New Japan Chemical Co Ltd.

Source for all FY2022–FY2026 figures: Annual Securities Reports (EDINET) as structured by EDINET DB; FY2026 MD&A; derived items labelled.

Income statement

Notes: Diluted EPS equals basic (no dilutive securities).

Margins and growth

Revenue CAGR: FY2022→FY2026 (4 yrs) = -0.2%; FY2021→FY2026 (5 yrs, from JPY 24,437M) = +5.6%. The FY2022 jump (+32%) was overwhelmingly price-driven (raw-material pass-through), not volume; production volume in FY2026 was 54,477 t (-4.9% YoY).

Balance sheet

Debt split FY2026 (31 Mar 2026): short-term borrowings JPY 260M; current portion of long-term debt JPY 2,063M; long-term debt JPY 4,946M (total JPY 7,269M). MD&A states interest-bearing debt including leases of JPY 7,402M. Goodwill: none reported; intangible assets JPY 111M (FY2026). Investment securities JPY 10,503M (FY2026) — 26% of total assets, mostly cross-shareholdings (listed holdings JPY 6,722M; unlisted JPY 63M) plus equity-method affiliates.

Cash flow

FY2026 detail: capex on tangible assets JPY 322M (total capex incl. intangibles JPY 465M, mainly a new core IT system); proceeds from sale of investment securities JPY 942M; dividends paid JPY 149M; net long-term borrowing +JPY 149M; no share buybacks.

Returns, leverage and efficiency

Cash conversion cycle (FY2026, derived): receivables incl. e-notes JPY 8,617M (≈98 days of sales), inventories JPY 5,596M (≈76 days of approx. COGS JPY 26.8bn), payables JPY 5,109M (≈70 days) → CCC ≈ 104 days.

Commentary on trends, inflections and drivers

Revenue: flat for five years at JPY 32–33bn, masking volume decline. After the FY2022 price-led surge, revenue has drifted down for three consecutive years. FY2026 revenue fell 1.8% to JPY 32,105M as high-function products (high-weathering plasticizers, medical raw materials) grew but general-purpose products lost volume to "cheap overseas products" (FY2026 Annual Securities Report). Production volume fell 4.9%. This is the central structural problem: the bulk portfolio is losing share in Japan to Asian imports, and pricing actions are preserving revenue, not volume.

Margins: chronically thin and volatile. Gross margin collapsed to 13.3% in FY2023 when raw-material costs outran price increases, producing an operating loss of JPY 439M. Since then gross margin has stabilized at ~16–17%, but SG&A of roughly JPY 4.7–4.8bn absorbs most gross profit, so operating margin oscillates between 1% and 4%. The FY2026 bridge (company presentation) shows +JPY 1,383M from price effects offset by -JPY 1,180M raw materials, -JPY 330M volume and -JPY 124M other costs, yielding the JPY 253M decline to JPY 576M.

Below-the-line volatility. Ordinary income swings with dividends received on the large securities portfolio and with equity-method results (the Malaysian JV turned into losses; Q1 FY2026 equity-method loss JPY 59M). FY2026 net income (JPY 597M) exceeded operating income because of gains on the sale of cross-shareholdings, partly offset by the JPY 526M Sakai plant closure provision announced March 2026.

Inflection in FY2027 Q1. Q1 FY2027 (Apr–Jun 2026) revenue rose 15.5% to JPY 9,392M, gross margin expanded to 23.5% (from 18.4%), and operating income quadrupled to JPY 1,021M — already 177% of the whole of FY2026. Drivers cited: aggressive price revisions in response to raw-material spikes linked to the Middle East/Strait of Hormuz crisis, new customers in natural higher alcohols, firm functional plasticizers, and recovering auto/electronics demand; SG&A fell slightly (JPY 1,184M vs 1,207M). Guidance was raised to OP JPY 1,500M. Whether this is a durable inflection or a timing benefit (selling price raised ahead of cost pass-through in inventory) is the key analytical question; the company's own history (FY2022 → FY2023 reversal) argues for caution.

Balance sheet: steadily de-risked. Net debt fell from JPY 7.4bn (FY2023) to JPY 1.7bn (FY2026), equity ratio rose from 39.8% to 48.9%, and cash reached JPY 5.5bn, aided by working-capital release in FY2024 (OCF JPY 3.6bn) and cross-shareholding sales. The stock trades well below book (P/B ≈0.45×) and below the sum of investment securities and net working capital, a persistent value-trap signature given ROE of ~3%.

Management guidance (revised 7 Aug 2026), FY2027:

The revision was released alongside the EOR divestment (≈JPY 800M expected extraordinary loss in Q2). Whether the JPY 800M NI guidance fully incorporates that loss and any higher-alcohol exit costs is not explicitly stated; exit costs were "under review." No consensus estimates exist.

Bull case

1. Q1 FY2027 OP of JPY 1,021M shows that pricing power plus plant consolidation can lift margins quickly; if sustained, FY2027 OP could approach the FY2031 plan target years early.

2. Balance-sheet optionality: investment securities of JPY 10.5bn and net debt of only JPY 1.7bn against a JPY 9bn market cap give room for buybacks/higher payouts under TSE P/B pressure; the board is already debating capital policy.

3. Fine-chemical pipeline (dianhydrides for AI semiconductors, optical adjusters, HDD lubricants, RiKACRYSTA) targets markets with structural growth, and exiting JPY 3.0bn of low-margin higher-alcohol sales improves mix.

Bear case

1. History of reversal: FY2022's strong year was followed by an FY2023 loss; Q1 margin expansion may reflect price/cost timing that unwinds as raw materials normalize.

2. Revenue base is shrinking: higher-alcohol exit removes ~9% of sales, Sakai closes, and general-purpose volume keeps falling to imports — the JPY 35bn FY2031 revenue target requires fine chemicals to nearly double.

3. Overhang and governance: YMC's ongoing disposals (18% → 12%), no performance-linked pay, and repeated plan misses limit the re-rating case.

Key catalysts and monitorables (next 12 months): H1 FY2027 results (mid-Nov 2026) — sustainability of gross margin and size of EOR loss; completion of EOR share transfer (Oct–Nov 2026); disclosure of higher-alcohol exit costs; any capital-allocation announcement (buyback, payout policy, cross-holding reduction targets); YMC's remaining stake; Sakai closure progress (end-June 2027); naphtha/vegetable-oil prices and Middle East supply; commercial adoption milestones for RiKACID resist applications, RiKAiJAST and RiKACRYSTA food-contact grades.

Analyst verdict. New Japan Chemical is a classic Japanese deep-value small cap: a 107-year-old chemical maker with genuine process know-how, a cleaned-up balance sheet and a market value below its investment-securities holdings, but with a decade-long record of sub-5% ROE and revenue stuck around JPY 32bn. The investment debate in late 2026 turns on whether the new leadership under President Kayoko Morita is finally executing a credible mix shift rather than restating aspirations. There is evidence on both sides. On the positive side, management has done the uncomfortable work it previously avoided: exiting stearic acid, ending and then closing Sakai, and now walking away from natural higher alcohols and the Malaysian JV — together pruning several billion yen of structurally unprofitable revenue. Q1 FY2027 delivered the best quarterly operating profit in years and a near-doubling of full-year OP guidance, and the stock re-rated 19% in a day. The pipeline is aimed at sensible niches (AI-related semiconductor monomers, optical films, recycled-resin processing, bio-based plasticizers) where a small, technically capable supplier can earn pricing power. On the negative side, the FY2022–FY2023 precedent warns that NJC's margins are hostage to raw-material timing; the bulk business (~73% of sales) continues to lose volume to Asian imports; fine chemicals of JPY 8.7bn must nearly double in five years; and the controlling-sized holder YMC is a seller. Capital allocation remains the missing piece — with a 0.45× P/B, JPY 10.5bn of securities and no buyback, the fastest route to the 7% ROE target is balance-sheet action, not just operations. Our synthesis: operational momentum has improved materially, but the thesis remains "show me." Two more quarters of margin above 3% and a concrete shareholder-return framework would justify a sustained re-rating toward book value; absent those, the shares are likely to remain range-bound as a value trap.