| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥1483.5B | ¥1475.7B | +0.5% |
| Operating Income / Operating Profit | ¥144.6B | ¥107.1B | +35.0% |
| Ordinary Income | ¥152.5B | ¥111.1B | +37.3% |
| Net Income / Net Profit | ¥76.8B | ¥59.6B | +28.8% |
| ROE | 7.4% | 6.3% | - |
For the fiscal year ended March 2026, Revenue was ¥1483.5B (YoY +¥7.8B, +0.5%), with substantial increases in Operating Income of ¥144.6B (YoY +¥37.5B, +35.0%), Ordinary Income of ¥152.5B (YoY +¥41.4B, +37.3%), and Net Income of ¥76.8B (YoY +¥17.2B, +28.8%). Operating margin improved to 9.8% from 7.3% a year earlier (+2.5pt), and gross margin expanded to 23.9% from 20.8% (+3.1pt). Margin improvements in the core Superabsorbent Polymer business drove company-wide profitability, with price/cost mix optimization and operational efficiency being the main contributors. A special loss of ¥46.9B (including impairment of ¥12.4B) limited Profit Before Tax to ¥116.8B, while non-operating items contributed foreign exchange gains of ¥5.3B and interest income of ¥4.6B. ROE improved to 7.4% from 6.3%, but remains below levels indicating further potential to deepen capital efficiency.
[Revenue] Revenue was essentially flat at ¥1483.5B (+0.5%), with a stable segment composition. Superabsorbent Polymers (SAP) recorded ¥1161.2B (+0.5%), representing 78.3% of consolidated sales; Functional Materials amounted to ¥319.9B (+0.5%, 21.6% share); Other was ¥11.4B (+8.4%) and, despite small scale, delivered double-digit growth. Top-line growth was limited, but unit price improvements and product mix optimization progressed.
[Profitability] Cost of sales was ¥1129.2B, producing gross profit of ¥354.4B (gross margin 23.9%). Gross margin improved by 3.1pt from 20.8% YoY, reflecting effective raw material cost management and price pass-through. SG&A was ¥209.7B (SG&A ratio 14.1%), modestly up from ¥199.7B, and cost control under flat sales delivered operating leverage. R&D expenses were ¥28.7B (1.9% of sales), up from ¥26.2B, but low as a percentage of sales. Operating Income of ¥144.6B (operating margin 9.8%) rose +35.0% from ¥107.1B, with SAP operating income of ¥115.2B (+42.5%) accounting for roughly 80% of consolidated operating profit. Non-operating income totaled ¥12.1B (including FX gains ¥5.3B and interest income ¥4.6B), offsetting non-operating expenses of ¥4.3B (including interest expense ¥2.8B), lifting Ordinary Income to ¥152.5B (+37.3%). Special gains were ¥11.2B (including gains on sale of investment securities ¥8.3B), while special losses of ¥46.9B (including impairment ¥12.4B, loss on disposal of fixed assets ¥0.6B, disaster losses ¥1.0B) resulted in Profit Before Tax of ¥116.8B. After deducting income taxes of ¥40.0B, Net Income settled at ¥76.8B (net margin 5.2%, prior year 4.0%). In conclusion, modest revenue growth combined with price/cost mix improvements and expense discipline produced a strong earnings increase.
SAP posted Sales of ¥1161.2B (+0.5%), Operating Income of ¥115.2B (+42.5%), and an operating margin of 9.9%, a substantial improvement. Margin rose 2.9pt from 7.0% due to price revisions and cost control. Functional Materials delivered Sales of ¥319.9B (+0.5%), Operating Income of ¥29.1B (+11.0%), and a margin of 9.1%, achieving double-digit operating profit growth and improving 0.9pt from 8.2% the prior year. Other segments recorded Sales of ¥11.4B (+8.4%) and Operating Income of ¥0.3B (from ¥0.02B prior year, +1,350.0%), showing significant improvement despite small scale. SAP accounted for roughly 80% of consolidated Operating Income, indicating a high concentration in the core business. Margin improvements in both reported segments progressed concurrently, contributing to higher consolidated profitability.
[Profitability] Operating margin improved to 9.8% (up 2.5pt from 7.3%), and Net margin improved to 5.2% (up 1.2pt from 4.0%). Gross margin expanded to 23.9% (up 3.1pt from 20.8%), while SG&A ratio rose to 14.1% from 13.5% (+0.6pt), yet gross margin gains more than offset this, producing operating leverage. ROE was 7.4% versus 6.3% prior, improving 1.1pt, but remaining below 8%, indicating scope to deepen capital efficiency.
[Cash Quality] Operating Cash Flow (OCF) was ¥174.8B versus Net Income of ¥76.8B, yielding an OCF/Net Income multiple of 2.28x, indicating good cash conversion. The accrual ratio was -6.4%, and depreciation was ¥55.2B. OCF before working capital changes was ¥204.3B, a robust level. Inventory days (DIO) were approximately 67 days (Inventory ¥207.0B ÷ daily sales), and Days Sales Outstanding (DSO) approximately 73 days (Receivables ¥296.1B ÷ daily sales), indicating room to improve working capital turnover.
[Investment Efficiency] Capital expenditures were ¥123.9B, 2.24x depreciation of ¥55.2B. Construction in progress (CIP) of ¥283.6B accounts for 48.3% of total tangible fixed assets of ¥586.5B, confirming large-scale investment projects underway. Free Cash Flow was positive at ¥61.5B (OCF ¥174.8B - Investing CF ¥113.3B), supporting both growth investments and shareholder returns.
[Financial Soundness] Equity Ratio was 67.8% (prior year 66.6%), current ratio 251.1%, and quick ratio 187.9%, indicating ample liquidity. Interest-bearing debt totaled ¥174.8B (short-term borrowings ¥29.8B + long-term borrowings ¥145.0B), while cash & deposits were ¥182.2B, making the company effectively near net cash. Debt/EBITDA was approximately 0.87x (interest-bearing debt ¥174.8B ÷ estimated EBITDA ¥200B), reflecting conservative leverage. Interest coverage was about 52x (Operating Income ¥144.6B ÷ interest expense ¥2.8B), indicating very high financial safety.
Operating Cash Flow was ¥174.8B (prior year ¥136.8B, +27.8%). From OCF subtotal of ¥204.3B, working capital changes produced a cash outflow of approximately ¥29.5B. Breakdown: inventory decrease of ¥16.1B contributed cash inflow, while accounts receivable increase of ¥1.8B and accounts payable decrease of ¥15.8B were cash outflows. Corporate tax payments were ¥33.0B, up from ¥23.1B, reflecting higher taxable income. Investing CF was -¥113.3B (prior year -¥209.2B), driven mainly by capital expenditures of ¥123.9B (prior year ¥196.6B), but investment spending declined significantly YoY. A large CIP balance of ¥283.6B suggests ongoing large projects; the timing of commencement and cash generation from these assets will be a focus in upcoming periods. Financing CF was -¥50.9B (prior year +¥31.9B), reflecting a net decrease in short-term borrowings of ¥107.2B offset by long-term borrowings procured of ¥94.6B, shifting the debt composition from short-term to long-term. Dividend payments of ¥26.2B and share buybacks of ¥10.0B totaled ¥36.2B in shareholder returns, fully covered by Free Cash Flow of ¥61.5B. Cash and cash equivalents at period-end rose to ¥179.9B (from ¥161.0B at the beginning, +¥18.9B), further strengthening liquidity.
Operating Income of ¥144.6B is the core of earnings, and non-operating income of ¥12.1B (0.8% of sales) was a limited contribution. Major items in non-operating income were FX gains of ¥5.3B and interest income of ¥4.6B, which do not materially distort recurring earnings. One-off items: special gains of ¥11.2B (including gains on sale of investment securities ¥8.3B) versus special losses of ¥46.9B (including impairment ¥12.4B, loss on disposal of fixed assets ¥0.6B, disaster losses ¥1.0B) resulted in a net downward impact of about ¥35.7B. Profit Before Tax was ¥116.8B and Net Income was ¥76.8B; absent special items, Net Income would be estimated around the ¥110B level, indicating higher underlying operating capability. OCF of ¥174.8B is 2.28x Net Income, confirming high-quality earnings conversion to cash. Working capital changes: inventory reduction of ¥16.1B was positive, but accounts receivable increase of ¥1.8B and accounts payable decrease of ¥15.8B netted to ~¥29.5B cash outflow. The accrual ratio was -6.4% ((OCF ¥174.8B - Net Income ¥76.8B) / Total Assets ¥1,527.3B), suggesting conservative accounting. The difference between Comprehensive Income ¥129.1B and Net Income ¥76.8B (¥52.3B) was mainly due to foreign currency translation adjustments ¥36.9B and retirement benefit adjustments ¥16.0B, indicating sizable valuation volatility for equity-method items, though limited cash flow impact.
Dividends for the period were ¥100 at the end of Q2 and ¥120 at year-end, totaling ¥220 for the year (cash dividends paid ¥26.2B). The Payout Ratio was 34.2% (dividends ¥26.2B ÷ Net Income ¥76.8B), a sustainable level. Additionally, share buybacks of ¥10.0B were executed, bringing total shareholder returns to ¥36.2B. The Total Return Ratio was 47.1% (total returns ¥36.2B ÷ Net Income ¥76.8B), comfortably covered by Free Cash Flow of ¥61.5B, strengthening shareholder returns without impairing financial soundness. The dividend forecast for the fiscal year ending March 2027 is ¥24, but this is after a 5-for-1 stock split effective April 1, 2026; the forecast maintains a fundamentally increasing dividend trend (after adjusting for the split, current-year dividend ¥44 → next-year forecast ¥24 reflects post-split level and suggests continuity in policy). With cash & deposits of ¥182.2B supporting strong liquidity, dividend sustainability is high, and ramp-up of CIP to productive assets should further expand capacity for dividend increases.
Business concentration risk: SAP accounts for 78.3% of sales and about 80% of Operating Income, creating very high dependence on a single business. SAP is primarily sold into diapers and feminine hygiene products; demographic decline, demand fluctuations, raw material price spikes, and intensified competition could cause large earnings volatility. Limited segment diversification means underperformance in the core business would directly impact consolidated results.
Excessive CIP risk: CIP of ¥283.6B represents 48.3% of total tangible fixed assets, with large-scale investment projects underway. Project delays, cost overruns, or underperformance after start-up could trigger additional impairment charges or extend payback periods, reducing ROIC and burdening the balance sheet. Impairment losses have occurred in the prior and current years (¥12.97B prior year, ¥12.41B current year), highlighting the importance of monitoring asset profitability.
Working capital turnover risk: DSO of 73 days and DIO of 67 days indicate relatively heavy working capital; during demand volatility, there is risk of inventory write-downs or delayed receivable collections. Inventory of ¥207.0B represents 13.5% of total assets, and weakness in product markets or demand declines could lead to valuation losses or discount pressures. Without improvement in working capital efficiency, FCF generation could be constrained, reducing flexibility for shareholder returns and additional investments.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 9.7% | 7.8% (4.6%–12.3%) | +2.0pt |
| Net Margin | 5.2% | 5.2% (2.3%–8.2%) | -0.0pt |
Operating margin is 2.0pt above the median, positioning the company in the upper tier within the industry. Net margin is in line with the median; excluding special losses, the underlying level would be higher.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 0.5% | 3.7% (-0.4%–9.3%) | -3.2pt |
Revenue growth is 3.2pt below the median, placing top-line growth in the lower half of the industry. Maturity of the core business and market saturation constrain growth.
※ Source: Company compilation
Margin improvement sustainability: Gross margin improved by 3.1pt and operating margin by 2.5pt, reflecting price and cost/mix optimization. SAP margin rose to 9.9% from 7.0%; if spread improvement in the core business persists, further ROE gains are expected. However, resilience of margins against raw material market swings and FX volatility will be a key focus.
Turning point in the investment cycle: Capex/depreciation = 2.24x indicates high investment levels continuing, and CIP of ¥283.6B (48.3% of total PPE) confirms large projects underway. Capex declined YoY, suggesting the investment cycle is moving toward a harvest phase. Commissioning of CIP assets should add to EBITDA and OCF and improve ROIC in subsequent periods. Monitoring start-up timing and initial yields is important.
Strengthened financial base and sustainability of shareholder returns: Effectively net cash (cash & deposits ¥182.2B, interest-bearing debt ¥174.8B), current ratio 251%, Debt/EBITDA 0.87x — the financial base is very solid. Free Cash Flow of ¥61.5B funded dividends and buybacks, with Total Return Ratio of 47.1% and room to spare. If CIP starts producing and working capital turnover improves, FCF generation should expand further, widening room for dividend increases or additional returns.
This report is an AI-generated financial analysis document produced by analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company based on publicly disclosed financial statements. Investment decisions are your responsibility; please consult a professional advisor as needed.