Sakai Chemical Industry Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥40.35B
• Operating Income: ¥3.28B
• Net Income: ¥2.97B
• EPS: ¥184.65

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Verdict: Solid Q2 with margin expansion and sharply higher bottom line despite revenue decline, aided by one-time gains below ordinary income. Revenue declined 4.3% YoY to 403.53, but operating income rose 25.1% YoY to 32.84, lifting operating margin to 8.1%. Ordinary income increased 24.2% YoY to 32.69, showing core improvement even as non-operating items were net slightly negative (income 2.30 vs expenses 2.45). Profit before tax jumped to 43.49, exceeding ordinary income by 10.80, indicating sizable extraordinary gains. Net income surged 67.5% YoY to 29.26, with EPS (basic) at 184.65 yen. Gross margin printed at 25.6%; operating margin expanded by roughly 191 bps YoY (from ~6.2% to 8.1%). Net margin expanded by an estimated 311 bps YoY (from ~4.1% to 7.2%) on improved operations and below-ordinary one-time gains. Cost discipline is evident as SG&A of 70.48 did not prevent operating leverage despite the sales decline. Financial health is strong: current ratio 242%, quick ratio 183%, and interest coverage 40x. Leverage appears conservative with D/E at 0.55x and equity/assets around 64.7%. Cash and deposits of 149.69 and receivables of 216.93 provide ample coverage of near-term obligations, including short-term loans of 120.20. However, ROIC at 2.7% flags weak capital efficiency relative to industry benchmarks (>7–8%). Earnings quality cannot be fully assessed due to unreported operating cash flow; the large gap between ordinary income and profit before tax suggests dependence on non-recurring gains this quarter. The calculated payout ratio of 78.4% looks elevated relative to typical sustainability thresholds, but dividend details and cash coverage are unreported. Forward-looking, sustaining the improved operating margin will be key amid soft top-line conditions, while normalizing extraordinary effects could temper bottom-line momentum. Overall, the quarter reflects healthier core profitability, but the durability hinges on cost management, demand recovery in key end markets, and improving ROIC.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.7% = Net profit margin 7.2% × Asset turnover 0.331 × Financial leverage 1.55x. The largest change driver versus last year is net margin, which expanded by an estimated ~311 bps (from 4.1% to 7.2%) due to operating margin uplift (+191 bps) and notable below-ordinary gains that boosted profit before tax. Asset turnover remains modest at 0.331, reflecting a capital-intensive balance sheet and subdued sales; this, alongside low ROIC (2.7%), limits overall capital efficiency. Financial leverage is conservative at ~1.55x assets/equity, providing stability but not amplifying ROE materially. Business reasons: mix and cost rationalization likely supported gross-to-operating spread, while extraordinary gains drove the pre-tax spike. Sustainability: operating margin gains are partially sustainable if cost discipline and product mix hold; extraordinary items are by nature one-time and should be normalized in forward estimates. Watch for adverse operating leverage if SG&A growth outpaces revenue; for this quarter, SG&A was contained relative to operating profit expansion despite lower sales.

Growth Assessment

Top-line declined 4.3% YoY to 403.53, indicating soft demand or pricing pressure in core chemicals end markets. Operating income grew 25.1% YoY to 32.84 on improved margins, demonstrating positive operating leverage. Ordinary income rose 24.2% YoY to 32.69, confirming underlying improvement despite slightly negative net non-operating contribution. Net income surged 67.5% YoY to 29.26, boosted by extraordinary gains (profit before tax exceeded ordinary income by 10.80). Revenue sustainability is uncertain near term given the YoY contraction; recovery depends on downstream sectors (electronics, autos, industrials) and pricing. Profit quality: core profitability improved, but bottom-line growth includes one-time items; normalizing extraordinary gains would lower run-rate EPS. Outlook: near-term growth will hinge on cost control, product mix upgrades, and stabilization of raw material costs; FX and feedstock volatility could swing margins. ROIC at 2.7% suggests room to streamline assets or improve returns to support long-term growth.

Financial Health

Liquidity is robust: current ratio 242.1% and quick ratio 183.4%, well above benchmarks; no warning flags (both >1.0). Solvency is sound with D/E at 0.55x and interest coverage at 40.05x, indicating ample debt service capacity. Equity ratio is approximately 64.7% (788.87/1219.08), denoting a conservative capital structure. Short-term loans of 120.20 are comfortably covered by cash (149.69) and accounts receivable (216.93), limiting maturity mismatch risk; inventories of 166.72 further support working capital if needed. Long-term loans stand at 59.14, with overall liabilities at 430.20 versus total equity of 788.87. No off-balance sheet obligations were disclosed in the provided data. Working capital is strong at 403.58, reducing refinancing risk.

Cash Flow Quality

Operating cash flow was not reported, so OCF/Net Income cannot be assessed; earnings quality assessment is therefore constrained. The jump from ordinary income (32.69) to profit before tax (43.49) indicates extraordinary gains that are non-recurring, which can inflate net income relative to cash generation in the quarter. With capex and investing cash flows unreported, free cash flow sustainability versus dividends and capex cannot be determined. Working capital levels (AR 216.93, inventories 166.72, AP 85.56) appear manageable; no signs of aggressive working capital release are evident from the limited data, but without cash flow statements we cannot confirm timing effects. Interest coverage of 40x supports the view that cash earnings cover interest well under normalized conditions.

Dividend Sustainability

The calculated payout ratio is 78.4%, which is above the typical <60% sustainability benchmark and would require healthy, recurring cash flows to sustain. However, DPS and dividends paid were unreported, and OCF/FCF coverage is not calculable, limiting certainty. Given that this quarter’s net income benefited from one-time gains, the effective payout on recurring earnings may be even higher. Balance sheet strength (equity ratio ~65%, strong liquidity) provides buffer, but long-term sustainability should be judged on normalized earnings and OCF once disclosed. Policy outlook cannot be inferred from the data provided.

Risk Assessment

Business Risks:

• Demand softness in end markets (electronics, automotive, industrial) evidenced by a 4.3% revenue decline
• Raw material and energy price volatility affecting gross margin
• Product mix risk; reliance on higher-margin grades to sustain operating margin
• Potential normalization of one-time gains that boosted profit before tax

Financial Risks:

• Low ROIC at 2.7% indicates weak capital efficiency and potential value drag
• Earnings quality uncertainty due to unreported operating cash flow
• Exposure to short-term loans (120.20) requires maintenance of working capital discipline, though currently well covered
• FX fluctuations impacting import costs and export pricing

Key Concerns:

• Sustainability of margin gains amid declining sales
• High calculated payout ratio (78.4%) without FCF disclosure
• Dependence of quarterly net income on extraordinary items (PBT > ordinary income by 10.80)
• Data gaps (cash flows, capex, segment detail) constrain full assessment

Investment Implications

Key Takeaways:

• Core profitability improved: operating margin rose to ~8.1% (+~191 bps YoY) despite lower sales
• Bottom-line growth (+67.5% YoY) was amplified by one-time gains below ordinary income
• Balance sheet and liquidity are strong (current ratio 242%, interest coverage ~40x)
• Capital efficiency remains weak (ROIC 2.7%), capping ROE at 3.7% despite low leverage
• Dividend sustainability appears stretched on a calculated basis (78.4% payout), but cash coverage is unknown

Metrics to Watch:

• Operating cash flow and free cash flow once disclosed (OCF/NI target >1.0)
• Gross and operating margin trajectory as volumes recover or soften
• Capex intensity and ROIC improvement initiatives
• Extraordinary gains/losses and their recurrence
• Working capital turns (AR and inventory days) versus historical levels

Relative Positioning: Within Japanese specialty/industrial chemicals peers, the company shows stronger near-term margin control and a conservative balance sheet, but lags on capital efficiency (ROIC) and exhibits elevated payout metrics without cash flow disclosure, suggesting a more defensive financial profile with execution needed to enhance returns.

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