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

Financial Highlights

• Net Sales: ¥40.35B
• Operating Income: ¥3.28B
• Net Income: ¥1.81B
• 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

Sakai Chemical Industry Co., Ltd. (TSE: 4078) delivered resilient profitability in FY2026 Q2 despite topline softness. Revenue declined 4.3% year over year to ¥40.35bn, but operating income rose 25.1% to ¥3.28bn, indicating meaningful margin expansion and improved operating efficiency. Gross profit was ¥9.63bn, translating to a gross margin of 23.9%, while the operating margin improved to approximately 8.1% (¥3.28bn/¥40.35bn). Net income increased 67.5% YoY to ¥2.93bn, lifting the net margin to 7.25%, supported by tight cost control and limited non-operating drag. Ordinary income (¥3.27bn) was very close to operating income, suggesting minimal impact from non-operating items, consistent with modest interest expense of ¥67m and strong interest coverage of about 49x. The DuPont breakdown indicates ROE of 3.71%, driven by a 7.25% net margin, 0.331x asset turnover, and 1.55x financial leverage. While ROE is relatively modest, the expansion in operating income and net income points to improving returns as cost actions take hold. Balance sheet strength is notable: total assets are ¥121.91bn, equity is ¥78.89bn, and liabilities are ¥43.93bn, implying a conservative capital structure with liabilities-to-equity of 0.56x. Liquidity is robust with a current ratio of 2.56x and a quick ratio of 2.01x, underpinned by ¥71.42bn in current assets and ¥27.91bn in current liabilities. Inventory of ¥15.38bn appears manageable relative to current assets, supporting working capital stability. Tax expense was ¥608m, implying an effective tax rate near the high teens on ordinary income, which looks normal for the company’s footprint. Reported cash flow figures were not disclosed in the filing (zeros indicate non-disclosure), limiting assessment of operating cash conversion and free cash flow in this period. Depreciation was also undisclosed, which constrains EBITDA analysis; nevertheless, operating profit and interest coverage provide comfort on cash generation potential. Dividend information (DPS and payout) was not reported, so no conclusions can be drawn on distribution policy changes this term. Overall, despite revenue pressure, the company executed well on costs and mix, protecting profitability and enhancing earnings. The strong liquidity and moderate leverage provide resilience for navigating demand variability and funding strategic investments.

Profitability Analysis

ROE decomposes to 3.71% = 7.25% net profit margin × 0.331x asset turnover × 1.55x financial leverage. Operating margin stands at roughly 8.1% (¥3.284bn/¥40.353bn), up meaningfully YoY given operating income growth of +25.1% against a -4.3% revenue decline. Gross margin is 23.9% (¥9.632bn/¥40.353bn), indicating stable-to-improving cost of sales performance, likely aided by raw material normalization and/or product mix. The small gap between operating and ordinary income implies limited non-operating headwinds; interest expense of ¥67m is modest, yielding 49x interest coverage. Net margin of 7.25% reflects both operating improvement and a normalizing tax burden. Operating leverage appears favorable this period: OI grew substantially on lower sales, suggesting effective SG&A control and positive fixed-cost absorption despite lower volume. EBITDA was not disclosed (depreciation unreported), but the strength in operating profit and interest coverage suggests underlying operating cash earnings remain sound. Overall profitability quality looks improved, with better cost discipline and pricing/mix partially offsetting demand softness.

Growth Assessment

Revenue declined 4.3% YoY to ¥40.35bn, indicating cyclical or end-demand softness in key segments. Despite the top-line contraction, operating income grew 25.1% and net income 67.5% YoY, driven by margin expansion and cost optimization. The quality of profit growth appears solid, as ordinary income nearly matches operating income, implying limited reliance on non-recurring/non-operating gains. However, the absence of operating cash flow disclosure limits validation of earnings-to-cash conversion this period. Asset turnover at 0.331x is modest for a chemicals/materials business, suggesting scope to improve capital efficiency if demand recovers. Near-term outlook hinges on demand normalization in downstream markets and the company’s ability to sustain cost discipline and pricing. If raw material costs remain benign and mix continues to improve, margin resilience could persist even with subdued volume. Conversely, a reacceleration of raw material costs or weaker export demand would pressure margins and growth. Overall, earnings resilience outpaced sales trends in the half, laying a better base for future recovery when volumes return.

Financial Health

Liquidity is strong: current ratio 255.9% (¥71.416bn/¥27.910bn) and quick ratio 200.8% (quick assets ≈ ¥56.037bn) indicate comfortable near-term coverage. Working capital totals ¥43.506bn, providing operational flexibility. The balance sheet is conservative with total liabilities of ¥43.933bn versus equity of ¥78.887bn, equating to a liabilities-to-equity ratio of 0.56x and assets-to-equity (financial leverage) of 1.55x. Interest burden is low (¥67m) with an interest coverage of roughly 49x, underscoring low financial risk. While the reported equity ratio was not disclosed, the implied equity ratio is approximately 64.7% (¥78.887bn/¥121.908bn). Inventory of ¥15.379bn appears proportionate to current assets, mitigating liquidity risk from overstocking. No cash and cash flow figures were disclosed; nonetheless, the strong current and quick ratios suggest ample liquidity buffers even absent reported cash balances.

Cash Flow Quality

Operating cash flow, investing cash flow, and financing cash flow were not disclosed for the period, so quantitative assessment of cash conversion and free cash flow is not possible from the provided data. The reported OCF/Net Income ratio and FCF were placeholders due to non-disclosure. Qualitatively, robust operating income and very high interest coverage imply healthy underlying operating cash earnings, but this cannot be confirmed without working capital and capex detail. Depreciation and amortization were also not disclosed, limiting EBITDA and accruals analysis. Working capital appears solid with strong liquidity metrics, and inventories are moderate relative to current assets, which typically supports cash conversion if sales are stable. Until OCF and capex are reported, conclusions on earnings quality and free cash flow sustainability should be treated as provisional.

Dividend Sustainability

Dividend per share and payout ratio were not disclosed for the period. EPS was ¥184.65 for the half-year basis, but without DPS or free cash flow detail, payout sustainability cannot be calculated. The balance sheet can support distributions given low leverage and strong liquidity, yet policy direction (stable, progressive, or flexible) is not inferable from current data. FCF coverage is unassessable due to missing OCF and capex. Investors should monitor subsequent disclosures for DPS, total dividend outlay, and cash flow statements to gauge coverage and consistency with any stated capital allocation policy.

Risk Assessment

Business Risks:

• End-demand softness leading to volume pressure (revenue -4.3% YoY).
• Raw material and energy price volatility impacting gross margins.
• Product mix shifts and pricing competition in chemicals/materials markets.
• Customer inventory adjustments elongating sales cycles.
• Potential FX fluctuations affecting export competitiveness and input costs.

Financial Risks:

• Limited visibility on cash generation due to non-disclosed cash flows.
• Potential working capital swings affecting cash conversion.
• Capex requirements (undisclosed) that could pressure FCF in downcycles.
• Tax rate variability (implied high-teens) impacting net margins.

Key Concerns:

• Lack of cash flow statement data constrains assessment of earnings quality.
• Depreciation not disclosed, limiting EBITDA and capital intensity analysis.
• Dividend policy and payout not disclosed for the period.

Investment Implications

Key Takeaways:

• Earnings resilience: operating income +25.1% and net income +67.5% YoY despite revenue -4.3%.
• Margin expansion evident: gross margin 23.9% and operating margin ~8.1%.
• ROE 3.71% with conservative leverage (assets/equity 1.55x) suggests room to enhance returns via efficiency and growth.
• Strong liquidity (current ratio 2.56x, quick ratio 2.01x) and low interest burden (49x coverage).
• Ordinary income closely tracks operating income, indicating limited non-operating noise.

Metrics to Watch:

• Disclosure of operating cash flow and capex; FCF conversion vs. net income.
• Volume recovery and pricing trends impacting revenue and gross margin.
• Inventory levels and working capital days to gauge cash conversion.
• ROE trajectory via asset turnover improvements and sustained margins.
• Any update on dividend policy, DPS, and payout guidance.

Relative Positioning: Compared with typical mid-cap Japanese chemical/materials peers, Sakai Chemical shows stronger balance sheet conservatism and liquidity, improving profitability despite softer sales, but trails best-in-class peers on ROE and capital efficiency pending a clearer recovery in asset turnover and confirmation of cash flow strength.

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