TOAGOSEI CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

The Company reported higher revenue and profit, with growth in Operating Income and Ordinary Income outpacing revenue growth; improved profitability was the key feature of the results. Revenue was ¥8.240B (¥8.034B in the same period of the previous year, YoY +2.6%), Operating Income was ¥0.791B (up +12.7%), and Ordinary Income was ¥0.858B (up +14.4%). Consolidated Net Income was ¥0.610B (up +6.0%), while Net Income attributable to owners of the parent was ¥0.602B (up +5.3%). Hereafter, Net Income attributable to owners of the parent is separately referred to as “Net Income.” The primary reason profit growth exceeded revenue growth was the improvement in the gross margin to 30.7% (+2.1pt year on year), with growth in high-margin segments such as Polymers & Oligomers and High-Performance Materials driving the overall result.

Factors Affecting Performance

【Revenue】Revenue of ¥8.240B (YoY +2.6%) represents moderate growth accompanied by variation among segments. CommodityChemicals, the largest segment (Basic Chemicals; approximately 40% of segment revenue), declined to ¥3.531B (YoY -7.6%). In contrast, PolymerAndOligomer (+12.2%), Plastics (+11.7%), PerformanceChemicals (+11.4%), and AdhesiveMaterial (+8.2%) secured growth of around double-digit levels and offset the decline in Basic Chemicals.

【Profit and Loss】Operating Income of ¥0.791B (YoY +12.7%) was achieved as the improvement in the gross margin (30.7%, +2.1pt) exceeded the increase in the SG&A ratio (21.1%, +1.2pt). Ordinary Income increased by more than Operating Income, reaching ¥0.858B (YoY +14.4%), due to the contribution from non-operating income of ¥0.111B, primarily dividend income of ¥0.082B. Extraordinary income and losses represented a net negative factor of ¥0.024B (extraordinary income of ¥0.150B and extraordinary losses of ¥0.174B, including an impairment loss on investment securities of ¥0.046B), causing Net Income growth (+6.0%) to fall below Ordinary Income growth. In conclusion, the Company achieved higher revenue and profit, with a clear improvement in profitability at the operating level led particularly by gross-margin expansion.

Segment Analysis

By segment, Operating Income for PolymerAndOligomer was ¥0.240B (YoY +89.3%, margin 11.7%), representing the largest increase and serving as a primary driver of company-wide profit growth. PerformanceChemicals (High-Performance Materials) generated ¥0.090B (+96.7%, margin 15.5%), securing the highest profit margin among all segments, while Plastics (Processed Resin Products) also recorded significant profit growth to ¥0.185B (+57.8%, margin 11.8%). Meanwhile, CommodityChemicals (Basic Chemicals), the largest segment, posted ¥0.350B (-25.2%, margin 9.9%), with spread contraction, in addition to lower revenue, weighing on profitability. Despite revenue growth of +8.2%, AdhesiveMaterial (Adhesive Materials) continued to post low profitability, with Operating Income of ¥0.021B (-21.7%, margin 2.8%). Overall, the three pillars of Polymers, Processed Resins, and High-Performance Materials absorbed the decline in Basic Chemicals and drove profit growth.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 9.6% from 8.7% in the previous year, while the gross margin rose to 30.7% (+2.1pt year on year) and the SG&A ratio increased to 21.1% (+1.2pt). Cost improvements therefore lifted the profit margin by more than the increase in SG&A expenses. 【Cash Flow Quality】Operating Cash Flow (OCF) of ¥1.201B was approximately 2.0 times consolidated Net Income of ¥0.610B, indicating strong cash support for earnings; however, increases in inventories and trade receivables somewhat constrained cash generation. 【Investment Efficiency】ROE was 2.8% (for the six-month period, non-annualized), while the total asset turnover ratio was approximately 0.28x on a six-month basis. Capital expenditures of ¥1.429B reached 2.3 times depreciation and amortization of ¥0.609B, indicating that growth investment is leading. 【Financial Soundness】The Equity Ratio remained high at 74.5%. Cash and deposits of ¥2.002B plus current securities of ¥0.200B exceeded interest-bearing debt of ¥2.057B, comprising short-term borrowings of ¥0.687B, long-term borrowings of ¥0.370B, and bonds of ¥1.000B, resulting in a financial structure that is effectively close to net cash.

Cash Flow Analysis

Operating Cash Flow was ¥1.201B, down YoY -28.0% from ¥1.668B in the previous year. The primary cause of the decline was an increase in working capital: inventories absorbed ¥0.290B and trade receivables absorbed ¥0.092B, while an increase in trade payables of ¥0.303B partially offset these outflows. Investing Cash Flow was -¥1.429B, of which capital expenditures accounted for ¥1.429B, representing a growth-investment phase in which capital expenditures reached 2.3 times depreciation and amortization of ¥0.609B. Financing Cash Flow was -¥0.671B, with share repurchases of ¥0.271B and dividend payments of ¥0.349B representing the main outflows. As a result, free cash flow (OCF + Investing Cash Flow) was -¥0.228B. Cash temporarily declined because investment preceded returns, but liquidity on hand, including cash and deposits of ¥2.002B, is supported by a strong financial foundation reflected in an Equity Ratio of 74.5%.

Earnings Quality

Recurring earnings power is supported by the improvement in the gross margin (+2.1pt), while non-operating income of ¥0.111B, primarily dividend income of ¥0.082B, also has a strongly recurring character. Extraordinary income and losses represented a net negative amount of -¥0.024B, comprising gains on sales of fixed assets of ¥0.088B and gains on sales of investment securities of ¥0.028B within extraordinary income of ¥0.150B, and an impairment loss on investment securities of ¥0.046B within extraordinary losses of ¥0.174B. This amounted to only approximately 4% of Net Income and did not materially distort the underlying business trend. Comprehensive Income was ¥1.115B, substantially exceeding Net Income attributable to owners of the parent of ¥0.602B. The primary reasons for the difference were a +¥0.464B change in valuation difference on securities and a +¥0.049B foreign currency translation adjustment. As these are unrealized valuation factors associated with market fluctuations, actual Net Income and Operating Income should be given greater weight when evaluating recurring earnings power. OCF was approximately 2.0 times Net Income, providing strong cash support for earnings, and earnings quality can be assessed as generally favorable from an accrual perspective, including the divergence between accrual and cash accounting.

Earnings Forecast and Guidance

The first-half progress rates against the full-year forecasts (Revenue of ¥17.000B, Operating Income of ¥1.550B, Ordinary Income of ¥1.630B, and Net Income of ¥1.180B) were 48.5% for Revenue, 51.0% for Operating Income, 52.6% for Ordinary Income, and 51.0% for Net Income. All figures were tracking around or slightly above the approximately 50% benchmark for a six-month period. Ordinary Income had the highest progress rate, with the contribution from non-operating income, primarily dividends, leading to relative outperformance in the first half. During the quarter, the Company revised its earnings forecast and dividend forecast. In the second half, continued growth in high-margin segments and profitability trends in Basic Chemicals will be key to achieving the full-year targets.

Shareholder Returns

The interim dividend was ¥36 per share, an increase from ¥32.5 in the same period of the previous year. The interim payout ratio was 63.7% based on interim EPS of ¥56.56 (¥36 ÷ ¥56.56), consistent with the full-year forecast level of 64.7% based on dividends of ¥72 ÷ forecast EPS of ¥111.22. In the first half, the Company conducted share repurchases of ¥0.271B in addition to dividend payments of ¥0.349B. Total returns therefore amounted to ¥0.620B, resulting in a Total Return Ratio of approximately 103% relative to Net Income attributable to owners of the parent of ¥0.602B. Dividends are sufficiently covered by OCF of ¥1.201B; however, while free cash flow is negative because capital expenditures are leading, the balance in capital allocation between shareholder returns and investment remains an area to monitor.

Risk Factors

1. Risk of spread contraction in the Basic Chemicals Business: CommodityChemicals (Basic Chemicals), which has the largest revenue contribution, recorded Revenue of ¥3.531B (YoY -7.6%), Operating Income of ¥0.350B (down -25.2%), and a margin of 9.9%. Depending on raw-material and energy prices and supply-demand trends, this segment has a relatively large impact on company-wide profit.

2. Slower cash generation due to increased working capital: Inventories increased to ¥2.846B (+¥0.290B during the period), while trade receivables increased to ¥3.854B (+¥0.092B), creating downward pressure on OCF. The ¥0.303B increase in trade payables partially offset this impact, but progress in reducing inventories and receivables will determine future cash-generation capacity.

3. Risk of valuation fluctuations related to securities and investments: The Company held investment securities of ¥4.242B and recognized an impairment loss on investment securities of ¥0.046B as an extraordinary loss during the period. Fluctuations in equity markets affect extraordinary income and losses and Comprehensive Income, including the +¥0.464B valuation difference on securities.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company's Operating Income margin and Net Profit margin are both slightly below the industry median.

Growth and Capital Efficiency

Revenue growth is substantially below the industry median, placing the Company among those with relatively moderate revenue growth.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The gross margin improved to 30.7% (+2.1pt year on year), contributing to an increase in the Operating Income margin to 9.6% (+0.9pt). High-margin segments, including Polymers & Oligomers, High-Performance Materials, and Processed Resin Products, drove the profit growth rate. The resulting change in the profitability structure of the business portfolio is a key point from the earnings results.

2. Capital expenditures of ¥1.429B reached 2.3 times depreciation and amortization of ¥0.609B, resulting in free cash flow of -¥0.228B. OCF was approximately 2.0 times Net Income, indicating that cash-generation capacity itself remains sound and that the Company is in an investment-leading phase.

3. First-half shareholder returns consisted of dividends of ¥0.349B and share repurchases of ¥0.271B. The resulting Total Return Ratio reached approximately 103% relative to Net Income attributable to owners of the parent of ¥0.602B. The financial foundation remains strong, with an Equity Ratio of 74.5%, supporting the scope for balancing shareholder returns and investment.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available 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: ¥1,842–¥1,947 at ±1% for the cost of equity, and ¥1,887–¥1,897 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end 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 higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee the future share price.)

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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. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

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