TODA KOGYO CORP. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥14.31B
• Operating Income: ¥599M
• Net Income: ¥-100M
• EPS: ¥-18.71

Income Statement

Balance Sheet

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

Verdict: FY2026 Q2 was weak at the bottom line despite a modestly positive operating result, with heavy non-operating expenses and an elevated tax charge driving the company to a net loss. Revenue was 143.09, down 1.4% YoY, indicating slight top-line pressure in what remains a soft demand/pricing environment. Gross profit was 35.50, implying a gross margin of 24.8%, which is reasonable for specialty chemicals but signals limited pricing power amid cost pressures. SG&A totaled 29.50, leaving operating income at 5.99 and an operating margin of 4.2%. Non-operating income of 2.69 (including dividend income 0.39 and interest income 0.26) was more than offset by non-operating expenses of 8.50, pulling ordinary income down to just 0.18. Profit before tax was 0.13, but income tax expense of 1.14 resulted in net income of -1.08, with an extremely high effective tax rate of 876.9% due to loss/temporary differences and potential non-deductible items. Interest expense was 2.12, and interest coverage based on operating income was 2.83x, a thin but non-critical cushion. Asset efficiency was low: asset turnover was 0.291, and financial leverage was high at 4.31x, resulting in a calculated ROE of -0.9%. ROIC was only 1.1%, well below a 5% warning threshold, underscoring capital inefficiency. Liquidity is adequate but not strong (current ratio 124.7%, quick ratio 105.9%), while solvency risk is elevated with D/E at 3.31x and sizable interest-bearing debt (short-term loans 90.23 and long-term loans 139.92). Working capital remains positive (47.91), supported by cash and deposits of 79.46 and accounts receivable of 76.00 against short-term loans of 90.23. Margin trend analysis in basis points versus the prior year is not possible due to unreported YoY margin data, but the net margin deterioration to -0.8% is clear. Earnings quality cannot be validated via cash flow, as OCF was unreported; the large divergence between operating income and net income, driven by non-operating items and taxes, raises quality concerns. Total comprehensive income was -3.68, indicating further equity erosion in addition to the net loss. Forward-looking, the company must control non-operating losses, reduce financing costs, and lift asset turns/ROIC to restore profitability and protect equity given negative retained earnings (-40.96). Near term, balance-sheet flexibility is constrained by high leverage and intangible-heavy assets (goodwill 23.29, intangibles 25.23), increasing impairment and covenant risks if earnings do not recover.

Profitability Analysis

ROE decomposition: Net Profit Margin (-0.8%) × Asset Turnover (0.291) × Financial Leverage (4.31x) ≈ -0.9% ROE (matches reported). The biggest swing factor versus a normal profit profile is the Net Profit Margin, which fell into negative territory despite a positive operating margin of 4.2%, due to large non-operating expenses (8.50) and an unusually high tax charge (1.14) relative to minimal pretax profit. Business drivers likely include higher interest burden (2.12), possible FX or valuation losses within non-operating expenses, and limited ability to pass costs through, compressing the flow-through from gross to operating income. Asset turnover of 0.291 is low for a chemicals manufacturer, pointing to underutilized assets or slower demand; this depresses ROIC alongside thin margins. Financial leverage at 4.31x magnifies the impact of weak margins, turning modest operating profit into a net loss after financing costs and taxes. Sustainability assessment: the elevated non-operating expense level looks partly cyclical (rates/FX) but the interest burden is structural until deleveraging occurs; operating margin improvement would help, but absent deleveraging, net margin remains vulnerable. Concerning trends: SG&A at 29.50 absorbs 83.1% of gross profit, leaving little buffer; with revenue down 1.4% YoY and no SG&A breakdown, there is risk that fixed costs are not flexing with sales. The gross-to-operating margin gap (24.8% to 4.2%) indicates limited operating leverage benefits in the current demand mix.

Growth Assessment

Top-line contracted 1.4% YoY to 143.09, suggesting soft demand or price pressure in core products. Operating income of 5.99 demonstrates that the core business remains marginally profitable, but ordinary income collapsed to 0.18 due to non-operating losses, and net income turned to -1.08. With asset turnover at 0.291 and ROIC at 1.1%, capital employed is not earning its cost, implying subdued medium-term growth without portfolio optimization or restructuring. Revenue sustainability looks challenged until end-market conditions improve and/or product mix shifts to higher-margin offerings; inventory at 36.43 appears manageable, but without OCF data we cannot confirm sell-through pace. Profit quality is hampered by interest burden and other non-operating items overshadowing operations; normalization of these items is key for EPS recovery. Outlook hinges on cost control, deleveraging to reduce interest expense, and potentially improving pricing/mix; absent these, earnings likely remain volatile with downside risk at the net level.

Financial Health

Liquidity: current ratio 124.7% and quick ratio 105.9% are above minimum safety but below a 1.5x comfort benchmark; no immediate red flag (CR not <1.0). Working capital is positive at 47.91, and cash (79.46) plus receivables (76.00) cover short-term loans (90.23), mitigating near-term refinancing pressure. Solvency: D/E is high at 3.31x (warning >2.0), with total liabilities 378.18 vs equity 114.17; leverage elevates interest and covenant risk. Interest coverage at 2.83x is modest; a downturn or rate increase could pressure coverage below comfortable levels. Maturity mismatch risk: current assets 241.73 exceed current liabilities 193.82, but reliance on short-term loans (90.23) makes liquidity sensitive to credit conditions. Asset quality: significant goodwill (23.29) and intangibles (25.23) heighten impairment risk if profitability does not improve. Off-balance sheet obligations: none reported; data may omit leases/guarantees if disclosed under different captions.

Cash Flow Quality

Operating, investing, and financing cash flows were unreported, so OCF/Net Income and FCF cannot be calculated. Given net income of -1.08 despite positive operating income, cash conversion quality is uncertain and could be weaker if working capital absorbed cash. Potential flags to monitor include: payables vs receivables timing (AR 76.00 vs AP 30.61 indicates customer credit exposure), inventory changes (36.43 baseline), and interest cash outflow (2.12 interest expense) relative to EBIT. Without OCF, we cannot confirm whether FCF could cover maintenance capex and dividends; the high leverage implies that sustaining positive FCF is important to deleverage.

Dividend Sustainability

Dividend data were unreported for the period; payout ratios and FCF coverage cannot be calculated. Retained earnings are negative (-40.96), indicating constrained capacity for stable dividends under JGAAP shareholder equity policy. With net income negative and ROIC at 1.1%, any cash distribution would likely rely on balance sheet rather than earnings/FCF, which is not sustainable alongside high leverage. Until profitability and cash generation normalize and leverage declines, dividend flexibility appears limited.

Risk Assessment

Business Risks:

• Demand softness or pricing pressure in core specialty chemicals leading to revenue decline (-1.4% YoY).
• Low asset turnover (0.291) indicating underutilized capacity and weaker operating leverage.
• High SG&A absorption (SG&A 83.1% of gross profit) limiting operating margin resilience.
• Impairment risk due to sizable goodwill (23.29) and intangible assets (25.23).

Financial Risks:

• High leverage: D/E 3.31x and large interest-bearing debt (ST 90.23, LT 139.92).
• Thin interest coverage (2.83x) vulnerable to rate increases or EBIT volatility.
• Non-operating expense volatility (8.50) driving ordinary profit compression.
• Tax volatility: effective tax 876.9% in loss context, creating net loss risk even with small pretax profit.

Key Concerns:

• Negative retained earnings (-40.96) and equity erosion (total comprehensive income -3.68).
• ROIC at 1.1% well below cost of capital, signaling value dilution unless improved.
• Liquidity dependence on short-term loans (90.23) despite current ratio >1.0.
• Data gaps (no cash flow, capex, dividend details) obscure sustainability assessment.

Investment Implications

Key Takeaways:

• Operating margin is positive at 4.2%, but non-operating losses and taxes drove a net margin of -0.8%.
• Leverage is elevated (D/E 3.31x), suppressing ordinary and net income through interest expense.
• ROIC of 1.1% highlights capital inefficiency; improvement in asset turns and margins is necessary.
• Liquidity is adequate but not robust; reliance on short-term funding requires stable bank relationships.
• Earnings quality and cash conversion cannot be verified due to unreported cash flows.

Metrics to Watch:

• Ordinary income and non-operating expense breakdown (FX, valuation, and other).
• Interest expense trend and average borrowing rate; interest coverage trajectory.
• Gross and operating margin progression; SG&A control vs revenue trend.
• Asset turnover and inventory days; working capital movements and OCF.
• ROIC recovery towards >5% and deleveraging progress (net debt trajectory).

Relative Positioning: Versus domestic specialty chemicals peers, the company exhibits higher financial leverage, weaker ROIC, and thinner bottom-line resilience due to sizable non-operating losses; operationally it maintains modest profitability, but capital structure and cash flow visibility are key overhangs until deleveraging and margin normalization occur.

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