SUMITOMO CHEMICAL COMPANY,LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.10T
• Operating Income: ¥103.69B
• Net Income: ¥90.93B
• EPS: ¥24.26

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

Sumitomo Chemical (TSE:4005) reported FY2026 Q2 consolidated IFRS results showing revenue of 10,953.94 and operating income of 1,036.85, down 11.8% and 14.5% YoY respectively, indicating continued pressure on top line and core earnings. Despite a positive operating result, profit before tax was a loss of 305.39, implying large non-operating losses or special items in the quarter. Net income nevertheless came in positive at 396.99 (+16.6% YoY), aided by a tax benefit (income tax: -102.54) and sizable equity-method gains of 529.34. Total comprehensive income was 1,194.46, materially exceeding net income due to favorable other comprehensive income items. The DuPont breakdown yields a net margin of 3.6%, asset turnover of 0.326, and financial leverage of 2.85x, producing an ROE of 3.4%, which is modest for the sector. Gross profit is reported at 3,501.77 with a gross margin of 32.0%, but this appears inconsistent with the reported cost of sales figure; we rely on the provided gross margin for analysis while acknowledging data constraints. EBITDA was 1,704.97 (15.6% margin), indicating some cushion from depreciation and amortization (668.12), but operating leverage remains unfavorable given revenue contraction. Operating cash flow of 635.46 exceeded net income (OCF/NI 1.60x), suggesting reasonable earnings-to-cash conversion this period. Investing cash flow was a net inflow of 744.22, implying asset sales or reduced capex; as a result, reported free cash flow was strong at 1,379.68, likely benefiting from non-recurring items. The balance sheet shows total assets of 33,644.98 and equity of 11,796.42, implying leverage of 2.85x; liabilities-to-equity is 2.01x, a notable gearing level for a cyclical chemicals name. Liquidity ratios such as current and quick cannot be computed due to unreported current liabilities, but current assets are sizable at 15,831.34 with inventories of 6,252.43 and receivables of 5,938.36, highlighting working capital intensity. Dividend metrics are partly unreported; calculated payout ratio is 37.6% and cash dividend payments were 49.34, with reported FCF coverage of 9.25x, though this is likely flattered by disposal proceeds. Book value per share is 720.44 JPY against basic EPS of 24.26 JPY, underscoring low annualized profitability relative to equity. Overall, results reflect weak demand and pricing, non-operating headwinds, reliance on associates for earnings, and strong but potentially non-recurring cash generation. Data limitations (notably non-operating line items, current liabilities, interest expense, and capex) constrain precision, so conclusions focus on the disclosed non-zero items and provided ratios.

Profitability Analysis

ROE_decomposition: ROE 3.4% = Net margin 3.6% x Asset turnover 0.326 x Financial leverage 2.85x. The margin is thin for a diversified chemical producer; turnover is low, reflecting heavy asset base; leverage is relatively high and the main amplifier of ROE. margin_quality: Gross margin is reported at 32.0%, but this conflicts with the cost of sales figure; we rely on the given 32.0%. EBITDA margin of 15.6% vs operating margin implied at 9.5% (1,036.85/10,953.94) shows a 6.1pp gap driven by D&A (668.12), consistent with capital intensity. Net margin of 3.6% benefited from equity-method income (529.34) and a tax benefit (-102.54), offsetting a pre-tax loss from non-operating items. operating_leverage: Revenue fell 11.8% YoY while operating income fell 14.5% YoY, indicating negative operating leverage. Fixed cost absorption remains a headwind in a softer demand environment, evidenced by SG&A of 3,002.90 against reported gross profit of 3,501.77.

Growth Assessment

revenue_sustainability: Top-line declined 11.8% YoY to 10,953.94, suggesting volume and/or price pressure across segments. The low asset turnover of 0.326 highlights a slower revenue cadence relative to asset base, limiting efficiency gains absent demand recovery. profit_quality: Operating income is positive, but the swing to a pre-tax loss indicates sizable non-operating charges. Net income growth (+16.6% YoY) was driven by below-the-line items (equity-method income and tax benefit), not core operations. outlook: Without detail on segment mix or one-off items, a near-term recovery hinges on demand normalization, cost pass-through, and stabilization of non-operating impacts. Sustained contribution from equity-method affiliates remains a key swing factor for reported profits.

Financial Health

liquidity: Current assets are 15,831.34 (cash undisclosed). Current and quick ratios are not calculable due to unreported current liabilities; working capital cannot be precisely determined. Receivables (5,938.36) and inventories (6,252.43) are large, indicating working capital intensity. solvency: Total liabilities are 23,653.69 versus equity of 11,796.42; liabilities-to-equity is 2.01x and assets-to-equity (financial leverage) is 2.85x. Equity ratio is 28.5%, consistent with a leveraged, capital-intensive profile. Interest-bearing debt is unreported, preventing interest coverage analysis. capital_structure: With cash and debt details undisclosed, net leverage is indeterminate. Nonetheless, the high liabilities/equity ratio suggests limited balance sheet flexibility if operating conditions deteriorate.

Cash Flow Quality

earnings_quality: OCF of 635.46 exceeds net income of 396.99 (OCF/NI 1.60x), indicating acceptable cash conversion this period. However, equity-method income (529.34) is non-cash to the parent, and non-operating losses drove pre-tax results negative, so headline NI composition warrants caution. FCF_analysis: Free cash flow is reported at 1,379.68. Investing CF was a net inflow of 744.22, implying proceeds from asset sales or lower capex; thus FCF strength likely includes non-recurring elements and is not purely a function of operating performance. working_capital: Large receivables (5,938.36) and inventories (6,252.43) suggest significant cash tied in working capital. Without period-on-period movement detail, we cannot quantify the WC contribution; monitoring collections and inventory normalization is essential.

Dividend Sustainability

payout_ratio_assessment: Calculated payout ratio of 37.6% suggests room within earnings; however, cash dividends paid were 49.34 against NI of 396.99 (≈12.4%), indicating potential timing or basis differences. DPS and detailed policy disclosures are unavailable. FCF_coverage: Reported FCF coverage of 9.25x appears strong but is likely inflated by positive investing cash inflows (asset disposals). Sustainability depends on recurring OCF and normalized capex levels, which are not disclosed. policy_outlook: With ROE at 3.4% and leverage elevated, management may balance dividends with balance sheet resilience. Absent clarity on capex and non-operating items, a conservative stance is implied by the limited cash outflow in the period.

Risk Assessment

Business Risks:

• Cyclical demand and pricing pressure in petrochemicals and performance materials, reflected in an 11.8% YoY revenue decline
• Negative operating leverage due to high fixed cost base
• Dependence on equity-method affiliates for a substantial portion of earnings
• Potential inventory valuation and working capital risks amid weaker demand
• Commodity and FX volatility affecting input costs and export pricing

Financial Risks:

• High leverage (liabilities/equity 2.01x; assets/equity 2.85x) reduces flexibility
• Limited visibility on interest expense and coverage due to unreported debt details
• Cash flow reliance on investing inflows (asset sales) to bolster FCF
• Potential for further non-operating losses, given PBT was negative despite positive operating income

Key Concerns:

• Mismatch between operating profit and pre-tax loss, indicating material non-operating headwinds
• Inconsistencies between reported gross profit and cost of sales figures
• Lack of disclosure on capex, current liabilities, and interest-bearing debt constrains full assessment

Investment Implications

Key Takeaways:

• Core operations weakened: revenue -11.8% YoY, operating income -14.5% YoY
• ROE of 3.4% is modest and mainly supported by leverage rather than strong margins or turnover
• Net income supported by equity-method gains (529.34) and tax benefit, while PBT was a loss
• Cash generation looks strong on headline FCF, but positive investing CF signals potential non-recurring drivers
• Balance sheet leverage is elevated (liabilities/equity 2.01x; equity ratio 28.5%)

Metrics to Watch:

• Trend in operating margin and EBITDA margin amid demand normalization
• Non-operating income/expense breakdown and equity-method contribution sustainability
• Working capital turns: receivables days and inventory days
• Capex level and composition to gauge true FCF sustainability
• Debt and interest expense disclosures to assess coverage and refinancing risk
• OCI drivers given total comprehensive income far exceeds net income

Relative Positioning: Within Japanese diversified chemicals, Sumitomo Chemical’s current ROE (3.4%) and asset turnover (0.326) are on the lower side, with higher leverage amplifying modest profitability; resilience relies more on affiliates and portfolio actions than on robust core margin performance in this period.

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