SHIKOKU KASEI HOLDINGS CORPORATION FY2026 Q2 Earnings Report

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Executive Summary

The establishment of price revisions and an improved mix of high-value-added products, combined with the contribution from M&A in the Chemicals Business, resulted in higher revenue and earnings, with earnings growth substantially outpacing revenue growth and reflecting qualitative improvement. Revenue was ¥45.84B (+34.1% year on year), Operating Income was ¥9.44B (+79.7%), Ordinary Income was ¥9.69B (+86.2%), and Net Income attributable to owners of the parent was ¥6.66B (+78.7%). The Operating Income margin improved significantly to 20.6% from 15.4% in the previous year, with operating leverage, in addition to the revenue growth effect, supporting earnings growth.

Factors Affecting Business Performance

【Revenue】Revenue was ¥45.84B (+34.1% year on year), with the Chemicals Business driving growth at ¥35.79B (+46.4%), accounting for 78.1% of total company revenue. The Building Materials Business posted ¥9.53B (+4.0%), representing only modest revenue growth. In Chemicals, Inorganic Chemicals, Organic Chemicals, and Fine Chemicals all recorded double-digit growth, supported by the establishment of price revisions and a shift in demand toward high-value-added products. The consolidation of Indonesia-based PT Timuraya Tunggal also contributed to revenue growth.

【Profit and Loss】Operating Income was ¥9.44B (+79.7%), while the gross margin improved from the previous year to 43.9% and the SG&A expense ratio declined to 23.3%, expanding the Operating Income margin to 20.6% from 15.4% in the previous year. The Chemicals Business recorded a high segment profit margin of 25.1% and generated nearly all of the Company’s total profit. The Building Materials Business expanded its profit from a loss, recording Operating Income of ¥0.31B (+374.2%), although its profit margin remained low at 3.3%. Ordinary Income was ¥9.69B (+86.2%), supported by a foreign exchange gain of ¥0.18B. An impairment loss of ¥0.23B related to the organizational restructuring of the Building Materials Business was recorded as an extraordinary loss, but this was almost offset by extraordinary income of ¥0.50B, including a gain on the sale of investment securities of ¥0.29B, resulting in a limited impact on Net Income. This was a notable earnings report characterized by higher revenue and earnings, with the earnings growth rate exceeding the revenue growth rate and indicating structural improvement in profitability.

Segment Analysis

The Chemicals Business is the Company’s earnings base, with revenue of ¥35.79B (+46.4%), Operating Income of ¥8.98B (+76.7%), and a profit margin of 25.1%. The Building Materials Business posted revenue of ¥9.53B (+4.0%) and Operating Income of ¥0.31B (+374.2%), progressing toward a return to profitability; however, its profit margin of 3.3% remained low compared with the Chemicals Business, and it recorded an impairment loss of ¥0.23B related to organizational restructuring. Other Businesses reported revenue of ¥0.68B (-3.7%) and Operating Income of ¥0.01B (-72.5%), recording lower earnings despite their small scale. The substantial difference in profitability among segments indicates that the Company’s high dependence on Chemicals determines its overall profit margin.

Key Financial Indicators

【Profitability】The Operating Income margin of 20.6% (15.4% in the previous year) and Net Income margin of 14.5% (11.0% in the previous year) both improved significantly from the previous year, reflecting simultaneous improvement in the gross margin to 43.9% (42.5% in the previous year) and a decline in the SG&A expense ratio to 23.3% (27.1% in the previous year). 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥5.99B, only 0.90 times Net Income of ¥6.66B, with a ¥2.70B increase in accounts receivable being the primary source of pressure. 【Investment Efficiency】ROE was 6.4%; considered together with total asset turnover of 0.29 times and financial leverage of 1.55 times, the improvement in ROE for the period depended primarily on higher profit margins. 【Financial Soundness】The Equity Ratio remained high at 64.6% (65.0% in the previous year). Against cash and deposits of ¥36.76B, interest-bearing debt was in the ¥20B range in total, indicating that financial conservatism has not been compromised.

Cash Flow Analysis

Operating Cash Flow was ¥5.99B, increasing by +40.9% from ¥4.25B in the previous year; however, compared with Net Income of ¥6.66B, it remained at 0.90 times Net Income. The ¥2.70B increase in accounts receivable accompanying revenue growth, a ¥0.22B increase in inventories, and a ¥0.78B decrease in accounts payable put pressure on cash generation. Investing Cash Flow was -¥1.62B, reflecting investment activities centered on capital expenditures of ¥2.70B. As a result, free cash flow was positive at ¥4.37B, securing a level that could be covered with internal funds while continuing growth investments. Financing Cash Flow was -¥3.23B; although long-term borrowings increased by ¥0.47B, repayments of existing borrowings of ¥6.52B and dividend payments of ¥1.30B reduced funds. The fact that the increase in working capital accompanying revenue expansion is slowing the growth of cash generation is an important point to monitor from the perspective of future cash conversion efficiency.

Quality of Earnings

Current-period earnings were primarily derived from operating activities, and the impact of nonrecurring items was limited. Non-operating income of ¥0.58B (1.3% of revenue) was mainly attributable to dividend income of ¥0.14B and foreign exchange gains of ¥0.18B, and was strongly recurring in nature. Extraordinary income of ¥0.50B (including a gain on the sale of investment securities of ¥0.29B) and extraordinary losses of ¥0.49B (including an impairment loss of ¥0.23B in the Building Materials Business and a loss on disposal of fixed assets of ¥0.06B) almost offset each other, resulting in a limited net impact of approximately +¥0.01B on Net Income. The gap between Ordinary Income of ¥9.69B and Net Income of ¥6.66B was primarily attributable to income taxes of ¥3.15B (effective tax rate of 32.5%), with no structural distortion observed. Meanwhile, the fact that OCF was below Net Income reflects the accounting accrual arising from the increase in accounts receivable accompanying revenue growth. Although earnings quality was good, the time lag in cash conversion should be noted.

Earnings Forecast and Guidance

The full-year forecast calls for Revenue of ¥94.00B (+32.9% year on year), Operating Income of ¥18.00B (+65.6%), and Ordinary Income of ¥18.40B (+54.3%). First-half progress rates were 48.8% for Revenue, 52.4% for Operating Income, and 52.7% for Ordinary Income, with all three progressing at a pace slightly above the 50% quarterly benchmark. If the price revision effects and improved high-value-added product mix observed in the first half continue into the second half, results may be in line with or exceed the plan. Conversely, a reversal in raw material and foreign exchange conditions could create headwinds for margins.

Shareholder Returns

The interim dividend was ¥30 per share (¥25 in the same period of the previous year), representing an increase from the previous year. The payout ratio based on Net Income was approximately 40% based on the interim dividend, and sufficient capacity to pay dividends has been secured based on the levels of OCF and free cash flow (¥4.37B). In addition, the Company conducted a 2-for-1 stock split effective July 1, 2026; excluding the stock split, the full-year dividend forecast is ¥50 for the year-end dividend and ¥80 in total for the full year. No share repurchases were conducted during the first half, and dividends remain the primary form of shareholder returns.

Risk Factors

1. Segment concentration risk: The Chemicals Business accounts for 78.1% of revenue and the majority of Operating Income, resulting in high sensitivity to supply-demand and pricing trends in that business. The Building Materials Business has a low profit margin of 3.3%, and diversification of the earnings base remains limited.

2. Working capital and cash conversion risk: Accounts receivable increased by +32.0% from the previous year, while OCF remained at 0.90 times Net Income. A lengthening collection cycle during a period of revenue growth could affect future cash-generating capacity.

3. M&A integration and goodwill risk: The consolidation of PT Timuraya Tunggal resulted in goodwill of ¥1.99B and a significant increase in intangible assets. The purchase price allocation remains provisional, and amortization expenses or asset allocation could change upon finalization.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin both substantially exceed the industry median and are at high levels within the industry.

Growth and Capital Efficiency

The Revenue growth rate also substantially exceeds the industry median, placing the Company among the high-growth group within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Report

1. The Operating Income margin expanded to 20.6% from 15.4% in the previous year. The simultaneous improvement in the gross margin and decline in the SG&A expense ratio is noteworthy as a structural change indicating the establishment of price revision effects and the high-value-added product mix.

2. Full-year progress rates of 48.8% for Revenue and 52.4% for Operating Income exceed standard progress levels. Assuming a neutral environment in the second half, results are expected to finish in line with the plan.

3. The +32.0% increase in accounts receivable and the OCF/Net Income ratio of 0.90 times indicate that the expansion of working capital accompanying revenue growth is creating a time lag in cash generation. Trends in future collection management will be a factor influencing cash flow quality.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,271–¥1,346 at ±1% for the cost of equity, and ¥1,305–¥1,312 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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 with a professional as necessary.

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