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

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Executive Summary

The company reported higher revenue and earnings, with price/mix improvements and cost management driving profit growth. Revenue was ¥10,236.8B (+20.1% YoY), Operating Income was ¥1,523.2B (+29.8%), and Net Income attributable to owners of the parent was ¥1,051.5B (+24.4%). The Operating Income margin improved by +1.1pt from the previous year to 14.9%, supported not only by the revenue increase but also by a +1.4pt improvement in gross margin. Progress against the full-year plan was 53.8% for Operating Income, exceeding the standard progress rate of 50%. If the improvement in profitability during the first half continues into the second half, the likelihood of achieving the plan is considered high.

Factors Affecting Performance

【Revenue】Revenue was ¥10,236.8B, representing a +20.1% YoY increase. By segment, all segments reported higher revenue: AOC +66.2%, DuluxGroup +23.2%, Nipsea +15.0%, Japan +13.3%, and Americas +9.1%. Nipsea had the largest revenue contribution at 49.3%, followed by DuluxGroup at 22.7%, AOC at 10.5%, Japan at 11.1%, and Americas at 6.4%.

【Profit and Loss】Operating Income was ¥1,523.2B (+29.8% YoY). Gross margin improved to 43.3% (+1.4pt YoY), while control of the SG&A expense ratio expanded the Operating Income margin to 14.9% (+1.1pt). By segment, AOC led the overall result by maintaining high profitability, with Operating Income of ¥340.7B (+77.8%) and a margin of 31.7%. In contrast, DuluxGroup reported lower Operating Income of ¥164.9B (-10.2%) despite higher revenue, suggesting the impact of higher costs and mix changes. Net finance costs amounted to ¥95.3B, but Profit Before Tax increased to ¥1,442.5B (+28.6% YoY) and Net Income rose to ¥1,051.5B (+24.4%), as the increase in Operating Income absorbed the finance cost burden. Overall, the company reported higher revenue and earnings.

Segment Analysis

Nipsea was the largest segment, maintaining strong growth with Operating Income of ¥865.1B (+25.1% YoY) and a margin of 17.2%. AOC recorded revenue of ¥1,076.1B (+66.2%), Operating Income of ¥340.7B (+77.8%), and a margin of 31.7%, demonstrating the highest profitability among all segments and making the largest contribution to the expansion in earnings. Japan reported revenue of ¥1,140.6B (+13.3%) and Operating Income of ¥143.9B (+45.3%), exceeding its revenue growth rate, while its margin improved to 12.6%. DuluxGroup, meanwhile, posted significant revenue growth of ¥2,323.6B (+23.2%), but Operating Income declined to ¥164.9B (-10.2%), with its margin falling to 7.1%. The simultaneous occurrence of higher revenue and lower earnings is considered to reflect changes in the cost structure and increased promotional expenses. Americas remained a relatively low-profitability segment, with revenue of ¥654.8B (+9.1%), Operating Income of ¥42.2B (+8.2%), and a margin of 6.5%.

Key Financial Indicators

【Profitability】The Operating Income margin was 14.9%, improving by +1.1pt from 13.8% in the previous year. The Net Income margin also rose by +0.4pt from the previous year to 10.3%. Gross margin improved by +1.4pt to 43.3% from 41.9% in the previous year, with price and mix effects considered the primary drivers of the improvement in margins.【Cash Flow Quality】ROE was 5.2%, decomposed into a Net Income margin of 10.3% × total asset turnover of 0.24x × financial leverage of 2.12x. Total asset turnover was relatively low, with the ROE level formed through the combination of leverage and profitability.【Investment Efficiency】Basic EPS was ¥45.30, an increase of +25.9% from ¥35.98 in the previous year, growing at a faster pace than Net Income.【Financial Soundness】The Equity Ratio was 46.7% (+1.8pt from 44.9% in the previous year), indicating a strengthened capital base. Interest-bearing debt, comprising current and non-current debt, was approximately ¥14,208.9B, compared with net assets of ¥20,194.2B, resulting in a debt-to-equity ratio of approximately 0.70x. EBIT/finance costs was approximately 8.5x, indicating a healthy level of interest coverage.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥1,058.3B, a substantial +466.7% YoY increase, representing cash conversion at approximately the same level as Net Income of ¥1,051.5B. Cash flow from operations before changes in working capital was ¥1,545.0B; however, the increase in accounts receivable (-¥288.9B is incorrect; the actual figures were inventory -¥288.9B and accounts receivable -¥622.0B) and inventory accumulation placed pressure on cash, while the increase in accounts payable (+¥351.4B) partially offset the impact. Investing Cash Flow was -¥302.8B, primarily reflecting expenditures including ¥218.7B in capital expenditures. Financing Cash Flow was -¥383.0B, mainly attributable to dividend payments of ¥186.2B and share repurchases of ¥50.3B. Free Cash Flow (OCF + Investing Cash Flow) was ¥755.5B, sufficient to cover dividends, share repurchases, and capital expenditures, while cash and cash equivalents accumulated to ¥4,772.7B. Although the increase in working capital, particularly accounts receivable and inventory, accompanying revenue and profit growth can be viewed as temporary funding needs during a growth phase, trends in collection periods and inventory efficiency will be factors affecting future cash-generation capacity.

Earnings Quality

The increase in Operating Income resulted from improved gross margins and control of SG&A expenses. No one-off factors resembling extraordinary gains or losses were identified, indicating that the increase arose from recurring business activities. Outside operating income, financial income of ¥83.4B was offset by finance costs of ¥178.7B, resulting in a net burden of ¥95.3B. Even including other income of ¥49.0B and other expenses of ¥71.0B, the impact of non-operating items on Profit Before Tax of ¥1,442.5B was limited. Equity-method income contributed ¥14.7B, but its scale was small, indicating that profit growth was driven primarily by core operations. The difference between Profit Before Tax of ¥1,442.5B and Net Income of ¥1,058.0B was mainly attributable to income taxes of ¥384.6B, implying an effective tax rate of approximately 26.7%. Net Income attributable to owners of the parent, excluding the portion attributable to non-controlling interests, was ¥1,051.5B. As OCF of ¥1,058.3B was approximately equal to Net Income, the results can be confirmed to be of high quality from a cash-conversion perspective.

Earnings Forecasts and Guidance

Progress against the full-year plan was 51.2% for revenue (¥10,236.8B/¥20,000.0B) and 53.8% for Operating Income (¥1,523.2B/¥2,830.0B), exceeding the standard progress rate of 50% as of the first half. The full-year Operating Income forecast of ¥2,830.0B represents a planned increase of +10.1% YoY, but first-half performance is progressing at a faster rate (+29.8%). If the improvement in gross margin during the first half continues into the second half, there may be potential for the company to exceed its plan. Although the earnings forecast was revised during the quarter, the dividend forecast was unchanged.

Shareholder Returns

The interim dividend was ¥8.0 per share, implying an estimated Payout Ratio of approximately 18% based on first-half Net Income attributable to owners of the parent, a conservative level. Dividend payments of ¥186.2B represented approximately 4.1x coverage relative to Free Cash Flow of ¥755.5B, indicating no concern regarding dividend sustainability from a cash flow perspective. Share repurchases of ¥50.3B were conducted, and total shareholder returns, including dividends, were executed comfortably within the scope of Financing Cash Flow. The full-year dividend forecast is ¥17.0, and the Payout Ratio based on forecast EPS of ¥81.45 is approximately 21%. No revision was made to the dividend forecast for the current period.

Risk Factors

1. Goodwill concentration risk: Goodwill was ¥15,179.7B, representing 75.2% of net assets of ¥20,194.2B and 35.4% of total assets of ¥42,894.6B. If assumptions underlying impairment testing, such as the growth rate and discount rate, are revised downward due to future changes in the business environment, the company would have a relatively high impairment risk by structure.

2. Prolonged working capital cycle: Accounts receivable increased by +24.6% YoY (+¥1,006.8B), exceeding the revenue growth rate of +20.1%, while inventories also represented a cash absorption factor of -¥288.9B. Trends in collection periods and inventory days may affect future OCF-generation capacity.

3. Profitability differences among segments: Despite revenue growth of +23.2%, DuluxGroup reported a -10.2% decline in Operating Income, with its margin falling to 7.1%. It will be necessary to monitor future trends in the impact of changes in the cost environment and competitive conditions on profit growth across the segment.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceed the industry median, indicating relatively high profitability within the peer group.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median but remains within the upper bound of the IQR (25.4%), placing the company in the upper tier of growth among its peers.

※Source: Company analysis

Key Earnings Highlights

1. Clear expansion in core business margins: the Operating Income margin improved to 14.9% (+1.1pt YoY), exceeding the industry median of 9.7% by +5.2pt. Full-year progress also exceeded the standard level, with Operating Income progress at 53.8%, and the improvement in profitability during the first half can be confirmed from the earnings data.

2. OCF of ¥1,058.3B was approximately equal to Net Income, confirming high-quality cash flow from a cash-conversion perspective. Free Cash Flow of ¥755.5B was sufficient to cover dividends, share repurchases, and capital expenditures.

3. On the other hand, the fact that goodwill represents 75.2% of net assets and that the growth rate of accounts receivable (+24.6%) exceeds the revenue growth rate (+20.1%) is evident in the earnings data as an issue requiring monitoring of future trends in the B/S structure and working capital efficiency.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥860–¥911 at ±1% for the cost of equity capital, and ¥885–¥886 at ±0.1 for ω.

Notes:

• Goodwill represents a high proportion of net assets, and the assumptions would change materially if impairment were incurred.
• Net assets as of the quarter-end are used; there is a timing difference from the full-year forecast.

(Model: Residual income model / Interest rate reference month: 2026-07 / This figure does not forecast or guarantee the future share price)

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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, and you should consult a professional as necessary.

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