TAKI CHEMICAL (4025) FY2026 Q1 Earnings Report

Quick View

Executive Summary

The company reported strong results, with operating income growth significantly outpacing revenue growth, resulting in a clear improvement in profitability. Revenue was ¥10.78B (+9.2% YoY), operating income was ¥0.95B (+37.1%), ordinary income was ¥0.98B (+27.4%), and net income attributable to owners of the parent was ¥0.70B (+25.0%). The operating margin improved to 8.8% from approximately 7.0% in the same period of the previous year, primarily due to growth in high-margin products and improved cost absorption in the Chemicals segment.

Factors Affecting Results

【Revenue】Revenue was ¥10.78B, up +9.2% YoY. Chemicals (¥5.04B, 46.8% of total revenue, +12.6%) and Agricultural Fertilizers (¥3.30B, 30.6%, +12.5%) were the main growth drivers. Building Materials (¥0.96B, +2.8%) and Transportation (¥0.86B, +9.6%) also contributed to revenue growth, while Petroleum (¥0.51B, -16.1%) reported lower revenue due to weak market conditions and demand. Real Estate was essentially flat at ¥0.35B (-1.1%).

【Profitability】Operating income was ¥0.95B, up +37.1% YoY, significantly outpacing revenue growth. Chemicals generated operating income of ¥0.59B (+51.4% YoY), accounting for 51.4% of total segment profit, with the highest operating margin at 11.7%. Building Materials made a sharp recovery, with a profit margin of 6.3% (+215.8%), while Transportation posted a margin of 13.1% (+21.7%) and Agricultural Fertilizers 6.0% (+5.3%), with all three segments reporting higher profits. Ordinary income was ¥0.98B (+27.4%), while non-operating income and expenses remained a modest net gain of ¥0.04B, centered on ¥0.02B in dividend income, indicating that the profit structure was primarily driven by the core business. Extraordinary items were limited, comprising extraordinary gains of ¥0.00B and extraordinary losses of ¥0.01B (including losses on disposal of fixed assets), and therefore had a limited impact on net income. Overall, the results can be characterized by higher revenue and profit, with clear operating leverage.

Segment Analysis

Chemicals is the core business driving the company-wide increases in both revenue and profit, with revenue of ¥5.04B (46.8% of total revenue) and operating income of ¥0.59B (51.4% of total segment profit). Growth in water treatment chemicals (¥3.31B) and functional materials (¥1.67B) appears to have contributed. Agricultural Fertilizers reported higher revenue and profit, with revenue of ¥3.30B (30.6% of total revenue) and operating income of ¥0.20B. Transportation (revenue of ¥0.86B, profit margin of 13.1%) and Building Materials (revenue of ¥0.96B, profit margin of 6.3%, profit +215.8%) both demonstrated notable recoveries from low levels. Real Estate had the highest profitability, with a profit margin of 51.6%, but both revenue and profit declined slightly. Petroleum was the only segment to report lower revenue, down -16.1% YoY, and its profit margin was also low at 1.0%, making it relatively weak within the portfolio.

Key Financial Metrics

【Profitability】The operating margin of 8.8% improved from approximately 7.0% in the same period of the previous year, while the net profit margin was 6.5% (based on net income attributable to owners of the parent). Basic EPS was ¥83.41 (¥65.61 in the previous year, +27.1%).【Cash Quality】Trade receivables were ¥11.29B and inventories were ¥5.21B (including ¥5.21B in finished goods, ¥2.28B in raw materials, and ¥0.46B in work in process), indicating a sizable working capital base. The level of funds tied up should be monitored relative to the growth in revenue and inventories.【Investment Efficiency】The equity ratio was 66.3%, a robust level. Investment securities amounted to ¥20.18B out of total assets of ¥68.41B (29.5% of total assets), indicating that the asset composition is suppressing total asset turnover. ROE (cumulative quarterly basis) was 1.5%.【Financial Soundness】Current assets of ¥29.91B were approximately 2.7 times current liabilities of ¥11.04B. Cash and deposits of ¥6.78B substantially exceeded short-term borrowings of ¥0.48B, indicating sound short-term payment capacity. Long-term borrowings were ¥0.39B, and interest-bearing debt remained low, resulting in conservative financial leverage.

Cash Flow Analysis

Although individual data from the cash flow statement are limited, cash movements can be assessed based on changes in the balance sheet. Cash and deposits decreased to ¥6.78B from ¥7.17B at the end of the previous fiscal year, while investment securities increased from ¥20.18B to approximately ¥21.84B, suggesting that a portion of surplus funds may have been allocated to securities investments. Trade receivables increased to ¥11.29B and inventories to ¥5.21B from the previous year, indicating that the buildup of working capital accompanying revenue growth accounted for part of the use of funds. Accounts payable increased to ¥7.61B from the previous year, suggesting a certain degree of utilization of trade credit. Interest-bearing debt was small at ¥0.87B, indicating a low degree of reliance on financing through financial activities.

Earnings Quality

The difference between operating income of ¥0.95B and ordinary income of ¥0.98B was limited to ¥0.04B. Reliance on non-operating income, primarily dividend income of ¥0.02B, was low, and earnings were principally generated by the core business. Extraordinary gains of ¥0.004B and extraordinary losses of ¥0.005B were both immaterial, and the impact of temporary factors such as losses on disposal of fixed assets was limited. Net income of ¥0.70B is therefore considered to broadly reflect recurring earnings power. Meanwhile, comprehensive income was ¥2.69B, substantially exceeding net income, with valuation gains primarily attributable to ¥2.00B in valuation differences on other securities driving other comprehensive income higher. This divergence resulted from changes in the fair value of investment securities and should be evaluated separately from the earnings power of the core business.

Earnings Forecasts and Guidance

Progress against the full-year company plan was 25.1% for revenue (¥43.00B plan), 38.6% for operating income (¥2.45B plan), and 32.2% for ordinary income (¥3.05B plan), all exceeding the standard 25% benchmark. However, the full-year plan incorporates declines of -22.6% YoY in operating income and -19.3% in ordinary income. Accordingly, the high Q1 progress rates may also be interpreted as upside relative to a conservative plan that assumes a slowdown from Q2 onward. No revisions were made to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The forecast annual dividend for the fiscal year ending December 2026 is ¥80.00 per share. The payout ratio against the company’s forecast EPS of ¥317.79 is approximately 25.2%, a conservative level relative to earnings. The previous fiscal year (fiscal year ending December 2025) year-end dividend totaled ¥75, comprising an ordinary dividend of ¥60, a ¥5 commemorative dividend for the company’s 140th anniversary, and a ¥10 special dividend. The current-year forecast of ¥80 therefore represents a dividend increase plan on an ordinary-dividend basis, excluding the one-time commemorative and special dividends. No disclosure regarding share repurchases has been identified.

Risk Factors

1. Segment concentration risk: The Chemicals segment accounts for 46.8% of revenue and 51.4% of operating income. Changes in demand for water treatment chemicals and functional materials, as well as fluctuations in raw material and energy costs, could have a significant impact on company-wide earnings.

2. Continued decline in the Petroleum business: Revenue in the Petroleum segment was down -16.1% YoY, making it the only business to report lower revenue. Continued weakness in market conditions could become a downward pressure on the portfolio.

3. Working capital buildup: Trade receivables of ¥11.29B and inventories of ¥5.21B (primarily finished-goods inventories of ¥5.21B) increased alongside revenue growth. Depending on collection and inventory digestion trends, the working capital burden could increase.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s operating margin and net profit margin both exceed the industry median, indicating relatively strong profitability within the industry.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median but remains below the upper range of 13.9%.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The operating margin of 8.8% was achieved alongside operating income growth of +37.1%, which exceeded the revenue growth rate of 9.2%. The product mix of high-margin products in the Chemicals segment was the primary driver of the improvement in the company-wide profit margin. As the full-year plan incorporates a decline in operating income (-22.6%), whether this profitability can be maintained from Q2 onward is a key structural focus.

2. The forecast payout ratio is approximately 25.2%, low relative to the earnings level, and the company plans to increase the dividend on an ordinary-dividend basis, excluding the previous fiscal year’s commemorative and special dividends (¥75→¥80). Cash and deposits and the low level of interest-bearing debt provide structural support for dividend sustainability.

3. Comprehensive income of ¥2.69B substantially exceeded net income of ¥0.70B, with most of the difference attributable to valuation differences on investment securities. The earnings power of the core business must be assessed separately from changes in asset valuations.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,776–¥5,056 at ±1% for the cost of equity, and ¥4,895–¥4,925 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets at the end of the quarter are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest-rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it does not forecast market prices or recommend any specific investment action, nor does it forecast or guarantee future share prices.)

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any particular security. The industry benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional advisor as necessary.

---End of Report---

---

AI Financial Analysis

Executive Summary

Takigi Chemical delivered a strong FY2026 Q1 result, with revenue growth and materially faster operating-income growth producing clear margin expansion. Revenue increased 9.2% year on year to ¥10.78bn. Operating income rose 37.1% to ¥946m, outpacing sales growth by 27.9 percentage points. Ordinary income increased 27.4% to ¥983m and profit attributable to owners increased 25.0% to ¥695m. Gross profit expanded 18.3% to ¥2.76bn. The gross margin improved to 25.6% from 23.6% in the prior-year quarter, an expansion of approximately 200 basis points. The operating margin rose to 8.8% from 7.0%, an expansion of approximately 179 basis points. Net margin increased to 6.5% from 5.6%, an improvement of approximately 82 basis points. Chemicals was the principal earnings engine, generating ¥589m of segment profit, or 51.4% of aggregate segment profit before corporate-cost adjustments. Chemicals segment profit rose 51.4% year on year, led by water-treatment chemicals and functional materials sales growth. Building materials also showed a meaningful earnings recovery, with segment profit increasing from ¥19m to ¥60m. The Agribusiness segment grew revenue but recorded only a modest profit increase, indicating that its incremental margin lagged the chemicals businesses. Non-operating income was limited at ¥45m, equivalent to only 0.4% of revenue, and net income was therefore predominantly supported by operating performance. Small extraordinary gains and losses were immaterial relative to quarterly profit. Comprehensive income of ¥2.69bn substantially exceeded net income because of a ¥2.00bn positive valuation difference on securities, strengthening equity but also increasing sensitivity to market-value movements in the investment portfolio. The Q1 operating-income progress rate against full-year guidance was 38.6%, well above the typical 25% seasonal benchmark, while sales progress was broadly in line at 25.1%. This creates a high implied hurdle for the remainder of the year because management still forecasts a 22.6% full-year operating-income decline. The balance sheet remains conservatively financed, supported by ¥6.78bn of cash, only ¥873m of interest-bearing debt, and total equity of ¥45.39bn. Working-capital efficiency nevertheless requires close monitoring, particularly elevated receivable and inventory days in a manufacturing and chemical-distribution context.

Profitability Analysis

The reported annualized DuPont ROE is 6.1%, comprising a 6.5% net profit margin, 0.630x annualized asset turnover, and 1.51x financial leverage. The largest positive change in the earnings structure was margin expansion rather than balance-sheet leverage: operating income grew 37.1% compared with 9.2% revenue growth. Gross-margin expansion of about 200 basis points was the main source of the improvement, while operating-margin expansion was approximately 179 basis points. SG&A expense increased 10.4% to ¥1.81bn, slightly faster than revenue growth; however, this was more than offset by the 18.3% increase in gross profit. The current 8.8% operating margin sits within the stated 8-15% good-profitability benchmark, while the 6.5% net margin is also within the 5-10% good range. The 6.1% annualized ROE remains below the 8% benchmark despite the strong quarter, reflecting moderate asset turnover and a large equity base. Financial leverage of 1.51x is restrained and indicates that returns are not debt-dependent. The five-factor DuPont tax burden was 0.708, consistent with a normal effective tax rate of 28.5%. The interest burden of 1.038 and interest coverage of 236.5x demonstrate that financing costs are immaterial to profit generation. Segment profitability was led by Chemicals, whose ¥589m profit on ¥5.04bn total segment sales implies an approximately 11.7% segment margin. Real estate delivered the highest reported segment margin at approximately 51.6%, but on only ¥347m of segment sales and therefore does not define consolidated earnings. Transportation generated a roughly 13.1% segment margin, while Agribusiness produced a lower approximately 6.0% margin. Building materials improved to approximately 6.3% from roughly 2.0% a year earlier. The sustainability of group-level margin gains depends primarily on Chemicals, particularly water-treatment chemicals and functional materials, rather than on financial income or extraordinary items.

Growth Assessment

Revenue growth was broad-based across the principal operating businesses, although the pace and earnings conversion differed materially by segment. Chemicals revenue increased 12.6% year on year to ¥5.04bn, driven by water-treatment chemicals revenue growth of 12.2% to ¥3.31bn and functional-materials revenue growth of 13.4% to ¥1.67bn. Chemicals segment profit increased 51.4% to ¥589m, evidencing strong operating leverage and making it the core business by operating-income contribution. Agribusiness revenue increased 12.5% to ¥3.30bn, while segment profit rose only 5.3% to ¥197m, pointing to limited margin conversion. Building-materials revenue increased 2.8% to ¥959m and segment profit more than tripled to ¥60m, albeit from a low base. Transportation revenue grew 9.5% to ¥857m and segment profit rose 21.7% to ¥112m. Petroleum revenue declined 16.1% to ¥506m, although its segment profit remained small at ¥5m. Real-estate segment profit declined 4.8% to ¥179m despite broadly stable revenue, modestly offsetting operating-business growth. The full-year sales forecast of ¥43.0bn implies 2.4% growth, substantially slower than Q1's 9.2% growth. Q1 sales progress was 25.1%, almost exactly aligned with the standard 25% Q1 run rate. Q1 operating-income progress was 38.6% of the ¥2.45bn full-year forecast, 13.6 percentage points above the standard 25% level. Q1 ordinary-income progress was 32.2% of forecast, also above a normal first-quarter run rate. Q1 net-income progress was 26.2% of the ¥2.65bn forecast, close to a standard pace. The disparity between elevated operating-profit progress and only normal net-income progress reflects the lower forecast operating-profit base and should not be extrapolated mechanically. Management maintained both earnings and dividend guidance, indicating that the Q1 outperformance has not yet changed its full-year assumptions. The central growth question is whether the Chemicals segment can preserve its Q1 margin gains as demand, selling prices, input costs, and product mix evolve through the year.

Financial Health

Financial health is strong. The current ratio is 271.0% and the quick ratio is 223.8%, both substantially above conventional liquidity thresholds. Current assets of ¥29.91bn exceed current liabilities of ¥11.04bn by ¥18.87bn, providing substantial working-capital headroom. Cash and deposits of ¥6.78bn cover short-term loans of ¥482m by 14.06x. Interest-bearing debt is only ¥873m, equivalent to 1.9% of total capital, and is modest relative to ¥45.39bn of total equity. Interest coverage of 236.5x confirms minimal debt-service pressure. Although the short-term debt ratio is 55.2%, above the 40% quality-alert threshold, refinancing risk is low in absolute terms because short-term loans are only ¥482m and liquidity is ample. The root cause of the refinancing-risk alert is the maturity concentration of a small debt balance rather than excessive leverage. The impact is limited under current liquidity conditions, but the ratio should be monitored if borrowing rises to fund acquisitions, capital expenditure, or working capital. Total equity increased 4.8% year on year to ¥45.39bn, supported by retained earnings and positive securities valuation effects. Investment securities of ¥20.18bn represent 29.5% of total assets and are a material component of the asset base. The associated deferred tax liability of ¥5.03bn also increased with unrealized valuation gains, highlighting that a portion of balance-sheet strength is market-sensitive rather than generated through operating cash accumulation. Goodwill is only ¥80m, or 0.2% of equity, while intangible assets are 0.5% of assets, leaving negligible M&A-related impairment or amortization risk. The ¥3.33bn net defined-benefit liability is a notable long-term obligation, but it is well covered by the equity base.

Notable B/S Changes

Investment securities: +¥2.95bn (+17.1%) year on year to ¥20.18bn, representing 29.5% of total assets; the portfolio contributed to a ¥2.00bn positive valuation difference on securities and increases equity-market sensitivity. Total equity: +¥2.66bn (+4.8%) year on year to ¥45.39bn, supported by earnings and positive OCI; capitalization remains strong but part of the increase is valuation-driven. Deferred tax liabilities: +¥0.89bn (+21.5%) year on year to ¥5.03bn, consistent with increased unrealized gains on investment securities. Work in process: +¥0.80bn (+20.9%) year on year to ¥463m, indicating increased production-stage inventory that should be monitored for throughput and demand conversion. Finished goods: +¥0.43bn (+8.9%) year on year to ¥5.21bn; together with the 90-day annualized DIO, this indicates higher inventory funding and potential valuation risk if demand slows.

Cash Flow Quality

Operating cash-flow, investing cash-flow, financing cash-flow, capital-expenditure, and free-cash-flow figures are not included in the available financial information. Earnings quality can nevertheless be assessed from the income statement and working-capital profile. Q1 profit attributable to owners of ¥695m was principally derived from ¥946m of operating income rather than non-operating or extraordinary gains. Non-operating income was ¥45m, or 0.4% of revenue, comprising mainly ¥25m of dividend income and ¥5m of interest income. Extraordinary income and loss were each immaterial, at ¥4m and ¥5m respectively. The gap between ordinary income of ¥983m and net income of ¥695m is largely explained by ¥280m of income tax expense, consistent with the 28.5% effective tax rate. The high-receivable-days alert identifies a meaningful cash-conversion risk: annualized DSO is 96 days, above the 60-day warning threshold. Its root cause is a large receivable base of ¥11.29bn, supplemented by ¥2.67bn of electronically recorded monetary claims, relative to quarterly sales. For a chemical and manufacturing group, this may reflect customer payment terms and sales mix, but it lengthens the cash-conversion cycle and raises sensitivity to collection timing and counterparty credit conditions. Trade receivables increased 3.0% year on year, slower than revenue growth, which is a constructive directional signal despite the elevated day count. The high-inventory-days alert shows annualized DIO of 90 days, at the warning boundary for manufacturing benchmarks. Finished goods rose 8.9% to ¥5.21bn and work in process increased 20.9% to ¥463m, while raw materials increased 2.2% to ¥2.28bn. The concentration in finished goods indicates that demand forecasting, shipment timing, pricing, and potential obsolescence should be monitored closely. Higher inventories may support service levels and seasonal demand, but could absorb cash or require write-downs if end-market conditions weaken.

Dividend Sustainability

The company forecasts an FY2026 year-end ordinary dividend of ¥80 per share. Based on forecast EPS of ¥317.79, the forecast dividend payout ratio is approximately 25.2%, comfortably below the 60% sustainability benchmark. The prior FY2025 dividend of ¥75 comprised a ¥60 ordinary dividend, a ¥5 140th-anniversary commemorative dividend, and a ¥10 special dividend. The forecast ¥80 ordinary dividend therefore represents a higher recurring distribution than the prior year's ¥60 ordinary component. Q1 EPS was ¥83.41, representing 26.2% of full-year forecast EPS and broadly consistent with the annual earnings plan. Retained earnings of ¥31.19bn and net cash after interest-bearing debt of approximately ¥5.91bn provide substantial balance-sheet capacity for the planned dividend. The low payout ratio means dividend coverage is not reliant on securities sales, debt financing, or unusually high leverage. The maintained dividend forecast alongside maintained earnings guidance supports policy visibility. The key dividend-monitoring variables are full-year conversion of Chemicals earnings, inventory and receivable cash absorption, and changes in the market value of the sizable investment-securities portfolio.

Risk Assessment

Business risks include Chemicals concentration: Chemicals generated ¥589m, or 51.4%, of aggregate segment profit before corporate-cost adjustments. A slowdown in water-treatment chemicals or functional materials demand, or adverse product mix and pricing, would have a disproportionate effect on consolidated earnings., Input-cost and selling-price risk: The Q1 gross-margin expansion was the main driver of earnings growth. Chemicals, agricultural inputs, building materials, and petroleum-related operations remain exposed to raw-material, energy, logistics, and price-pass-through volatility., Working-capital and inventory risk: Annualized DSO of 96 days and DIO of 90 days indicate a long operating cash cycle. Finished goods of ¥5.21bn create risk of slower shipments, inventory valuation pressure, and cash absorption if demand weakens., Market-value risk in strategic investments: Investment securities account for 29.5% of total assets. The ¥2.00bn positive valuation difference on securities lifted comprehensive income, but a reversal would reduce OCI and equity., Chemical-industry regulatory and environmental risk: Manufacturing and chemical operations face tightening environmental, safety, product-stewardship, and contamination-remediation requirements, which can increase compliance costs or require operational investment., Petroleum-segment cyclicality: Petroleum segment sales declined 16.1% year on year, illustrating exposure to commodity-price movements and volume volatility even though its profit contribution is currently small..

Financial risks include Refinancing-risk alert: Short-term debt represents 55.2% of interest-bearing debt, exceeding the 40% alert threshold. The root cause is debt maturity concentration; the impact is currently limited by ¥6.78bn of cash, a 14.06x cash-to-short-term-debt ratio, and very low absolute debt., Receivables-quality alert: Annualized DSO of 96 days exceeds the 60-day alert threshold. The root cause is the large receivable and electronic-claim balance relative to quarterly sales; the impact is potentially weaker operating cash conversion and greater exposure to delayed customer payment., Inventory-quality alert: Annualized DIO of 90 days is at the manufacturing warning threshold. The root cause is a large finished-goods balance and increasing work in process; the impact is higher working-capital requirements and potential write-down risk., Defined-benefit obligation: The ¥3.33bn net defined-benefit liability is sizeable relative to the debt balance and may be sensitive to discount rates, investment returns, and actuarial assumptions..

Key concerns include Whether Q1 Chemicals margin strength can be sustained, given full-year guidance for operating income to decline 22.6% year on year., Whether sales and inventory turn into cash without further extension in collection periods or inventory accumulation., Whether unrealized gains in the investment-security portfolio remain durable amid equity-market volatility., Whether short-term funding remains limited as the group manages seasonal working-capital needs and operational investment..

Investment Implications

Key takeaways include Q1 performance was strong: revenue increased 9.2%, operating income increased 37.1%, and operating margin expanded by approximately 179 basis points to 8.8%., Chemicals is the core earnings driver, with segment profit up 51.4% to ¥589m and segment revenue up 12.6% to ¥5.04bn., The balance sheet is conservative, with a 271.0% current ratio, 1.9% debt-to-capital ratio, ¥6.78bn of cash, and ¥45.39bn of equity., The ¥80 forecast ordinary dividend implies a conservative 25.2% payout ratio against forecast EPS., High annualized DSO and DIO temper the otherwise favorable earnings profile because they can delay cash conversion and increase inventory risk., The maintained full-year operating-income forecast despite 38.6% Q1 progress indicates management expects lower profitability in subsequent quarters or is retaining a conservative outlook..

Metrics to watch include Chemicals segment revenue, segment margin, and the relative performance of water-treatment chemicals and functional materials, Consolidated gross margin and SG&A growth relative to revenue growth, Annualized DSO of 96 days and annualized DIO of 90 days, Finished-goods balance of ¥5.21bn and work-in-process trends, Progress against the ¥2.45bn full-year operating-income forecast, Market-value movements in ¥20.18bn of investment securities and related OCI, Short-term debt ratio and absolute borrowing requirements.

Regarding relative positioning, Takigi Chemical combines good Q1 operating profitability with exceptionally strong liquidity and low interest-bearing leverage. Its annualized 6.1% ROE is below the stated 8% benchmark, however, reflecting a large equity base, modest asset turnover, and significant financial-investment assets. Relative to a highly leveraged manufacturer, its financial risk is low; relative to manufacturers with faster cash conversion, its 96-day receivable cycle and 90-day inventory cycle are areas requiring closer scrutiny.