OSAKA SODA CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The quarter delivered a high-quality earnings result, with both revenue and profit growth accompanied by simultaneous improvements in gross margin and cost efficiency. Revenue was ¥287.5B (¥242.8B in the same period of the previous year, +18.4%), Operating Income was ¥62.4B (¥39.4B in the previous year, +58.3%), Ordinary Income was ¥70.6B (+58.8% year on year), and Net Income was ¥49.5B (¥30.5B in the previous year, +62.4%). In addition to revenue growth, the improvement in gross margin to 36.6% (32.1% in the previous year) was the primary factor driving the profit growth rate significantly above the revenue growth rate.

Factors Affecting Earnings

【Revenue】Revenue was ¥287.5B, up +18.4% year on year. By segment, Healthcare posted the strongest growth at ¥43.8B (+43.3%), while Functional Chemicals at ¥85.1B (+17.3%) and Basic Chemicals at ¥112.7B (+17.4%) also achieved double-digit revenue growth. Meanwhile, Trading and Other was the only segment to record a revenue decline, at ¥52.1B (-5.3%), indicating increasing polarization within the portfolio.

【Profit and Loss】Operating Income was ¥62.4B (+58.3%), and the Operating Income margin improved to 21.7% from 16.2% in the previous year, a +5.5pt improvement. The increase in gross margin to 36.6% (32.1% in the previous year) and the decline in the SG&A ratio to 14.9% (15.8% in the previous year) contributed to margin expansion. Ordinary Income was ¥70.6B, supplemented by ¥8.9B in non-operating income, including ¥5.7B in dividend income and ¥1.2B in foreign exchange gains. Extraordinary income and losses consisted of a ¥1.2B gain on the sale of fixed assets and a ¥0.8B loss on asset disposals, resulting in a minor net gain of +¥0.3B. Net Income was ¥49.5B (+62.4%), resulting in earnings growth driven by both revenue and profit increases.

Segment Analysis

Functional Chemicals recorded substantial profit growth, with revenue of ¥85.1B (+17.3%) and Operating Income of ¥24.4B (+134.0%), raising its margin to 28.7%. Healthcare generated revenue of ¥43.8B (+43.3%) and Operating Income of ¥21.5B (+28.4%), maintaining the highest profitability among the company’s businesses at a margin of 49.1%. Basic Chemicals posted revenue of ¥112.7B (+17.4%), Operating Income of ¥16.4B (+33.2%), and a margin of 14.6%. Trading and Other recorded revenue of ¥52.1B (-5.3%), Operating Income of ¥3.2B (-0.3%), and a low margin of 6.2%. The highly profitable Healthcare and Functional Chemicals segments are driving the improvement in the company-wide profit margin.

Key Financial Metrics

【Profitability】The Operating Income margin was 21.7%, improving by +5.5pt from 16.2% in the previous year, while the Net Income margin also increased to 17.2% (12.6% in the previous year). ROE was 3.8%; although it was driven primarily by the improvement in the Net Income margin, the Total Asset Turnover ratio remained low at 0.168x, indicating room for improvement in capital efficiency.【Cash Flow Quality】Cash and deposits were ¥154.6B, down -29.3% year on year, while accounts receivable of ¥296.5B and inventories of ¥126.3B increased. The resulting advance buildup in working capital relative to revenue expansion has become a bottleneck to cash generation.【Investment Efficiency】Investment securities were ¥396.7B, accounting for 23.2% of total assets and increasing +7.1% year on year. Goodwill was small at ¥0.6B, indicating limited M&A-related risk.【Financial Soundness】The Equity Ratio remained high at 76.3% (76.2% in the previous year). Interest-bearing debt consisted solely of ¥71.7B in short-term borrowings, while cash of ¥154.6B covered this amount by 2.16x, indicating a stable financial foundation.

Cash Flow Analysis

As direct data from the statement of cash flows has not been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥154.6B, down -29.3% from ¥218.6B in the previous year. This is believed to have been primarily caused by the buildup of working capital resulting from increases in accounts receivable to ¥296.5B and inventories to ¥126.3B, as well as cash outflows associated with a decline in accrued corporate taxes payable due to tax payment progress. Accounts payable increased +14.4%, partially offsetting these outflows. However, delays in collections and inventory turnover are notable relative to the +18.4% growth in revenue, suggesting that the pace of cash conversion has not kept up with profit growth. Investment securities increased +7.1% to ¥396.7B, and the allocation of a portion of funds to financial assets was also a factor behind the decline in cash.

Earnings Quality

Current-period earnings were primarily derived from recurring operating activities, indicating a high degree of earnings repeatability. Of the ¥8.9B in non-operating income, the principal components were ¥5.7B in dividend income and ¥1.2B in foreign exchange gains. These represented approximately 3.1% of revenue, indicating no excessive dependence. Extraordinary income and losses consisted of a ¥1.2B gain on the sale of fixed assets and a ¥0.8B loss on asset disposals, which offset each other to a net gain of only +¥0.3B. Their impact on Net Income was limited to less than 1%. On the other hand, increases in accounts receivable and inventories suggest an expansion in accruals, or the divergence between accounting profit and cash, warranting a somewhat cautious assessment from the perspective of cash backing for earnings. The difference between Ordinary Income of ¥70.6B and Net Income of ¥49.5B was attributable to corporate taxes and other taxes at an effective tax rate of approximately 30.2%; no particular abnormalities are evident from a tax-burden perspective.

Earnings Forecast and Guidance

The full-year plan calls for revenue of ¥1080.0B (+8.0% year on year), Operating Income of ¥205.0B (+16.2%), and Ordinary Income of ¥221.0B (+12.7%). Q1 progress was 26.6% for revenue, 30.4% for Operating Income, 31.9% for Ordinary Income (70.6/221.0), and 33.4% for Net Income (49.5/148.0), all exceeding the simple one-quarter benchmark of 25%, indicating front-loaded progress on the profit side. The company has already revised its earnings and dividend forecasts, and if growth in the highly profitable segments continues, the full-year plan appears achievable based on the current progress.

Shareholder Returns

The company’s annual dividend forecast is ¥30.00 per share. Based on the full-year EPS forecast of ¥121.74, the Payout Ratio is approximately 24.6%. The previous year’s dividend was ¥12 per share (interim), and the annual dividend of ¥30 represents a planned increase from the previous year’s actual results. Given the high Equity Ratio of 76.3% and strong financial soundness, concerns regarding dividend sustainability are limited.

Risk Factors

1. Delay in cash generation due to working capital expansion: Cash declined -29.3% year on year, while accounts receivable increased to ¥296.5B (approximately +12.0%) and inventories increased to ¥126.3B (+14.8%). Delays in collections and inventory turnover relative to revenue growth may reduce the speed of cash conversion from earnings.

2. Widening profitability disparity among segments: There is a significant gap between Functional Chemicals (28.7% margin) and Healthcare (49.1% margin), on the one hand, and Trading and Other (6.2% margin, revenue -5.3%), on the other. Continued deceleration in the Trading business could weigh on the company-wide growth rate.

3. Market fluctuation risk associated with investment securities and inventories: Investment securities account for ¥396.7B (23.2% of total assets), creating a structure in which fluctuations in equity markets affect net assets (AOCI). In addition, if the buildup of inventories continues, there may be a risk of valuation losses.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability is significantly above the industry median, placing it among the leading group.

Growth and Capital Efficiency

The revenue growth rate is also positioned among the industry’s leaders, indicating an advantageous position in both profitability and growth.

※Source: Company analysis

Key Earnings Highlights

1. The company achieved multi-stage margin improvement during the quarter, with gross margin improving +4.5pt and Operating Income margin improving +5.5pt, resulting in a profit growth rate exceeding the revenue growth rate. The rising contribution of highly profitable segments such as Functional Chemicals and Healthcare is driving the company-wide margin expansion.

2. Cash and deposits declined -29.3% year on year, while accounts receivable and inventories increased. The timing of profit growth and cash generation has diverged, making working capital trends an important point to monitor in future earnings reports.

3. Q1 progress against the full-year plan was front-loaded on the profit side, with Operating Income progress at 30.4%. The fact that the earnings and dividend forecasts were revised during the period is also noteworthy as evidence of management’s view of business performance.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,118–¥1,185 at a ±1% change in the cost of equity, and ¥1,149–¥1,154 at a ±0.1 change in ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat high.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not predict or guarantee a 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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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