TAKI CHEMICAL CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

Taki Chemical’s cumulative results for Q2 of the current fiscal year recorded higher revenue and income, driven by both improved pricing and product mix and cost management. Profit growth exceeded revenue growth, resulting in a high-quality earnings performance. Revenue was ¥234.9B (¥209.7B in the previous year, YoY +12.0%), Operating Income was ¥22.6B (¥17.0B in the previous year, YoY +32.6%), Ordinary Income was ¥26.2B (¥20.1B in the previous year, YoY +30.6%), and Net Income attributable to owners of the parent was ¥18.7B (¥14.0B in the previous year, YoY +33.5%). The Operating Income margin improved to 9.6%, up +1.5pt from 8.1% in the previous year, with both gross margin improvement and a decline in the SG&A expense ratio contributing.

Factors Driving Earnings Changes

【Revenue】Revenue increased by double digits to ¥234.9B (up +12.0% year on year, +¥25.2B). Although detailed segment-level breakdowns are unavailable because segment disclosures are not provided, the increase in cost of sales (+10.4%) was below the increase in Revenue (+12.0%), suggesting improved unit prices or a favorable product mix.

【Profit and Loss】Gross profit improved to ¥60.0B (gross margin 25.6%, +1.1pt from 24.5% in the previous year), while SG&A expenses were ¥37.4B (SG&A expense ratio 15.9%, down -0.4pt from 16.4% in the previous year), indicating that expenses remained restrained relative to revenue growth. As a result, Operating Income was ¥22.6B (+32.6%) and the Operating Income margin was 9.6% (+1.5pt). Ordinary Income was ¥26.2B (+30.6%); non-operating income of ¥3.8B, including ¥3.4B in dividend income, was a contributing factor, while non-operating expenses were limited at ¥0.2B. Extraordinary gains and losses comprised a gain of ¥0.1B and a loss of ¥0.2B, for a net amount of -¥0.1B, indicating a limited impact as a temporary factor. Net Income attributable to owners of the parent was ¥18.7B (+33.5%), and the Net Income margin was 7.9% (up +1.3pt from 6.7% in the previous year). The company achieved higher revenue and income, representing a high-quality earnings growth phase accompanied by improved margins.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 9.6% (+1.5pt from 8.1% in the previous year), while the Net Income margin, based on Net Income attributable to owners of the parent, improved to 7.9% (+1.3pt from 6.7% in the previous year). Profitability improved through both gross margin expansion (+1.1pt) and a decline in the SG&A expense ratio (-0.4pt). 【Cash Flow Quality】Operating Cash Flow (OCF) of ¥21.1B was 1.13 times Net Income attributable to owners of the parent of ¥18.7B, confirming earnings support. However, the OCF ratio to the combined EBIT and depreciation expense of ¥29.6B was only 0.71 times, with the increase in trade receivables somewhat constraining cash conversion. 【Investment Efficiency】ROE was 4.0%, which can be decomposed into a Net Income margin of 7.9%, total asset turnover of approximately 0.35 times based on average total assets, and financial leverage of approximately 1.5 times. The asset structure, in which investment securities account for 30.4% of total assets, acts to suppress asset turnover. 【Financial Soundness】The Equity Ratio (net assets/total assets) was 67.2% (+1.2pt from 66.0% in the previous year). Interest-bearing debt was limited to ¥0.32B in long-term borrowings and ¥0.48B in short-term borrowings, indicating a solid financial base.

Cash Flow Analysis

Operating Cash Flow was ¥21.1B, representing a significant improvement from -¥0.2B in the same period of the previous year. In addition to earnings growth, a ¥7.1B decrease in inventories contributed to cash conversion. However, a ¥12.8B increase in trade receivables and a ¥8.1B decrease in trade payables offset some of this benefit, meaning that the buildup in working capital accompanying revenue growth partially offset cash generation. Investing Cash Flow was -¥5.0B, with capital expenditures of ¥4.4B representing the primary use of funds. Financing Cash Flow was -¥7.0B, mainly reflecting dividend payments of ¥6.3B. Free Cash Flow (OCF + Investing Cash Flow) was ¥16.0B, securing a level sufficient to cover the period’s dividend payments and capital expenditures.

Earnings Quality

The earnings growth for the current period was primarily attributable to improvements in recurring business activities, while the impact of temporary items was limited. Non-operating income of ¥3.8B, equivalent to 1.6% of Revenue, consisted mainly of ¥3.4B in dividend income. Although this made a meaningful contribution to Ordinary Income, it should be noted that it represents investment income outside the core business. Extraordinary gains and losses comprised a gain of ¥0.1B and a loss of ¥0.2B, for a net amount of -¥0.1B, and therefore had a limited impact on Net Income. The gap between Ordinary Income of ¥26.2B and Net Income attributable to owners of the parent of ¥18.7B remains within a range explainable by the burden of income taxes and other taxes, with an effective tax rate of approximately 28.0%. Meanwhile, comprehensive income reached ¥47.5B, more than 2.5 times Net Income attributable to owners of the parent. The primary driver of this difference was valuation difference on investment securities of ¥28.9B. These valuation gains are subject to stock market conditions and must be understood separately from the earnings power of the core business.

Earnings Forecast and Guidance

Progress toward the full-year forecast—Revenue of ¥453.0B, Operating Income of ¥34.5B, Ordinary Income of ¥41.0B, EPS of ¥419.57, and a dividend of ¥105—was 51.9% for Revenue, 65.4% for Operating Income, and 63.9% for Ordinary Income. Operating Income and Ordinary Income were more than 10pt above the standard first-half progress benchmark of 50%. Progress toward Net Income attributable to owners of the parent also reached 53.4%, exceeding half of the full-year forecast and indicating that the first-half pace of earnings growth is running ahead of the full-year plan. The company also revised its earnings forecast and dividend forecast during the current quarter.

Shareholder Returns

For the previous fiscal year (the fiscal year ended December 2025), the year-end dividend totaled ¥75, comprising an ordinary dividend of ¥60, a ¥5 commemorative dividend marking the company’s 140th anniversary, and a ¥10 special dividend. For the current fiscal year (the fiscal year ending December 2026), the forecast year-end dividend is an ordinary dividend of ¥105, an increase of +¥30 from the previous year’s total of ¥75. However, because the previous year included temporary commemorative and special dividends totaling ¥15, it should be noted that the nature of the increase differs from a simple year-on-year comparison. The Payout Ratio against the full-year forecast EPS of ¥419.57 is approximately 25.0% (¥105 ÷ ¥419.57), representing a conservative level. No data on share repurchases was available, and the assessment is therefore based on the Payout Ratio calculated from dividends alone.

Risk Factors

1. Working capital buildup: Trade receivables increased by +¥1.39B (+12.7%) from the end of the previous fiscal year, while trade payables decreased by -¥0.81B (change from the previous year), increasing the working capital burden during a period of revenue growth. This contributes to the OCF ratio of only 0.71 times EBIT and depreciation, despite OCF exceeding Net Income.

2. Sensitivity of investment securities to market conditions: Investment securities totaled ¥21.49B, accounting for 30.4% of total assets. The recognition of valuation difference on investment securities of ¥2.89B increased net assets and comprehensive income. If equity markets reverse course, net assets and deferred tax liabilities (¥4.14B in the previous year → ¥5.50B in the current period, +32.9%) could experience material fluctuations.

3. Retirement benefit obligations: Liabilities related to retirement benefits were ¥3.37B, remaining broadly flat from the previous year. Although the amount itself is limited relative to the scale of the balance sheet, changes in the investment environment and discount rates could affect the valuation of future liabilities.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

The Operating Income margin is approximately in line with the industry median, while the Net Income margin exceeds the industry median by +2.6pt, indicating a relative advantage in the earnings structure including non-operating income, particularly dividend income.

Growth and Capital Efficiency

The Revenue growth rate exceeds the industry median by +1.4pt, but is not an exceptional level when considering the industry dispersion (IQR -3.4%–25.4%).

※Source: Company compilation

Key Earnings Highlights

1. The Operating Income margin improved to 9.6% (+1.5pt from 8.1% in the previous year), drawing attention as a structural change point in which the margin expansion resulted from both a +1.1pt improvement in gross margin and a -0.4pt decline in the SG&A expense ratio.

2. Full-year progress was 51.9% for Revenue versus 65.4% for Operating Income and 63.9% for Ordinary Income, indicating from the earnings data that the first-half pace of profit growth exceeded the pace assumed in the full-year plan.

3. Comprehensive income of ¥47.5B exceeded 2.5 times Net Income attributable to owners of the parent of ¥18.7B, primarily due to valuation difference on investment securities of ¥28.9B. This difference reflects market-related factors distinct in nature from core business earnings and is therefore important when assessing earnings quality.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥5,245–¥5,553 at ±1% for the cost of equity, and ¥5,385–¥5,402 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥1.0 per share has been added back to earnings (to account for a non-cash expense and comparability with IFRS companies).
• 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 timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat on the high side.

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value does not forecast or guarantee future share prices)

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

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