KUREHA CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Kureha’s Q1 of the fiscal year ending March 2027 delivered a significant increase in profit, driven by improved profitability and volume recovery in its core Functional Products Business and Resin Products Business. Revenue was ¥421.0B (+15.2% YoY, +¥55.6B), Operating Income was ¥58.1B (+149.4% YoY, +¥34.8B), Profit Before Tax was ¥58.7B (+107.3% YoY), and Net Income attributable to owners of the parent was ¥42.9B (+108.1% YoY). In addition to higher revenue, improved gross margins and increased equity-method investment income contributed to a clear trend of higher revenue and profits.

Factors Affecting Performance

【Revenue】Revenue increased 15.2% YoY to ¥421.0B. By segment, the Resin Products Business rose significantly to ¥111.3B (+27.6%), while the Chemicals Business increased to ¥73.9B (+27.1%). The core Functional Products Business also expanded to ¥166.4B (+7.1%). The Construction-Related Business generated ¥26.5B (+11.1%), and Other Related Businesses remained solid at ¥42.8B (+4.8%). All segments recorded revenue growth, indicating that improved supply-demand conditions and a better product mix had a broad-based impact.

【Profit and Loss】Operating Income increased 149.4% YoY to ¥58.1B, and the Operating Margin improved to 13.8% from 6.4% a year earlier, an improvement of +7.4pt. Cost of sales remained at ¥292.2B, or a cost ratio of 69.4%, lifting the gross margin to 30.6%. The SG&A ratio was also contained at 19.9%, resulting in strong operating leverage from higher revenue. In addition, equity-method investment income increased to ¥14.0B from ¥4.0B a year earlier, supporting Profit Before Tax and Net Income. The difference between financial income of ¥3.9B and financial expenses of ¥3.3B was limited, and its impact on Profit Before Tax was small. Overall, the company recorded higher revenue and profits, primarily due to improved profitability in its core businesses and contributions from equity-method investees.

Segment Analysis

Segment profit and loss is disclosed based on core Operating Income, an indicator excluding non-recurring items. The Functional Products Business recorded a significant increase in profit to ¥30.0B, compared with ¥1.0B a year earlier, and was the primary driver of overall performance. The Resin Products Business also expanded to ¥24.3B, compared with ¥16.0B a year earlier. The Chemicals Business reduced its core operating loss to ¥1.3B from a loss of ¥4.0B a year earlier, but remained in the red. The Construction-Related Business declined to ¥0.7B from ¥1.3B a year earlier, while Other Related Businesses increased to ¥4.6B from ¥3.7B. High-value-added areas within the Functional Products and Resin Products businesses are the core sources of profit, while restoring profitability in the Chemicals Business remains an outstanding issue.

Key Financial Indicators

【Profitability】The Operating Margin improved to 13.8% from 6.4% a year earlier, an improvement of +7.4pt. The Net Profit Margin also rose significantly to 10.2%, based on Net Income attributable to owners of the parent, from 5.6% a year earlier. ROE was 2.5%, remaining low relative to the company’s capital base despite the increase in profit.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥75.0B, or 1.75 times Net Income of ¥42.9B, indicating sound cash conversion.【Investment Efficiency】Asset turnover remains low. While the expansion of equity-method investment income contributed to improved profitability, there remains room to improve asset efficiency.【Financial Soundness】The Equity Ratio remained stable at 49.3%, compared with 48.8% a year earlier, while cash and cash equivalents stood at ¥300.9B.

Cash Flow Analysis

Cash flow from operating activities was ¥75.0B, up 23.2% YoY, demonstrating cash-generation capacity that exceeded the growth in Net Income. The collection of trade receivables contributed +¥44.5B, while inventories increased by ¥14.7B and absorbed cash through inventory accumulation. Cash flow from investing activities was -¥69.3B, mainly reflecting capital expenditures of ¥69.0B. Free cash flow (OCF + investing cash flow) therefore remained only slightly positive at ¥5.7B. Cash flow from financing activities was -¥6.8B, primarily due to dividend payments of ¥39.9B, although this was offset by an increase in short-term borrowings. As a result, cash and cash equivalents reached ¥300.9B, representing a slight increase from the beginning of the period. Free cash flow was insufficient to cover the combined amount of capital expenditures and dividends, making full-year cash-generation capacity a key determinant of the sustainability of capital allocation.

Quality of Earnings

Current-period profit was primarily driven by improvement in recurring business activities, while one-time factors equivalent to extraordinary gains and losses were limited. In non-operating income and expenses, financial income of ¥3.9B and financial expenses of ¥3.3B were largely offset, resulting in a limited impact on Profit Before Tax. In contrast, the increase in equity-method investment income to ¥14.0B from ¥4.0B a year earlier represented a certain proportion of Profit Before Tax of ¥58.7B and was an important component next to Operating Income of ¥58.1B from the core business. Because equity-method income depends on the performance of investees and market conditions, it is relatively more volatile than the earnings power of the core business, which warrants attention. From an accruals perspective, OCF of ¥75.0B exceeded Net Income of ¥42.9B, indicating that accounting earnings were supported by cash generation and that overall earnings quality was sound. However, the increase in inventories is a factor weighing on cash flow and requires monitoring when assessing earnings quality.

Earnings Forecast and Guidance

Against the full-year earnings forecast, Operating Income is projected at ¥110.0B (-7.5% YoY), meaning that Q1 Operating Income of ¥58.1B represents a high progress rate of 52.8%. The forecast for Net Income attributable to owners of the parent is ¥75.0B, and Q1 Net Income of ¥42.9B represents a progress rate of 57.2%. While the full-year forecast assumes a decline in profit YoY, Q1 recorded substantial profit growth. Accordingly, the potential for a reversal in the second half and the presence of one-time factors will be key points for future confirmation. Although the earnings forecast was revised during the quarter, the dividend forecast was not revised.

Shareholder Returns

For the fiscal year ending March 2027, the company has stated a policy of targeting a DOE (dividend on equity) of 5%. The forecast dividend per share is ¥216.00, implying a Payout Ratio of approximately 110% against the full-year forecast EPS of ¥196.23. No material share repurchases were conducted during Q1 (-¥0.0B in cash flow terms), and dividends remain the primary form of shareholder returns. Because the dividend forecast is calculated under a DOE-based policy according to changes in shareholders’ equity, the structure in which the Payout Ratio exceeds 100% of EPS reflects a return policy based on the capital level. Dividend sustainability is supported by full-year OCF generation capacity and the cash balance of ¥300.9B.

Risk Factors

1. Profitability challenges in the Chemicals Business: Although core operating profit and loss improved to -¥1.3B from -¥4.0B a year earlier, the business remains loss-making. This dilutes the company-wide profit margin, making progress toward profitability a key focus.

2. Working capital efficiency and inventory accumulation: Inventories increased by +¥14.7B from the end of the previous fiscal year, acting as a drag on OCF. If a mismatch with demand trends emerges, inventory valuation and funding efficiency could be affected.

3. Volatility of equity-method investment income: Equity-method investment income accounted for ¥14.0B of Profit Before Tax of ¥58.7B and increased significantly from the previous year. Because it depends on the performance of investees and market fluctuations, it requires monitoring because it is more volatile than profit from the core business.

Industry Benchmark (For Reference; Company Research)

Profitability and Returns

Both the company’s Operating Margin and Net Profit Margin exceed the manufacturing-industry median, placing the company among the top-performing group within the industry.

Growth and Capital Efficiency

Revenue growth also significantly exceeded the industry median, indicating high growth near the upper bound of the IQR.

※Source: Company research

Key Takeaways from the Earnings Results

1. Core Operating Income in the Functional Products Business and Resin Products Business expanded significantly from the previous year and was the primary driver of profit growth. A shift in the earnings structure toward high-value-added areas underpinned the improvement in profit margins.

2. OCF was 1.75 times Net Income, indicating strong cash-generation capacity and broadly consistent earnings and cash quality. However, the increase in inventories constrained cash flow, making inventory trends in the second half a key point of focus.

3. Progress toward the full-year Operating Income forecast was high at 52.8%, while losses in the Chemicals Business also narrowed. Under the DOE-based dividend policy, the Payout Ratio is estimated at approximately 110%, creating a structure in which full-year profit and cash-generation capacity will determine the sustainability of shareholder returns.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥3,766–¥3,969 at a ±1% change in the cost of equity, and ¥3,849–¥3,876 at a change of ±0.1 in ω.

Notes:

• Because progress of Net Income toward the full-year forecast (57%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below Book Value Per Share.
• Net assets as of the end of the quarter are used; there is a time lag relative to the full-year forecast.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not predict or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting professionals as necessary.

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