Sakai Chemical Industry Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Although revenue increased in the quarter, operating income declined, and the increase in net income was dependent on temporary factors. Revenue was ¥21.47B (+6.6% YoY), Operating Income was ¥1.71B (-10.5%), and Ordinary Income was ¥1.88B (-2.5%). Net Income increased substantially to ¥2.04B (+56.8%), primarily due to the recognition of a ¥1.17B gain on the sale of fixed assets as extraordinary income. However, the profitability of the core business deteriorated due to a decline in the gross profit margin.

Factors Affecting Performance

【Revenue】Revenue increased 6.6% YoY to ¥21.47B. By segment, Electronic Materials maintained the largest revenue scale at ¥3.36B (+17.2%), while Catalysts (+40.1%) and Cosmetic Materials (+58.5%) posted strong growth. In contrast, Titanium Oxide and Zinc Products (-30.0%) and Organic Chemicals (-9.5%) reported lower revenue due to weakening market conditions.

【Profit and Loss】Operating Income declined 10.5% YoY to ¥1.71B. The gross profit margin declined to 25.0% from the previous year, with the effects of raw material costs and product mix offsetting the benefits of selling, general and administrative expense controls. Ordinary Income was ¥1.88B (-2.5%), as non-operating income—including ¥0.14B in dividend income and ¥0.05B in foreign exchange gains—partially offset the decline in Operating Income. Net Income was ¥2.04B (+56.8%), but the ¥1.17B gain on the sale of fixed assets recognized as extraordinary income was the primary contributor. The earnings profile was therefore characterized by higher revenue but lower core operating income, alongside higher net income driven by temporary factors.

Segment Analysis

Electronic Materials was the largest contributor to consolidated profit, with revenue of ¥3.36B (15.7% of total revenue, +17.2% YoY) and Operating Income of ¥0.58B (+22.1%), representing a profit margin of 17.3%. Barium also maintained its position as a highly profitable segment, with revenue of ¥1.72B (+7.4%) and a profit margin of 17.6%. Cosmetic Materials increased revenue to ¥0.53B (+58.5%), but its operating loss widened to ¥0.11B, including an impairment loss on fixed assets of ¥0.12B. The Medical Business also recorded an operating loss of ¥0.02B, compared with a profit of ¥0.006B in the previous year, despite revenue of ¥2.11B (+0.5%). Titanium Oxide and Zinc Products were significantly affected by deteriorating market conditions, with revenue of ¥1.94B (-30.0%) and profit of ¥0.14B (-65.3%). Differences in profitability among segments are diluting the Company-wide margin.

Key Financial Indicators

【Profitability】The Operating Income margin declined to 7.9% from 9.5% in the previous year (¥1.90B/¥20.14B), while the gross profit margin also deteriorated to 25.0%, indicating weakness in the profitability of the core business. The Net Income margin improved to 9.5% from 6.4% in the previous year, but this was substantially boosted by extraordinary income.【Earnings Quality】The net amount of ¥1.03B resulting from extraordinary income of ¥1.17B and extraordinary losses of ¥0.14B contributed to the increase in Profit Before Tax of ¥2.91B. The gap between Ordinary Income of ¥1.88B and Net Income of ¥2.04B was therefore largely attributable to temporary factors.【Investment Efficiency】ROE was 2.4%, while the Equity Ratio was 69.9%, indicating a structure that prioritizes financial stability over efficient use of capital.【Financial Soundness】The Equity Ratio rose to 69.9% from 67.3% in the previous year. Cash and deposits increased to ¥17.72B (+14.3% YoY), while long-term borrowings declined to ¥4.05B (-12.7% YoY), further stabilizing the financial base.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is not available, the movement of funds can be assessed based on changes in the balance sheet. Cash and deposits amounted to ¥17.72B, an increase of ¥2.22B from the previous year. Inventories declined by ¥1.02B YoY to ¥14.22B, indicating progress in inventory reduction, while accounts payable increased by ¥1.56B to ¥10.20B, suggesting that the use of payment terms supported short-term liquidity. Recognition of the ¥1.17B gain on the sale of fixed assets is believed to have been accompanied by cash inflows from asset sales and may have contributed to the increase in cash balances. Long-term borrowings declined by ¥0.59B YoY to ¥4.05B, indicating progress in reducing interest-bearing debt. Net assets increased by ¥4.77B YoY to ¥83.69B, as the accumulation of retained earnings and other comprehensive income strengthened the financial base.

Earnings Quality

Attention should be paid to the high degree of dependence of the current-period earnings structure on temporary factors. Recurring earnings are represented by Operating Income of ¥1.71B and Ordinary Income of ¥1.88B, which reflects non-operating income of ¥0.24B and non-operating expenses of ¥0.06B. Ordinary Income therefore declined only modestly, by -2.5% from the previous year. In contrast, Profit Before Tax, after reflecting extraordinary income of ¥1.17B from the gain on the sale of fixed assets and extraordinary losses of ¥0.14B, including an impairment loss of ¥0.12B, amounted to ¥2.91B. The ¥1.03B difference from Ordinary Income consisted of non-recurring items. More than half of Net Income of ¥2.04B was therefore attributable to net extraordinary gains and losses, indicating that the increase in final profit was driven by a temporary asset-sale effect rather than an improvement in sustainable earnings power. Comprehensive Income was ¥3.05B, exceeding Net Income of ¥2.04B. The primary reason was a ¥0.96B increase in valuation differences on securities, indicating that changes in the value of non-operating assets supported Comprehensive Income.

Earnings Forecast and Guidance

Progress against the full-year forecast was 26.3% for Revenue (¥21.47B/¥81.70B), 28.4% for Operating Income (¥1.71B/¥6.00B), and 30.8% for Ordinary Income (¥1.88B/¥6.10B). Operating Income and Ordinary Income are progressing slightly ahead of the simple progress benchmark of 25%. However, the full-year Operating Income forecast assumes a -7.0% YoY decline, and the -10.5% decline in Q1 is broadly in line with this plan. No revisions were made to the earnings or dividend forecasts, and management has maintained its full-year plan.

Shareholder Returns

The Company’s dividend forecast is DPS of ¥160, implying a Payout Ratio of approximately 55.7% based on forecast EPS of ¥287.37. The Company plans to increase the full-year dividend from the previous year’s DPS of ¥65 (interim actual), and no revision has been made to the dividend forecast. Given the financial base consisting of an Equity Ratio of 69.9% and cash and deposits of ¥17.72B, there are no apparent concerns regarding dividend sustainability based on the information available as of the current quarter.

Risk Factors

1. Deterioration in market conditions for commodity-oriented segments: Titanium Oxide and Zinc Products recorded revenue of -30.0% and profit of -65.3%, while Organic Chemicals recorded revenue of -9.5% and profit of -44.2%. Both were significantly affected by weakening market conditions and contributed to an estimated decline of -240bp in the Company-wide gross profit margin.

2. Deterioration in the profitability of Cosmetic Materials and the Medical Business: Cosmetic Materials recorded an operating loss of ¥0.11B, worsening from a loss of ¥0.065B in the previous year, and recognized an impairment loss of ¥0.12B. The Medical Business also fell into an operating loss of ¥0.02B from the previous year. Both segments are diluting the Company-wide margin.

3. Dependence of Net Income on temporary factors: The ¥1.17B extraordinary gain from the sale of fixed assets made a substantial contribution to Net Income of ¥2.04B. The level of profit in subsequent periods after this factor has dissipated therefore requires close monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income margin is slightly below the industry median, while the Net Income margin exceeds the industry median due to the boost from extraordinary income.

Growth and Capital Efficiency

The Revenue growth rate is slightly above the industry median and is positioned around the middle of the range.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The Operating Income margin declined to 7.9% from 9.5% in the previous year, with deterioration in the gross profit margin affecting core earnings power. Trends in the market-sensitive segments—Titanium Oxide and Zinc Products and Organic Chemicals—will be key to recovering the gross profit margin.

2. The 56.8% increase in Net Income depended on the non-recurring ¥1.17B gain on the sale of fixed assets. On an Ordinary Income basis, profit declined -2.5%; monitoring trends in Ordinary Income and Operating Income is therefore useful for assessing sustainable earnings trends.

3. The Electronic Materials segment continued to achieve double-digit growth in both revenue and profit, with a profit margin of 17.3%, exceeding the Company-wide average. Whether the segment’s revenue contribution continues to expand will be a key point in assessing changes in the Company-wide earnings structure.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥4,338–¥4,584 at ±1% for the cost of equity, and ¥4,444–¥4,468 at ±0.1 for ω.

Notes:

• Because progress of Net Income against the full-year forecast (45%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of plan tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below Book Value per Share.
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).

(Model used: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee future share prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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 professionals as necessary.

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