NIHON NOHYAKU CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Driven by its core Agrochemicals Business, the company recorded double-digit revenue growth and significant profit growth. Notable features of the current period were a marked expansion in the operating margin resulting from an improved gross margin and more efficient selling, general and administrative expenses. Revenue was ¥310.9B (¥271.3B in the prior year, YoY+14.6%), Operating Income was ¥47.5B (¥35.4B, YoY+34.1%), and Ordinary Income was ¥52.3B (¥34.2B, YoY+52.7%). Net Income attributable to owners of the parent was ¥37.3B (¥27.1B in the prior year, YoY+37.6%), with non-operating factors such as foreign exchange gains and equity-method investment income also contributing to the growth in Ordinary Income and Net Income.

Factors Affecting Performance

【Revenue】Revenue was ¥310.9B, up YoY+14.6%. The core Agrochemicals segment accounted for 93.9% of the revenue mix and led overall growth with a 14.9% increase in revenue. Non-agricultural chemicals generated ¥13.5B (4.3% of the mix, YoY+9.7%), while Other Businesses generated ¥7.2B (2.3% of the mix, YoY+3.6%). Both businesses recorded revenue growth, although their scale remains limited.

【Profit and Loss】The gross margin was 36.4%, improving by +130bp from 35.1% in the prior year, while the SG&A expense ratio declined by -94bp to 21.1% from 22.0%. As a result, the operating margin expanded by +224bp to 15.3% from 13.1% in the prior year. Among non-operating items, foreign exchange gains of ¥6.8B, equity-method investment income of ¥5.1B, and interest income of ¥6.0B contributed, exceeding interest expense of ¥7.2B. Ordinary Income therefore increased by YoY+52.7% to ¥52.3B, outpacing the growth rate of Operating Income. Extraordinary items were limited, comprising extraordinary income of ¥0.1B and extraordinary losses of ¥0.1B, with virtually no impact on profit before taxes. Net Income attributable to owners of the parent was ¥37.3B (YoY+37.6%), resulting in higher revenue and profit.

Segment Analysis

Agrochemicals recorded revenue of ¥291.9B (YoY+14.9%) and segment profit of ¥46.5B (YoY+39.3%). Its margin improved by +270bp to 15.9% from 13.2% in the prior year, making it the primary driver of company-wide profit growth. In contrast, ChemicalsOtherThanAgrochemicals recorded higher revenue of ¥13.5B (YoY+9.7%), but segment profit declined to ¥2.5B (YoY-20.7%), and its margin decreased to 18.1% from 25.1% in the prior year. Other Businesses, including landscaping and greening construction, real estate leasing, and logistics services, recorded revenue of ¥7.2B (YoY+3.6%) but a significant decline in profit to ¥0.7B (YoY-40.9%), with its margin falling to 9.0% from 15.9% in the prior year. The growth of the core business is absorbing declines in non-core businesses, and the increasing concentration of profits in the core business is a notable feature of the earnings structure.

Key Financial Indicators

【Profitability】Both the operating margin of 15.3% (13.1% in the prior year) and the net margin, based on Net Income attributable to owners of the parent, of 12.0% (10.0% in the prior year) improved. The improvement in the gross margin and more efficient SG&A expenses boosted profitability.【Cash Quality】Cash and deposits increased by +20.5% to ¥244.1B from ¥202.5B in the prior year, while inventories remained substantial at ¥297.8B (18.8% of total assets), requiring attention to the level of working capital relative to revenue.【Investment Efficiency】ROE was 3.9% and the Equity Ratio was 57.0%, indicating a structure characterized more by financial soundness than by asset efficiency.【Financial Soundness】Against current assets of ¥1185.1B, current liabilities were ¥446.9B and non-current liabilities were ¥235.0B, including long-term borrowings of ¥119.3B and bonds of ¥63.8B. The liability structure is conservative, and the Equity Ratio of 57.0% indicates a stable financial base.

Cash Flow Analysis

As no cash flow statement has been disclosed, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits increased by +¥41.5B (+20.5%) to ¥244.1B from ¥202.5B in the prior year, suggesting that profit growth and contributions from non-operating income led to an accumulation of cash on hand. Accounts receivable and notes receivable decreased by -¥62.5B to ¥408.0B from ¥470.5B in the prior year, while inventories increased by +¥11.5B to ¥297.8B from ¥286.3B, indicating contrasting trends in collections and inventory. Accounts payable and notes payable decreased by -¥44.1B to ¥157.0B from ¥201.1B in the prior year, while short-term borrowings increased by +¥17.8B. Overall, although cash has accumulated alongside earnings growth, the high inventory level remains a factor contributing to the tying up of funds.

Earnings Quality

The increase in profit during the current period was primarily attributable to core-business factors—namely, an improved gross margin and more efficient SG&A expenses—indicating reasonably good earnings quality. However, foreign exchange gains of ¥6.8B and equity-method investment income of ¥5.1B, which boosted Ordinary Income, are subject to market conditions. This explains in part why the growth rate of Ordinary Income (+52.7%) exceeded that of Operating Income (+34.1%). Extraordinary items were immaterial, comprising extraordinary income of ¥0.1B and extraordinary losses of ¥0.1B, and had a limited impact on current-period profit. Comprehensive income was ¥50.6B, representing a +¥15.0B difference from consolidated Net Income of ¥35.6B. The primary factors were valuation differences on securities of +¥10.2B and foreign currency translation adjustments of +¥6.2B. Comprehensive income attributable to owners of the parent was ¥52.0B, also differing by ¥14.7B from Net Income attributable to owners of the parent of ¥37.3B due to similar valuation-related factors. These items should be considered separately from realized earnings.

Earnings Forecasts and Guidance

Progress toward the full-year forecasts—Revenue of ¥1160.0B, Operating Income of ¥115.0B, Ordinary Income of ¥110.0B, and Net Income of ¥74.0B—was 26.8% for Revenue, 41.3% for Operating Income, 47.5% for Ordinary Income, and 50.4% for Net Income attributable to owners of the parent in Q1. Progress is ahead of the simple time-apportionment benchmark of 25%, particularly for Ordinary Income and Net Income. This may reflect non-operating contributions such as foreign exchange gains and equity-method investment income, as well as the effect of seasonal demand concentrated in the first half for the core Agrochemicals Business. There were no revisions to the earnings or dividend forecasts for the quarter.

Shareholder Returns

The annual dividend forecast is ¥38, resulting in a Payout Ratio of 40.2% against forecast EPS of ¥94.48. Given the financial base of cash and deposits of ¥244.1B and an Equity Ratio of 57.0%, there appears to be limited concern regarding the availability of funds for dividends. No disclosure regarding share repurchases has been identified.

Risk Factors

1. Business concentration risk: Agrochemicals accounts for 93.9% of Revenue and the majority of segment profit, indicating a high level of dependence on a single business. The non-agricultural chemicals business recorded a decline in segment profit to ¥2.5B (YoY-20.7%), and diversification of earnings sources remains limited.

2. Working capital and inventory risk: Inventories were ¥297.8B (including products of ¥297.8B), accounting for 18.8% of total assets. This represents an increase of +¥11.5B year on year, and the trend in inventory levels remains a point of focus relative to the revenue growth rate of +14.6%.

3. Volatility risk in non-operating income: Foreign exchange gains of ¥6.8B and equity-method investment income of ¥5.1B, which boosted Ordinary Income, are subject to market conditions and the performance of affiliated companies. They are among the factors behind the difference between the growth rates of Operating Income, based on the core business, (+34.1%) and Ordinary Income (+52.7%).

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

Both the operating margin and net margin exceed the industry median, indicating that profitability is relatively high compared with peers.

Growth and Capital Efficiency

The revenue growth rate is close to the upper bound of the industry IQR, indicating a high pace of revenue growth relative to peers.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Structural improvement in profitability: The gross margin improved by +130bp and the SG&A expense ratio improved by -94bp from the prior year, while the operating margin expanded by +224bp to 15.3% from 13.1% in the prior year. This resulted from a combination of improved cost efficiency and improvements in pricing and product mix. Whether this level can be maintained will be a key focus in assessing future margin trends.

2. Accelerated progress and contribution from non-operating factors: Progress toward the full-year forecasts was 47.5% for Ordinary Income and 50.4% for Net Income, substantially exceeding the 26.8% progress for Revenue. As contributions from non-operating factors such as foreign exchange gains and equity-method investment income were significant, their repeatability will determine the sustainability of progress toward the full-year forecasts.

3. Business concentration and working capital levels: Agrochemicals accounts for the majority of Revenue and profit, while non-agricultural chemicals and Other Businesses recorded declines in profit. Inventories account for 18.8% of total assets, and inventory trends will be a key point of focus in evaluating future working capital efficiency.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson type, with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,097–¥1,160 at ±1% for the cost of equity, and ¥1,127–¥1,129 at ±0.1 for ω.

Notes:

• As progress in Net Income toward the full-year forecast (50%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of schedule tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end have been used, resulting in a timing gap relative to the full-year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value is not a forecast or guarantee of the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. 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 professionals as necessary.

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