NIHON NOHYAKU (4997) 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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AI Financial Analysis

Executive Summary

日本農薬 delivered a strong FY2027 Q1 result, with sales growth translating into materially faster operating and net-profit growth. Revenue rose 14.6% year on year to ¥31.09bn. Operating income increased 34.1% to ¥4.75bn, exceeding the rate of revenue expansion and evidencing favorable operating leverage. Ordinary income grew 52.7% to ¥5.23bn, supported by an improved non-operating balance. Profit attributable to owners of parent rose 37.6% to ¥3.73bn, equivalent to EPS of ¥47.61. Gross margin expanded by approximately 130bp year on year to 36.4% from 35.1%. Operating margin expanded by approximately 220bp to 15.3% from 13.1%, reaching the upper end of the stated profitability benchmark. Net margin improved by approximately 200bp to 12.0% from 10.0%. The core agricultural chemicals segment accounted for ¥29.18bn of external sales, or roughly 93.9% of consolidated revenue, and generated segment profit of ¥4.65bn. Agricultural chemicals segment profit increased 39.3% year on year, faster than its 14.9% revenue growth, indicating that the consolidated margin improvement was principally driven by the core business. The non-agricultural chemicals segment grew revenue 9.7% to ¥1.35bn, but segment profit declined 20.7% to ¥0.25bn. Other businesses increased revenue 7.8% to ¥0.55bn while segment profit decreased 40.9% to ¥0.07bn. Earnings also benefited from ¥0.68bn of foreign-exchange gains, while the non-operating result included ¥0.81bn of derivative valuation loss and ¥0.72bn of interest expense. Management retained its full-year forecast, implying that Q1 operating-income progress of 41.3% is well ahead of the conventional 25% seasonal benchmark. The principal issue for investors is working-capital intensity: quality alerts identify elevated receivable days, inventory days, and cash conversion cycle metrics despite a very strong reported liquidity position. The balance sheet remains adequately capitalized, with a 55.8% equity ratio, current ratio of 265.2%, and debt-to-equity ratio of 0.76x. The FY2027 outlook therefore rests on sustaining core agricultural-chemicals demand and margins while converting the enlarged earnings base into cash and containing working-capital requirements.

Profitability Analysis

The reported annualized DuPont ROE is 16.5%, comprising a 12.0% net profit margin, 0.785x annualized asset turnover, and 1.76x financial leverage. Margin is the main driver of the current return profile, rather than aggressive leverage: financial leverage is moderate and debt-to-equity is below 1.0x. Net profit margin improved to 12.0% from approximately 10.0% in the prior-year Q1, while operating margin improved to 15.3% from 13.1%. Gross margin rose to 36.4% from approximately 35.1%, demonstrating that the improvement began above the SG&A line. SG&A increased 9.6% year on year to ¥6.55bn, below the 14.6% increase in revenue, which created positive operating leverage. Agricultural chemicals, the core business by segment operating-profit contribution, lifted segment profit 39.3% to ¥4.65bn on 14.9% revenue growth, implying a segment margin increase to approximately 15.9% from 13.2%. Conversely, non-agricultural chemicals segment margin compressed to approximately 18.1% from 25.1%, and other businesses' margin fell to approximately 12.6% from 20.8%. The tax burden factor of 0.713 is normal, corresponding to a 32.0% effective tax rate. The interest-burden factor exceeded 1.0 because non-operating income exceeded net interest and other non-operating expenses; this is supportive but does not represent operating profitability. Interest coverage of 6.60x remains solid, although interest expense rose to ¥0.72bn from ¥0.65bn. The current annualized ROE is above the 15% excellence benchmark, but its sustainability depends primarily on maintaining agricultural-chemicals gross-margin strength and avoiding renewed pressure in the smaller non-agricultural and other segments.

Growth Assessment

Q1 revenue growth was broad-based at the consolidated level, led by agricultural chemicals, where external sales increased ¥3.80bn year on year to ¥29.18bn. The agricultural-chemicals business generated nearly all of the absolute revenue increase and more than all of the segment-profit increase, reinforcing its role as the dominant earnings engine. Consolidated gross profit rose 18.7%, faster than sales, and operating income rose 34.1%, indicating strong incremental profitability. Non-agricultural chemicals contributed incremental sales but lower profit, making it a drag on segment mix quality. Other businesses likewise added modest sales but delivered lower profit. Ordinary income growth of 52.7% exceeded operating-income growth because foreign-exchange gains increased to ¥0.68bn and equity-method earnings rose to ¥0.51bn from ¥0.28bn. Foreign-exchange gains represent approximately 14.2% of operating income, so ordinary-income momentum has a meaningful market-related component. Extraordinary gains and losses were immaterial at ¥0.07bn and ¥0.05bn, respectively, leaving Q1 net income predominantly supported by recurring operations and non-operating items. Full-year guidance calls for revenue of ¥116.0bn, operating income of ¥11.5bn, ordinary income of ¥11.0bn, and profit attributable to owners of ¥7.4bn. Q1 progress is 26.8% for revenue, 41.3% for operating income, 47.5% for ordinary income, and 50.4% for profit attributable to owners. Each profit progress rate is more than 10 percentage points above the standard Q1 progress rate of 25%, while revenue is broadly in line with that benchmark. This pattern suggests that the full-year target currently embeds either normal agricultural-input seasonality, anticipated margin normalization, or caution around currency and input-cost conditions. The unchanged forecast means management has not yet converted the favorable Q1 variance into a formal upgrade.

Financial Health

Liquidity is strong based on a current ratio of 265.2%, a quick ratio of 198.6%, and working capital of ¥73.82bn. Current assets of ¥118.51bn substantially exceed current liabilities of ¥44.69bn, and cash and deposits of ¥24.41bn alone equal 2.04x short-term loans. Total interest-bearing debt is ¥23.92bn, equal to a manageable 0.76x debt-to-equity ratio and 20.9% debt-to-capital ratio. These solvency metrics are comfortably within the stated conservative and investment-grade-oriented benchmarks. Interest coverage is 6.60x, indicating adequate earnings capacity to service interest obligations. No warning is warranted on the current ratio or debt-to-equity thresholds, as neither approaches the stated risk limits of below 1.0x and above 2.0x, respectively. The material funding consideration is refinancing concentration: short-term loans of ¥11.98bn comprise 50.1% of stated interest-bearing debt, triggering the refinancing-risk alert above the 40% threshold. This is partly mitigated by ¥24.41bn of cash and deposits and the substantial current-asset surplus. Short-term loans also increased 17.4% year on year, while long-term loans decreased 2.8%, increasing the relative importance of short-dated funding. Bonds payable increased 7.7% year on year to ¥6.38bn. Equity rose to ¥90.25bn from ¥87.09bn, supported by quarterly earnings and positive comprehensive income. Goodwill is only ¥0.74bn, or 0.8% of equity and 0.5% of assets, so the balance sheet has minimal M&A-related impairment dependency. Intangible assets equal 2.4% of total assets, also indicating limited intangible-asset concentration. Defined-benefit liability is ¥0.93bn and non-current provisions are ¥0.23bn.

Notable B/S Changes

Investment securities: +¥2.01bn (+20.2% YoY) to ¥13.33bn - increased exposure to market-value movements and unrealized valuation changes. Cash and deposits: +¥4.15bn (+20.5% YoY) to ¥24.41bn - strengthens liquidity and provides a buffer against the high short-term debt ratio. Electronically recorded monetary claims: +¥2.28bn (+49.4% YoY) to ¥6.90bn - settlement-method receivables increased materially and should be monitored alongside trade receivables. Accounts payable: -¥4.41bn (-21.9% YoY) to ¥15.70bn - reduced supplier financing may contribute to the long cash conversion cycle. Short-term loans: +¥1.78bn (+17.4% YoY) to ¥11.98bn - increases reliance on shorter-dated funding and underpins the refinancing-risk alert.

Cash Flow Quality

Working-capital efficiency is the primary cash-conversion risk in the reported data. Quality alerts identify receivable days of 120 days, materially above the 60-day warning threshold, indicating slow collection relative to revenue on an annualized basis. Accounts receivable were ¥40.80bn at quarter-end, while electronically recorded monetary claims were ¥6.90bn. The receivable balance itself declined 13.3% year on year, but electronically recorded monetary claims increased 49.4%, so collection and settlement timing should be evaluated on the combined trade-credit position. Quality alerts also identify inventory days of 192 days and an additional inventory-days measure of 137 days; both are above their respective 90-day and 60-day warning thresholds. Finished goods were ¥29.78bn, raw materials were ¥11.06bn, and work in process was ¥0.88bn. The high finished-goods balance is particularly relevant for an agricultural-chemicals manufacturer because demand is seasonal and inventory can be carried ahead of selling periods, but it raises inventory ageing, demand-forecast, and potential valuation risk if sales momentum slows. Total inventories increased 4.0% year on year despite the strong sales increase. The cash conversion cycle alert of 240 days is well above the 120-day warning threshold and indicates that a substantial amount of capital remains tied up between production, inventory holding, and customer collection. Accounts payable declined 21.9% year on year to ¥15.70bn, which can further lengthen the operating cash cycle if supplier credit terms are less favorable. Electronic payables increased to ¥0.26bn from ¥0.15bn but remain small relative to trade payables. Operating cash flow, free cash flow, capital expenditure, and cash conversion versus net income are not reported in the provided figures; therefore, the cash realization of Q1 earnings is assessed through the reported working-capital indicators.

Dividend Sustainability

The full-year dividend forecast is ¥38.00 per share and has not been revised. Against forecast EPS of ¥94.48, the implied dividend-only payout ratio is approximately 40.2%. This is below the 60% sustainability benchmark and leaves a material share of forecast earnings available for reinvestment, debt management, and working-capital funding. Q1 EPS was ¥47.61, already equal to approximately 50.4% of forecast FY2027 EPS, consistent with the favorable Q1 profit progress. The capital structure is supportive of the forecast dividend, with a 55.8% equity ratio, 0.76x debt-to-equity ratio, and strong liquidity ratios. However, the ability to fund dividends internally will depend on improvement in the elevated receivable, inventory, and cash-conversion-cycle metrics. No share buyback amount is provided, so no total return ratio is calculated.

Risk Assessment

Business risks include Agricultural chemicals represented approximately 93.9% of consolidated Q1 revenue and generated ¥4.65bn of segment profit; this high concentration means crop conditions, product demand, distributor ordering patterns, regulatory approvals, and competitive pricing can have an outsized effect on consolidated earnings., Inventory intensity is a material manufacturing risk. Alerts show inventory days of 192 days and 137 days, both above applicable warning thresholds; the ¥29.78bn finished-goods balance exposes the company to seasonal demand volatility, inventory ageing, and potential valuation pressure., Foreign-exchange sensitivity is meaningful: FX gains were ¥0.68bn, approximately 14.2% of operating income. A reversal in currency conditions could reduce ordinary income even if underlying operations remain stable., The non-agricultural chemicals segment's profit fell 20.7% to ¥0.25bn despite 9.7% sales growth, and other-business profit declined 40.9% to ¥0.07bn. Continued margin erosion in these operations could dilute group profitability., As a chemical manufacturer, the company faces industry-specific regulatory, environmental, product-safety, raw-material cost, supply-chain, and product-registration risks..

Financial risks include The refinancing-risk alert is triggered because short-term debt represents 50.1% of interest-bearing debt, above the 40% alert level. Liquidity mitigates the near-term risk, but the company remains exposed to lending conditions and interest-rate movements when short-term facilities are renewed., Receivable days of 120 days exceed the 60-day warning threshold. This can delay cash realization, elevate credit exposure, and amplify the impact of any customer-payment disruption., The 240-day cash conversion cycle materially exceeds the 120-day warning threshold. Long cash cycles increase the funding requirement for growth and can cause operating cash flow to lag accounting profit., Interest expense increased to ¥0.72bn, while bonds payable rose 7.7% year on year to ¥6.38bn. Interest coverage remains sound at 6.60x, but financing costs should be monitored if rates rise..

Key concerns include Highest priority: conversion of strong Q1 earnings into cash, given the simultaneous high-DSO, high-inventory-days, and long-cash-conversion-cycle alerts., High priority: whether the agricultural-chemicals segment can sustain its approximately 270bp year-on-year segment-margin expansion while Q1 operating income is already 41.3% of the full-year plan., Medium priority: the degree to which the ¥0.68bn FX gain and ¥0.51bn equity-method income recur, as ordinary income growth materially outpaced operating-income growth., Medium priority: refinancing management, because short-term loans rose year on year and short-term debt concentration is above the alert threshold despite ample liquidity..

Investment Implications

Key takeaways include Q1 was operationally strong: revenue rose 14.6%, operating income rose 34.1%, and operating margin expanded 220bp to 15.3%., Core agricultural chemicals drove the result, with sales of ¥29.18bn and segment profit of ¥4.65bn., Annualized ROE of 16.5% is strong and is supported primarily by a 12.0% net margin rather than excessive financial leverage., Full-year operating-income progress of 41.3% and profit-attributable progress of 50.4% are substantially ahead of the standard Q1 pace, but guidance remains unchanged., The central balancing factor is weak working-capital efficiency, including alerts for 120-day receivables, high inventory days, and a 240-day cash conversion cycle., The forecast ¥38.00 DPS implies a moderate 40.2% dividend-only payout ratio based on forecast EPS..

Metrics to watch include Agricultural-chemicals sales growth and segment profit margin, Consolidated gross margin and operating margin relative to the Q1 levels of 36.4% and 15.3%, Receivable days, electronically recorded monetary claims, and customer collection trends, Inventory days and the level of finished goods relative to seasonal demand, Cash conversion cycle and the relationship between operating cash flow and net income, Foreign-exchange gains or losses and equity-method earnings contribution, Short-term debt ratio, cash-to-short-term-debt coverage, and interest coverage, Whether management revises the ¥116.0bn sales and ¥11.5bn operating-income forecasts.

Regarding relative positioning, On reported profitability and capitalization, 日本農薬 is positioned favorably: its 15.3% operating margin, 12.0% net margin, 16.5% annualized ROE, 55.8% equity ratio, and 0.76x debt-to-equity ratio are strong. Relative to efficient manufacturing working-capital benchmarks, however, the reported receivable days, inventory days, and 240-day cash conversion cycle are weak and represent the principal area requiring operational improvement.