NOF Q1 FY2027: Defense Sales Surge but Pharma Drag Hits Profit

NOF (NOF Corporation) saw revenue expand 23.1% to ¥69,007 million in the first quarter of its fiscal year ending March 2027, but operating profit declined 9.7% to ¥10,695 million as a dramatic reversal in the explosives business was undercut by a sharp slowdown in pharmaceuticals. Ordinary profit fell 6.3% to ¥11,505 million, and net income attributable to owners of the parent decreased 12.1% to ¥7,571 million.

Explosives revenue soared 197.8% to ¥18,411 million, delivering an operating profit of ¥2,296 million compared with a loss of ¥7 million a year earlier. However, pharma/medical/health segment revenue tumbled 17.9% to ¥11,244 million, and operating profit plunged 77.6% to ¥1,223 million because shipments of DDS drug formulation raw materials are concentrated in the second half. Functional chemicals proved resilient, with revenue up 8.8% to ¥39,177 million and operating profit up 11.0% to ¥7,852 million, helped by price revisions and solid demand.

Full-year group forecasts were left untouched: revenue ¥319 billion (+23.7%), operating profit ¥50 billion (+5.5%).

Functional Chemicals
Fatty acid derivatives benefited from firm demand in environmental and energy applications, while price revisions to pass through higher raw-material costs lifted revenue. Surfactants and EO/PO derivatives also performed well in toiletry and resin markets. Organic peroxides and specialty anti-corrosion treatments faced weaker demand in Asia and automotive sectors. The segment posted revenue of ¥39,177 million (+8.8%) and operating profit of ¥7,852 million (+11.0%), with profit margins helped by the mix of higher-value products.

Pharma/Medical/Health
Edible processed oils and functional food ingredients roughly matched prior-year revenue after price adjustments. Health food products and the biocompatible MPC polymer business were firm. However, DDS drug formulation raw materials saw a large year-on-year decline because the bulk of customer-ordered shipments falls in the second half. As a result, segment revenue shrank 17.9% to ¥11,244 million and operating profit tumbled 77.6% to ¥1,223 million. NOF stressed that these DDS orders are already received and factored into the full-year plan.

Explosives/Ordnance
Defense-related products recorded an initial revenue recognition related to early deployment, propelling revenue up 197.8% to ¥18,411 million. The segment swung from an operating loss of ¥7 million a year ago to a profit of ¥2,296 million. Industrial explosives and space-related products (rocket components) declined, but the defense surge more than absorbed the weakness.

Other (Logistics, Real Estate, etc.)
Revenue edged up 1.6% to ¥174 million, while operating profit slipped 1.4% to ¥163 million.

Total assets at the end of the quarter stood at ¥382,306 million, down ¥16,861 million from the previous fiscal year-end. Cash and deposits decreased by ¥23,517 million, while inventories rose ¥5,642 million and investment securities increased ¥4,091 million. Liabilities shrank by ¥14,741 million to ¥87,961 million, mainly due to lower income taxes payable. Net assets fell ¥2,120 million to ¥294,345 million, primarily from dividends and share buybacks, but the equity ratio climbed to 76.7% (from 74.0% at the prior year-end) as liabilities fell more than assets.

Depreciation surged to ¥10,323 million from ¥2,001 million a year ago, reflecting stepped-up investment in defense-related equipment, partly expensed during the quarter.

On shareholder returns, NOF plans a full-year dividend of ¥70 per share, up ¥9 from the prior year. On August 5, the board also approved a share buyback of up to 2 million shares for ¥5 billion and the cancellation of 10 million treasury shares, in line with the medium-term plan’s target of a total payout ratio of 70% or more under "NOF VISION 2030 Stage III" (FY2026–2028).

NOF left its consolidated forecasts unchanged from the initial announcement on May 11, 2026: full-year revenue of ¥319,000 million (+23.7%), operating profit of ¥50,000 million (+5.5%), ordinary profit of ¥51,000 million (+1.3%), and net income of ¥39,000 million (-3.8%).

First-quarter progress reached 21.6% of the full-year revenue target and 21.4% of the operating profit target, essentially in line with expectations given the planned second-half concentration of defense-related revenue recognition and pharma DDS shipments. Functional chemicals are expected to remain solid, helped by cosmetics ingredients and ODM services; the pharma segment should recover as DDS shipments ramp up later in the year; and explosives demand is projected to stay strong. Raw fuel costs and geopolitical risks in the Middle East remain key items to watch.

NOF cites the following principal risks:

• Geopolitical and raw-material costs: Prolonged conflicts in Ukraine and the Middle East could disrupt supply chains and keep naphtha and other crude-derived feedstocks expensive, pressuring functional chemicals margins.
• Reliance on defense contracts: Earnings in the explosives segment are heavily tied to large defense orders, with revenue recognized based on performance obligations. Earnings may fluctuate with contract progress and political decisions.
• Drug shipment timing: DDS formulation raw-material revenue is dictated by customer production schedules, creating large swings between quarters. While the full-year plan has accounted for the skew, quarterly profit volatility persists.
• Foreign exchange: A high proportion of overseas sales (Asia, Europe) means a stronger yen would weigh on earnings.
• Competitive environment: Some products, such as organic peroxides, face intensifying competition and soft demand in Asian markets, underscoring the need to shift toward higher-value-added offerings.

The medium-term plan aims to diversify the earnings base by capturing new market opportunities and creating new technologies.