TEIJIN LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥451.04B
• Operating Income: ¥-54.08B
• Net Income: ¥-54.73B
• EPS: ¥-284.41

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Teijin Co., Ltd. (3401) reported FY2026 Q2 consolidated IFRS results showing material deterioration in profitability, with revenue of 4,510.43 (100M JPY), down 11.1% YoY. Gross profit was 785.69, implying a gross margin of 17.4%, but the company recorded an operating loss of -540.82 as SG&A of 1,267.62 exceeded gross profit by a wide margin. EBITDA turned negative at -167.55, highlighting underlying operating stress even before depreciation and amortization of 373.27. Net loss was -548.35, with EPS (basic) at -284.41 JPY, indicating a sizeable earnings contraction for shareholders. The DuPont breakdown shows a net profit margin of -12.2%, asset turnover of 0.466, and financial leverage of 2.51x, resulting in a calculated ROE of -14.2%; leverage amplified the negative margin into meaningfully negative equity returns. Despite the net loss, operating cash flow was positive at 232.20, supported by non-cash charges and likely working capital movements, though free cash flow was negative at -74.99 due to capex of 275.33. Financing cash inflow of 347.29 suggests reliance on external funding (likely debt) to bolster liquidity amid negative FCF. The balance sheet shows total assets of 9,679.74 and equity of 3,854.04 (equity ratio 39.4%), with liabilities of 6,227.31; reported debt-to-equity is 1.62x, indicating elevated leverage. Inventories of 2,270.32 and receivables of 1,667.41 are large relative to half-year revenue, pointing to working capital intensity and potential sensitivity to demand. Tax expense was +37.82 despite a pre-tax loss (-557.65), leading to a negative effective tax rate (-6.8%), consistent with IFRS effects from non-deductible items, jurisdictional mix, or deferred tax valuation changes. Total comprehensive income (-453.04) was less negative than net income, implying positive other comprehensive income, partially cushioning equity erosion. Equity method income of 17.44 provided a modest offset but was insufficient to change the loss narrative. Dividend data were unreported, but a calculated payout ratio of -18.0% and FCF coverage of -0.76x raise questions about near-term distribution capacity. Liquidity metrics such as current and quick ratios are not calculable due to missing breakdowns, constraining a full short-term solvency assessment. Overall, the quarter reflects cyclical headwinds and/or structural margin pressure, with leverage and negative ROE spotlighting the urgency of margin repair and cost control. Data limitations (notably non-operating items, interest expense, and detailed current liability composition) restrict deeper diagnostics, but the available figures indicate operating deleverage and heightened financial risk management needs.

Profitability Analysis

ROE decomposition using DuPont shows: net profit margin -12.2% x asset turnover 0.466 x financial leverage 2.51x = ROE -14.2%, matching the reported figure. The dominant driver is the steeply negative net margin, magnified by moderate leverage. Gross margin was 17.4%, which, while positive, was insufficient to cover SG&A of 1,267.62, leading to an operating margin deeply negative (operating loss -540.82). EBITDA of -167.55 underscores that margin pressure exists before depreciation, pointing to weak pricing power and/or volume deleverage. Operating leverage is unfavorable: an 11.1% revenue decline translated into an outsized deterioration at the operating line, implying a high fixed-cost base (including depreciation and fixed SG&A). The negative effective tax rate (-6.8%) is a symptom of losses rather than a sustainable tax efficiency. Lack of disclosed non-operating income/expense and interest expense obscures the full bridge from operating to net, but the scale of operating loss indicates core business underperformance is the key issue. Equity method income (17.44) provided limited support. Overall margin quality is weak, with negative EBITDA and operating loss suggesting that gross profit generation and cost absorption are both areas requiring remediation.

Growth Assessment

Revenue fell 11.1% YoY to 4,510.43, signaling demand softness and/or pricing pressure across key end markets. Without segment disclosure, it is unclear which business lines (e.g., materials vs. healthcare-related) drove the decline; however, the broad-based impact is evident in the negative operating leverage. Profitability quality deteriorated sharply: EBITDA turned negative, and the net loss expanded to -548.35. The negative comprehensive income indicates that even after OCI support, equity value was eroded this period. On sustainability, the combination of lower revenue and rising cost absorption suggests that near-term growth is challenged unless pricing, mix, or volumes improve. The positive OCF relative to losses indicates some resilience via non-cash items and working capital, but this is not a substitute for profit growth. Outlook hinges on cost rationalization, inventory normalization, and demand recovery; absent these, growth may remain under pressure. Key watchpoints include sequential revenue trends, gross margin recovery from 17.4%, and SG&A control to restore positive operating margins.

Financial Health

Total assets: 9,679.74; total equity: 3,854.04, yielding an equity ratio of 39.4%, which is reasonable but trending riskier given recurring losses. Total liabilities: 6,227.31; reported debt-to-equity is 1.62x, indicating elevated leverage versus equity. Liquidity assessment is constrained by missing current liability and cash breakdown; current and quick ratios are not calculable. Cash and equivalents were 1,075.38, but details on short-term debt are unreported, limiting visibility on near-term refinancing risk. Inventories (2,270.32) and receivables (1,667.41) are large versus half-year revenue, indicating working capital intensity and exposure to demand volatility. Financing CF of +347.29 suggests incremental borrowing or similar measures to support liquidity while FCF is negative. Overall solvency appears adequate for now given the equity base, but sustained losses could pressure covenants and ratings if interest-bearing debt is substantial (undisclosed).

Cash Flow Quality

OCF was +232.20 against net income of -548.35, producing an OCF/NI ratio of -0.42x; with negative NI, this ratio is less informative, but the positive OCF reflects non-cash depreciation (373.27) and likely working capital tailwinds. FCF was -74.99 after capex of 275.33, indicating that the business is not self-funding this period and relies on external financing. Working capital details are partial: inventories 2,270.32 and receivables 1,667.41 versus payables 1,052.96 suggest a net working capital investment that could unwind if volumes slow, but missing cash and other current liabilities prevent precise cycle metrics. EBITDA is negative, which typically pressures OCF sustainability unless working capital continues to release; this is not a reliable long-term cash source. The positive financing CF (+347.29) covered FCF deficits, but this adds financial risk if debt-funded. Overall earnings quality is weak given losses and negative EBITDA; near-term cash quality depends on further working capital management and capex discipline.

Dividend Sustainability

Dividend data are unreported; however, a calculated payout ratio of -18.0% with a net loss indicates any distribution would be uncovered by earnings. FCF coverage is -0.76x, implying that free cash flow did not cover dividends if paid. With EBITDA negative and operating loss substantial, sustainable distributions would likely require external funding or balance sheet drawdown, which is not prudent over time. Equity remains at 3,854.04 with an equity ratio of 39.4%, but preserving capital amid losses typically leads to conservative payout stances. Policy outlook depends on management priorities for deleveraging and restructuring; absent a clear profit recovery, maintaining or increasing dividends would be challenging. Given missing actual DPS and total dividend paid, these conclusions are conditional on the calculated indicators.

Risk Assessment

Business Risks:

• Demand softness leading to double-digit revenue decline (-11.1% YoY).
• Negative operating leverage due to high fixed-cost base, resulting in operating loss (-540.82).
• Pricing and mix pressure reflected in low gross margin (17.4%).
• Working capital intensity (inventories 2,270.32; receivables 1,667.41) amid slowing sales.
• Execution risk around cost restructuring and margin restoration.
• Competitive pressure in core materials and healthcare-related markets (segment detail not disclosed).

Financial Risks:

• Elevated leverage (debt-to-equity 1.62x) and reliance on financing CF (+347.29).
• Negative ROE (-14.2%) eroding equity if sustained.
• Negative EBITDA (-167.55) pressuring OCF durability.
• Limited visibility on interest expense and maturity profile; interest coverage not calculable.
• Potential covenant/rating pressure if losses persist and debt increases.

Key Concerns:

• Restoring positive EBITDA and operating margin from current negative levels.
• Managing inventory and receivables to prevent cash drag if demand weakens further.
• Stabilizing revenue trajectory and improving gross margin above 17.4%.
• Securing liquidity without over-reliance on additional debt given equity ratio 39.4%.
• Clarifying dividend policy under loss-making conditions.

Investment Implications

Key Takeaways:

• Core profitability is under significant pressure: operating loss (-540.82) and negative EBITDA (-167.55).
• Revenue down 11.1% YoY; negative operating leverage magnified losses.
• ROE at -14.2% driven by -12.2% net margin and moderate leverage (2.51x).
• OCF positive (232.20) but FCF negative (-74.99); liquidity supported by financing inflows (+347.29).
• Equity ratio 39.4% provides some cushion, but sustained losses could erode balance sheet strength.
• Working capital heavy with inventories 2,270.32 and receivables 1,667.41; cash conversion risk.
• Dividend capacity appears constrained given losses and FCF shortfall (coverage -0.76x).

Metrics to Watch:

• Sequential revenue growth and order trends.
• Gross margin recovery from 17.4% and SG&A-to-sales ratio.
• EBITDA and operating margin trajectory toward break-even.
• Operating cash flow sustainability excluding one-off working capital effects.
• Inventory and receivables days; inventory reduction versus sales.
• Leverage (net debt/EBITDA when available) and equity ratio.
• Interest expense and coverage once disclosed.
• Capex discipline relative to cash generation.
• Dividend guidance and capital allocation priorities.

Relative Positioning: Within Japanese diversified materials and healthcare-related peers, the company is currently underperforming on profitability (negative EBITDA and ROE), with leverage and working capital intensity above ideal levels. Balance sheet strength (equity ratio ~39%) offers some resilience, but earnings repair is required to improve its standing versus peers with positive margins and self-funded investment.

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