KANTO DENKA KOGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥30.84B
• Operating Income: ¥815M
• Net Income: ¥1.51B
• EPS: ¥1.86

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

Kanto Denka Kogyo (4047) reported FY2026 Q2 consolidated results under JGAAP with resilient top-line but sharp profit compression. Revenue was ¥30.84bn, down 1.4% YoY, indicating relatively stable demand but likely price pressure in key product lines. Gross profit was ¥6.53bn, implying a 21.2% gross margin, which is adequate for specialty/basic chemicals but suggests contraction versus prior peaks. Operating income fell to ¥0.82bn (-52.6% YoY), with operating margin at 2.6%, reflecting significant margin squeeze from weaker pricing, underutilization, and/or cost inflation. Ordinary income of ¥0.97bn shows some financial/other income support, but net income collapsed to ¥0.11bn (-92.6% YoY), resulting in a 0.34% net margin. DuPont analysis points to very low ROE of 0.16%, driven primarily by the slim net margin despite moderate asset turnover (0.251x) and moderate leverage (1.81x). EBITDA was ¥4.86bn (15.7% margin), highlighting a large gap between EBITDA and operating income due to ¥4.04bn depreciation, consistent with a capital-intensive asset base. Interest expense was ¥0.22bn with interest coverage near 3.6x, still acceptable but downcycle-sensitive. Operating cash flow was robust at ¥7.57bn, vastly exceeding net income (OCF/NI ~71x), indicating strong cash conversion helped by depreciation and likely working capital release; however, the absence of disclosed investing cash flows limits visibility on free cash flow. Liquidity appears strong with a current ratio of 196.8% and quick ratio of 172.1%, alongside sizeable working capital of ¥28.25bn. The balance sheet shows total assets of ¥122.68bn and total equity of ¥67.88bn (assets/equity 1.81x), implying moderate leverage; debt-to-equity is listed at 0.82x. Dividend disclosures are shown as zero, which may reflect non-disclosure rather than an actual suspension; payout ratio is indicated at 0%. Overall, the quarter reflects a cyclical trough in profitability for a capital-intensive chemicals business with substantial depreciation, while cash generation remains solid. The key debate is whether EBITDA margins can recover as pricing normalizes and utilization improves, versus the risk of prolonged weak spreads in battery and fluorochemical chains. Data limitations include undisclosed equity ratio, cash balances, investing cash flows, and share data, which constrain precision on FCF and per-share metrics. Near-term focus should be on margin recovery, working capital dynamics, and capital spending cadence relative to market demand.

Profitability Analysis

ROE is 0.16%, decomposed into net margin 0.34% × asset turnover 0.251 × financial leverage 1.81. This shows profitability is constrained mainly by the net margin, not by balance sheet efficiency or leverage. Gross margin at 21.2% is reasonable for a fluorochemical/battery-materials mix, but the operating margin fell to 2.6%, indicating significant operating deleverage. The EBITDA margin of 15.7% versus operating margin 2.6% underscores heavy depreciation (¥4.04bn), consistent with recent capacity investments or asset intensity. Ordinary income (¥0.97bn) exceeded operating income (¥0.82bn), suggesting some non-operating buffer (e.g., forex, dividends, or equity method), partially offset by interest expense (¥0.22bn). The net margin (0.34%) was depressed, likely by a combination of tax and/or non-recurring items, given income tax expense of ¥0.53bn versus very low net income; detailed reconciliation is not disclosed. Operating leverage is evident: a marginal 1.4% revenue decline translated into a 52.6% drop in operating income, highlighting high sensitivity of profits to volume/price changes and fixed-cost absorption. Interest coverage at ~3.6x remains acceptable but leaves limited cushion if operating conditions further deteriorate.

Growth Assessment

Revenue declined modestly by 1.4% YoY to ¥30.84bn, suggesting stable volumes but pricing pressure in key segments (e.g., electrolyte salts and fluorochemicals). Profitability deteriorated much more sharply, with operating income down 52.6% YoY, implying unfavorable mix, lower spreads, and/or underutilization. EBITDA of ¥4.86bn indicates the underlying asset base can generate cash earnings, but conversion to operating profit is constrained by depreciation and weaker unit economics. The sustainability of revenue depends on demand normalization in lithium-ion battery supply chains and cyclical recovery in electronics/industrial end-markets. Profit quality is currently weak at the bottom line due to thin net margin; however, strong OCF relative to earnings suggests working capital release and non-cash charges are supporting cash-based performance. Outlook hinges on pricing recovery and capacity utilization; absent a top-line rebound or cost pass-through, operating margin may remain compressed. With limited disclosure on order backlog or segment splits, guidance precision is constrained; monitor quarterly trajectory in operating margin and ordinary income as leading indicators of recovery.

Financial Health

Total assets are ¥122.68bn and total equity is ¥67.88bn, implying financial leverage (assets/equity) of 1.81x and a moderate capital structure. Total liabilities are ¥55.99bn; the indicated debt-to-equity ratio is 0.82x (type of debt components not disclosed), suggesting manageable leverage for a chemicals company. Liquidity is strong: current assets ¥57.43bn vs. current liabilities ¥29.18bn yields a current ratio of 196.8% and a quick ratio of 172.1%. Working capital is solid at ¥28.25bn, providing a buffer against cyclical swings and raw material inventory needs. Interest expense of ¥0.22bn and coverage of ~3.6x indicate acceptably serviced obligations, though coverage could compress further if EBITDA/EBIT weaken. The reported equity ratio is shown as 0.0%, which appears undisclosed rather than truly zero; based on assets and equity, the effective equity ratio would be roughly 55% if calculated. Cash and equivalents are shown as zero in the dataset, which likely reflects non-disclosure in this snapshot; thus net debt cannot be computed. Overall solvency appears sound given equity depth and liquidity, but visibility on cash, debt mix, and maturities is limited.

Cash Flow Quality

Operating cash flow was ¥7.57bn, vastly exceeding net income of ¥0.11bn (OCF/NI ~71x), pointing to strong cash realization from non-cash charges (¥4.04bn depreciation) and likely working capital inflows. EBITDA of ¥4.86bn aligns with strong OCF, suggesting incremental cash benefits from working capital normalization (details not disclosed). Investing cash flow is shown as zero, which likely reflects lack of disclosure; capex intensity for this business is typically high, so true free cash flow cannot be reliably derived. Financing cash flow was an outflow of ¥5.47bn, indicating debt repayment and/or shareholder returns; with DPS shown as zero in this dataset, repayment is the more probable driver, but this is not confirmed. On an indicative basis, OCF less estimated maintenance capex would likely remain positive, but absent capex disclosure we treat FCF as indeterminate (the displayed FCF of 0 suggests non-disclosure). Working capital appears healthy with inventories of ¥7.22bn; the strong OCF suggests either inventory drawdown, receivables collection, or payables timing supported cash. Earnings quality is currently better on a cash basis than on an accrual basis due to cyclically depressed margins yet solid cash inflows.

Dividend Sustainability

Annual DPS and payout ratio are displayed as 0.00 and 0.0%, respectively, which may indicate non-disclosure rather than an actual suspension. With net income at ¥0.11bn in the period and strong OCF of ¥7.57bn, dividend capacity from cash flow appears potentially adequate in general, but depends on actual capex and policy. Financing outflows of ¥5.47bn might reflect debt reduction over distributions; absent clarity, we cannot assess FCF coverage for dividends. Capital intensity and cyclical earnings argue for a conservative payout through the cycle; management may prioritize balance sheet strength and capex. Policy outlook remains uncertain pending disclosure of full-year guidance and capital allocation priorities.

Risk Assessment

Business Risks:

• Cyclical demand and pricing pressure in lithium-ion battery materials and fluorochemicals
• Raw material and energy cost volatility (e.g., fluorspar, HF, electricity)
• Capacity utilization risk and fixed-cost absorption impacting margins
• Customer concentration in battery and electronics supply chains
• Technological shifts in battery chemistries affecting electrolyte demand
• Regulatory and environmental compliance costs for fluorinated chemicals
• Foreign exchange fluctuations impacting exports and raw materials

Financial Risks:

• Profit sensitivity to small revenue changes due to high operating leverage
• Interest coverage at ~3.6x could tighten if EBITDA weakens further
• Potential capex commitments not disclosed could pressure FCF and leverage
• Limited visibility on cash balance and debt maturity profile due to non-disclosure
• Tax expense volatility and potential non-recurring items impacting net income

Key Concerns:

• Sharp deterioration in operating and net margins despite modest revenue decline
• Very low ROE (0.16%) driven by compressed net margin
• Inability to assess true free cash flow given undisclosed investing cash flows
• Potential prolonged weakness in battery-related pricing and spreads

Investment Implications

Key Takeaways:

• Top line is resilient (-1.4% YoY) but profits compressed sharply (OP -52.6% YoY)
• EBITDA margin (15.7%) vs. OPM (2.6%) underscores heavy depreciation burden
• OCF strong at ¥7.57bn, indicating solid cash generation despite low earnings
• Balance sheet appears moderately levered with strong liquidity (current ratio ~197%)
• ROE is very low at 0.16%, highlighting need for margin recovery to drive returns

Metrics to Watch:

• Operating margin and ordinary income trajectory by quarter
• EBITDA/interest coverage and net debt/EBITDA (once cash/debt disclosed)
• Working capital days (inventory and receivable turns) and OCF/EBITDA
• Capex (growth vs. maintenance) and resulting free cash flow
• Pricing and utilization in electrolyte/fluorochemical segments

Relative Positioning: Within Japanese fluorochemical and battery-material peers, Kanto Denka Kogyo shows stronger liquidity and moderate leverage but currently weaker profitability and ROE due to margin compression; recovery potential hinges on spread normalization and utilization improvement.

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