ISHIHARA SANGYO KAISHA,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥76.46B
• Operating Income: ¥7.37B
• Net Income: ¥5.66B
• EPS: ¥147.66

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: A strong rebound quarter with sharp margin recovery and cash generation, though capital efficiency remains subdued. Revenue rose 2.6% YoY to 764.6, while operating income surged 177.8% YoY to 73.7, lifting ordinary income 241.9% to 85.0 and net income 676.9% to 56.5. Operating margin improved to 9.6% from an estimated 3.6% a year ago, a ~608 bp expansion driven by better price–cost balance and leaner SG&A. Net margin rose to 7.4% from roughly 1.0% last year, a ~640 bp expansion aided by non-operating gains and normalized taxes. Gross profit reached 216.6 with a 28.3% margin; the SG&A ratio fell to 18.7%, indicating improved operating leverage. The ordinary margin expanded to 11.1% from an estimated 3.3% (~778 bp expansion), with non-operating balance of +11.3 supporting results. Cash quality was excellent: operating cash flow of 202.8 was 3.59x net income, comfortably covering interest (coverage 18.3x) and reinforcing earnings credibility. Liquidity is robust, with a current ratio of 283% and quick ratio of 204%, and cash (389.6) exceeding short-term loans (173.9). Balance sheet leverage is moderate (liabilities-to-equity around 1.04x; interest-bearing debt ~670 vs equity 1,172), with minimal near-term refinancing pressure. ROE stands at 4.8% on financial leverage of 2.04x and asset turnover of 0.32x, signaling that capital efficiency, not profitability, is the main structural constraint. ROIC at 3.7% sits below the 5% warning threshold, highlighting the need for further mix optimization and asset discipline. Non-operating items (dividends and interest income) contributed meaningfully, but the core operating recovery is the primary driver of the profit turnaround. The effective tax rate of 26.8% is in a normal range, limiting downside from tax normalization going forward. Dividend payout is estimated at 60.8%, slightly above our sustainability benchmark, but strong OCF implies near-term coverage remains adequate; FCF is unreported. Looking forward, sustaining the margin gains and lifting asset turnover will be key to improving ROE/ROIC. Overall, the quarter marks a clear operational inflection with healthy cash conversion, tempered by low capital efficiency and reliance on stable cost conditions.

Profitability Analysis

ROE decomposition: ROE 4.8% = Net Profit Margin 7.4% × Asset Turnover 0.320 × Financial Leverage 2.04x. The largest change YoY was margin expansion: operating income grew 177.8% on 2.6% revenue growth, implying operating margin rose ~608 bps to 9.6%, and net margin rose ~640 bps to 7.4%. Business drivers likely included improved price–cost spread (lower input costs and/or successful price pass-through), better product mix, and tighter SG&A control (SG&A ratio 18.7%). Asset turnover remains low at 0.32, reflecting a sizable asset base (inventories 452.4 and receivables 370.6) relative to revenue; this dampens ROE despite margin gains. Financial leverage is moderate at 2.04x; interest coverage of 18.3x indicates leverage is not an earnings constraint. The margin improvement appears partly sustainable if input costs and pricing hold; however, a portion of the YoY leap likely reflects normalization from a weak base, making the pace of improvement one-time in nature. SG&A growth appears well-contained relative to revenue (ratio improvement), but we will monitor for cost creep if volumes slow. Non-operating contributions (net +11.3) supported ordinary income; reliance on such items should not be assumed persistent. Overall, the biggest lever for sustained ROE improvement is continued operating margin resilience and better asset utilization (inventory discipline, receivables turnover).

Growth Assessment

Top-line growth was modest at +2.6% YoY to 764.6, suggesting that profit growth was predominantly margin-driven rather than volume-led. Operating profit rose 177.8% to 73.7, highlighting strong operating leverage from cost control and mix. Ordinary income (+241.9%) and net income (+676.9%) benefited from both core improvement and supportive non-operating balance (+11.3) and normalized tax rate (26.8%). The non-operating income ratio was reported at 35.0%, indicating a meaningful but not dominant contribution to overall earnings. With asset turnover at 0.32 and ROIC at 3.7%, growth quality would improve if working capital intensity is reduced and low-return assets are pruned. Sustainability hinges on commodity/raw material trends, energy costs, and the company’s ability to maintain pricing; any reversal could compress margins. Given strong OCF (202.8), the company has flexibility to fund selective growth or productivity capex. Near-term outlook: stable-to-moderate growth with a focus on preserving margin gains; risk to growth if input costs or FX move adversely.

Financial Health

Liquidity is strong: current ratio 283.1% and quick ratio 204.4%, with cash (389.6) exceeding short-term loans (173.9). No warnings for Current Ratio (<1.0) or D/E (>2.0); reported D/E of ~1.04x (liabilities-to-equity) is moderate, and interest-bearing debt (~669.5) is ~0.57x equity. Maturity mismatch risk appears low: current assets 1,627.2 comfortably cover current liabilities 574.9; working capital is 1,052.4. Interest coverage is robust at 18.3x, indicating ample capacity to service debt. Investment securities of 130.0 introduce market valuation/impairment sensitivity but also provide liquidity if needed. No off-balance sheet obligations were reported in the provided data. Equity base is solid at 1,172.0, with retained earnings 588.3 offering buffer for shocks.

Cash Flow Quality

OCF was 202.8 versus net income of 56.5, yielding OCF/NI of 3.59x, well above the 0.8 threshold and indicating high-quality earnings. Free cash flow is unreported, but the magnitude of OCF suggests capacity to fund ordinary capex and dividends, barring unusually high investment outlays. The strong OCF likely reflects improved profitability and potential working capital release; however, without line-item cash flow details, the exact drivers (inventory reduction, receivables collection) are not verifiable. No signs of aggressive working capital manipulation are evident from the limited snapshot, but continued monitoring of inventory days and receivable turnover is warranted. Financing cash flow of -21.8 indicates modest net outflows (likely debt repayment/dividends), consistent with disciplined balance sheet management.

Dividend Sustainability

The calculated payout ratio is 60.8%, slightly above the <60% benchmark but close enough to be manageable given OCF/NI of 3.59x. DPS and total dividends paid were unreported, so assessment relies on the payout estimate and cash coverage. With strong operating cash flow and healthy liquidity, near-term dividend coverage appears adequate even without FCF detail. Medium-term sustainability depends on maintaining the improved margin profile and avoiding a step-up in capex that could compress FCF. Policy outlook likely targets stable or gradually rising dividends, subject to earnings normalization and ROIC improvement; absent explicit guidance, we assume a conservative stance.

Risk Assessment

Business Risks:

• Commodity/raw material cost volatility affecting titanium dioxide and related chemical margins
• Energy price fluctuations impacting production costs
• Demand cyclicality in end-markets (construction, coatings, plastics, electronics)
• Pricing power risk if competitive intensity rises or if customers push back on pass-throughs
• FX risk (notably USD/JPY) on imported inputs and export competitiveness

Financial Risks:

• Low ROIC at 3.7% (<5% warning) indicating capital efficiency risk
• Inventory and receivables concentration (inventories 452.4; receivables 370.6) weighing on asset turnover
• Market risk and potential impairment on investment securities (130.0)
• Interest rate risk on ~669.5 of interest-bearing debt despite strong coverage

Key Concerns:

• Sustainability of large margin expansion from a low base; potential reversion if input costs rise
• Dependence on non-operating contributions (reported non-operating income ratio 35.0%) to support ordinary profit
• Limited disclosure on capex and investing cash flows, obscuring FCF durability
• ROE constrained by low asset turnover (0.32), requiring structural improvements in asset use

Investment Implications

Key Takeaways:

• Sharp operational turnaround with operating margin up ~608 bps YoY to 9.6%
• Earnings quality strong: OCF 202.8 equals 3.6x net income; interest coverage 18.3x
• Balance sheet liquid and resilient (current ratio 283%, cash > short-term loans)
• Capital efficiency is the primary drag: ROIC 3.7% and ROE 4.8% held back by low asset turnover
• Non-operating items provided a meaningful, but not dominant, tailwind

Metrics to Watch:

• Operating margin and gross margin (price–cost spread)
• Asset turnover and working capital days (inventory and receivables)
• ROIC trajectory and capex intensity (when disclosed)
• Non-operating balance (dividends/interest/other) sustainability
• FCF after dividends once investing cash flows are disclosed
• Leverage mix (short-term vs long-term debt) and interest costs

Relative Positioning: Within Japanese chemicals, the company exhibits above-trend near-term margin recovery and cash conversion but lags peers on capital efficiency (ROIC/ROE). Liquidity and solvency are stronger than average, providing flexibility; sustained re-rating would likely require continued margin resilience and demonstrable improvements in asset efficiency.

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