SODA NIKKA CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥32.94B
• Operating Income: ¥1.19B
• Net Income: ¥1.21B
• EPS: ¥52.91

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A mixed FY2026 Q2—solid topline and operating gains, but net profit declined and cash conversion lagged. Revenue rose 3.7% YoY to 329.35, with gross profit of 47.14 and operating income up 4.7% to 11.87, indicating resilient core demand in the chemical trading portfolio. Ordinary income increased 8.8% to 14.24, supported by sizable non-operating income of 2.77 (notably dividend income of 2.51). However, net income fell 9.0% to 12.05, implying a squeeze below the ordinary line, with an effective tax rate of 33.8% and signs of one-time P/L items between ordinary income and profit before tax. Operating margin was 3.60%, essentially stable YoY, while net margin compressed to 3.66% from an implied ~4.17% a year ago (about 51 bps compression). Gross margin came in at 14.3%, consistent with a distribution-focused business model. Earnings quality weakened: operating cash flow was 8.34 versus net income of 12.05 (OCF/NI 0.69x), suggesting working capital drag despite a relatively short estimated cash conversion cycle. Financial position remains adequate with a current ratio of 132% and quick ratio of 128%, though slightly below our 150% comfort benchmark for trading houses. Leverage is moderate (D/E 1.41x; equity ratio roughly 41.5%), and interest coverage is very strong at 51.6x, reflecting limited interest-bearing debt (not fully disclosed beyond short-term loans). ROE is low at 3.8%, and ROIC at 2.9% flags capital efficiency challenges versus a 7–8% management target typical for trading businesses. Non-operating income accounted for 23% of pretax profit drivers, indicating ongoing reliance on dividend income from investment securities. Total comprehensive income of 24.28 materially exceeded net income, likely due to valuation gains on securities—positive for equity but less indicative of recurring earnings power. Forward-looking, stable operating profit and dividend income underpin near-term earnings, but improving cash conversion and raising ROIC are necessary to sustain dividends and enhance returns. The quarter’s outcome is acceptable operationally but highlights a need to strengthen core profitability and capital efficiency while reducing reliance on non-operating gains.

Profitability Analysis

DuPont decomposition (TTM-like using the half-year base): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 3.7% × 0.434 × 2.41 ≈ 3.8%. The largest swing this quarter was in net profit margin, which compressed by roughly 51 bps YoY despite operating margin being broadly flat (operating margin up ~3 bps given revenue +3.7% and operating income +4.7%). Business drivers: operating performance held up with modest gross-to-operating conversion, but below-the-line factors (higher effective tax burden and P/L items between ordinary income and pretax) reduced the net margin. Non-operating income (mainly dividend income of 2.51) supported ordinary income, offsetting otherwise thin trading margins. Sustainability: operating margin stability looks repeatable given scale and procurement discipline; however, reliance on dividend income and potential extraordinary items (gap between ordinary income 14.24 and PBT 18.23) is less predictable. Watch for SG&A discipline: SG&A was 35.26 (about 10.7% of sales), and while detailed components were limited, there is no evidence this rose faster than revenue; nonetheless, any SG&A growth above revenue would quickly pressure low operating margins. Overall, low asset turnover (0.434) and reliance on accounts receivable impede ROE; leverage (2.41x) is moderate and not the primary ROE driver.

Growth Assessment

Topline growth of 3.7% suggests steady demand in core chemicals distribution. Operating income grew slightly faster than sales (+4.7%), indicating modest operating leverage and procurement/pricing execution. Ordinary income rose 8.8% aided by non-operating gains (notably dividend income), but net income declined 9.0% due to higher taxes/one-off P/L items, implying limited translation of operating improvements to bottom line. Gross margin of 14.3% and operating margin of 3.60% are consistent with a low-margin, high-volume model; sustainable growth depends on mix upgrades and disciplined working capital. Profit quality is mixed: comprehensive income far above net income (24.28 vs 12.05) was likely valuation-driven, not cash-generative. Outlook: near-term growth is likely to track end-market volumes with limited pricing tailwinds; upside hinges on expanding value-added specialty mix and maintaining dividend income from holdings. Key watchpoints are any normalization of dividend income and the persistence of extraordinary gains that boosted pretax this quarter.

Financial Health

Liquidity is adequate: current ratio 132% (>1.0 but <1.5 benchmark) and quick ratio 128% indicate acceptable short-term coverage. No explicit red flag: current ratio is above 1.0. Working capital is sizable (AR 416.77 vs AP 332.15), typical for a trading company; estimated cash conversion cycle is short-to-moderate given low inventories (14.99) but high receivables. Solvency: D/E is 1.41x (within conservative range for distributors), equity ratio about 41.5% (314.91/758.74), and interest coverage is strong at 51.6x, indicating ample buffer against financing costs. Maturity mismatch risk: current liabilities (395.12) are largely trade payables; short-term loans are modest at 36.61 and appear covered by cash and operating cash flows, though OCF volatility could tighten coverage seasonally. Off-balance sheet obligations are not disclosed; no guarantees or commitments reported in the provided data. Overall, balance sheet capacity is sound but reliant on stable receivables collections.

Cash Flow Quality

OCF/Net Income is 0.69x (<0.8), signaling weaker cash conversion this period, likely driven by receivables growth and normal trading seasonality. Operating cash flow of 8.34 versus net income of 12.05 implies earnings reliance on accruals/working capital. Capex was low at 1.15; proxy FCF (OCF − Capex) approximates 7.19, but full investing cash flows were not disclosed. Dividend and buyback cash outflows were unreported, and financing CF was −0.37, possibly reflecting small debt repayments or dividends. No overt signs of working capital manipulation, but elevated AR relative to half-year sales requires monitoring for credit risk and collection timing. Sustainability: with thin operating margins, consistent OCF generation is critical; maintaining OCF at or above NI should be a management focus.

Dividend Sustainability

The calculated payout ratio is 76.2%, above our <60% comfort threshold for sustainability in low-margin trading businesses. With proxy FCF of ~7.19 (OCF 8.34 minus capex 1.15) but unknown dividend cash outflow, coverage cannot be confirmed. Given ROE of 3.8% and ROIC of 2.9%, internal reinvestment returns are currently modest; a high payout could constrain growth investments unless cash conversion improves. Policy outlook: expect a stable-to-cautious stance—maintaining dividends would rely on steady operating cash and continued dividend income from investment securities; any normalization of non-operating income would tighten coverage.

Risk Assessment

Business Risks:

• Thin operating margins (3.60%) amplify earnings sensitivity to small price/cost changes.
• Dependence on non-operating/dividend income (2.51; 23% non-operating ratio) to support ordinary income.
• Working capital intensity with large receivables (416.77) could strain cash if collections slow.
• End-market cyclicality in chemicals distribution, including demand swings in manufacturing and construction.
• Potential one-off gains between ordinary income and pretax (PBT 18.23 vs OI 11.87) reducing earnings visibility.

Financial Risks:

• OCF/NI at 0.69x indicates weaker cash conversion and potential reliance on short-term funding.
• Moderate leverage (D/E 1.41x) combined with current ratio at 132% heightens sensitivity to working capital shocks.
• Equity market risk to investment securities (155.97) impacting comprehensive income and capital.
• Customer credit risk embedded in high accounts receivable.

Key Concerns:

• ROIC at 2.9% (<5% warning) signals capital inefficiency and limited value creation.
• Net margin compression (~51 bps YoY) despite stable operating margin indicates below-the-line headwinds.
• Dividend sustainability risk with a 76.2% payout ratio amid subpar cash conversion.
• Earnings quality flagged by OCF/NI < 0.8 and reliance on non-operating income.

Investment Implications

Key Takeaways:

• Core operations stable with slight operating leverage; topline +3.7% and OI +4.7%.
• Net income down 9.0% as taxes/one-offs offset operating gains; net margin compressed ~51 bps.
• Earnings quality soft (OCF/NI 0.69x); need to improve collections and cash conversion.
• ROE 3.8% and ROIC 2.9% highlight capital efficiency gap; mix upgrade and asset turns need attention.
• Non-operating income (dividends) is material; sustainability of this stream is a key determinant of ordinary income.

Metrics to Watch:

• OCF/Net Income and trends in accounts receivable days.
• Operating margin progression and SG&A as a % of sales.
• Dividend income from investment securities and any realized gains/impairments.
• ROIC trajectory versus 5–8% thresholds.
• Effective tax rate normalization and any extraordinary gains/losses between ordinary and pretax.

Relative Positioning: Within Japanese chemical trading/distribution peers, Soda Nikka displays average sales growth, healthy interest coverage, but below-peer capital efficiency (ROIC/ROE) and higher-than-comfort payout. Balance sheet is solid but more reliant on receivables. Upside depends on improving mix/turns and sustaining dividend income; downside risk stems from cash conversion and non-operating income normalization.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis