DAIICHI KIGENSO KAGAKU-KOGYO CO.,LTD FY2027 Q1 Earnings Report

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Executive Summary

In addition to higher revenue and profit, the quarter was characterized by an improvement in the operating margin and a return to net profitability due to foreign exchange gains. Revenue was ¥101.1B (¥81.0B in the same period last year, YoY +24.9%), Operating Income was ¥11.5B (¥5.2B, YoY +119.4%), Ordinary Income was ¥14.1B (¥0.1B), and Net Income returned to profitability at ¥9.6B (¥-0.0B). The increase in revenue was primarily attributable to expanded sales volume. Operating margin improved to 11.4% due to SG&A expense controls, while foreign exchange gains of ¥4.0B further boosted Ordinary Income and Net Income.

Factors Affecting Performance

【Revenue】Revenue increased 24.9% year on year to ¥101.1B. The Company operates as a single segment (manufacturing and sales of chemical industrial products), and expanded sales volume appears to have been the primary driver of the revenue increase. Cost of sales increased alongside revenue to ¥71.9B, while the gross margin declined slightly to 28.9% from 29.4% in the same period last year, a decrease of -59bp.

【Profit and Loss】Operating Income increased 119.4% YoY to ¥11.5B, and the operating margin improved by +491bp to 11.4% from 6.5% in the same period last year. Despite the decline in gross margin, the decrease in SG&A expenses to ¥17.7B (¥18.6B in the same period last year) was the primary factor behind the improvement in operating margin. Ordinary Income was ¥14.1B; foreign exchange gains of ¥4.0B boosted non-operating income and significantly increased Net Income, exceeding interest expenses of ¥1.2B. Net Income was ¥9.6B, representing a return to profitability from the nominal loss recorded in the same period last year. Extraordinary gains and losses were nearly zero, and the difference between Ordinary Income and Net Income was a standard one attributable to income taxes and other taxes of ¥4.5B (effective tax rate: 32.0%). The quarter was characterized by higher revenue and profit, with both cost controls at the operating level and the temporary factor of foreign exchange gains contributing to the results.

Segment Analysis

The Company operates as a single segment comprising the manufacture and sale of chemical industrial products, and does not disclose results by segment.

Key Financial Indicators

【Profitability】The operating margin improved to 11.4% from 6.5% in the same period last year, while the net margin turned positive at 9.4% (a nominal loss in the same period last year). The gross margin declined slightly to 28.9%, down -59bp from the previous year, and the improvement in operating margin was primarily attributable to SG&A expense controls.【Cash Flow Quality】Raw materials increased to ¥57.0B, while accounts receivable and notes receivable also remained high at ¥70.6B. The expansion of working capital alongside the increase in Operating Income requires monitoring from the perspective of capital efficiency.【Investment Efficiency】ROE was 2.4%. Compared with the return to net profitability, the low total asset turnover (an asset-intensive structure) continues to constrain capital efficiency.【Financial Soundness】The Equity Ratio remained high at 60.2%. Short-term borrowings decreased substantially year on year compared with long-term borrowings of ¥143.5B, while cash and deposits totaled ¥91.4B, indicating a stable financial base.

Cash Flow Analysis

Although detailed information on the statement of cash flows is not included in the disclosed data, cash trends can be assessed from movements in the balance sheet. The increase in raw materials to ¥57.0B (+31% year on year) and in accounts receivable and notes receivable to ¥70.6B indicates an expansion in working capital associated with higher revenue. Meanwhile, cash and deposits declined to ¥91.4B from ¥111.4B in the same period last year, while short-term borrowings decreased substantially from ¥22.0B to ¥5.0B. This can be interpreted as the simultaneous progress of a review of the funding structure and investment of funds into inventories and accounts receivable. Whether the expansion in Operating Income is translating sufficiently into cash generation will depend on improvements in inventory and receivables turnover.

Earnings Quality

The increase in profit for the current period comprised both a structural improvement at the operating level through SG&A expense controls and the temporary factor of ¥4.0B in foreign exchange gains. Foreign exchange gains accounted for ¥4.0B of non-operating income of ¥4.8B, making a substantial contribution to the increase in Ordinary Income to ¥14.1B. Meanwhile, interest expenses of ¥1.2B represented a major component of non-operating expenses, and the fact that foreign exchange gains exceeded these expenses contributed to the return to net profitability. Extraordinary gains and losses were virtually absent, and Net Income of ¥9.6B, calculated by deducting income taxes and other taxes of ¥4.5B from pre-tax income of ¥14.1B, reflected a standard effective tax rate of 32.0%. Comprehensive Income was ¥8.4B, slightly below Net Income of ¥9.6B, as other comprehensive income items such as foreign currency translation adjustments of ¥-0.6B and valuation differences on securities of ¥-0.4B had a negative impact. While the improvement at the operating level is expected to be sustainable, foreign exchange gains are a temporary factor that may fluctuate depending on market conditions.

Earnings Forecasts and Guidance

Progress against the full-year forecast was 27.3% for Revenue, 38.4% for Operating Income, and 70.3% for Ordinary Income. Net Income was not disclosed in the forecast, but the ¥9.6B achieved represents 64.0% of the Company’s planned Net Income of ¥15.0B. Progress in Ordinary Income and Net Income substantially exceeded progress in Revenue and Operating Income, reflecting the boost from the non-operating factor of foreign exchange gains. The full-year Company plan calls for Operating Income to decline YoY by -13.8% and Ordinary Income to decline YoY by -38.6%, suggesting that the plan may assume the contribution from foreign exchange gains in the first half will abate from the second half onward. No revisions to the earnings forecasts had been made as of this quarter.

Shareholder Returns

The Company’s annual dividend plan is ¥30.00 per share (an increase from ¥14 in the previous year). The Payout Ratio against the Company’s planned EPS of ¥62.12 is approximately 48.3%. With an Equity Ratio of 60.2% and a favorable interest coverage ratio, the Company has sufficient financial capacity to maintain dividend payments. No disclosure regarding share repurchases was identified.

Risk Factors

1. Foreign Exchange Risk: Foreign exchange gains of ¥4.0B significantly boosted Ordinary Income during the quarter. This contribution is a temporary factor that could reverse depending on market conditions, and its sustainability for the full year is uncertain.

2. Inventory and Working Capital Risk: Raw materials increased to ¥57.0B (approximately +31% from ¥43.4B in the previous year), while finished products reached ¥80.9B. Although part of the increase reflects inventory accumulation in response to higher revenue, it entails risks of inventory valuation losses and deteriorating turnover efficiency.

3. Asymmetric Revenue and Profit Progress Risk: Full-year progress is substantially ahead for Ordinary Income at 70.3% compared with 27.3% for Revenue, and the pace of progress may change if non-operating factors, particularly foreign exchange gains, abate in the second half.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Company’s operating margin and net margin exceed the industry median, placing its profitability relatively high within the industry.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeds both the industry median and the upper bound of the IQR, demonstrating high growth within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. In addition to higher revenue, the operating margin improved through SG&A expense controls (+491bp), confirming fundamental earnings improvement in the cost structure.

2. The increase in Ordinary Income and Net Income was heavily dependent on foreign exchange gains of ¥4.0B. The high level of full-year progress (70.3% for Ordinary Income) must therefore be viewed in light of the inclusion of temporary factors.

3. The increase in raw material inventories and the high level of accounts receivable indicate an expansion of working capital associated with higher revenue. Inventory and collection management will be key areas to monitor going forward.

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). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,353–¥1,430 at ±1% for the cost of equity, and ¥1,383–¥1,396 at ±0.1 for ω.

Notes:

• Because progress in Net Income against the full-year forecast (64%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of schedule tend to outperform their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net Income is significantly compressed relative to Operating Income due to tax burdens, acquisition-related expenses, and non-controlling interests, among other factors (Net Income ÷ Operating Income: 50%). This figure reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• 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 from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

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

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