DAIICHI KIGENSO KAGAKU-KOGYO CO.,LTD FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥17.15B
• Operating Income: ¥1.10B
• Net Income: ¥-442M
• EPS: ¥1.71

Income Statement

Balance Sheet

Cash Flow Statement

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

For FY2026 Q2 (cumulative), Daiichi Kigenso Kagaku Kogyo (4082) delivered modest topline growth amid pronounced profit compression and weak cash conversion. Revenue rose 0.8% YoY to ¥17.148bn, while operating income fell 29.4% YoY to ¥1.097bn, indicating negative operating leverage and margin pressure. Gross profit was ¥4.383bn, implying a gross margin of 25.6%, but the operating margin compressed to 6.4% as cost inflation and/or product mix likely offset the tepid revenue increase. Ordinary income dropped to ¥0.366bn, well below operating income due to sizable non-operating burdens, including ¥0.260bn of interest expense. Net income was a slim ¥0.041bn (net margin 0.24%), yet up 26.2% YoY, suggesting prior-year non-recurring factors or tax/extraordinary differences; detail is not disclosed. ROE is very low at 0.11% per DuPont (net margin 0.24% × asset turnover 0.274 × leverage 1.71), reflecting both subdued profitability and moderate asset turns. Depreciation and amortization of ¥1.731bn is substantial relative to operating income, underscoring a capital-intensive profile but also supporting EBITDA of ¥2.828bn (16.5% margin). Cash flow quality is weak: operating cash flow was negative ¥1.220bn against positive earnings, yielding an OCF/Net Income ratio of -29.8x, pointing to a heavy working capital drag or timing factors. Liquidity appears ample with a reported current ratio of 3.67x and working capital of ¥23.224bn; however, inventories and cash figures are not disclosed in this dataset, tempering certainty. The balance sheet looks conservatively capitalized with implied equity of ¥36.618bn against total assets of ¥62.622bn (equity ratio ~58.5% by calculation), and debt-to-equity of 0.72x using total liabilities as a proxy. Interest coverage at 4.2x (EBIT/interest) is acceptable but not robust if profits weaken further. No dividend was reported (DPS 0; payout 0%), which is consistent with preserving liquidity amid negative OCF and thin earnings. Investing cash flow and cash balance are undisclosed, so free cash flow cannot be reliably assessed. Overall, the quarter shows resilient sales but squeezed profitability, higher non-operating costs, and weak cash conversion, partially offset by a strong equity base and solid near-term liquidity. The outlook hinges on price-cost balance, normalizing working capital, and potential easing of non-operating headwinds. Data limitations (notably cash, inventories, capex) constrain the precision of this assessment.

Profitability Analysis

ROE is 0.11%, decomposed as net margin 0.24% × asset turnover 0.274 × financial leverage 1.71, indicating that ultra-thin net margin is the principal drag. Gross margin is 25.6% (¥4.383bn/¥17.148bn), but operating margin is 6.4%, evidencing sizable SG&A and/or manufacturing overhead absorption pressure. The 29.4% YoY decline in operating income versus +0.8% revenue growth signals negative operating leverage and/or unfavorable mix/price-cost dynamics. Ordinary income (¥0.366bn) trails operating income by ¥0.731bn, largely due to interest expense (¥0.260bn) and other undisclosed non-operating factors, compressing pre-tax margin to 2.1%. The effective tax burden implied by taxes of ¥0.199bn relative to ordinary income (¥0.366bn) looks high (~54%), though classification differences may apply under JGAAP. EBITDA is ¥2.828bn (16.5% margin), supported by substantial D&A (¥1.731bn), which cushions cash earnings but also highlights capital intensity. Interest coverage at ~4.2x (EBIT/interest) is adequate but has limited buffer if operating conditions deteriorate. Overall margin quality is mixed: gross margin remains mid-20s, but conversion to operating and net profit is weak due to opex intensity and non-operating burdens.

Growth Assessment

Revenue growth of +0.8% YoY to ¥17.148bn suggests stable but sluggish demand. The disconnect between sales and operating profit (-29.4% YoY) implies limited pricing power or rising input and fixed costs, with negative operating leverage at current volumes. Net income rose 26.2% YoY to ¥0.041bn, but given the drop in operating profit and the small base, the YoY increase likely reflects non-operating/tax effects; underlying profit quality remains soft. Asset turnover at 0.274x is modest for specialty chemicals, indicating capital intensity and potentially higher inventories/receivables (not disclosed here). Sustainability of revenue depends on maintaining stable end-market demand in zirconium-related applications and managing ASPs versus raw material costs; limited data on product mix and regional exposure constrains precision. Profit outlook hinges on restoring operating margin through cost control, price adjustments, and better utilization. With EBITDA margin at 16.5% but weak net margin (0.24%), further non-operating optimization (interest, FX/other) may be needed. Near-term growth visibility is moderate; normalization of working capital and improved price-cost spread would be key for profit recovery.

Financial Health

Total assets are ¥62.622bn, total liabilities ¥26.271bn, and total equity ¥36.618bn, implying an equity ratio near 58.5% (though the reported equity ratio field shows 0%, which likely reflects non-disclosure in this dataset). Debt-to-equity is 0.72x using total liabilities as a proxy, indicating moderate leverage against a solid equity base. Current assets are ¥31.932bn versus current liabilities of ¥8.708bn, producing a current ratio of 3.67x and working capital of ¥23.224bn, suggesting strong short-term liquidity. The quick ratio is shown equal to the current ratio because inventories are undisclosed; thus, true quick liquidity may be lower. Interest expense of ¥0.260bn against EBIT of ¥1.097bn gives 4.2x coverage—adequate but sensitive to further EBIT declines. The capital structure appears conservative, but the lack of disclosed cash and debt composition limits a deeper solvency view. Overall, balance sheet resilience offsets near-term earnings softness, provided negative OCF is transitory.

Cash Flow Quality

Operating cash flow was negative ¥1.220bn despite positive net income of ¥0.041bn, yielding an OCF/Net Income ratio of -29.8x—indicative of substantial working capital outflows and/or timing effects. With D&A of ¥1.731bn and EBITDA of ¥2.828bn, accrual earnings are supported, but cash conversion is currently weak. Investing cash flow is undisclosed (shown as 0), preventing a reliable free cash flow calculation; the reported FCF of 0 should be treated as not available rather than true zero. Financing cash flow was a modest inflow of ¥0.129bn, likely reflecting debt draw or other financing to bridge cash needs. The absence of disclosed cash and equivalents constrains assessment of liquidity runway and cushion. Key watchpoints are inventory normalization, receivables collection, and payables timing, which likely drove the negative OCF. Sustained improvement in working capital efficiency will be necessary to align cash generation with EBITDA.

Dividend Sustainability

No dividend per share is reported for the period (DPS 0; payout 0%), consistent with preserving cash amid negative operating cash flow and very low net income (EPS ¥1.71). Given undisclosed investing cash flow and cash balance, free cash flow coverage of dividends cannot be determined and the reported FCF coverage of 0x should be treated as not available. With ROE at 0.11% and interest coverage at ~4.2x, prioritizing internal reinvestment and balance sheet strength appears prudent. Future distribution capacity depends on restoring operating margin and normalizing working capital to generate positive, repeatable FCF. No explicit dividend policy information is available in the dataset; outlook on dividends is therefore uncertain and contingent on cash flow recovery.

Risk Assessment

Business Risks:

• Input cost and supply volatility for zirconium/rare earth feedstocks, including concentration risk by geography.
• Cyclical demand in end-markets (ceramics, catalysts, electronics/battery materials) driving volume and mix swings.
• Pricing power constraints leading to negative operating leverage when volumes stall.
• Foreign exchange volatility affecting both input costs and export competitiveness.
• Environmental, safety, and regulatory compliance costs inherent to specialty chemical processing.
• Customer concentration risk typical in specialty chemicals (limited disclosed detail).

Financial Risks:

• Negative operating cash flow despite positive earnings, implying working capital stress.
• Interest burden (¥0.260bn) compressing ordinary income; interest coverage at ~4.2x provides limited buffer.
• Potential capex requirements given high D&A (¥1.731bn), with investing CF undisclosed.
• Liquidity visibility constrained by undisclosed cash and inventories, raising uncertainty on near-term cash cushion.
• Possible covenant sensitivity if profitability weakens and financing needs rise.

Key Concerns:

• Sustained margin compression with only marginal revenue growth.
• Weak cash conversion (OCF/NI -29.8x) pointing to working capital and timing issues.
• Large gap between operating and ordinary income due to non-operating factors.
• Data limitations on cash, inventories, and capex that impede precise FCF assessment.

Investment Implications

Key Takeaways:

• Topline stable (+0.8% YoY) but operating profit fell sharply (-29.4% YoY), reflecting negative operating leverage.
• Net profitability is minimal (net margin 0.24%), driving a very low ROE of 0.11%.
• EBITDA margin (16.5%) contrasts with weak net margin due to non-operating costs and taxes.
• Operating cash flow negative (¥1.220bn), indicating working capital pressure and poor cash conversion.
• Balance sheet strength is a mitigating factor, with implied equity ratio ~58.5% and current ratio 3.67x.
• Interest coverage at ~4.2x is adequate but vulnerable if operating conditions deteriorate.
• Dividend not reported; capital allocation appears conservative amid cash flow uncertainty.

Metrics to Watch:

• Operating margin trajectory and SG&A/COGS control.
• Working capital metrics (receivable days, payable days, inventory days) and OCF recovery.
• Price-cost spread: ASPs vs. raw material costs for zirconium/related inputs.
• Interest expense trend and ordinary income gap versus operating income.
• Capex and investing cash flows relative to D&A to gauge maintenance vs. growth spend.
• FX rates (USD/JPY, CNY/JPY) and any changes in sourcing or export mix.

Relative Positioning: Within Japanese specialty chemicals, the company exhibits mid-20s gross margins but a below-peer operating margin (6.4%) and very low ROE, offset by a comparatively strong equity base and ample working capital; near-term positioning hinges on restoring operating leverage and improving cash conversion.

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