SODA NIKKA CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥32.94B
• Operating Income: ¥1.19B
• Net Income: ¥1.32B
• 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 Integrated Analysis

Analysis integrating XBRL data (GPT-5) and PDF earnings presentation (Claude)

Executive Summary

Soda Nikka Co., Ltd. (8158) reported FY2026 Q2 consolidated results under JGAAP with steady topline growth and resilient operating performance, alongside some signs of working capital absorption that weighed on cash conversion. Revenue was ¥32.94bn (+3.7% YoY), and operating income reached ¥1.19bn (+4.7% YoY), indicating modest positive operating leverage. Gross profit of ¥4.42bn translates to a 13.4% margin, consistent with a trading/chemicals distributor profile where value-add services and mix drive incremental margin gains. Ordinary income exceeded operating income at ¥1.42bn, implying modest non-operating contribution, while interest expense remained low at ¥22m, supporting a high interest coverage of 54.0x. Net income declined 9.0% YoY to ¥1.21bn, compressing the bottom line despite higher operating income; this suggests either non-recurring non-operating items or tax/minority interest effects. The DuPont build shows a net margin of 3.66%, asset turnover of 0.434x, and financial leverage of 2.41x, yielding a calculated ROE of 3.83%, in line with the reported figure. Balance sheet strength is solid: total assets were ¥75.87bn and equity ¥31.49bn (implied equity ratio ~41.5% based on period-end balances, though the reported equity ratio field is undisclosed). Liquidity appears adequate with a current ratio of 130% and quick ratio of 126%, and working capital of ¥11.86bn. Operating cash flow was ¥0.81bn, resulting in an OCF/Net Income ratio of 0.67, pointing to weaker cash conversion in the half due to working capital movements. Financing cash flow was an outflow of ¥1.51bn, likely debt repayment and/or shareholder returns (though DPS is undisclosed at 0.00 in the dataset), contributing to net cash outflow at the corporate level. EBITDA was ¥1.31bn (margin 4.0%), supported by low depreciation (¥118m), consistent with an asset-light trading model. While the effective tax rate in the calculated metrics shows 0.0%, the disclosed income tax expense is ¥634m; combined with the gap between ordinary income and net income, this highlights some inconsistencies in intermediate line items or consolidation adjustments. Overall profitability is stable with slight YoY improvement at the operating level, but lower net income and softer cash conversion temper the quality of earnings. The company’s capital structure is conservative to moderate (debt-to-equity 1.39x at the total liabilities level), and interest burden is minimal, providing flexibility. Data limitations exist (e.g., cash balance, investing CF, equity ratio, share count fields show as zero/unreported), but the available figures suggest a steady, lower-volatility distributor profile with manageable leverage and focus on working capital discipline as a key driver of cash flow.

From Earnings Presentation: Sodanikka's Q2 FY March 2026 results achieved revenue and profit growth with sales of 32.935 billion yen (+3.7%) and operating profit of 1.187 billion yen (+4.7%). The chemicals business drove growth with strong performance in inorganic chemicals for electronics and municipal applications, while the functional materials business also increased revenue and profit through overseas orders for packaging-related equipment. However, net profit for the interim period decreased to 1.205 billion yen (-9.0%), primarily due to reduced gains on sale of investment securities. Full-year forecasts remain unchanged at sales of 70.5 billion yen, operating profit of 2.34 billion yen, and net profit of 2.3 billion yen. For the second half, the company expects profit growth from continued strength in inorganic chemicals, packaging-related equipment projects, and elimination of depreciation cost differences at Nippon Packaging Co., Ltd. Dividends are forecast at 20 yen each for interim and year-end (40 yen annually) as initially planned, maintaining a dividend payout ratio of 41.4%, above the 40% target set in the medium-term management plan 'Go forward STAGE3'. By segment, chemicals recorded 22,059 million yen (+4.2%) with profit margin of 8.6%, functional materials 6,985 million yen (+6.0%) with 5.9% margin, and others 3,891 million yen (-2.4%) with 3.2% margin, with chemicals and functional materials contributing to profit growth. Financial soundness remains strong with equity ratio of approximately 41.5%, minimal interest burden from interest-bearing debt, and sufficient liquidity. Cash balance increased to 8.177 billion yen, up 946 million yen from previous fiscal year-end. Net assets expanded to 31.491 billion yen (+1.956 billion yen) due to balance sheet strengthening and market value appreciation of investment securities, advancing equity enhancement.

Financial Analysis

Profitability

ROE_decomposition: DuPont indicates ROE of 3.83% = Net margin (3.66%) × Asset turnover (0.434x) × Financial leverage (2.41x). This mix reflects thin distribution margins, modest balance sheet turns, and moderate leverage. Incremental YoY operating improvement (+4.7% OI vs. +3.7% revenue) supported ROE despite lower net income. margin_quality: Gross margin stood at 13.4%, consistent with a chemicals trading/distribution model with limited pricing power but potential mix benefits. Operating margin was ~3.6% (¥1.187bn/¥32.935bn). Net margin was 3.66%. Ordinary income above operating income suggests modest non-operating gains (e.g., dividends, FX, equity-method), partially offset by taxes/minorities impacting net. operating_leverage: Revenue grew 3.7% while operating income rose 4.7%, implying slight positive operating leverage. Low depreciation (¥118m) and an asset-light base limit fixed-cost leverage but support stable EBITDA margins (4.0%).

Growth

revenue_sustainability: Topline growth of 3.7% YoY appears steady, likely driven by stable demand in key chemical and industrial end-markets; mix and pricing likely contributed modestly given the GPM of 13.4%. profit_quality: Operating income outpaced revenue, but net income fell 9.0% YoY, indicating compression below the operating line. The divergence suggests either higher tax/minority impact or weaker non-operating gains YoY. outlook: Assuming stable industrial activity and no material deterioration in input or logistics costs, mid-single-digit revenue growth with flat-to-slightly better operating margin appears achievable. Net income trajectory will depend on tax/one-offs and non-operating items; working capital management is a swing factor for cash conversion.

Financial Health

liquidity: Current ratio 130.1% and quick ratio 126.4% indicate adequate short-term coverage. Working capital is ¥11.86bn. Inventories are modest at ¥1.44bn relative to current assets, implying receivables drive liquidity needs. solvency: Debt-to-equity (using total liabilities) is 1.39x; implied equity ratio is ~41.5% (¥31.49bn/¥75.87bn), despite the equity ratio field being undisclosed. Interest coverage is strong at 54.0x, reflecting low interest burden. capital_structure: The balance sheet is moderately levered with ample equity buffer. Ordinary income above operating and low interest expense suggest no near-term refinancing pressure; financing CF outflow (¥1.51bn) likely reflects debt repayment and/or returns.

Cash Flow

earnings_quality: OCF of ¥0.81bn versus net income of ¥1.21bn yields OCF/NI of 0.67, indicating weaker cash conversion in the half—likely due to receivable build or timing effects in payables. FCF_analysis: Investing CF is undisclosed (shown as 0), so FCF cannot be reliably computed; the provided FCF of 0 reflects data unavailability rather than true cash generation. Low D&A (¥118m) suggests limited maintenance capex, typically supporting positive FCF in steady states. working_capital: With inventories low relative to current assets, receivables collection is the primary variable. The positive OCF despite weaker conversion indicates some offsetting effects, but tighter collection and payables management would improve cash yield.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is undisclosed (0.00) and payout ratio is shown as 0.0%. Based on EPS of ¥52.91 and positive OCF, capacity for dividends exists, but the dataset does not confirm any payout. FCF_coverage: FCF coverage is not assessable due to unreported investing CF (shown as 0). Historically low capex needs imply potential FCF support for dividends when working capital is neutral. policy_outlook: Absent disclosed DPS, we infer a conservative stance or timing-related non-disclosure at the interim stage. Sustainability would hinge on stable operating margin and improved cash conversion in H2.

Business Outlook

Full-year forecast unchanged from initial plan: sales of 70.5 billion yen (+8.2%), operating profit of 2.34 billion yen (+10.9%), net profit of 2.3 billion yen (+4.8%). Q2 progress rates are 46.7% for sales, 50.7% for operating profit, and 52.4% for net profit, generally on track. For the second half, assuming stable chemical market conditions, the company expects steady performance in inorganic chemicals (municipal and electronics applications), contribution from large-scale packaging-related equipment projects in functional materials, and elimination of depreciation cost differences at Nippon Packaging Co., Ltd. (high burden in prior year Q2 comparison, but differences disappear on year-over-year basis from Q3 onward), projecting second half operating profit at or above prior year levels. Net profit aims for +4.8% year-over-year for full year, absorbing the impact of reduced non-recurring items (gains on sale of investment securities). While foreign exchange and raw material price fluctuation risks exist, the company will continue profit growth trajectory by maintaining gross profit margin of 13.4% and leveraging operating leverage.

Management Guidance

As the final year of medium-term management plan 'Go forward STAGE3', targets include revenue and profit growth and normalized dividend payout ratio above 40%. Q2 achieved operating profit growth (+4.7%) and maintained gross profit margin of 13.4%. For the second half, aims to achieve full-year targets through continued effects of new inorganic chemical orders, large-scale functional materials projects, and positive operating leverage from fixed cost absorption. Dividends of 40 yen annually (prior year 34 yen → current year 40 yen, excluding special dividends) increase regular dividends, demonstrating stable dividend orientation with payout ratio of 41.4%. Financial soundness is strong with equity ratio of approximately 41.5% and interest coverage ratio of 54x, providing ample capacity for interest burden, promoting both balance sheet strengthening and shareholder returns. With net asset increase (+1.956 billion yen) from market value gains on investment securities, focuses on ROE improvement and capital efficiency enhancement. Working capital management is a challenge, with operating CF/net profit of 0.67x (XBRL) showing room for improvement in second half, mentioning strengthened management of receivables and payables cycles.

Strategic Initiatives

• Chemicals business: Expand transactions of caustic soda and hydrochloric acid for electronics industry, deepen new municipal orders for aluminum compounds (water treatment agents), increase sales through new sodium chlorate orders, expand market share in daily goods and pet products markets for toiletry-related products
• Functional materials business: Secure large-scale overseas packaging-related equipment projects (expected to contribute in second half), expand composite film sales to food industry, continue growth in industrial products orders (machine tool components). Address decreases in nylon film (China-bound) and short glass fiber (transportation equipment applications) through product mix improvement
• Other businesses: Maintain strong camera accessories performance at domestic subsidiary (Morris Co., Ltd.), develop alternative demand in domestic Japan and ASEAN to counter decreased chemical transactions at overseas subsidiary (China)
• Financial and capital policy: Achieve normalized dividend payout ratio above 40% during medium-term management plan period, secure ROE improvement potential through equity enhancement (net asset expansion including securities valuation gains), improve fund efficiency through working capital optimization (operating CF improvement)
• Nippon Packaging Co., Ltd. depreciation normalization: Depreciation burden from prior year investment eliminates year-over-year differences from second half onward, explicitly identified as profit boost factor

Risk Assessment

Business Risks:

• Cyclical demand in chemicals and industrial end-markets
• Margin pressure from input price volatility and competitive pricing
• Customer credit risk given receivables-heavy working capital
• Foreign exchange exposure impacting procurement and non-operating items
• Supply chain disruptions affecting volumes and mix

Financial Risks:

• Weaker cash conversion (OCF/NI 0.67) if receivables extend
• Exposure to interest rate normalization on short-term funding despite low current interest burden
• Potential volatility below operating line (non-operating items, associates, FX, or derivatives)
• Refinancing/rollover risk on short-term liabilities if markets tighten

Key Concerns:

• Divergence between operating income growth and net income decline (-9% YoY)
• Inconsistencies between reported income tax expense and net income movement
• Unreported key items (cash balance, investing CF, equity ratio, share data), limiting per-share and FCF analysis

Risk Factors from Presentation:

• Chemical market fluctuations (disclaimer states that performance outlook is based on currently available information and incorporates inherent uncertainties and variability)
• Foreign exchange and raw material price fluctuation risks (not explicitly stated in PDF but inherent in performance outlook assumptions)
• Operating CF fluctuation due to working capital expansion (identified in XBRL analysis, not directly mentioned in PDF)
• Concentration risk with major customers and suppliers (dependence on customer industry trends in chemicals and functional materials)
• Demand decrease risk at overseas subsidiary (China) (explicitly stated in Other segment, decreased Japan-bound chemical transactions)

Investment Implications

Key Takeaways:

• Stable topline (+3.7% YoY) with slight positive operating leverage (+4.7% OI)
• ROE at 3.83% driven by thin margins and moderate leverage
• Strong interest coverage (54x) and adequate liquidity (current ratio 130%)
• Cash conversion subdued (OCF/NI 0.67), implying working capital drag
• Net income decline (-9% YoY) despite higher operating income suggests below-the-line pressure

Metrics to Watch:

• Receivables days and overall OCF/NI ratio recovery toward ≥1.0
• Operating margin sustainability around 3.5–4.0%
• Non-operating income/expense and effective tax rate normalization
• Leverage metrics (total liabilities/equity) and interest coverage stability
• Interim/annual DPS disclosure and FCF coverage once investing CF is reported

Relative Positioning: Within Japan’s chemical trading/distribution peers, Soda Nikka appears steady with moderate leverage, strong interest coverage, and typical low margins; near-term differentiation will come from working capital discipline and consistency in below-the-line items.

Supplementary Insights (Key Highlights)

• Chemicals business: New orders for sodium chlorate, new municipal water treatment orders for aluminum compounds, special demand and market share expansion for paper coating agents, strong performance in toiletry-related products for daily goods and pet products boosted profits
• Functional materials business: Orders for overseas packaging-related equipment projects, strong food industry demand for composite films, growth in industrial products orders for machine tool components contributed to revenue increase. However, decreased Chinese demand for nylon films and reduced transportation equipment orders for short glass fiber were negative factors
• Other businesses: Decreased revenue but increased profit due to domestic subsidiaries (Notsu Shoten K.K. incurred warehouse repair costs, Morris Co., Ltd. increased profit with strong camera accessories) and overseas subsidiaries (some Japan-bound chemicals decreased in China)
• Second half outlook: Stable chemical market conditions continue, large-scale packaging-related equipment projects in functional materials segment, profit contribution from elimination of year-over-year depreciation cost differences at Nippon Packaging Co., Ltd.
• Dividend policy: Medium-term management plan targets normalized dividend payout ratio above 40%, forecasting 40 yen annually for FY March 2026 (payout ratio 41.4%). Stable dividend approach with regular dividends only, excluding special dividends
• ROE improvement potential: Q2 ROE at 3.83% (interim basis), but annual ROE expected to improve if full-year net profit of 2.3 billion yen is achieved. Improvement expected in both asset efficiency and profit margin
• Investment securities valuation gains: On balance sheet, investments and other assets +1.818 billion yen, accumulated other comprehensive income +1.223 billion yen as securities market value appreciation boosted net assets. Not yet converted to cash but contributes to financial stability

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