Resonac Holdings Corporation FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥986.26B
• Operating Income: ¥21.47B
• Net Income: ¥7.09B
• EPS: ¥33.37

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

Verdict: FY2025 Q3 was weak, characterized by sharp earnings compression and very low returns, with profits heavily reliant on equity-method income and leverage elevated. Revenue declined 4.2% year over year to 9,862.63 (100M JPY), while gross profit was 2,433.10 and gross margin held at 24.7%. SG&A was 1,758.42, absorbing most of the gross profit and leaving operating income at 214.70, down 74.9% YoY. Operating margin fell to 2.2%, implying a steep margin compression versus last year. Based on the reported -74.9% YoY decline in operating income and -4.2% revenue, we estimate prior-year operating margin around 8.3%, indicating approximately 813 bps of YoY operating margin compression. Profit before tax was 202.05, and net income dropped to 60.36, a 90.7% YoY decline, with EPS at 33.37 JPY. The effective tax rate was high at 61.0%, further depressing net profit. Equity-method investment income was 51.70, accounting for roughly 85.6% of net income, signaling heavy reliance on affiliates to sustain the bottom line. ROE was 0.9% (Net margin 0.6% × Asset turnover 0.477 × Financial leverage 3.08x), and ROIC was 1.6%, both well below cost-of-capital benchmarks. Total assets were 20,696.86 with equity of 6,714.98 (equity ratio 31.2%), and the debt-to-equity ratio stood at a high 2.08x. Total comprehensive income was negative at -78.86, suggesting valuation/FX losses through OCI that may pressure equity. Intangible assets were sizeable at 4,133.06, and inventories stood at 2,041.71, highlighting potential impairment and working capital risks in a downcycle. Cash and equivalents were 2,162.66, but liquidity ratios and cash flows were not disclosed, limiting assessment of near-term funding flexibility. Dividend data were largely unreported, but the calculated payout ratio of 199.1% versus depressed earnings raises sustainability concerns absent strong free cash flow. Forward-looking, margin recovery, normalization of the effective tax rate, and reduced reliance on equity-method income will be key to improving ROE/ROIC; leverage reduction would also be prudent given current profitability.

Profitability Analysis

ROE decomposition: 0.9% = Net Profit Margin (0.6%) × Asset Turnover (0.477) × Financial Leverage (3.08x). The dominant change driver appears to be net margin deterioration: operating income fell 74.9% on only a 4.2% revenue decline, implying ~813 bps YoY operating margin compression (from ~8.3% to 2.2%). Business drivers likely include weak end-market demand, unfavorable price/mix, and operating deleverage as fixed costs weighed on lower volumes; the 61% effective tax rate also suppressed net margin. Asset turnover at 0.477 indicates subdued utilization of the asset base, consistent with cyclical softness and possibly longer cash conversion from inventory. Financial leverage is high at 3.08x, supporting ROE arithmetically but raising risk given weak margins. The deterioration in margin appears cyclical rather than one-off, though some elements (e.g., tax rate spike, OCI-related factors) may normalize. A notable concern is cost inflexibility: SG&A at 1,758.42 consumed 72% of gross profit this quarter, highlighting limited operating leverage on the downside. With revenue down modestly while profit collapsed, cost discipline and mix improvement are urgent to stabilize returns.

Growth Assessment

Top line declined 4.2% YoY to 9,862.63, reflecting cyclical softness in key chemical end-markets. Operating income fell 74.9% YoY to 214.70, underscoring severe operating deleverage despite only mild revenue decline. Net income dropped 90.7% to 60.36, exacerbated by a 61% effective tax rate and heavy reliance on equity-method income (51.70). Gross margin of 24.7% suggests some resilience at the cost-of-sales level, but SG&A intensity curtailed earnings power. Profit quality appears mixed: equity-method income buoyed the bottom line, while core operating profit was weak. Outlook depends on demand recovery, pricing discipline, and cost actions; a normalization of the tax rate and stabilization of affiliates’ earnings would aid recovery. Absent segment detail, we assume broad-based pressure across specialties and advanced materials with potential stabilization in H2 if inventory corrections ease.

Financial Health

Leverage is elevated: D/E at 2.08x (warning) and equity ratio at 31.2%. Total assets were 20,696.86 and equity 6,714.98, implying financial leverage of 3.08x. Liquidity can’t be fully assessed because current liabilities and current ratio are unreported; cash and equivalents were 2,162.66, and current assets were 8,122.88, but working capital can’t be derived without current liabilities. Maturity mismatch risk (short-term debt vs. current assets) cannot be evaluated due to missing detail on short-term borrowings. Intangible assets are material at 4,133.06, posing potential impairment risk if performance remains weak. No off-balance sheet obligations were disclosed in the dataset; we cannot assess guarantees or operating leases. Given low profitability and negative total comprehensive income, capital structure flexibility could tighten if cash flow remains under pressure.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow were not disclosed, so OCF/Net Income and FCF coverage can’t be evaluated. With net income at 60.36 and equity-method income of 51.70, a significant share of earnings is non-cash/affiliate-derived, which often weakens cash conversion absent strong dividends from affiliates. Working capital movements (receivables, payables) were not reported, limiting analysis of any inventory drawdown or extension of payables. With operating profit compressed and high leverage, sustained positive FCF is critical to fund capex and dividends; however, we lack capex data to assess. Watch for signs of working capital stress (inventory days, receivable days) and any one-off tax items that might have depressed cash flows.

Dividend Sustainability

Dividend amounts were not disclosed, but the calculated payout ratio is 199.1%, reflecting depressed earnings rather than an aggressive absolute dividend. Without OCF and FCF data, we cannot confirm coverage; given low ROE (0.9%) and ROIC (1.6%), internally funded dividends may be strained unless cash flows are resilient or the company taps the balance sheet. If the company pursues a stable or progressive dividend policy, sustainability will hinge on near-term recovery in operating margin and normalization of the effective tax rate. Equity-method income dependence may not consistently translate to cash unless affiliates remit dividends. Until profitability normalizes, a conservative stance on shareholder returns would be prudent; monitoring full-year guidance and cash generation is essential.

Risk Assessment

Business Risks:

• Cyclical demand and price/mix pressure in chemicals and advanced materials leading to operating deleverage
• High SG&A intensity limiting margin flexibility
• Reliance on equity-method earnings (51.70; ~85.6% of NI) which can be volatile and not fully cash-backed
• Potential impairment risk given sizable intangible assets (4,133.06)

Financial Risks:

• High leverage: D/E 2.08x (warning) with equity ratio 31.2%
• Low ROIC at 1.6% well below cost of capital, raising value-creation concerns
• Negative total comprehensive income (-78.86) pressuring equity
• Elevated effective tax rate (61%), depressing net income

Key Concerns:

• Severe operating margin compression (~813 bps YoY) on modest revenue decline
• Cash flow visibility is poor due to unreported OCF/FCF and current liabilities
• Potential liquidity and refinancing risk cannot be ruled out without maturity data
• Earnings quality risk from high affiliate contribution vs core operations

Investment Implications

Key Takeaways:

• Top-line -4.2% YoY but operating income -74.9% underscores significant operating deleverage
• Operating margin at 2.2% vs ~8.3% last year implies ~813 bps compression
• Net income 60.36 with a 61% tax rate and heavy reliance on equity-method income (51.70)
• ROE 0.9% and ROIC 1.6% indicate under-earning vs cost of capital
• Leverage elevated (D/E 2.08x); equity ratio 31.2% limits downside buffer
• Negative OCI (-78.86) adds to capital pressure
• Dividend sustainability questionable near term given a 199.1% payout on depressed earnings and absent FCF data

Metrics to Watch:

• Operating margin recovery and SG&A control
• OCF/Net income and free cash flow once disclosed
• Equity-method income stability and cash dividends from affiliates
• ROIC trajectory toward >5% and ideally >7–8%
• Leverage (D/E), interest coverage, and any refinancing activity
• Working capital metrics (inventory and receivable days)
• Effective tax rate normalization and OCI drivers (FX, securities valuation)

Relative Positioning: Versus Japanese chemical peers, the company is currently under-earning with much lower ROE/ROIC and higher leverage, and it shows greater dependence on equity-method income to sustain profits; margin recovery and deleveraging would be needed to close the gap.

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