Toho Acetylene Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥15.98B
• Operating Income: ¥678M
• Net Income: ¥668M
• EPS: ¥12.65

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

Toho Acetylene (40930) reported FY2026 Q2 consolidated results under JGAAP showing top-line resilience but notable profit compression. Revenue was ¥15.98bn, down 2.0% YoY, indicating relatively stable demand despite macro softness. Gross profit of ¥5.40bn implies a robust gross margin of 33.8%, but operating income fell 27.1% YoY to ¥678m, reflecting significant operating deleveraging. Ordinary income of ¥785m exceeded operating income, suggesting net non-operating gains of roughly ¥107m (e.g., financial income or equity-method contributions) offsetting part of the operating weakness. Net income declined 29.2% YoY to ¥440m, with a net margin of 2.75%, underscoring margin pressure below the gross line. The DuPont profile points to a low ROE of 2.14%, driven primarily by thin net margins and modest asset turnover (0.485x), with only moderate financial leverage (assets/equity ≈1.60x). Liquidity remains strong: current ratio 179% and quick ratio 167% indicate ample short-term coverage supported by ¥8.61bn of working capital. Leverage appears conservative, with an interest coverage ratio of 34.7x and a debt-to-equity ratio cited at 0.65x, reducing near-term solvency risk. Cash flow quality is a relative bright spot: operating cash flow of ¥1.18bn is 2.67x net income, aided by non-cash depreciation (¥323m) and likely favorable working capital movements. However, investing cash flow, cash and equivalents, dividend, and share count data are not disclosed in this dataset (zeros denote unreported items), limiting precision in capex, FCF, and per-share analyses. The effective tax rate shown as 0.0% in the derived metrics is not reflective of the data; based on income tax expense of ¥393m and net income of ¥440m, implied pre-tax income is ~¥833m and the effective tax rate is approximately 47%, which is elevated. The operating margin of 4.2% (¥678m/¥15.98bn) contrasts sharply with the healthy gross margin, indicating SG&A inflation and/or incomplete cost pass-through. Ordinary margin at 4.9% highlights some cushioning from non-operating items but does not fully offset weaker core profitability. Balance sheet strength should support ongoing investment and pricing strategy adjustments to restore margins. Overall, the period reflects negative operating leverage on a slightly lower revenue base, with good cash conversion and solid balance sheet capacity to navigate cost pressures.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 2.75% x asset turnover 0.485 x financial leverage 1.60 ≈ ROE 2.14% (matches reported). The main drag is the slim net margin, as turnover is moderate and leverage is not high. Gross margin is strong at 33.8%, indicating decent value-add in production and/or favorable product mix. Operating margin is 4.2%, suggesting SG&A, energy, and logistics costs are squeezing profits; the large gap between gross and operating margin points to cost inflation or pricing lag. Ordinary income exceeds operating income by ~¥107m, implying non-operating support (e.g., financial income, equity method) that partially mitigates core pressure. EBITDA is ~¥1.00bn with a 6.3% margin, modest relative to the gross margin and signaling limited operating efficiency and/or high fixed overhead. Interest expense is low at ¥19.5m, and EBIT/interest coverage is a very comfortable ~34.7x, so financing costs are not a profitability constraint. The implied effective tax rate is high (~47%), weighing further on net margin; tax normalization could provide some upside to net profitability if one-offs are present. Operating leverage appears unfavorable this half: a 2.0% revenue decline coincided with a 27.1% operating income decline, indicating high fixed cost intensity or delayed pricing adjustments. Overall, margin quality at the gross level is intact, but below-gross-line cost control and pricing power need improvement to lift ROE.

Growth Assessment

Revenue declined 2.0% YoY to ¥15.98bn, indicating resilient but slightly softer demand likely reflecting industrial end-market moderation. Profitability contracted disproportionately to revenue, highlighting negative operating leverage and/or incomplete cost pass-through. Ordinary income outperformed operating income, suggesting some recurring non-operating support, but core earnings (operating) are the key area needing recovery. The net margin of 2.75% is low for the sector context, limiting internal capital generation. With depreciation of ¥323m in the half (annualizing to ~¥646m), the asset base requires ongoing reinvestment; absent disclosed investing cash flows, we cannot assess capex intensity or growth capex. Cash conversion was strong (OCF/NI 2.67x), which supports ongoing operations and potential selective growth investments. Sustainability of revenue depends on maintaining pricing versus input costs (energy, raw materials) and industrial activity levels across key customer sectors. Outlook hinges on restoring operating margin via price-cost management and SG&A discipline; even modest top-line growth could translate to outsized operating income recovery if fixed costs remain high. Non-operating gains provided a buffer this period but should not be relied upon for structural growth. Given the data limitations (no segment or regional details, no capex disclosure), we assume revenue trends remain flattish near term, with recovery contingent on margin actions rather than volume expansion.

Financial Health

Total assets were ¥32.96bn and total equity ¥20.54bn, implying financial leverage (assets/equity) ~1.60x and an equity buffer of ~62% of assets. Total liabilities are ¥13.25bn, with current liabilities at ¥10.88bn; current assets of ¥19.49bn yield a current ratio of 179% and quick ratio of 167%, indicating robust short-term liquidity. Working capital of ¥8.61bn provides ample cushion against near-term cash demands. Interest expense is low at ¥19.5m, and coverage is strong at ~34.7x EBIT, indicating minimal refinancing or interest-rate risk in the period. The quoted debt-to-equity of 0.65x suggests moderate leverage, though the composition between interest-bearing debt and other liabilities is not disclosed here. Equity ratio is shown as 0.0% in the dataset but is an undisclosed item, not an indicator of weak capitalization; based on assets and equity provided, the true equity ratio is approximately 62%. Inventory stands at ¥1.30bn, implying low inventory intensity versus sales and potentially shorter cash conversion cycles, though without receivables/payables data we cannot compute CCC. Overall solvency and liquidity appear strong, giving the company flexibility to weather profit headwinds and invest selectively.

Cash Flow Quality

Operating cash flow was ¥1.18bn versus net income of ¥440m, yielding OCF/NI of 2.67x, a strong earnings-to-cash conversion for the half. Depreciation of ¥323m explains part of the uplift; the remainder likely reflects favorable working capital movements (e.g., collections or payables timing), although detailed working capital changes are not disclosed. EBITDA of ~¥1.00bn supports the OCF outcome and indicates cash profitability despite margin compression. Investing cash flow is shown as zero but is undisclosed; thus, we cannot derive capex or true free cash flow. The reported FCF of zero in the calculated metrics should be interpreted as “not available,” not an absence of FCF generation. Financing cash flow was an outflow of ¥464m, implying debt repayment, dividends, or share buybacks; given dividends are undisclosed and share data is unavailable, we cannot specify the components. Cash and equivalents are shown as zero but are undisclosed; therefore, we cannot evaluate end-period liquidity balances or net cash/net debt precisely. Overall, earnings quality appears solid this period given strong OCF relative to earnings, but sustainability depends on maintaining working capital discipline and stabilizing margins.

Dividend Sustainability

Dividend per share (DPS) is shown as 0.00 and payout ratio 0.0%, but these are undisclosed items and not indicative of an actual suspension. With net income of ¥440m and strong OCF of ¥1.18bn, the capacity to pay dividends exists in principle, but without capex (investing CF) and net debt details we cannot assess free cash flow coverage accurately. Absent disclosed DPS or policy commentary, we cannot infer the current payout policy or its trajectory. If capex roughly tracks depreciation (~¥323m half; ~¥646m annualized), indicative pre-dividend FCF could be positive, but this is an assumption given missing investing cash flow. Financing outflow of ¥464m might include dividends or debt service, but the breakdown is not available. Overall, dividend sustainability cannot be conclusively evaluated from this dataset; more detail on capex, cash balances, and any announced payout policy is needed.

Risk Assessment

Business Risks:

• Input cost volatility (energy, feedstock) impacting price-cost spread and gross-to-operating margin conversion
• Demand cyclicality in industrial end-markets (manufacturing, construction, welding-related applications)
• Pricing power and pass-through timing risks leading to negative operating leverage on small revenue declines
• Regulatory and safety compliance risks inherent in industrial gases and chemical handling
• Customer concentration risk if large industrial clients represent significant revenue shares (not disclosed)
• Competitive pressure from larger domestic peers with greater scale and procurement advantages

Financial Risks:

• Margin compression reducing interest coverage headroom if rates rise or earnings weaken further
• Potential increase in working capital needs during upcycles, which could dilute OCF if not managed
• Tax rate volatility (implied ~47% this period) reducing net income predictability
• Limited visibility on capex and debt maturity profile due to undisclosed investing cash flows and cash balances

Key Concerns:

• Operating income down 27.1% on a 2.0% revenue decline indicates unfavorable operating leverage
• Low ROE (2.14%) driven by thin net margins despite moderate leverage and healthy gross margin
• Dependence on non-operating gains to lift ordinary income above operating income
• Elevated implied effective tax rate (~47%) further constraining net profitability

Investment Implications

Key Takeaways:

• Top line is relatively stable (-2.0% YoY), but operating margin compression is the core issue to address
• Gross margin (33.8%) remains robust, suggesting scope for recovery if SG&A and energy/logistics costs are managed
• Cash conversion is strong (OCF/NI 2.67x), supporting resilience and potential reinvestment
• Balance sheet is solid (current ratio 179%, interest coverage ~34.7x), limiting solvency risk
• ROE is low (2.14%) primarily due to net margin pressure; improving operating efficiency is key

Metrics to Watch:

• Operating margin and price-cost spread (energy and raw material pass-through)
• SG&A ratio to sales and fixed cost absorption
• Ordinary income versus operating income gap (quality and sustainability of non-operating gains)
• OCF/NI ratio and working capital days (AR, AP, inventory)
• Capex versus depreciation to gauge reinvestment intensity and true FCF
• Effective tax rate trend and one-off tax items
• Debt/EBITDA and net cash/debt once cash and interest-bearing debt details are disclosed

Relative Positioning: Within Japan’s industrial gases and related chemical suppliers, Toho Acetylene exhibits strong liquidity and low financing risk but weaker operating profitability this period, leaving ROE below peers that sustain higher operating margins; recovery depends on cost control and pricing execution rather than balance sheet repair.

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