ASAHI KASEI CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Q1 FY2026 posted substantial increases in revenue and profit, primarily driven by a sharp recovery in the Materials Business and strong growth in the Health Care Business. Revenue was ¥8,261.6B (+11.9% YoY), Operating Income was ¥813.0B (+51.5%), Ordinary Income was ¥853.3B (+70.8%), and Net Income attributable to owners of the parent was ¥537.7B (+172.7%). The reduction in extraordinary losses related to business structure improvements, which were recorded in the previous year’s corresponding period as a temporary factor, also contributed to the substantial increase in Net Income.

Factors Affecting Results

【Revenue】Revenue was ¥8,261.6B, representing an increase of +11.9% YoY. The Materials Business, with revenue of ¥3,636.3B (+13.5%), and Health Care, with revenue of ¥1,908.6B (+23.0%), expanded and drove overall performance, while Homes grew more slowly at ¥2,705.6B (+3.4%). The primary drivers of the increase in revenue were the recovery in market conditions and the positive inventory valuation effect associated with higher raw material and fuel prices in Materials, as well as expanded sales of core pharmaceutical and critical care products in Health Care.

【Profit and Loss】Operating Income was ¥813.0B (+51.5%). The gross profit margin improved to 35.1%, while the SG&A ratio remained broadly unchanged at 25.3% from the previous year, allowing the effect of higher revenue to flow directly through to profit. Ordinary Income was ¥853.3B (+70.8%), supported by non-operating income including foreign exchange gains of ¥49.6B. Net Income attributable to owners of the parent was ¥537.7B (+172.7%). Extraordinary gains and losses were a net gain of +¥11.3B, comprising extraordinary gains of ¥26.7B, including gains on the sale of investment securities of ¥23.2B, less extraordinary losses of ¥15.4B, including business structure improvement costs; these were temporary factors but had a limited impact. The difference of approximately 37% between Ordinary Income and Net Income was primarily attributable to the ¥303.2B income tax burden and ¥23.7B in profit attributable to non-controlling interests, rather than a divergence caused by extraordinary gains and losses. In conclusion, the Company achieved increases in both revenue and profit.

Segment Analysis

The core business is Materials, which accounted for 43.2% of total revenue and generated revenue of ¥3,636.3B. Its Operating Income of ¥388.1B (+160.4% YoY) was the largest contributor to the Company-wide increase in profit. Its profit margin improved significantly from 4.7% to 10.7%, driven by the recovery in market conditions and the positive inventory valuation effect. Health Care generated revenue of ¥1,908.6B (+23.0%) and Operating Income of ¥297.6B (+31.4%); its profit margin of 15.6% was the highest among the four businesses. Homes recorded revenue of ¥2,705.6B (+3.4%) but lower Operating Income of ¥201.8B (-9.7%), with its profit margin of 7.5% the lowest among the four businesses. The difference in profit margins between Health Care and Homes reached 8.1 points, clearly demonstrating the disparity in profitability within the business portfolio.

Key Financial Metrics

Profitability: ROE 2.6%, Operating Income margin 9.8% (improved by +2.6pt from 7.3% in the previous year)
Cash flow quality: Operating CF / Net Income 0.27x (requires monitoring at 1.0x or below), FCF -¥1,812.8B
Investment efficiency: Capital expenditures / Depreciation and amortization 1.3x (indicating a growth investment phase above 1.0x)
Financial soundness: Equity Ratio 49.3% (52.3% in the previous year, -3.0pt), Current Ratio 200.8% (235.2% in the previous year, -34.4pt)

Cash Flow Analysis

Operating CF of ¥142.5B declined by -14.4% YoY, and cash coverage of Net Income remained weak at 0.27x. Investing CF was -¥1,955.3B, primarily due to capital expenditures of -¥556.9B and the -¥1,316.8B acquisition of shares in subsidiaries including Aicuris. Financing CF was ¥1,859.7B; investment funding was secured through the issuance of bonds of +¥575B and a net increase in short-term borrowings of +¥1,386B, while dividend payments of -¥299.1B and share repurchases of -¥178.7B were also carried out. FCF was -¥1,812.8B (Operating CF + Investing CF). Cash generation requires monitoring, with working capital expansion due to increased inventories placing pressure on OCF.

Earnings Quality

Net Income attributable to owners of the parent of ¥537.7B was approximately 63% of Ordinary Income of ¥853.3B. This difference was primarily attributable to the ¥303.2B income tax burden and ¥23.7B in profit attributable to non-controlling interests, while the impact of extraordinary gains and losses, a net gain of +¥11.3B, was limited. Non-operating income of ¥135.4B represented 1.6% of revenue and primarily comprised foreign exchange gains of ¥49.6B and interest income of ¥35.4B. Operating CF of ¥142.5B was below Net Income of ¥537.7B (0.27x), primarily due to an increase in inventories of +¥732.5B. In assessing the quality of earnings growth, the divergence between profit and cash flow accompanied by this inventory increase is a point requiring attention.

Earnings Forecast and Guidance

Q1 progress against the Full-Year plan was 25.4% for Revenue, 32.8% for Operating Income, 34.5% for Ordinary Income, and 33.6% for Net Income attributable to owners of the parent. This represented a pace 7.8–9.5 points above the standard progress level (Q1=25%) on a profit basis. Although the earnings forecast was revised during the quarter, the dividend forecast was unchanged. The Company expects first-half Operating Income of ¥1,450B (+34.9%) and interim Net Income of ¥890B (+34.3%), and anticipates that inventory valuation gains arising amid rising raw material and fuel market prices due to the situation in the Middle East will contract toward Q2. The front-loaded progress in profit includes temporary inventory valuation gains, and the degree of any subsequent reversal may influence the pace of progress.

Shareholder Returns

The annual dividend forecast is ¥44.00, with no revision to the dividend forecast. The Payout Ratio calculated based on the Company’s forecast Net Income of ¥1,600B and the number of shares outstanding excluding treasury shares is approximately 37.0%. Share repurchases are being conducted with a maximum amount of ¥400B from November 6, 2025, through October 31, 2026; repurchases during the current quarter amounted to ¥178.7B. Operating CF for the current quarter was ¥142.5B, below the funds required for shareholder returns combining dividends and share repurchases, and the shortfall is currently being supplemented by cash on hand and external funding.

Catalysts

【Short Term】The degree of reversal in raw material and fuel market conditions and inventory valuation gains arising from the situation in the Middle East, which are expected to contract toward Q2; North American demand trends in the Homes Business; and progress in share repurchases, with a maximum amount of ¥400B through October 31, 2026.

【Long Term】Progress in the PMI following the acquisition of Aicuris Anti-infective Cures AG, including goodwill of ¥445.7B recorded on a provisional basis pending completion of purchase price allocation, and expansion of the Health Care Business; structural transformation of the Materials Business, including withdrawal from low-ROIC businesses and reconstruction of the Mizushima Plant; and the postponement of operations at the North American (Canada) plant for LIB separators by 1.5–2 years.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Compared with the industry median, the Operating Income margin is positioned in the upper tier, while the Net Income margin is around the middle of the range.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeds the industry median, placing the Company in the upper tier of the industry in terms of growth.

※Source: Compiled by the Company

Risk Factors

1. Expansion of working capital and decline in cash conversion: Inventories increased to ¥4,100.6B (+11.0% YoY), while Operating CF was ¥142.5B (-14.4% YoY), remaining at 0.27x Net Income. The reversal of inventory buildup against the backdrop of the situation in the Middle East could affect future cash generation capacity.

2. Valuation risk associated with increases in goodwill and intangible assets: Goodwill reached ¥4,243.9B (+10.6% YoY), while intangible fixed assets reached ¥10,970.8B (19.3% of net assets). The ¥445.7B of goodwill associated with the Aicuris acquisition was recorded provisionally pending completion of purchase price allocation. Asset valuation may fluctuate following the final allocation.

3. Changes in the funding structure: Short-term borrowings rose sharply to ¥1,975.1B (+97.7% YoY), and an additional ¥575B of bonds was issued. The Equity Ratio declined to 49.3% from 52.3% in the previous year, with the increase in interest-bearing debt associated with the acquisition affecting the financial structure.

Key Points from the Earnings Results

1. The Materials Business profit margin sharply recovered from 4.7% to 10.7%, driving the improvement in the Company-wide Operating Income margin to 9.8% from 7.3% in the previous year. Market conditions and the inventory valuation effect had a significant impact, and the sustainability of this pace of improvement will depend on future market trends.

2. The Health Care Business maintained the highest internal Operating Income margin at 15.6%, while the Aicuris acquisition expanded the asset base in the pharmaceutical field, including goodwill of +¥445.7B. The pace of growth in intangible assets and the progress of investment recovery will be factors affecting the sustainability of future profit margins.

3. At 0.27x, Operating CF / Net Income indicates that cash flow generation supporting the increase in profit is lagging. The primary cause is the increase in inventories, and progress toward normalizing working capital over the Full Year will be a key point in assessing the quality of the profit growth trend.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly available data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,612–¥1,707 at cost of equity ±1%, and ¥1,656–¥1,662 at ω±0.1.

Notes:

• Goodwill amortization of ¥28.0 per share has been added back to profit (to account for a non-cash expense and improve comparability with IFRS companies).
• Net assets as of the quarter-end have been used (there is a timing difference relative to the Full-Year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value is not a forecast or guarantee of the future share price)

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This report is an earnings analysis document automatically generated by AI through integrated analysis of XBRL earnings flash data and PDF earnings presentation materials. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.