KURARAY CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥593.42B
• Operating Income: ¥46.36B
• Net Income: ¥46.61B
• EPS: ¥71.35

Income Statement

Balance Sheet

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

Kuraray Co., Ltd. (3405) reported FY2025 Q3 consolidated results under JGAAP showing revenue of ¥593.4bn, down 3.5% YoY, with significant profit compression at lower volumes. Gross profit was ¥207.6bn, implying a gross margin of 35.0%, but operating income declined 37.3% YoY to ¥46.4bn, pointing to pronounced negative operating leverage and cost pressures. Operating margin contracted to 7.8% from an estimated c.12.0% in the prior-year period, indicating higher under-absorption and/or less favorable product mix and pricing. Ordinary income was ¥40.1bn, below operating income, reflecting net non-operating expenses including interest expense of ¥2.1bn. Net income fell 51.1% YoY to ¥22.8bn, with EPS of ¥71.35, translating to a net margin of 3.84%. DuPont metrics highlight muted returns: asset turnover of 0.459x and financial leverage of 1.74x combined with a 3.84% net margin yield an ROE of 3.06%, underscoring subdued capital efficiency this period. Liquidity is strong with a current ratio of 285% and quick ratio of 199%, supported by ample working capital (¥367.0bn). The balance sheet is conservative with liabilities-to-equity of 0.68x and total assets of ¥1.294tn against equity of ¥744.8bn, providing capacity to absorb cyclical volatility. Inventory of ¥170.5bn represents about 30% of current assets; inventory normalization will be an important driver for cash conversion. The interest coverage ratio of 22.3x (operating income basis) is comfortable, reducing near-term refinancing risk. Using non-zero reported figures, the implied effective tax rate appears elevated (income tax ¥18.6bn on ordinary income of ¥40.1bn suggests c.46%), which, alongside weaker operating results, weighed on net profit. Cash flow statement items were not disclosed in this dataset (zeros indicate unreported), limiting direct assessment of operating cash flow and free cash flow quality for the period. Dividend information is also unreported here (DPS and payout shown as zero), so dividend policy assessment must rely on balance sheet strength and earnings capacity rather than current cash distributions. Overall, the quarter reflects resilient gross profitability but sharp operating income sensitivity to top-line softness, resulting in below-trend ROE despite a solid financial position. Key monitoring points include margin recovery, working capital discipline (especially inventories), and stabilization of end-market demand. Data limitations, particularly around cash flows and per-share equity data, constrain certain analyses, but the available non-zero items provide a clear picture of profitability headwinds and robust liquidity.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 3.84% (Net Income ¥22.8bn / Revenue ¥593.4bn)
• asset_turnover: 0.459x (Revenue ¥593.4bn / Total Assets ¥1.294tn)
• financial_leverage: 1.74x (Total Assets ¥1.294tn / Total Equity ¥744.8bn)
• calculated_ROE: 3.06% (matches reported 3.06%) margin_quality:
• gross_margin: 35.0% (¥207.6bn / ¥593.4bn), indicating reasonable product-level profitability
• operating_margin: 7.8% (¥46.4bn / ¥593.4bn), down sharply YoY; suggests cost under-absorption, unfavorable mix, or pricing pressure
• ordinary_margin: 6.8% (¥40.1bn / ¥593.4bn), reflecting net non-operating expense
• net_margin: 3.84%, compressed by weaker operating results and a relatively high implied tax burden operating_leverage: Revenue declined 3.5% YoY while operating income fell 37.3% YoY, implying high negative operating leverage. Prior-year operating income is inferred at ~¥73.9bn (vs ¥46.4bn), and prior-year revenue around ~¥614.9bn, implying an estimated prior operating margin near 12.0% vs 7.8% currently (~4.2pp contraction). This sensitivity indicates a cost base with significant fixed components and/or reduced contribution margins.

Growth Assessment

revenue_sustainability: Top line fell 3.5% YoY to ¥593.4bn, pointing to softer demand or pricing in key segments. Asset turnover of 0.459x is modest for the sector, reflecting cyclical demand and possibly elevated asset base. profit_quality: Gross margin remains solid at 35.0%, but the sharp drop in operating income indicates deterioration in variable contribution or higher fixed cost drag. Ordinary income below operating income suggests some non-operating headwinds (e.g., interest and other items). The implied tax rate is high, further dampening bottom line. outlook: Recovery hinges on stabilization in end markets, price/mix improvement, and cost actions to restore operating margin. Working capital normalization (especially inventories) can support future cash generation and margin resilience if volumes stabilize.

Financial Health

liquidity: Current ratio 285.2% and quick ratio 199.1% indicate strong near-term liquidity. Working capital is ¥367.0bn (¥565.3bn current assets minus ¥198.2bn current liabilities). solvency: Total liabilities are ¥509.4bn vs equity of ¥744.8bn (liabilities/equity 0.68x), indicating a conservative capital structure. Interest coverage at 22.3x (operating income/interest expense) is robust. capital_structure: Financial leverage is moderate at 1.74x (assets/equity). The reported equity ratio in the dataset shows 0.0% but is unreported; based on available figures, equity represents ~57.6% of total assets (¥744.8bn/¥1.294tn).

Cash Flow Quality

earnings_quality: Non-cash items like depreciation were not disclosed in this dataset. Given the sizable asset base, actual depreciation likely exists; absence in the data limits EBITDA analysis. The large drop in operating income vs modest revenue decline suggests earnings sensitivity to volume/mix and fixed costs. FCF_analysis: Operating, investing, and financing cash flows were not disclosed (zeros indicate unreported). Consequently, free cash flow cannot be calculated from this dataset. working_capital: Inventories of ¥170.5bn (~30% of current assets) are a key lever for cash conversion. With revenue down, inventory discipline will be critical to prevent cash tie-up and support future OCF recovery.

Dividend Sustainability

payout_ratio_assessment: EPS is ¥71.35. Dividend per share is not disclosed in this dataset (DPS shown as 0 indicates unreported). Therefore, we cannot compute an actual payout ratio from the provided data. FCF_coverage: Free cash flow is not available due to unreported cash flows, so FCF coverage of dividends cannot be assessed from this dataset. policy_outlook: With a strong balance sheet (liabilities/equity 0.68x) and healthy liquidity, the company appears to have capacity to maintain a conservative dividend policy, but near-term payout decisions will likely track earnings normalization and cash generation once working capital stabilizes. Confirmation requires updated DPS and cash flow disclosures.

Risk Assessment

Business Risks:

• Volume and price cyclicality in core materials/chemicals end-markets
• Negative operating leverage from fixed cost base during demand slowdowns
• Product mix shifts reducing contribution margins
• Currency fluctuations impacting export competitiveness and translation (not quantified here)
• Input cost volatility (energy and feedstocks) affecting gross margins

Financial Risks:

• Potential working capital build-up (inventories) if demand remains soft, weighing on OCF
• Profit sensitivity to high implied tax burden, depressing net income
• Exposure to non-operating costs (interest and other items) that reduce ordinary income
• Limited visibility on cash flow metrics due to unreported OCF/FCF in this dataset

Key Concerns:

• Operating margin contraction from ~12.0% (estimated prior) to 7.8%
• ROE at 3.06%, below typical cost of equity benchmarks
• Lack of disclosed cash flow data impedes assessment of earnings-to-cash conversion

Investment Implications

Key Takeaways:

• Revenue down 3.5% YoY with disproportionate 37.3% drop in operating income, evidencing high operating leverage
• Gross margin held at 35.0% but operating margin fell to 7.8%, compressing ROE to 3.06%
• Balance sheet remains strong (liabilities/equity 0.68x; current ratio 2.85x), supporting resilience
• Inventory at ¥170.5bn is a focal point for cash conversion and margin normalization
• Interest coverage of 22.3x indicates low near-term financial stress despite weaker earnings

Metrics to Watch:

• Operating margin trajectory and cost-down progress
• Inventory turns and working capital days
• Price/mix trends and contribution margins in key product lines
• Ordinary income items (interest and other non-operating gains/losses)
• Effective tax rate normalization and its impact on net margins
• Disclosure of OCF and FCF to gauge earnings quality and dividend capacity

Relative Positioning: Within the Japanese chemicals/materials peer set, the company currently exhibits below-average ROE due to margin compression but maintains above-average balance sheet strength and liquidity, providing flexibility to navigate cyclical conditions and invest for recovery.

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