TOSOH CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥499.14B
• Operating Income: ¥44.74B
• Net Income: ¥29.21B
• EPS: ¥23.21

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 Integrated Analysis

Analysis integrating XBRL data (GPT-5) and PDF earnings presentation (Claude)

Executive Summary

Tosoh Co., Ltd. (4042) reported FY2026 Q2 consolidated results under JGAAP showing resilient operating performance but materially weaker bottom-line profitability year on year. Revenue was ¥499.1bn, down 5.4% YoY, reflecting softer demand and/or pricing in selected product lines, typical of chemical cycle normalization. Gross profit was ¥126.2bn, implying a strong gross margin of 25.3%, which indicates comparatively stable cost pass-through and product mix despite lower top line. Operating income was ¥44.7bn (-5.6% YoY), with an operating margin of about 9.0%, broadly consistent with the revenue decline and suggesting modest operating leverage. Ordinary income reached ¥45.7bn, slightly above operating income, implying non-operating gains offsetting interest costs; interest expense was contained at ¥1.4bn. Net income, however, dropped sharply to ¥7.4bn (-70.4% YoY), creating a large gap relative to ordinary income that likely reflects extraordinary losses, valuation effects, or allocation to non-controlling interests under JGAAP (details not disclosed). EPS was ¥23.21, consistent with the reported net income. The DuPont breakdown shows net margin of 1.48%, asset turnover of 0.384x, and financial leverage of 1.46x, producing an ROE of 0.83%, confirming substantial compression at the bottom line. Cash generation was solid with operating cash flow of ¥49.1bn, equating to 6.65x net income, indicating high cash earnings quality versus the depressed accounting profit. The balance sheet appears conservatively positioned, with total assets of ¥1,300.0bn and total equity of ¥889.2bn, implying an equity ratio around the high-60% range by calculation, despite the reported “0.0%” placeholder. Liquidity is strong: current ratio 226% and quick ratio 180%, backed by working capital of ¥420.9bn. Interest coverage is healthy at 31.7x on an EBIT basis, underscoring low financial risk. Inventories of ¥154.2bn equate to roughly 70 days of COGS on a half-year basis, not excessive for a diversified chemical portfolio. While operating metrics look sound, the sharp decline in net income is the key concern and warrants investigation into extraordinary or tax-related items. Some items appear unreported (e.g., investing cash flows, cash & equivalents, share counts), which limits full FCF and per-share analysis beyond EPS. Overall, the quarter suggests stable operations and strong balance sheet health, but significantly weaker statutory earnings drive a notably low ROE and cloud near-term dividend visibility.

From Earnings Presentation: Tosoh's Q2 FY2025 financial results presentation provides detailed information on one-time losses confirmed through XBRL analysis. The company recorded an impairment loss of ¥19.1 billion on fixed assets related to sputtering targets at Tosoh SMD, Inc., which was identified as the primary cause of net income of ¥7.4 billion (down ¥17.6 billion year-over-year). Operating income of ¥44.7 billion decreased by only ¥2.6 billion year-over-year, with losses in the Chlor-Alkali business (¥-0.3 billion) and decreased profits in Petrochemicals partially offset by a ¥5.9 billion increase in the Engineering business. The decline in naphtha prices (from ¥77,950 to ¥64,750/KL) and weak overseas market conditions (PVC, VCM, MDI) were the main drivers of price declines, but improved terms of trade (raw material/fuel price decline > sales price decline) helped maintain profit margins. Full-year forecasts were revised downward to sales of ¥1,020.0 billion (down ¥30.0 billion from previous forecast), operating income of ¥103.0 billion (down ¥5.0 billion), and net income of ¥38.0 billion (down ¥24.0 billion), reflecting the impairment loss and weak market conditions and demand. The company announced its policy to maintain an annual dividend of ¥100 per share and implement share buybacks up to ¥25.0 billion. The XBRL analysis revealed difficult-to-capture information including dividend and capital allocation details, segment specifics, market assumptions, and strategic investment plans (capacity expansion for sputtering targets, separation and purification agents, chloroprene rubber, etc.), confirming management's crisis response and medium- to long-term growth investment stance.

Financial Analysis

Profitability

ROE of 0.83% is driven by a low net profit margin (1.48%), moderate asset turnover (0.384x), and modest leverage (assets/equity ~1.46x). Operating margin stood at about 8.96% (¥44.7bn operating income on ¥499.1bn revenue), only slightly below the prior year given revenue contraction, implying contained operating deleverage. Gross margin at 25.3% points to relatively stable pricing/cost spreads across core segments. EBITDA was ¥67.3bn (13.5% margin), with D&A of ¥22.5bn, indicating a capital-intensive base but a reasonable EBITDA-to-OP bridge. The divergence between ordinary income (¥45.7bn) and net income (¥7.4bn) suggests non-recurring charges, minority interest effects, or tax adjustments; these are below the operating line and depress ultimate profitability despite healthy core operations. Interest expense was modest at ¥1.4bn, yielding an EBIT/interest coverage of 31.7x; financing costs are not a drag on profitability. Margin quality appears supported by mix and cost control, but the sharp compression at the net level undermines ROE. Absent disclosure of extraordinary items, we attribute the margin gap mainly to one-off or below-ordinary-line items rather than core margin deterioration.

Growth

Revenue declined 5.4% YoY to ¥499.1bn, consistent with cyclical softness in chemicals and possible lower ASPs in commodity-linked lines. Operating income decreased 5.6% YoY, roughly in line with revenue, indicating limited negative operating leverage and some resilience in contribution margins. Gross margin at 25.3% suggests reasonable spread management despite input cost and demand variability. Net income fell 70.4% YoY to ¥7.4bn, indicating either sizable non-recurring costs or tax/minority impacts, not explained by operations alone. EBITDA margin of 13.5% remains sound for a diversified chemical producer, pointing to sustained operating cash generation capacity. Sustainability of revenue will hinge on downstream industrial demand, pricing for chlor-alkali and vinyl chain products, and recovery in advanced materials/performance chemicals. Profit quality looks better on a cash basis (OCF ¥49.1bn) than on an accounting basis (low NI), implying near-term headline earnings may understate underlying performance. Near-term outlook depends on inventory normalization, energy and feedstock costs, and export demand sensitivity to FX (USD/JPY). Without segment disclosures in this dataset, we assume mixed trends across commodities and specialties; stabilization in spreads would support sequential improvement. The ordinary-to-net gap is the main constraint to earnings growth visibility until clarified.

Financial Health

Total assets were ¥1,300.0bn and total equity ¥889.2bn, implying an equity ratio around 68% by calculation (reported equity ratio 0.0% appears to be an unreported placeholder). Total liabilities were ¥424.9bn, indicating a conservative capital structure; the reported debt-to-equity ratio of 0.48x is consistent with low leverage. Liquidity is strong with current ratio 226.2% and quick ratio 180.0%, supported by ¥420.9bn of working capital. Interest expense is low at ¥1.4bn and interest coverage is high (31.7x), suggesting ample capacity to service debt. Inventories of ¥154.2bn equate to roughly 70 days of COGS on a half-year basis, which is manageable. There is a minor arithmetic mismatch between total assets and the sum of liabilities plus equity based on the provided figures, which we attribute to reporting scope or timing differences; overall the balance sheet appears robust. The strong equity base and liquidity profile mitigate solvency risks even under cyclical pressure.

Cash Flow

Operating cash flow was ¥49.1bn, substantially exceeding net income of ¥7.4bn (OCF/NI 6.65x), indicating strong cash conversion and suggesting that non-cash or below-ordinary-line charges depressed statutory earnings. Depreciation and amortization were ¥22.5bn, consistent with an asset-heavy operation and supporting EBITDA of ¥67.3bn. Free cash flow cannot be reliably calculated due to unreported investing cash flows (reported as 0 indicates non-disclosure), so FCF and FCF coverage metrics are not assessable from this dataset. Working capital appears supportive (large positive working capital), and the high quick ratio implies no acute liquidity tied up in inventories/receivables beyond normal levels. Financing cash flow was negative at -¥15.6bn, consistent with debt repayment or dividends/share repurchases; however, the lack of detailed components limits interpretation. Overall, earnings quality looks better on a cash basis than on a net-income basis this quarter.

Dividend Sustainability

Dividend per share is reported as ¥0.00 and payout ratio 0.0%, which likely reflects non-disclosure in this dataset rather than an explicit suspension; we cannot infer the actual interim or annual dividend without additional disclosures. Given net income of ¥7.4bn and strong OCF of ¥49.1bn, coverage of ordinary dividends would depend on actual capex needs and policy, which are not provided here. Free cash flow is not computable due to missing investing cash flows, so FCF coverage cannot be assessed. Historically, Japanese chemical companies target stable-to-progressive dividends, but clarity on extraordinary losses and capex cadence is required to judge sustainability. On current information, liquidity and leverage are supportive, but the sharp drop in net income and lack of FCF detail prevent a firm assessment of payout capacity.

Business Outlook

Full-year outlook: sales of ¥1,020.0 billion (down ¥43.4 billion from prior year), operating income of ¥103.0 billion (up ¥4.1 billion), ordinary income of ¥103.0 billion (flat), and net income of ¥38.0 billion (down ¥20.0 billion). Compared to previous forecast: sales down ¥30.0 billion, operating income down ¥5.0 billion, net income down ¥24.0 billion—a downward revision. Main reasons for revision: ①Loss of revenue increase effect from moderation of yen depreciation assumptions (from ¥140 to ¥145.5/USD), ②Weak demand and sluggish overseas market conditions for Chlor-Alkali and Petrochemical products (PVC $600-700, MDI$1,700-1,850/ton), ③Revised naphtha price range assumptions (from ¥61,000 to ¥64,375/KL) worsening terms of trade. Second-half outlook (operating income ¥58.3 billion) assumes ¥13.6 billion improvement versus first half (¥44.7 billion), premised on continued strong performance in Specialty Products and Engineering businesses and improved profitability in Chlor-Alkali business (from first-half loss of ¥0.3 billion to second-half profitability). Medium to long term, the strategy is to enhance resilience to commodity market fluctuations through expansion and capacity increases in electronic materials (sputtering targets), bioscience (separation and purification agents, diagnostic equipment), urethane raw materials (HDI, MDI), and high-performance materials (zeolites, zirconia).

Management Guidance

Management explained that the significant decline in net income in the first half of FY2025 was due to one-time losses (¥19.1 billion Tosoh SMD impairment), emphasizing that operating-level profitability was maintained. The full-year operating income forecast of ¥103.0 billion represents a ¥4.1 billion increase from the prior year, expected to be achieved through second-half market recovery and internal initiatives (cost reduction, shift to high-value-added products). The shareholder return policy maintains 'total payout ratio of 50% as baseline, minimum annual dividend of ¥100, adjustment through share buybacks if dividend payout ratio is below 50%, and additional ¥50.0 billion share buybacks over three years.' For this fiscal year, in addition to a ¥100 dividend (payout ratio 83.7%), the company plans to execute share buybacks up to ¥25.0 billion. Cash allocation shows an aggressive stance with capital expenditure of ¥99.0 billion (up from ¥81.2 billion prior year), plus R&D of ¥24.0 billion and shareholder returns exceeding ¥35.0 billion. By business portfolio in the medium-term management plan, operating income in advanced businesses (Bioscience, High-Performance Materials, Water Treatment) expanded to ¥31.6 billion (from ¥26.8 billion prior year), with structural transformation progressing to compensate for decreased profits in chain businesses (basic materials). The clear intent is to escape from a business structure heavily influenced by foreign exchange and market conditions.

Strategic Initiatives

• Capacity expansion of sputtering target manufacturing facilities (scheduled for winter 2025): responding to expanding demand for semiconductors and displays
• Capacity expansion of separation and purification agents (implemented twice in spring 2026 and spring 2027): driving growth in Bioscience business
• Construction of new biomass power plant (scheduled for spring 2026): addressing decarbonization and reducing energy costs
• Capacity expansion of HDI derivatives (scheduled for summer 2026): strengthening competitiveness in high-performance urethane markets
• Construction of new crude MDI splitter in Vietnam (scheduled for spring 2027): strengthening supply structure and improving cost competitiveness in Asian markets
• Capacity expansion of chloroprene rubber (scheduled for spring 2030): responding to long-term demand growth in automotive and industrial applications
• Business portfolio restructuring in medium-term management plan: stabilizing chain businesses (basic materials) and expanding advanced businesses (Bio, High-Performance Materials, Water Treatment) to enhance earnings structure

Risk Assessment

Business Risks:

• Cyclical demand in chlor-alkali, vinyl chain, and petrochemicals impacting volumes and pricing
• Spread volatility due to feedstock and energy cost swings (naphtha, ethane/propane, electricity)
• FX sensitivity (USD/JPY) affecting export competitiveness and imported raw material costs
• Product mix shifts between commodity and performance materials driving margin variability
• Inventory valuation risks amid price declines and demand normalization
• Potential for extraordinary losses (impairments, environmental provisions, litigation) under JGAAP
• Operational risks from plant turnarounds, outages, or safety/environmental incidents

Financial Risks:

• Earnings volatility translating into low ROE despite strong operating metrics
• Limited visibility on investing cash flows and capex requirements affecting FCF
• Potential minority interest allocations and tax adjustments depressing net income
• Exposure to interest rate changes is currently low but could rise with capex-led borrowing

Key Concerns:

• Large gap between ordinary income (¥45.7bn) and net income (¥7.4bn) indicating one-off or structural charges
• Inability to compute FCF due to missing investing cash flow disclosure
• Revenue decline (-5.4% YoY) suggests cyclically softer environment and possible pricing pressure
• ROE at 0.83% is well below typical cost of equity, driven by depressed net margin

Risk Factors from Presentation:

• Risk of continued sluggish overseas market conditions (price declines in PVC, VCM, caustic soda, MDI, etc.) into the second half
• Deterioration of terms of trade due to raw material and fuel price increases exceeding naphtha assumptions (¥64,375/KL)
• Further yen appreciation from exchange rate assumptions (¥145.5/USD) deteriorating export profitability
• Prolonged weak demand (housing, automotive, semiconductors) leading to decreased sales volumes
• Possibility of continued deterioration in inventory valuation differences (worsened in first half due to raw material and fuel price declines) into the second half
• Profit pressure from increased fixed costs (labor, depreciation, repair expenses)
• Uncertainty in rebuilding and profitability of Tosoh SMD post-impairment (success of structural reforms in sputtering target business)
• Additional costs and cash outflows associated with strengthened environmental regulations and decarbonization investments

Investment Implications

Key Takeaways:

• Core operations appear resilient with stable operating margin (~9%) and strong EBITDA margin (13.5%) despite revenue decline
• Cash generation is solid (OCF ¥49.1bn) relative to net income, implying conservative accounting and/or one-off charges
• Balance sheet strength (equity ratio ~68% by calculation, high liquidity) reduces solvency risk
• Headline profitability is weak at the net level, pulling ROE down to 0.83%
• Clarity on extraordinary items, tax effects, and minority interests is essential for earnings normalization assessment

Metrics to Watch:

• Reconciliation from ordinary income to net income (extraordinary losses, tax, non-controlling interests)
• Segment spreads and pricing in chlor-alkali/vinyl and performance materials
• Operating cash flow sustainability and disclosure of capex/investing cash flows
• Inventory levels and days on hand as demand normalizes
• FX (USD/JPY) and energy/feedstock cost trends impacting margins

Relative Positioning: Within Japanese diversified chemicals, Tosoh’s operating margins and liquidity compare favorably in a soft macro, but its reported net income volatility and unusually large ordinary-to-net gap place it at a relative disadvantage on near-term ROE and dividend visibility until one-off items are clarified.

Supplementary Insights (Key Highlights)

• ¥19.1 billion impairment of fixed assets at Tosoh SMD, Inc. identified as the true cause of significant net income decline (breakdown of approximately ¥22.0 billion in extraordinary losses estimated from XBRL analysis)
• Engineering business achieved operating income of ¥18.5 billion (up ¥5.9 billion year-over-year) with strong progress in water treatment plant projects for the electronics industry
• Chlor-Alkali business posted operating loss of ¥-0.3 billion (from ¥4.5 billion prior year), but cost reductions from declining naphtha and raw material prices improved terms of trade and limited losses
• Despite downward revision of full-year forecasts (operating income down ¥5.0 billion, net income down ¥24.0 billion), announced maintenance of ¥100 annual dividend and ¥25.0 billion share buyback, demonstrating commitment to shareholder returns
• Plans capital investments in growth areas including sputtering targets, separation and purification agents, HDI, and chloroprene rubber from 2025 to 2030 (projected capital expenditure of ¥99.0 billion)
• Accelerating overseas expansion including new crude MDI splitter in Vietnam (scheduled for spring 2027)
• New biomass power plant (spring 2026) to address decarbonization and energy costs

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