KUREHA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥77.39B
• Operating Income: ¥8.11B
• Net Income: ¥6.40B
• EPS: ¥151.03

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: Solid earnings resilience in FY2026 Q2 with margin expansion and strong cash generation despite revenue contraction. Revenue declined 5.2% YoY to 773.9, but operating income rose 16.5% YoY to 81.1, lifting operating margin to roughly 10.5%. Net income increased 11.8% YoY to 63.2, taking net margin to about 8.2%. Gross profit was 218.9 (gross margin 28.3%), and EBITDA reached 142.3 (EBITDA margin 18.4%). Operating margin expanded by approximately 194 bps YoY (from ~8.5% to ~10.5%). Net margin expanded by approximately 123 bps YoY (from ~6.9% to ~8.2%). The improvement likely reflects mix/pricing discipline and easing input costs, alongside cost control in SG&A (19.8% of sales), though YoY SG&A detail is unreported. Cash flow quality is strong: OCF of 132.6 is 2.10x net income, and FCF of 82.9 is positive after 104.8 of capex. Balance sheet remains conservative with 51.5% equity ratio and D/E of 0.92x, though current ratio and short-term debt are unreported. ROE is modest at 3.5%, constrained by low asset turnover (0.224) despite normal leverage of 1.92x. ROIC of 3.4% flags underwhelming capital efficiency versus a typical 7–8% target. Equity-method income contributed 9.4 (11.1% of profit), a supplementary but not dominant driver. Shareholder returns were sizable, with buybacks of 390.7 and dividends paid of 21.6; aggregate cash returns exceed FCF, implying usage of cash on hand or other sources. Effective tax rate stands at 24.4%, broadly stable. Forward-looking, margin gains appear defensible near term if pricing/mix discipline holds and raw material headwinds remain contained, but capital efficiency must improve to sustain enhanced shareholder returns.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (8.2%) × Asset Turnover (0.224) × Financial Leverage (1.92x) = ~3.5% ROE (matches reported). The largest drag on ROE is low asset turnover (0.224), while margin improved materially and leverage is moderate. Business drivers: revenue softened (-5.2% YoY), but operating profit rose (+16.5% YoY), suggesting favorable mix/pricing and cost tailwinds (likely raw material/energy normalization) and operational discipline. Sustainability: margin gains could persist if input costs remain benign and high-value products hold pricing; however, chemical cycles and energy prices introduce volatility. Asset turnover is unlikely to rebound quickly without top-line recovery or asset base optimization, keeping ROE subdued. Flagged trend: limited visibility on SG&A YoY; while SG&A is 19.8% of sales this period, we cannot confirm whether SG&A growth exceeded revenue due to unreported prior-period detail.

Growth Assessment

Top line contracted 5.2% YoY to 773.9, indicating soft demand or price normalization in certain segments. Profit growth outpaced sales, with operating income +16.5% and net income +11.8%, underscoring operating leverage from cost/mix improvements. Operating margin improved to ~10.5% and net margin to ~8.2%, aided by 61.3 in D&A and disciplined cost structure. Equity-method income of 9.4 (11.1% of profit) is supportive but not the core driver. With capex at 104.8 exceeding D&A (61.3), the company appears to be investing for medium-term growth; execution will be key to translating this into higher ROIC. Near-term outlook hinges on stabilization in end-market volumes and sustained input-cost relief; any reversal in energy/raw materials could compress margins.

Financial Health

Liquidity: Current ratio is not calculable due to unreported current liabilities; quick ratio also unavailable. No warning on current ratio as data is missing, not zero. Solvency: Equity ratio is 51.5%; D/E is 0.92x—conservative relative to a 1.5x benchmark. Total assets are 3,459.5 versus equity of 1,798.0 (leverage 1.92x). Maturity mismatch risk cannot be assessed since short-term debt and current liabilities are unreported; available current assets total 1,021.8, including receivables of 281.5 and inventories of 435.5. Off-balance sheet obligations are not disclosed in the data provided.

Cash Flow Quality

Earnings quality is high: OCF/NI is 2.10x, indicating strong cash conversion. Free cash flow of 82.9 comfortably covers reported dividends (FCF coverage 1.91x) and supports ordinary returns. Capex of 104.8 is above D&A of 61.3, implying growth or renewal investment; FCF remains positive despite this, which is favorable. Working capital: OCF strength likely reflects working capital discipline and non-cash charges, but precise drivers (inventory/receivables changes) cannot be verified as YoY balance details are unreported. Potential manipulation signs: none evident from available data; OCF strength versus NI is a positive indicator.

Dividend Sustainability

The calculated payout ratio is 68.5%, modestly above the <60% comfort benchmark but still manageable given strong OCF and positive FCF. FCF coverage is 1.91x, suggesting dividends are covered by internal cash generation this period. Total dividends paid are not fully disclosed beyond -21.6 reported in financing CF; however, large share repurchases of -390.7 materially exceed FCF and likely required cash on hand or incremental financing. Policy outlook: with ROE at 3.5% and ROIC at 3.4%, sustaining elevated buybacks may be challenging unless earnings and cash flows improve or excess balance-sheet capacity is intentionally utilized. Ordinary dividends appear sustainable near term; the pace of buybacks may need to align with future FCF.

Risk Assessment

Business Risks:

• Demand cyclicality in chemicals leading to revenue volatility (-5.2% YoY this period).
• Raw material and energy price fluctuations affecting margins.
• Execution risk on growth capex (104.8) amid ROIC of 3.4%.
• Product mix and pricing sustainability risk if competition intensifies.
• Inventory risk (estimated high inventory days relative to half-year COGS) increasing obsolescence/valuation exposure.

Financial Risks:

• Capital efficiency risk: low asset turnover (0.224) and ROE 3.5%.
• Shareholder return outflows (buybacks 390.7) exceeding FCF, potentially pressuring liquidity if repeated.
• Maturity mismatch cannot be assessed due to unreported current liabilities and short-term debt.
• Interest coverage unreported; debt servicing capacity not quantifiable from provided data.

Key Concerns:

• ROIC at 3.4% below 5% threshold indicates under-earning relative to capital employed.
• Margin resilience could reverse if input costs rise or volumes weaken further.
• Data gaps (current liabilities, interest expense, full SG&A breakdown) limit visibility on liquidity and cost trends.

Investment Implications

Key Takeaways:

• Margin expansion despite sales decline: operating margin up ~194 bps YoY to ~10.5%.
• Strong cash conversion: OCF 2.10x net income; positive FCF of 82.9 despite elevated capex.
• Balance sheet conservative (equity ratio 51.5%, D/E 0.92x), but liquidity metrics are undisclosed.
• Capital efficiency remains the core weakness: ROE 3.5%, ROIC 3.4% driven by low asset turnover.
• Shareholder returns robust (buybacks 390.7), exceeding FCF; sustainability depends on future cash generation.

Metrics to Watch:

• Operating margin trajectory and raw material/energy cost trends.
• Asset turnover and inventory turnover (to lift ROE/ROIC).
• OCF sustainability versus NI and working capital movements.
• Capex-to-D&A ratio and subsequent ROIC uplift.
• Scale and funding of buybacks relative to FCF and cash balance.

Relative Positioning: Within Japanese chemicals, Kureha shows above-peer near-term margin resilience and cash conversion in a softer demand backdrop but lags on capital efficiency (ROIC/ROE) due to low asset turnover; balance sheet strength provides flexibility, yet sustaining outsized shareholder returns will require improved growth productivity.

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