construction, housing, and automotive end-markets
• China and broader APAC macro slowdown risk affecting volume and mix
• FX fluctuations (JPY, CNY, USD) affecting both costs and translated earnings
• Competitive pricing pressure in decorative and industrial coatings

Financial Risks:

• Weak cash conversion (OCF/NI 0.49x) and negative FCF this period
• High goodwill (15,238.84; ~40% of assets) increasing impairment sensitivity
• Limited visibility on debt maturities and interest burden (interest expense and coverage unreported)
• Working capital build tying up cash and pressuring liquidity if persistent

Key Concerns:

• Earnings quality flagged: OCF/NI below 0.8 threshold
• Capex plus dividends exceeded OCF, requiring cash draw or financing
• Liquidity ratios (current, quick) not assessable due to unreported current liabilities
• Potential margin mean-reversion if raw material benefits fade or pricing weakens

Investment Implications

Key Takeaways:

• Strong quarter with 36.4% operating income growth and ~300 bps operating margin expansion
• ROE 8.2% with ROIC at 9.4% indicates value-accretive operations
• Core operations, not affiliates, drove earnings (equity method income only 1.1%)
• Cash conversion is the main weak spot (OCF/NI 0.49x), producing negative FCF
• Balance sheet is solid (equity ratio 42.4%, D/E 1.33x), but goodwill concentration is high

Metrics to Watch:

• OCF/Net Income and working capital turns (DSO, DIO, DPO)
• Gross and operating margin trajectory vs raw material indices
• SG&A ratio and operating leverage as growth moderates
• ROIC relative to 8% benchmark
• Cash balance versus capex and dividend commitments
• FX sensitivity and China/APAC demand indicators

Relative Positioning: Within global and domestic coatings peers, Nippon Paint HD shows above-benchmark ROIC and strong operating leverage this period, but trails best-in-class peers on cash flow conversion; balance sheet strength is adequate, though goodwill concentration elevates downside risk in a downturn.

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