NIPPON PAINT HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Quick View

Executive Summary

Cumulative results for 2026 fiscal year Q2 showed improved profitability, with Operating Income growing faster than Revenue in addition to higher sales. Revenue increased +20.1% year on year to 10,236.8B, while Operating Income rose +29.8% to 1,523.2B, resulting in an Operating Margin of 14.9%, an improvement of approximately 1.1pt from the same period last year. Net Income attributable to owners of the parent was 1,051.5B, up +24.4% year on year. The main reason profit growth exceeded revenue growth was the expansion of profits in core segments such as Nipsea and AOC.

Factors Affecting Earnings

【Revenue】Revenue was 10,236.8B (+20.1% year on year), with all segments recording higher sales. Nipsea, the largest segment by composition ratio (49.3%, Revenue of 5,041.7B, +15.0%), served as the primary growth driver, while AOC surged +66.2% to reach a composition ratio of 10.5%. DuluxGroup also recorded revenue growth of +23.2%, whereas growth was comparatively slower in Japan at +13.3% and the Americas at +9.1%.

【Profit and Loss】Operating Income was 1,523.2B (+29.8% year on year), exceeding the revenue growth rate by approximately 9.7pt. AOC (Operating Income +77.8%, Operating Margin 31.7%) and Nipsea (+25.1%, Operating Margin 17.2%) lifted overall profitability. In contrast, DuluxGroup posted lower Operating Income of △10.2% despite higher revenue, and its Operating Margin also declined to 7.1%. Financial expenses of 178.7B exceeded financial income of 83.4B, partially offsetting Profit Before Tax, but Profit Before Tax still increased +28.6% year on year. Overall, the company achieved higher revenue and profit, and the fact that profit growth exceeded revenue growth indicates the operation of operating leverage.

Segment Analysis

By segment, Nipsea (Revenue composition ratio 49.3%, Operating Margin 17.2%) was the largest source of earnings and led the overall results with profit growth of +25.1%. Although AOC accounted for only 10.5% of Revenue, its Operating Margin was exceptionally high at 31.7%, and it recorded the strongest profit growth of +77.8%. DuluxGroup was the second-largest segment, with a Revenue composition ratio of 22.7%, but Operating Income declined △10.2% year on year and its Operating Margin fell to 7.1%, widening the profitability gap with other segments. Japan showed notable improvement, with an Operating Margin of 12.6% and profit growth of +45.3%, while the Americas remained at the lowest level, with an Operating Margin of 6.5%.

Key Financial Indicators

【Profitability】The Operating Margin was 14.9%, improving from approximately 13.8% in the same period last year, while the Net Profit Margin also remained high at 10.3%.【Cash Flow Quality】Operating Cash Flow (OCF) was 1,058.3B, or 1.01 times Net Income, indicating generally sound cash conversion. However, accounts receivable increased by 622.0B and inventories by 288.9B, respectively, creating a working capital burden.【Investment Efficiency】ROE remained at 5.2%, primarily due to the low total asset turnover ratio of 0.239 times. Goodwill accounted for 15,179.7B of total assets of 42,894.6B, constraining asset efficiency.【Financial Soundness】The Equity Ratio was 46.7%, while the Current Ratio was approximately 215%, indicating ample liquidity. Total interest-bearing debt was 14,208.9B. Goodwill was equivalent to 75.2% of net assets, representing a key issue concerning capital quality.

Cash Flow Analysis

Operating Cash Flow (OCF) was 1,058.3B, a substantial increase from 187.4B in the same period last year, and its ratio to Net Income of 1,051.5B was 1.01 times, indicating generally sound cash conversion. In terms of working capital, accounts receivable increased by 622.0B and inventories by 288.9B, respectively, serving as sources of cash outflow, while the 351.4B increase in accounts payable partially offset these outflows. Investing Cash Flow was △302.8B, including capital expenditures of 218.7B. Financing Cash Flow was △383.0B, with dividend payments of 186.2B and share repurchases of 50.3B constituting the primary outflows. As a result, Free Cash Flow was 755.5B, sufficient to cover capital expenditures, dividends, and share repurchases while retaining surplus funds, and cash and cash equivalents accumulated to 4,772.7B.

Earnings Quality

Overall earnings quality was favorable, with Operating Cash Flow (OCF) remaining slightly above Net Income and no excessive reliance on accrual-based earnings. In non-operating income and expenses, financial expenses of 178.7B exceeded financial income of 83.4B, making net financial expenses a recurring burden that partially offset profit growth. Equity-method income contributed positively by 14.7B. Meanwhile, the increases of 622.0B in accounts receivable and 288.9B in inventories reflect working capital investment accompanying revenue growth, and the progress of collections and inventory reduction will determine the sustainability of cash conversion. Comprehensive Income was 2,261.4B, substantially exceeding Net Income, due to foreign currency translation adjustments of 1,205.4B. This should be distinguished from the business’s recurring earnings power.

Earnings Forecast and Guidance

The full-year company forecast calls for Revenue of 2 trillion yen, Operating Income of 283.0B (+10.1% year on year), and Net Income attributable to owners of the parent of 189.0B. The first-half progress rates were 51.2% for Revenue, 53.8% for Operating Income, and 55.6% for Net Income attributable to owners of the parent, exceeding the standard 50% level at the Q2 stage. Compared with the first-half Operating Margin of 14.9%, the Operating Margin required in the second half is only approximately 13.4%, indicating that the plan assumes a decline in the second-half margin compared with the first half. The earnings forecast was revised this time, apparently reflecting the strong first-half progress. The dividend forecast remains unchanged at ¥17.00 per year (Q2 ¥8.00, year-end ¥9.00).

Shareholder Returns

The Q2 dividend was ¥8.00 per share, resulting in a Payout Ratio of approximately 18.0% based solely on dividend payments. Total dividends of 186.2B and share repurchases of 50.3B imply a Total Return Ratio of approximately 22.5% against Net Income attributable to owners of the parent of 1,051.5B. Free Cash Flow of 755.5B was approximately 3.2 times the combined dividends and share repurchases of 236.5B, indicating sufficient funds for shareholder returns. The full-year dividend forecast is ¥17.00 per year, with a forecast Payout Ratio of approximately 20.9% against forecast EPS of ¥81.45. Although this exceeds the first-half actual Payout Ratio, it remains at a low level, leaving room for dividend increases as part of capital allocation.

Risk Factors

1. Goodwill impairment risk: Goodwill was 15,179.7B, accounting for 75.2% of net assets. Under IFRS, goodwill is not amortized on a regular basis, and impairment losses could be recognized on a concentrated basis if the profitability of acquired businesses deteriorates.

2. Working capital accumulation risk: During the first half, accounts receivable increased by 622.0B and inventories by 288.9B, respectively. Delays in collections or inventory management could put pressure on the sustainable generation of Operating Cash Flow (OCF).

3. Foreign exchange and net financial income/expense risk: Financial expenses of 178.7B exceeded financial income of 83.4B, making net financial expenses a recurring factor weighing on ordinary earnings. In addition, the increase in Comprehensive Income depended on foreign currency translation adjustments of 1,205.4B, creating the possibility that net asset valuation could fluctuate with foreign exchange movements.

Industry Benchmark (Reference, Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s Operating Margin and Net Profit Margin both substantially exceed the industry median, placing its profitability among the higher levels within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate also exceeds the industry median but remains within the upper bound of the IQR (25.4%).

※Source: Company compilation

Key Takeaways from the Earnings Results

1. In the first half, Operating Income increased +29.8% versus Revenue growth of +20.1%, achieving profit growth that exceeded revenue growth, while the Operating Margin improved to 14.9%. High-profitability segments AOC and Nipsea led the results, whereas DuluxGroup recorded lower profit, widening the profitability gap among segments.

2. Progress against the full-year forecast was 53.8% for Operating Income and 55.6% for Net Income attributable to owners of the parent, exceeding the standard 50%. However, the second-half plan assumes a slight decline in the margin compared with the first half, making raw material and energy costs and foreign exchange trends key areas of focus for the second half.

3. The capital structure in which goodwill accounts for 75.2% of net assets is a structural factor suppressing ROE of 5.2%, in contrast to the company’s high profitability. The results of integrating acquired businesses and resilience to impairment will determine the quality of the company’s finances over the medium to long term.

Theoretical Share Price (Reference Value)

Sensitivity: ¥860–¥911 at Cost of Equity ±1%, and ¥885–¥886 at ω±0.1.

Notes:

• Goodwill represents a high proportion of net assets, and the assumptions would change significantly if impairment were recognized.
• Net assets as of the quarter-end are used (there is a timing gap relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict 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 a professional as necessary.

---End of Report---

---

AI Financial Analysis

Executive Summary

FY2026 Q2 results were strong, with revenue growth, margin expansion and cash generation supporting the upgraded full-year outlook. Revenue increased 20.1% year on year to ¥1,023.7bn. Operating income rose faster than sales, increasing 29.8% to ¥152.3bn. Net income attributable to owners increased 24.4% to ¥105.2bn, and basic EPS rose to ¥45.30 from ¥35.98. The gross margin expanded by 143bp year on year to 43.3%, reflecting a favorable improvement in the relationship between revenue and cost of sales. The operating margin expanded by 112bp to 14.9%, indicating positive operating leverage despite SG&A rising 18.7% to ¥288.7bn. The net margin increased by 36bp to 10.3%. Profit before tax grew 28.6%, slightly ahead of net income growth because the effective tax rate increased to 26.7% from approximately 23.6% in the prior-year period. Operating cash flow of ¥105.8bn broadly matched net income attributable to owners of ¥105.2bn, producing an OCF/net income ratio of 1.01x. Free cash flow was robust at ¥75.6bn after ¥21.9bn of capital expenditures. Receivables and inventories absorbed a combined ¥91.1bn of cash, partly offset by a ¥35.1bn source from payables. This working-capital outflow deserves monitoring because reported DSO of 91 days and DIO of 83 days are above the stated efficiency thresholds. The balance sheet remains adequately liquid, with an estimated current ratio of 2.13x and cash and cash equivalents of ¥477.3bn. However, goodwill of ¥1,518.0bn equals 75.2% of equity and 35.4% of assets, leaving shareholder value materially exposed to the performance and valuation of acquired businesses. Full-year guidance calls for ¥2,000bn of revenue, ¥283.0bn of operating income and ¥189.0bn of net income attributable to owners; first-half progress is ahead of a simple 50% run rate. The earnings profile therefore supports the forecast, but the durability of margin gains, working-capital discipline, leverage management and avoidance of goodwill impairment are the key issues for the second half.

Profitability Analysis

The reported annualized DuPont ROE is 10.4%, decomposed into a 10.3% net profit margin, 0.477x annualized asset turnover and 2.12x financial leverage. The principal driver of profitability improvement was margin expansion: the operating margin rose to 14.9% from 13.8% a year earlier, while the gross margin rose to 43.3% from 41.9%. Revenue growth of 20.1% exceeded SG&A growth of 18.7%, creating positive operating leverage and supporting the 29.8% increase in operating income. The 10.3% net margin is above the 10% benchmark for excellent profitability, while the 14.9% operating margin is at the upper end of the good range and close to the 15% excellent threshold. The annualized asset turnover of 0.477x remains moderate, consistent with a balance sheet carrying substantial acquisition-related assets, particularly goodwill. Financial leverage of 2.12x enhances ROE but also means that a material portion of returns depends on debt-funded capital structure rather than purely operating asset efficiency. The five-factor decomposition shows a normal tax burden of 0.729 and a healthy interest burden of 0.947; finance costs absorbed only a limited portion of EBIT. EBIT covered finance costs by approximately 8.5x, indicating manageable current interest servicing. The sustainability of the margin improvement will depend on retaining gross-margin gains and continuing to constrain overhead growth below revenue growth. The relatively small gap between operating income of ¥152.3bn and profit before tax of ¥144.3bn reflects net finance costs and other items, rather than a large dependence on non-operating earnings.

Growth Assessment

Top-line momentum was favorable, with revenue rising ¥171.2bn year on year to ¥1,023.7bn. Operating income increased by ¥35.0bn, exceeding revenue growth on a percentage basis, which indicates that growth was not achieved through margin sacrifice. Net income attributable to owners increased ¥20.7bn, and EPS increased 25.9%, slightly faster than attributable profit growth because of the lower average share count following treasury-share purchases. Gross profit increased 24.2% to ¥443.2bn, exceeding the 20.1% revenue increase and demonstrating improved gross-profit conversion. Full-year revenue guidance of ¥2,000bn implies a first-half progress rate of 51.2%, marginally above the standard 50% pace. Operating-income progress is 53.8% against the ¥283.0bn forecast, and attributable-net-income progress is 55.6% against the ¥189.0bn forecast. Neither profit progress rate deviates by more than 10 percentage points from the standard first-half run rate, but both provide a reasonable execution buffer if second-half conditions normalize. Management has revised its forecast, which signals improved expectations, although the revised targets still require sustained execution in the second half. Revenue sustainability should be assessed against collection and inventory trends because receivables rose 24.6% year on year and inventories rose 16.7%.

Financial Health

Financial health is supported by total equity of ¥2,019.4bn, an equity ratio of 46.7%, and cash and cash equivalents of ¥477.3bn. Current assets of ¥1,466.0bn exceed estimated current liabilities of ¥687.1bn, resulting in an estimated current ratio of 2.13x; this is comfortably above 1.0x and indicates no apparent short-term liquidity warning. Cash plus current other financial assets totals ¥659.0bn, substantially exceeding short-term bonds and borrowings of ¥138.8bn. This indicates that the maturity profile does not present an apparent short-term debt-versus-liquid-assets mismatch. Reported debt-to-equity is 1.12x, above the conservative 1.0x benchmark but well below the 2.0x threshold that would indicate aggressive leverage. Long-term bonds and borrowings of ¥1,282.1bn remain material and make continued cash generation and refinancing access important. Retained earnings increased 15.1% year on year to ¥665.1bn, strengthening internal capital generation. Treasury stock increased in absolute magnitude from ¥26.9bn to ¥36.0bn, reflecting repurchases; the ¥9.1bn year-on-year increase is modest relative to equity. Goodwill is the dominant balance-sheet risk: at ¥1,518.0bn, it represents 75.2% of equity, well above the 50% warning threshold. In an IFRS framework, goodwill is not amortized but is subject to impairment testing, so future earnings and equity are sensitive to the operating performance and valuation assumptions of acquired cash-generating units. Other intangible assets of ¥631.2bn further reinforce the acquisition-related concentration of noncurrent assets. Deferred tax liabilities of ¥157.8bn also represent a meaningful noncurrent obligation, though they do not create the same near-term cash refinancing risk as debt.

Notable B/S Changes

Goodwill: ¥1,518.0bn, equal to 35.4% of total assets and 75.2% of equity - acquisition-related asset concentration is high and creates material IFRS impairment sensitivity. Accounts receivable: +¥100.7bn (+24.6%) year on year to ¥509.7bn - growth exceeded revenue growth and is consistent with the elevated 91-day DSO alert; collection efficiency is a key cash-conversion issue. Inventories: +¥37.5bn (+16.7%) year on year to ¥262.7bn - the balance remains 6.1% of assets, but the reported 83-day DIO indicates meaningful working-capital commitment. Treasury stock: -¥9.1bn (-33.7%) year on year to -¥36.0bn - reflects capital return through repurchases and modestly reduces equity.

Cash Flow Quality

Cash-flow quality was sound in the first half. Operating cash flow was ¥105.8bn, essentially matching ¥105.2bn of net income attributable to owners and generating an OCF/net income ratio of 1.01x. This exceeds the 0.8x quality-warning threshold and does not indicate a material divergence between accounting earnings and operating cash generation. The accruals ratio was approximately 0.0%, also consistent with neutral accrual risk. Operating cash flow was reduced by a ¥62.2bn receivables outflow and a ¥28.9bn inventory outflow. These uses of cash were partly offset by a ¥35.1bn increase in payables. The resulting pattern means that operating cash flow remains high quality at the aggregate level, but working capital became less favorable as sales expanded. The quality alert on receivable days is material: DSO of 91 days is above the 60-day warning level, suggesting slow collections or an elongated customer-credit cycle. The quality alert on inventory is also material: DIO of 83 days exceeds the 60-day benchmark, tying up cash and increasing exposure to demand normalization, stock aging and potential pricing pressure. For a coatings manufacturer, inventory management is especially important because raw-material procurement, production scheduling and regional demand can affect cash conversion. Capital expenditures were ¥21.9bn, or approximately 2.1% of first-half revenue, and free cash flow remained positive at ¥75.6bn. Free cash flow covered cash dividends of ¥18.6bn by 4.1x and dividends plus disclosed share repurchases of ¥23.7bn by approximately 3.2x. Accordingly, current shareholder distributions are well covered by internally generated cash, provided working-capital absorption does not accelerate materially.

Dividend Sustainability

The Q2 dividend was ¥8.00 per share, and the full-year forecast dividend is ¥17.00 per share. The calculated first-half dividend payout ratio is 18.0%, well below the 60% sustainability benchmark. Based on the full-year EPS forecast of ¥81.45, the planned ¥17.00 annual dividend implies a prospective dividend payout ratio of approximately 20.9%. Cash dividends paid were ¥18.6bn, while free cash flow was ¥75.6bn, resulting in strong cash coverage. Including ¥5.0bn of share repurchases, the first-half total return ratio was approximately 22.4% of net income, which also remains comfortably below the 80% sustainability benchmark. The dividend appears sustainable from both earnings and cash-flow perspectives under the current forecast. The principal constraint on longer-term distribution flexibility is not current payout affordability but the need to retain balance-sheet resilience against debt obligations, acquisition integration requirements and potential goodwill impairment.

Risk Assessment

Business risks include Working-capital efficiency risk: DSO of 91 days exceeds the 60-day warning threshold. The root cause is likely a lengthy customer collection cycle and/or sales growth carrying a larger receivables balance. This is unfavorable for cash conversion and could require tighter credit control if it persists., Inventory risk: DIO of 83 days is above the 60-day benchmark. The inventory build absorbed ¥28.9bn of operating cash in the first half and may expose the company to demand volatility, raw-material price movements, inventory obsolescence and future discounting pressure., Chemical and coatings industry risk: earnings are exposed to changes in construction, industrial production and automotive-related demand, as well as volatility in petrochemical and other raw-material inputs. Margin expansion may prove less durable if input costs rise or competitive pricing intensifies., Foreign-exchange and overseas operating risk: translation differences contributed ¥120.5bn to OCI, demonstrating that reported equity and comprehensive income are materially influenced by currency movements even though this OCI item does not directly determine operating income..

Financial risks include Goodwill risk: goodwill of ¥1,518.0bn equals 75.2% of equity, triggering the quality alert. This reflects a highly acquisition-dependent asset base. While IFRS avoids routine goodwill amortization, underperformance at acquired businesses or higher discount rates could lead to impairment charges that reduce profit and equity., Leverage risk: reported debt-to-equity of 1.12x is manageable but above the conservative benchmark. Long-term bonds and borrowings of ¥1,282.1bn make interest costs, refinancing conditions and cash-flow durability relevant., Cash-conversion risk: receivable and inventory increases together consumed ¥91.1bn, partly financed by a ¥35.1bn increase in payables. A continued reliance on supplier financing to offset customer-credit and inventory needs would weaken underlying cash conversion..

Key concerns include The goodwill quality alert has the highest potential balance-sheet impact because goodwill is 35.4% of total assets and 75.2% of equity; impairment would directly reduce book value and could affect market confidence., The receivable-days alert has high likelihood and moderate impact because the receivables balance increased 24.6% year on year, faster than revenue growth of 20.1%., The inventory-days alert has moderate likelihood and moderate impact because DIO is elevated at 83 days, although inventory growth of 16.7% was slower than revenue growth., The investment case remains sensitive to whether operating-margin expansion from 13.8% to 14.9% can be maintained while funding debt service, distributions and working-capital requirements..

Investment Implications

Key takeaways include Revenue, operating income and attributable net income grew 20.1%, 29.8% and 24.4%, respectively, demonstrating profitable growth., Gross margin expanded 143bp and operating margin expanded 112bp, while SG&A growth remained below revenue growth., Annualized ROE of 10.4% is in the good range, supported by a 10.3% net margin and 2.12x financial leverage., OCF/net income of 1.01x and ¥75.6bn of free cash flow validate current-period earnings conversion., Full-year progress is favorable, with first-half revenue, operating income and attributable net income at 51.2%, 53.8% and 55.6% of guidance, respectively., The principal valuation and balance-sheet sensitivity is the very high goodwill-to-equity ratio of 75.2%..

Metrics to watch include Operating-margin retention relative to the 14.9% first-half level, Receivable days and receivables growth relative to revenue growth, Inventory days, inventory write-downs and inventory cash consumption, Operating cash flow and free cash flow after working-capital movements, Debt-to-equity, finance costs and refinancing conditions, Goodwill impairment testing assumptions and the operating performance of acquired businesses, Second-half delivery against ¥2,000bn revenue, ¥283.0bn operating income and ¥189.0bn attributable-net-income guidance.

Regarding relative positioning, The company combines above-benchmark net profitability, strong first-half operating leverage and adequate liquidity with an acquisition-heavy capital structure. Relative financial quality is strengthened by cash conversion and a low dividend payout, but is moderated by elevated working-capital days and goodwill concentration that are materially above conservative balance-sheet benchmarks.