Chuetsu Pulp & Paper Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥53.05B
• Operating Income: ¥1.35B
• Net Income: ¥2.03B
• EPS: ¥78.23

Income Statement

Balance Sheet

Cash Flow Statement

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

Chuetsu Pulp & Paper (TSE:3877) reported FY2026 Q2 consolidated results under JGAAP showing top-line softness and significant margin compression. Revenue was ¥53.1bn, down 4.5% YoY, indicating demand pressure and/or pricing normalization after the prior cost-push price hikes in the paper/pulp complex. Gross profit was ¥9.23bn, implying a gross margin of 17.4%, which remains positive but is not translating into operating profitability due to higher fixed costs and/or SG&A pressure. Operating income fell sharply to ¥1.36bn (-56.6% YoY), yielding an operating margin of 2.6%, signaling weaker operating leverage in the period. Ordinary income was ¥1.55bn, supported by non-operating items relative to operating profit, while net income declined 52.0% YoY to ¥0.98bn (net margin 1.85%). On a DuPont basis, ROE was 1.72% = 1.85% net margin × 0.450x asset turnover × 2.06x leverage, highlighting low profitability as the primary drag on return. Depreciation and amortization totaled ¥3.06bn, resulting in EBITDA of ¥4.42bn and an EBITDA margin of 8.3%, indicating that non-cash costs and fixed charges are absorbing most of the value-added. Interest expense was ¥0.14bn, with interest coverage of 9.8x, suggesting manageable financing costs despite profit compression. Operating cash flow was solid at ¥3.18bn, exceeding net income by more than 3x (OCF/NI 3.24x), which points to supportive earnings quality in the period. Liquidity appears tight but adequate with a current ratio of 104.8% and quick ratio of 84.9%; working capital stood at ¥2.51bn. Total assets were ¥117.9bn against equity of ¥57.2bn, implying financial leverage of 2.06x and a debt-to-equity ratio of 1.15x, a moderate capital structure for a capital-intensive sector. While “effective tax rate” is listed as 0.0% in the provided metrics, the reported income tax charge of ¥0.78bn versus ordinary income of ¥1.55bn implies a roughly 50% tax burden for this period, possibly affected by non-deductible items or prior-period adjustments. Dividend and share data were not disclosed in the feed (zeros indicate unreported), so payout analysis relies on earnings and cash flow proxies rather than confirmed distributions. Free cash flow cannot be determined due to unreported investing cash flows; however, the strong OCF suggests internal funding capacity remained intact during the half. Overall, the quarter reflects ongoing industry headwinds—lower volumes and fading pricing tailwinds—pressuring operating margins, albeit with reasonable liquidity, stable leverage, and resilient cash conversion. Data limitations (equity ratio, cash balance, investing CF, DPS, shares) constrain precision in solvency, FCF, and shareholder-return assessments.

Profitability Analysis

ROE decomposes to 1.72% via 1.85% net margin × 0.450x asset turnover × 2.06x financial leverage, pinpointing margin weakness as the main driver of low equity returns. The operating margin was approximately 2.6% (¥1.36bn operating income on ¥53.05bn revenue), substantially below the gross margin of 17.4%, indicating elevated SG&A/overheads or lower manufacturing utilization. EBITDA of ¥4.42bn (8.3% margin) versus operating income of ¥1.36bn shows sizeable non-cash depreciation/amortization (¥3.06bn), typical for a capital-intensive producer, but also highlights limited operating leverage at current volumes. Ordinary income (¥1.55bn) exceeded operating income, suggesting some non-operating support (e.g., financial income, equity-method income, or subsidies), partially cushioning operating shortfalls. Interest expense of ¥0.14bn was well covered (9.8x) by EBIT, so financing costs are not the binding constraint on profitability. The steep YoY decline in operating income (-56.6%) versus revenue (-4.5%) evidences negative operating leverage this period—small top-line declines translating into outsized profit drops—likely due to fixed cost absorption and normalization of pricing spreads. Net margin at 1.85% remains low for the sector, leaving little buffer against input-price volatility or demand softness.

Growth Assessment

Revenue declined 4.5% YoY to ¥53.05bn, implying either volume contraction in printing/writing/packaging grades or price give-backs as energy/fiber cost pressures eased from prior peaks. Profit deterioration was more severe: operating income fell 56.6% YoY to ¥1.36bn and net income declined 52.0% YoY to ¥0.98bn, indicating that the company could not offset mix/volume pressures with cost reductions. The gap between gross margin (17.4%) and operating margin (2.6%) suggests SG&A and fixed manufacturing costs weighed on growth, consistent with underutilization. EBITDA margin of 8.3% remains positive but insufficient to prevent sharp EBIT compression when volumes soften. The sustainability of revenue will hinge on downstream demand in domestic packaging and specialty paper, price discipline in contract renewals, and export competitiveness amid FX and logistics dynamics. Profit quality appears supported by cash conversion (OCF/NI 3.24x), hinting that earnings are backed by cash receipts and/or working-capital release rather than accruals. Near-term outlook is cautious given structural paper demand decline in Japan and potential price normalizations, though easing input costs and product mix shifts (e.g., packaging, functional materials) could stabilize margins if volumes hold. Absent disclosed guidance, base-case expectations should incorporate modest revenue pressure and continued focus on cost control and asset efficiency.

Financial Health

Liquidity is tight but serviceable: current ratio 104.8%, quick ratio 84.9%, and working capital ¥2.51bn indicate limited headroom but no immediate stress. Total liabilities of ¥65.95bn versus equity of ¥57.20bn yield a leverage ratio of assets/equity 2.06x and a debt-to-equity ratio of 1.15x, reflecting moderate balance-sheet risk for a capital-intensive sector. Interest coverage at 9.8x provides a cushion against rate risk and earnings volatility. The disclosed equity ratio field is unreported (0.0% placeholder), so solvency should be inferred from the above leverage metrics. Cash and equivalents were not disclosed in the feed, limiting point-in-time liquidity analysis; nonetheless, positive OCF supports operational funding. With inventories at ¥10.35bn (about 19% of current assets), inventory management and demand visibility will be key to preserving liquidity if volumes soften further.

Cash Flow Quality

Operating CF of ¥3.18bn versus net income of ¥0.98bn (OCF/NI 3.24x) indicates robust cash conversion in the half, likely aided by working-capital inflows and non-cash depreciation of ¥3.06bn. EBITDA of ¥4.42bn provides additional comfort that accrual earnings are not overstated. Investing CF was not disclosed (reported as zero placeholder), so free cash flow cannot be reliably calculated; maintenance and strategic capex cadence remain unknown. Given capital intensity, recurring capex typically consumes a significant portion of OCF; thus, true FCF could be materially lower than OCF depending on the period’s capex. Working capital stood at ¥2.51bn; current and quick ratios suggest adequate but thin liquidity, making inventory and receivables turns important to sustaining OCF. Overall earnings quality appears acceptable this period, but the absence of capex data constrains conclusions on sustainable FCF.

Dividend Sustainability

Dividend per share and payout ratio were not disclosed in the dataset (zeros are placeholders), preventing a direct payout assessment. With net income at ¥0.98bn and positive OCF of ¥3.18bn, internal coverage of modest dividends would be plausible in principle; however, actual FCF is unknown due to undisclosed investing cash flows. Historical policy in the sector tends toward stable or progressive dividends, but current profitability (ROE 1.72%, operating margin 2.6%) suggests limited headroom for increases without clearer FCF visibility. Absent reported DPS and share count, we cannot compute distribution amounts or FCF coverage; any assessment should be revisited once capex and dividend plans are disclosed.

Risk Assessment

Business Risks:

• Structural decline in domestic printing/writing paper demand pressuring volumes and utilization
• Pricing normalization as energy/fiber cost surcharges unwind, compressing spreads
• Input cost volatility (energy, chemicals, recovered paper/wood chips) impacting margins
• Customer concentration and contract renegotiation risk in packaging and industrial grades
• FX fluctuations affecting export competitiveness and imported raw materials
• Environmental regulation and decarbonization capex requirements for boilers and energy systems

Financial Risks:

• Tight liquidity (current ratio ~1.05x, quick ratio ~0.85x) leaving limited buffer for shocks
• Profit sensitivity to volume/mix leading to negative operating leverage
• Capex funding needs potentially pressuring FCF and leverage (investing CF not disclosed)
• Interest rate and refinancing risk despite current 9.8x interest coverage
• Working-capital swings (inventory/receivables) could strain OCF in downturns

Key Concerns:

• Sharp YoY decline in operating income (-56.6%) versus mild revenue decline (-4.5%)
• Low ROE (1.72%) driven by thin net margin (1.85%)
• Incomplete disclosure of investing cash flows, cash balance, equity ratio, and dividends limiting visibility on FCF and shareholder returns

Investment Implications

Key Takeaways:

• Top-line declined 4.5% YoY to ¥53.1bn amid industry softness; operating income fell 56.6% YoY to ¥1.36bn
• Margins compressed: gross 17.4%, operating 2.6%, net 1.85%; EBITDA margin 8.3%
• ROE 1.72% driven by low net margin despite moderate leverage (2.06x)
• Cash conversion strong (OCF/NI 3.24x), but FCF indeterminable due to undisclosed investing CF
• Liquidity adequate but tight (current ratio ~1.05x; working capital ¥2.51bn); interest coverage comfortable at 9.8x

Metrics to Watch:

• Price/mix and volume trends in key paper/packaging segments
• Operating margin recovery and utilization rates
• Capex and investing cash flows to gauge sustainable FCF
• Working-capital turns (inventory and receivables days) and OCF consistency
• Leverage metrics (net debt/EBITDA, if disclosed) and interest coverage trajectory
• Tax rate normalization given implied ~50% this period

Relative Positioning: Within the Japanese pulp & paper sector, Chuetsu appears mid-sized with moderate leverage and below-peer profitability this quarter, reflecting negative operating leverage and margin pressure; larger peers typically exhibit broader product mixes and scale benefits, while specialty-focused players may demonstrate higher margins but similar exposure to demand and input-cost cycles.

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