NIHON NOHYAKU (4997) FY2026 Q3 Earnings Report

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Executive Summary

In addition to higher revenue centered on the Agrochemicals Business, operating leverage from improved gross margin resulted in higher revenue and earnings. Revenue was ¥703.6B (+14.6% YoY), Operating Income was ¥58.4B (+60.6%), Ordinary Income was ¥58.6B (+91.3%), and Net Income (consolidated net income for the period) was ¥34.9B (+65.2%). Operating Income growth significantly exceeded revenue growth, and the Operating Income margin improved to 8.3% from the previous year.

Factors Affecting Business Performance

【Revenue】Revenue was ¥703.6B, representing a +14.6% increase YoY. By segment, Agrochemicals generated ¥656.7B (93.3% of total revenue), up +14.8% YoY, while Chemicals Other Than Agrochemicals generated ¥31.2B (up +7.8%), with the core Agrochemicals Business driving the increase in revenue.

【Profit and Loss】Operating Income was ¥58.4B (+60.6% YoY), and SG&A expenses of ¥185.9B were absorbed under a gross profit margin of 34.7%, improving the Operating Income margin to 8.3%. The Agrochemicals segment had a profit margin of 8.3%, while Chemicals Other Than Agrochemicals generated a high profit margin of 20.2%. Ordinary Income was ¥58.6B (+91.3% YoY), but interest income of ¥15.3B and foreign exchange gains of ¥11.1B were offset by interest expense of ¥20.2B and valuation losses on derivatives, leaving Ordinary Income at approximately the same level as Operating Income. Profit Before Tax was ¥49.0B, and the ¥9.6B difference from Ordinary Income was primarily attributable to extraordinary losses of ¥10.6B, including ¥10.3B in litigation settlement costs. Net Income was ¥34.9B (+65.2% YoY), resulting in higher revenue and earnings.

Segment Analysis

The Agrochemicals segment forms the core of consolidated earnings, with Revenue of ¥656.7B (+14.8% YoY), segment profit of ¥54.7B (+53.3%), and a profit margin of 8.3%. Chemicals Other Than Agrochemicals had Revenue of ¥31.2B (+7.8% YoY), segment profit of ¥6.3B (+22.8%), and a profit margin of 20.2%; although small in scale, it is highly profitable. Adjustments, including company-wide expenses, were negative ¥6.4B, narrowing from negative ¥6.9B in the previous year and supporting consolidated Operating Income. Both revenue and profit are highly dependent on the Agrochemicals Business, making weather conditions, pest and disease incidence, and sales timing factors affecting business performance.

Key Financial Metrics

【Profitability】The 8.3% Operating Income margin improved by approximately 2.4pt from approximately 5.9% in the same period of the previous year, supported by the absorption of SG&A expenses under a gross margin of 34.7%. The Net Income margin was 5.0%.【Cash Quality】Cash and deposits were ¥262.1B, an increase from the end of the previous fiscal year. Working capital was substantial, with accounts receivable of ¥276.1B and inventories of ¥317.8B; finished goods accounted for ¥317.8B of inventories.【Investment Efficiency】ROE of 4.2% reflects actual results for the period. Total asset turnover remained low, indicating room for improvement in asset efficiency.【Financial Soundness】The Equity Ratio was 56.8%, and liquidity was ample, with current assets of ¥1099.4B versus current liabilities of ¥437.1B. Interest-bearing debt included long-term borrowings of ¥137.6B and total bonds and bonds due within one year of ¥58.5B, resulting in interest expense of ¥20.2B.

Cash Flow Analysis

As the cash flow statement was not disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥262.1B from ¥233.3B at the end of the previous fiscal year, indicating expanded funding capacity. Meanwhile, accounts receivable were ¥276.1B and inventories were ¥317.8B (including finished goods of ¥317.8B and raw materials of ¥160.2B), resulting in substantial working capital. The accumulation of receivables and inventories accompanying higher revenue may delay the conversion of earnings into cash. Accounts payable were ¥203.3B, and the scale of receivables and inventories was large relative to trade payables, making the length of the cash conversion cycle a key issue for funding efficiency. Property, plant and equipment was ¥166.3B and remained broadly flat, suggesting that cash outflows from large-scale capital investment were limited.

Quality of Earnings

Ordinary Income was ¥58.6B, approximately in line with Operating Income of ¥58.4B. However, operating non-income items such as interest income of ¥15.3B and foreign exchange gains of ¥11.1B were offset by non-operating expenses centered on interest expense of ¥20.2B, indicating substantial volatility in financial gains and losses. Profit Before Tax was ¥49.0B, ¥9.6B below Ordinary Income, primarily due to the temporary factor of extraordinary losses of ¥10.6B, including ¥10.3B in litigation settlement costs; this should be evaluated separately from recurring earnings power. Comprehensive Income was ¥56.9B, exceeding Net Income of ¥34.9B, with other comprehensive income—centered on foreign currency translation adjustments of ¥17.1B—making a positive contribution. Comprehensive Income Attributable to Owners of the Parent was ¥60.5B. Excluding the temporary burden of litigation settlement costs, growth in Operating Income was supported by recurring factors, namely higher revenue and improved gross margin in the Agrochemicals Business.

Earnings Forecast and Guidance

The full-year company plan calls for Revenue of ¥1093.0B (+9.3% YoY), Operating Income of ¥92.0B (+7.3%), and Ordinary Income of ¥80.0B (+12.9%). The Q3 cumulative progress rates were 64.4% for Revenue and 63.5% for Operating Income, both more than 10pt below the standard progress rate of 75%. To achieve the full-year targets, Q4 Revenue of ¥389.4B and Operating Income of ¥33.6B will be required, making the extent to which results are weighted toward the fiscal year-end, based on the seasonality of the Agrochemicals Business, a key focus. In addition, the full-year plan’s +7.3% YoY growth in Operating Income is significantly below the Q3 cumulative growth rate of +60.6%, indicating that the plan incorporates a slowdown in earnings growth from Q4 onward.

Shareholder Returns

The company’s full-year dividend forecast is ¥27.00 per share. Given the interim dividend of ¥12.00, the year-end dividend is expected to be ¥15.00. The forecast Payout Ratio against projected full-year Net Income attributable to owners of the parent of ¥54.0B is approximately 39.1%, within a sustainable range for dividends alone. Cash and deposits of ¥262.1B and an Equity Ratio of 56.8% provide financial support for dividend payments.

Risk Factors

1. Business concentration risk: The Agrochemicals segment accounts for Revenue of ¥656.7B and more than 84% of segment profit, creating a structure in which weather conditions, pest and disease incidence, and changes in agrochemical regulations can have a significant impact on overall business performance.

2. Risk of prolonged working capital cycle: Accounts receivable of ¥276.1B and inventories of ¥317.8B (including finished goods of ¥317.8B) indicate substantial receivables and inventories, and the resulting tying-up of funds during periods of revenue growth could constrain the conversion of earnings into cash.

3. Volatility risk in financial gains and losses: While interest expense of ¥20.2B was incurred, foreign exchange gains of ¥11.1B and interest income of ¥15.3B were recorded, meaning that fluctuations in Ordinary Income could widen depending on interest rate and foreign exchange trends. In addition, extraordinary losses of ¥10.6B, including litigation settlement costs of ¥10.3B, reduced Net Income as a temporary burden.

Industry Benchmark (For Reference; Based on Company Research)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability is slightly below the industry median.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeds the industry median, indicating a relatively high pace of revenue growth within the industry.

※Source: Company research

Key Points in the Financial Results

1. The Operating Income margin improved to 8.3%, supported by higher revenue in the Agrochemicals Business and the containment of company-wide expenses. The simultaneous progress of revenue growth and margin improvement is a key point in evaluating the quality of business performance.

2. The Q3 cumulative progress rates against the full-year plan were 64.4% for Revenue and 63.5% for Operating Income, below standard progress levels, resulting in a financial results structure with a high concentration of performance in Q4.

3. The substantial scale of accounts receivable and inventories means that the accumulation of working capital accompanying higher revenue may create a time lag between earnings growth and cash generation; this is an item to monitor when assessing future funding trends.

Theoretical Share Price (Reference Value)

Sensitivity: ¥953–¥1,008 at ±1% for the cost of equity, and ¥977–¥982 at ±0.1 for ω.

Notes:

• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

（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 forecast or guarantee future share prices）

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This report is an earnings analysis document automatically generated by AI based on XBRL financial results 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 financial results data. Investment decisions should be made at your own responsibility, after consulting experts as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q3 was a strong earnings quarter, with revenue growth translating into materially faster operating and attributable-profit growth. Nine-month revenue rose 14.6% YoY to ¥70.36bn. Operating income increased 60.6% to ¥5.84bn, lifting the operating margin to 8.3% from 5.9%, a 238bp expansion. Gross profit margin improved 98bp to 34.7%, indicating a favorable sales mix and/or improved gross-cost absorption. SG&A expenses grew 8.9% to ¥18.59bn, substantially below revenue growth, reducing the SG&A-to-sales ratio by 139bp to 26.4%. Ordinary income rose 91.3% to ¥5.86bn, outpacing operating income because net non-operating expenses narrowed sharply. Profit attributable to owners of parent rose 89.6% to ¥3.99bn, although the prior-year comparison was affected by a ¥2.11bn gain on asset sales in the prior period. The current period also contained a ¥1.06bn extraordinary loss, principally including a ¥1.03bn litigation settlement, which constrained reported earnings. Crop protection was the core business, contributing ¥65.66bn of external sales and ¥5.47bn of segment profit. The non-agricultural chemicals segment delivered a higher 20.2% segment margin, versus 8.3% for crop protection, but remained much smaller at ¥3.12bn of sales. Other businesses generated ¥1.58bn of sales and ¥0.38bn of segment profit. The annualized DuPont ROE was 6.4%, below an 8% quality threshold despite the earnings recovery. Balance-sheet liquidity is strong, with a 251.5% current ratio, ¥26.21bn of cash, and cash equal to 3.45x short-term debt. However, interest coverage of 2.90x remains a credit-monitoring point because it is below the 3x caution threshold. Working-capital intensity is a key operational risk, with reported DSO of 107 days, reported DIO measures of 291 days and 189 days, and a reported 277-day cash-conversion cycle. Full-year sales and operating-profit forecast progress is below the typical 75% Q3 pace, making fourth-quarter execution important, while ordinary-income and attributable-profit progress is broadly in line with that pace.

Profitability Analysis

Annualized ROE of 6.4% decomposes into a 5.7% net profit margin, 0.640x asset turnover, and 1.76x financial leverage. The principal constraint on shareholder returns is modest asset turnover, reflecting the working-capital-heavy business model, while leverage is moderate rather than aggressive. Profitability improved most visibly at the operating level: the operating margin expanded 238bp YoY to 8.3%, supported by a 98bp increase in gross margin and 139bp reduction in the SG&A ratio. Revenue grew 14.6% while SG&A rose only 8.9%, evidencing favorable operating leverage. Crop protection segment profit increased 53.3% to ¥5.47bn on 14.8% sales growth to ¥65.66bn; its segment margin rose to 8.3% from 6.2%. Non-agricultural chemicals posted 7.8% sales growth to ¥3.12bn and 22.8% profit growth to ¥0.63bn, with margin improving to 20.2% from 18.2%. Other businesses increased sales 21.3% to ¥1.58bn and segment profit 56.1% to ¥0.38bn, producing a 24.1% margin. Consolidated operating income was reduced by ¥0.64bn of unallocated corporate costs, modestly improved from a ¥0.69bn reduction a year earlier. The 0.814 tax burden is normal, corresponding to a 28.8% effective tax rate. The 0.838 interest burden shows that financing and other non-operating items remain a meaningful drag between EBIT and pre-tax profit. Interest coverage of 2.90x is weak relative to the 5x strong-credit benchmark and limits the extent to which operating-margin gains translate into resilient net profitability.

Growth Assessment

Growth was broad-based across reported segments, led in absolute terms by crop protection, where sales increased by ¥8.49bn YoY. The segment accounts for 93.3% of external revenue and 84.4% of total segment profit before corporate-cost allocation, confirming it as the core business. Growth quality at the operating level is favorable because profit growth materially exceeded sales growth and was accompanied by gross-margin expansion. The ¥8.95bn YoY increase in inventories, together with reported high inventory-day alerts, means revenue conversion and product-demand alignment should be monitored closely. Full-year guidance calls for revenue of ¥109.30bn, operating income of ¥9.20bn, ordinary income of ¥8.00bn, and attributable profit of ¥5.40bn. Q3 progress is 64.4% for revenue, 63.5% for operating income, 73.2% for ordinary income, and 73.9% for attributable profit. Revenue progress is 10.6 percentage points below the standard 75% Q3 pace, while operating-income progress is 11.5 points below; this likely reflects seasonal concentration of agricultural-product shipments and requires a strong final quarter. Ordinary-income and attributable-profit progress are only 1.8 points and 1.1 points below the standard pace, respectively. The guidance implies a meaningful Q4 operating-income contribution of ¥3.36bn, compared with ¥5.84bn generated through the first nine months. Foreign-exchange gains of ¥1.11bn and equity-method earnings of ¥0.82bn supported non-operating income, so the durability of final earnings also depends on financial-market and affiliate-income conditions.

Financial Health

Liquidity is solid: current assets of ¥109.94bn exceed current liabilities of ¥43.71bn by ¥66.23bn, producing a 251.5% current ratio and 178.8% quick ratio. Cash and deposits of ¥26.21bn exceed short-term debt by 3.45x. Interest-bearing debt totals ¥21.37bn, with debt-to-equity of 0.76x and debt-to-capital of 20.4%, both consistent with a moderate capital structure. Short-term loans fell ¥5.13bn YoY to ¥7.61bn, while long-term loans declined ¥1.68bn to ¥13.76bn, demonstrating deleveraging. Current portions of bonds payable were ¥4.20bn, and the company has adequate cash relative to this near-term refinancing exposure. Interest coverage at 2.90x is nonetheless a concern: earnings can service interest, but the cushion is limited versus a 5x strong-credit benchmark. Accounts receivable declined ¥19.90bn YoY to ¥27.61bn, supporting liquidity and potentially reflecting collections and seasonal shipment timing. Inventories increased ¥8.95bn YoY to ¥31.78bn, equal to 21.7% of assets, and represent the principal balance-sheet item requiring monitoring. Intangible assets rose ¥1.67bn, or 84.4%, to ¥3.65bn; the increase remains contained at 2.5% of total assets. Goodwill is only ¥0.79bn, equal to 0.9% of equity and 0.5% of assets, leaving limited M&A-related impairment sensitivity. Total equity increased ¥3.72bn YoY to ¥83.15bn, and the capital adequacy ratio improved to 55.5% from 50.8%.

Notable B/S Changes

Inventories: +¥8.95bn (+39.2%) to ¥31.78bn - significant stock build and the key driver of elevated inventory-day and cash-conversion-cycle risk. Accounts receivable: -¥19.90bn (-41.9%) to ¥27.61bn - materially improved receivable balance, likely reflecting collections and seasonal sales timing, though reported DSO remains elevated at 107 days. Short-term loans: -¥5.13bn (-40.3%) to ¥7.61bn - deleveraging and reduced short-term refinancing dependence. Intangible assets: +¥1.67bn (+84.4%) to ¥3.65bn - increased investment or consolidation-related intangible assets, but still only 2.5% of total assets and therefore not a material asset-concentration risk.

Cash Flow Quality

Dividend Sustainability

The company paid an interim dividend of ¥12.00 per share and forecasts a full-year dividend of ¥27.00 per share. Based on forecast EPS of ¥68.97, the implied full-year dividend payout ratio is approximately 39.2%, below the 60% sustainability benchmark. The forecast dividend represents an expected ¥15.00 per share year-end payment after the ¥12.00 interim dividend. The dividend framework appears supported by the improving profit outlook, moderate debt-to-equity ratio of 0.76x, and strong liquidity. The principal factors to monitor are the elevated working-capital requirement and interest coverage of 2.90x, as sustained inventory accumulation or weaker Q4 earnings would reduce financial flexibility. No share repurchase is reflected in the supplied period information; therefore, assessment is based on the dividend payout ratio rather than total return ratio.

Risk Assessment

Business risks include Demand, weather, crop-cycle, and regulatory risk in crop protection, which represented 93.3% of consolidated external sales., Inventory risk is elevated: inventories rose 39.2% YoY to ¥31.78bn, while reported DIO alerts of 291 days and 189 days both exceed relevant manufacturing benchmarks. This may reflect seasonal product positioning, but it increases exposure to demand shortfalls, expiry, obsolescence, and inventory valuation pressure., Reported receivable days of 107 exceed the 60-day warning threshold. Although receivables declined sharply YoY, collection timing remains a material operating-capital and customer-credit risk., Foreign-exchange exposure is material: ¥1.11bn of FX gains equaled 19.0% of operating income, placing reported earnings sensitivity near the moderate-exposure range., Agricultural chemical products face environmental, safety, product-registration, and litigation risk; the current ¥1.03bn litigation settlement demonstrates potential earnings volatility from such exposures..

Financial risks include Interest coverage of 2.90x is below the 3x caution level, despite conservative debt-to-capital of 20.4%; higher borrowing costs or lower operating profit would narrow debt-service capacity., The reported 277-day cash-conversion cycle materially exceeds the 120-day warning threshold. The combination of 107-day DSO and high inventory days ties up capital and can increase reliance on financing during seasonal peaks., Non-operating expenses of ¥4.24bn were nearly equal to non-operating income of ¥4.25bn. Interest expense of ¥2.02bn and a ¥2.12bn derivative valuation loss indicate that below-operating-profit volatility remains significant., The full-year operating-income forecast requires ¥3.36bn in Q4, leaving execution risk because Q3 operating-income progress of 63.5% is 11.5 percentage points below a standard 75% pace..

Key concerns include Highest priority: inventory velocity and cash conversion. The reported high-DIO and long-CCC alerts indicate that sales growth has been accompanied by a substantial investment in stock., High priority: Q4 operational delivery against full-year guidance, particularly revenue and operating income., Medium priority: financing-cost and derivatives volatility, given sub-3x interest coverage and the large non-operating expense base., Medium priority: the recurring quality of net earnings. Current attributable profit benefited from stronger operations but was also affected by FX gains, while litigation settlement and derivative valuation losses reduced reported profit..

Investment Implications

Key takeaways include Operating momentum improved materially, with revenue up 14.6%, operating income up 60.6%, and operating margin up 238bp to 8.3%., Crop protection remains the earnings anchor, while non-agricultural chemicals and other businesses provide smaller but higher-margin contributions., The balance sheet is liquid and moderately levered, but interest coverage is not yet strong., Working-capital efficiency is the central financial issue, given elevated reported DSO, DIO, and cash-conversion-cycle metrics., FY2026 guidance remains achievable only with a seasonally strong Q4, especially at the operating-profit level..

Metrics to watch include Q4 revenue and operating income versus the ¥109.30bn and ¥9.20bn full-year targets, Operating margin and gross margin sustainability, Inventory balance, inventory days, and inventory valuation, Receivable days and the cash-conversion cycle, Interest coverage and interest expense, FX gains/losses, derivative valuation effects, and litigation-related items, Crop-protection segment sales and segment margin.

Regarding relative positioning, The company combines an improving mid-single-digit operating-margin profile with strong liquidity and modest balance-sheet leverage. Its annualized 6.4% ROE remains below high-quality return thresholds, principally because working-capital intensity suppresses asset turnover and non-operating financing costs reduce earnings conversion. The low goodwill and intangible-asset burden is a relative balance-sheet strength, while inventory and receivables efficiency are the principal areas requiring operational improvement.