TAOKA CHEMICAL (4113) FY2026 Q3 Earnings Report

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Executive Summary

In addition to higher revenue, progress was made in SG&A efficiency, resulting in higher revenue and earnings, with profit growth outpacing revenue growth. Revenue was ¥253.8B (+13.4% YoY), Operating Income was ¥17.7B (+26.4%), Ordinary Income was ¥18.0B (+22.8%), and Net Income was ¥13.2B (+21.6%). Operating Income increased 26.4%, significantly exceeding the 13.4% growth in Revenue, while limiting SG&A growth to 4.9% boosted the earnings growth rate. Meanwhile, the gross profit margin was 18.0%, slightly down from 18.2% in the same period last year.

Factors Affecting Business Performance

【Revenue】Revenue was ¥253.8B (+13.4% YoY). The Company has a single segment, Chemistry, which generated Revenue of ¥249.8B, Operating Income of ¥17.7B, and a profit margin of 7.1%; therefore, consolidated performance is comprised almost entirely of this single segment.

【Profit and Loss】Operating Income was ¥17.7B (+26.4% YoY), and the Operating Income margin improved to 7.0% from 6.3% in the same period last year. The gross profit margin was 18.0%, slightly down from 18.2% in the same period last year, indicating upward pressure on costs. Meanwhile, SG&A expenses were held to ¥28.0B (+4.9%), substantially below the pace of Revenue growth, which was the primary driver of higher earnings. Non-operating income and expenses resulted in a surplus of only ¥0.4B, and the increase in Ordinary Income to ¥18.0B (+22.8%) over Operating Income was limited. Extraordinary losses consisted solely of a ¥0.1B loss on disposal of fixed assets, indicating that temporary factors were minor; the transition to Net Income of ¥13.2B (+21.6%) was generally recurring and within the range of the effective tax rate. In conclusion, the Company achieved higher revenue and earnings.

Segment Analysis

The Company has only the Chemistry segment, with Revenue of ¥249.8B, Operating Income of ¥17.7B, and a profit margin of 7.1%, broadly in line with consolidated performance. Given its single-business structure, business performance does not benefit from diversification across the business portfolio and is susceptible to direct impacts from chemical market conditions and raw material prices.

Key Financial Indicators

【Profitability】The Operating Income margin was 7.0% (6.3% in the same period last year), while the Net Income margin was 5.2% (4.9% in the same period last year), with both improving. However, the gross profit margin was 18.0%, slightly down from 18.2% in the same period last year; thus, the improvement in profit margins was primarily attributable to SG&A containment.【Cash Flow Quality】Against Profit Before Tax of ¥17.9B, Net Income was ¥13.2B, implying an effective tax rate of approximately 26.4%. Major non-recurring items other than income taxes consisted only of a minor ¥0.1B extraordinary loss.【Investment Efficiency】Annualized ROE was 9.2%, driven by a combination of a 5.2% Net Income margin, approximately 1.1x total asset turnover, and 1.58x financial leverage.【Financial Soundness】The Equity Ratio was 63.3% (60.8% in the same period last year). Interest-bearing debt consisted solely of ¥4.0B in long-term borrowings, a significant decrease from ¥8.7B in the previous year, indicating a conservative capital structure.

Cash Flow Analysis

Although the Company does not disclose a cash flow statement, funding trends can be assessed from changes in the balance sheet. Cash and deposits were ¥12.7B, a slight increase from ¥11.8B in the same period last year. Long-term borrowings decreased by ¥4.7B, from ¥8.7B to ¥4.0B, indicating continued deleveraging. Inventories increased from ¥48.6B to ¥54.7B. The expansion of inventory build-up associated with higher Revenue increased working capital and may have restrained the pace of growth in cash on hand. While buildings and structures and machinery and equipment increased, other property, plant and equipment declined, suggesting that capital investment and the replacement of the asset mix are progressing.

Earnings Quality

Current-period earnings were comprised largely of recurring factors. Non-operating income consisted of items such as ¥0.2B in dividend income and ¥0.1B in interest income, while non-operating expenses were small, consisting of ¥0.03B in interest expense and ¥0.1B in foreign exchange losses. Extraordinary losses consisted solely of a ¥0.1B loss on disposal of fixed assets. The transition from Profit Before Tax of ¥17.9B to Net Income of ¥13.2B was within the range of ¥4.7B in income taxes and other taxes (effective tax rate of approximately 26.4%), indicating that the impact of temporary factors on earnings was limited. On the other hand, inventories increased from ¥48.6B in the same period last year to ¥54.7B. If inventory has accumulated faster than the increase in Revenue, this could lead to future risks of inventory valuation losses and deterioration in earnings quality. Comprehensive Income was ¥12.7B, slightly below Net Income of ¥13.2B, reflecting the fact that foreign currency translation adjustments of -¥0.3B and actuarial adjustments related to retirement benefits of -¥0.4B exceeded valuation differences on available-for-sale securities of +¥0.2B.

Earnings Forecasts and Guidance

The Q1–Q3 cumulative progress rates against the Company’s Full-Year forecasts were 76.9% for Revenue, 93.1% for Operating Income, 94.9% for Ordinary Income, and 97.9% for Net Income. Revenue progress was around the standard level of 75%, while profit progress was significantly above standard. To achieve the Full-Year plan, it would be sufficient to record Operating Income of ¥1.3B in Q4, equivalent to an Operating Income margin of approximately 1.7%, implying a substantial decline from the cumulative margin of 7.0%. This structure suggests that the Company’s plan may be conservative, while also potentially incorporating factors that could reduce Q4 profitability, such as demand fluctuations, raw material costs, and scheduled maintenance.

Shareholder Returns

The Q2 dividend was ¥18.00 per share. Based solely on dividends, the Payout Ratio against cumulative Q1–Q3 Net Income of ¥13.2B was 19.7%. The Full-Year dividend forecast is ¥36.00 per share. Based on the weighted-average number of shares outstanding during the period of 14,328,635 shares, the annual dividend payout is approximately ¥5.2B, resulting in a forecast Payout Ratio of approximately 38.2% against the Full-Year Net Income forecast of ¥13.5B, within the guideline of less than 60%. No share repurchase has been disclosed, and the Total Return Ratio has not been calculated. Low interest-bearing debt and high liquidity support the financial stability of the dividend.

Risk Factors

1. Prolonged inventory days: Inventory turnover days are approximately 72 days, equivalent to a DIO level of 103 days, exceeding general manufacturing benchmarks of 60 days and 90 days, respectively. Inventories increased from ¥48.6B in the same period last year to ¥54.7B, potentially creating risks of discounting, valuation losses, and production adjustments when demand fluctuates.

2. Decline in gross profit margin: The gross profit margin was 18.0%, down approximately 22bp from 18.2% in the same period last year. Since the improvement in the Operating Income margin was primarily attributable to SG&A containment, insufficient pass-through of raw material and energy prices could affect the sustainability of earnings growth.

3. Assumption of lower Q4 profitability: Achieving the Full-Year plan assumes that the Q4 Operating Income margin will decline to approximately 1.7%, representing a substantial gap from the cumulative margin of 7.0%. If seasonality or cost factors exceed expectations, Full-Year profit progress may fluctuate.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profit margins are slightly below the industry median.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeds the industry median, placing the Company’s revenue growth among the higher levels in the industry.

※Source: Compiled by the Company

Key Earnings Highlights

1. Revenue increased 13.4%, while Operating Income rose 26.4% and Net Income increased 21.6%; profit growth outpaced revenue growth, primarily due to improved SG&A efficiency. The Operating Income margin improved by approximately 71bp, while the gross profit margin declined by approximately 22bp, making the sustainability of the improvement dependent on the relationship between raw material costs and selling prices.

2. Progress against the Full-Year plan was high, at 93.1% for Operating Income and 97.9% for Net Income. Under the Company’s plan, Q4 assumes a substantial decline in profitability, equivalent to an Operating Income margin of approximately 1.7%.

3. The financial position is conservative, with an Equity Ratio of 63.3% and long-term borrowings of ¥4.0B, down from ¥8.7B in the previous year. However, the prolongation of inventory turnover days and the downward trend in the gross profit margin warrant attention when assessing earnings quality.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,196–¥1,264 at Cost of Equity ±1%; ¥1,225–¥1,231 at ω±0.1.

Notes:

• Since Net Income progress against the Full-Year forecast (98%) exceeds the standard level (75%), Forecast EPS has been adjusted upward within a maximum range of +10% (because companies whose progress is ahead of schedule tend to outperform their forecasts; adjustments may be excessive for businesses with strong seasonality).
• Since forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the quarter-end have been used (there is a timing gap relative to the Full-Year forecast).
• Since 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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