ISHIHARA SANGYO KAISHA (4028) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for the first three quarters show a sharp expansion in profit far exceeding revenue growth, with operating leverage driven by cost improvements and fixed-cost control enhancing the quality of earnings. Revenue was limited to ¥1,080.7B (+2.5% YoY), while Operating Income rose substantially to ¥110.9B (+189.2%), Ordinary Income to ¥131.6B (+133.6%), and Net Income to ¥96.0B (+421.6%). The gross margin improved to 30.1% from 24.0% in the previous year, primarily because cost of sales declined 5.7% from the previous year. While the higher profitability of the Organic Chemicals Business drove company-wide earnings, progress toward the full-year Operating Income forecast was 65.2%, below the standard 75% level.

Factors Driving Earnings Fluctuations

【Revenue】Revenue was ¥1,080.7B, representing only a modest 2.5% increase YoY. By segment, the Organic Chemicals Business expanded to ¥553.6B (+14.6%), while the Inorganic Chemicals Business declined to ¥495.9B (▲7.9%), resulting in a structure where increases and decreases in the two businesses offset each other. By region, Europe (+14.4%) and the Americas (+10.2%) grew, while Asia declined by ▲12.0%, indicating uneven growth across regions.

【Profit and Loss】Operating Income increased substantially to ¥110.9B (¥38.3B in the previous year, +189.2% YoY), and the Operating Income margin improved by 6.2pt to 10.3% from 3.6% in the previous year. Cost of sales decreased 5.7% YoY, while SG&A expenses were held nearly flat at ¥214.6B, resulting in profit growth well above the rate of revenue growth. Ordinary Income increased to ¥131.6B, boosted in part by foreign exchange gains of ¥18.9B included in non-operating income, equivalent to 17.0% of Operating Income. Although the Company recorded extraordinary losses of ¥10.98B (impairment losses of ¥4.14B and losses on disposal of fixed assets of ¥6.84B), Net Income increased substantially to ¥96.0B (+421.6% YoY). In conclusion, the Company achieved both revenue and profit growth, characterized by a profit increase substantially exceeding revenue growth.

Segment Analysis

The Organic Chemicals Business substantially improved profitability, with Revenue of ¥553.6B (+14.6% YoY), Segment Profit of ¥103.3B (+135.6%), and a profit margin of 18.7% versus 9.1% in the previous year. It became the largest profit-contributing business, accounting for 71.1% of total Reportable Segment Profit of ¥145.4B. The Inorganic Chemicals Business experienced a revenue decline to ¥495.9B (▲7.9% YoY), but Segment Profit increased 88.7% to ¥36.6B, and its profit margin improved to 7.4%, demonstrating improved profitability despite lower revenue. Other Businesses recorded Revenue of ¥31.2B (▲4.3% YoY) and Profit of ¥5.4B (+5.4%), representing a profit margin of 17.4%. Adjustments for company-wide expenses and other items amounted to ▲¥34.5B, equivalent to 29.9% of total Reportable Segment Profit, confirming that improved profitability in the Organic Chemicals Business was the primary driver of consolidated performance.

Key Financial Metrics

【Profitability】The Operating Income margin improved by 6.2pt to 10.3% from 3.6% in the same period of the previous year, while the Net Income margin also rose substantially to 8.9% from 1.7% in the previous year. The gross margin improved to 30.1% from 24.0% in the previous year, primarily due to the decline in cost of sales.【Cash Flow Quality】Cash and deposits increased 40.1% YoY to ¥349.6B, while accounts receivable were ¥320.5B and inventories were ¥457.8B, indicating high inventory levels and room for improvement in capital efficiency.【Investment Efficiency】ROE (annualized) was 10.6%, primarily due to the sharp rise in the Net Income margin. The Equity Ratio against total assets of ¥2,369.9B was 51.1%, compared with 50.8% in the previous year.【Financial Soundness】Current assets of ¥1,592.4B substantially exceeded current liabilities of ¥504.2B. Interest-bearing debt amounted to ¥691.96B, centered on long-term borrowings of ¥511.5B; however, non-operating income and expenses were positive against interest expenses of ¥5.9B, indicating a stable financial base.

Cash Flow Analysis

Although no cash flow statement has been disclosed, trends in funds can be inferred from changes in the balance sheet. Cash and deposits increased by ¥100.1B (+40.1%) to ¥349.6B from ¥249.5B in the same period of the previous year, suggesting improved cash-generation capacity accompanying earnings growth. Meanwhile, accounts receivable of ¥320.5B and inventories of ¥457.8B remained at high levels, indicating that funds remain tied up in working capital, primarily product inventories of ¥457.8B. The funding benefit from accounts payable of ¥152.4B and electronically recorded obligations of ¥21.8B was limited, and the period until earnings are converted into cash is still considered lengthy. Long-term borrowings increased to ¥511.5B, indicating that a portion of capital expenditures and working capital is being financed with long-term funds.

Earnings Quality

The improvement in earnings for the current period was centered on a substantive improvement in operating-level profitability resulting from lower cost of sales and SG&A expense control, and therefore has a strongly recurring nature. However, Ordinary Income includes foreign exchange gains of ¥18.9B, equivalent to 17.0% of Operating Income. Since these gains are subject to fluctuations in foreign exchange rates, they must be evaluated separately from operating-level improvements. Extraordinary losses of ¥10.98B (impairment losses of ¥4.14B and losses on disposal of fixed assets of ¥6.84B) were temporary factors and represented 11.4% of Net Income of ¥96.0B. Comprehensive Income was ¥107.6B, and the gap from Net Income of ¥96.0B was limited to ¥11.6B. The primary factors were foreign currency translation adjustments of ▲¥1.3B and the share of OCI of equity-method affiliates of +¥9.1B; accordingly, no significant qualitative concerns are evident.

Earnings Forecast and Guidance

Progress through the first three quarters against the full-year Company forecasts (Revenue of ¥1,545.0B, Operating Income of ¥170.0B, and Ordinary Income of ¥180.0B) was 70.0% for Revenue, 65.2% for Operating Income, and 73.1% for Ordinary Income. Revenue progress was 5.0pt below the standard benchmark of 75%, while Operating Income progress was 9.8pt below that benchmark, requiring an additional ¥59.1B in Operating Income in Q4. Progress for Ordinary Income and Net Income was generally in line with standard levels, and continued high profitability in the Organic Chemicals Business and sustained cost improvements will be key to achieving the full-year targets.

Shareholder Returns

The Q2 dividend was ¥30.00 per share, and the full-year dividend forecast is ¥120.00. The forecast Payout Ratio against forecast full-year EPS of ¥339.74 is 35.3%, below the 60% level generally viewed as a benchmark for the sustainability of dividends alone. With retained earnings of ¥616.3B and cash and deposits of ¥349.6B, the Company has sufficient capacity to pay dividends from both accumulated earnings and liquidity perspectives.

Risk Factors

1. Concentration of profits in the core business: Segment Profit of the Organic Chemicals Business was ¥103.3B, accounting for 71.1% of total Reportable Segment Profit. Demand and price fluctuations in this business could have a significant impact on consolidated performance.

2. Working capital efficiency: Accounts receivable of ¥320.5B and inventories of ¥457.8B remain high, and the turnover efficiency of inventory and receivables is relatively slow compared with earnings growth. Inventory retention and valuation-loss risks, particularly in product inventories, should be monitored.

3. Regional demand concentration: Revenue in Asia declined ▲12.0% YoY. Although this was offset by growth in Europe and the Americas, differences in demand across regions could affect the sustainability of future growth drivers.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceed the industry median, placing profitability at a relatively strong level within the industry.

Growth and Capital Efficiency

The Revenue growth rate was slightly below the industry median, placing top-line growth in the relatively slower category within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The Operating Income margin of 10.3% and Net Income margin of 8.9% improved substantially from the previous year, exceeding the industry medians of 8.6% and 6.4%, respectively. The primary drivers of profit growth were operating leverage from lower cost of sales and SG&A expense control, centered on improved profitability in the Organic Chemicals Business.

2. Progress toward the full-year Operating Income forecast was 65.2%, below the standard quarterly progress benchmark. Maintaining and achieving profitability in Q4 will be an important point of confirmation for the full-year outlook.

3. Accounts receivable and inventory levels are high, and working capital efficiency has improved relatively slowly compared with the pace of earnings growth. Cash and deposits increased 40.1% YoY, strengthening the liquidity cushion, but improvements in inventory and receivables turnover will determine future capital efficiency.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,231–¥3,419 at ±1% for the Cost of Equity, and ¥3,319–¥3,328 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end were used (there is a timing difference from the full-year forecast).
• Since 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 / Mechanically calculated solely from publicly available data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. The 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 a professional as necessary.

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