Dainichiseika Color & Chemicals Mfg.Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥61.72B
• Operating Income: ¥4.10B
• Net Income: ¥3.85B
• EPS: ¥219.27

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: Solid operating improvement with margin expansion, but headline net profit fell sharply due to below-the-line/tax effects, keeping capital efficiency weak. Revenue declined slightly to 617.23 (−0.7% YoY), but operating income rose to 41.04 (+18.1% YoY), demonstrating effective cost control and/or a better mix. Gross profit was 131.59, translating to a gross margin of 21.3%, consistent with improved pricing or input cost tailwinds. Operating margin improved to 6.6% from roughly 5.6% a year ago, an expansion of about 106 bps despite flat-to-down sales. Ordinary income increased to 44.89 (+19.7% YoY) supported by 8.21 in non-operating income (notably 2.48 dividends and 1.85 interest), partially offset by 4.36 in non-operating expenses. Profit before tax was 55.19, implying net extraordinary items were positive this period, yet net income fell to 37.64 (−53.1% YoY), indicating last year likely benefited from larger one-time gains and/or more favorable tax items. Effective tax rate was 30.3%, broadly normal, suggesting the YoY net income drop is not driven by an outsized tax rate this period. Balance sheet strength remains a clear positive: current ratio 228%, quick ratio 158%, and debt-to-equity 0.50x, with interest coverage at a robust 29.5x. Working capital is ample at 609.08, and short-term loans (113.75) are well-covered by cash (213.80) and receivables (517.65). However, capital efficiency remains weak: ROE is 2.9% on a DuPont basis (net margin 6.1%, asset turnover 0.313, leverage 1.50x), and ROIC is just 2.2%, below the 5% warning threshold. Earnings quality can’t be fully assessed due to unreported cash flow data; non-operating contributions are meaningful, raising some volatility risk. The reported payout ratio of 75.1% appears high versus earnings power and low ROE, with FCF coverage unknown. Forward-looking, sustained operating margin gains are encouraging, but revenue softness and dependence on non-operating items temper visibility. Monitoring demand in end markets (e.g., packaging/printing, coatings), input cost trends, and FX will be key to sustain profitability. Overall, execution at the operating level is improving, but the combination of low capital returns and high payout necessitates cautious interpretation of sustainability until cash flow data are available.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 6.1% × 0.313 × 1.50 ≈ 2.9%. The largest driver of change versus last year appears to be the net profit margin: operating income rose 18.1% while revenue fell 0.7%, expanding operating margin from ~5.6% to 6.6% (+106 bps), but net income declined due to below-the-line/tax effects, compressing the bottom-line margin YoY. Business drivers: likely effects include improved price-cost spread (raw material relief and/or pricing discipline) and cost control in SG&A, contrasted by normalization of one-off gains and/or investment-related items that inflated last year’s net. Sustainability: operating margin gains look more sustainable than last year’s net-level items; however, the extent of sustainability will depend on raw material prices and demand resilience. Operating leverage is positive (OI up with flat sales), but we cannot confirm SG&A growth versus revenue due to unreported breakdowns. Non-operating reliance remains meaningful (8.21 non-op income), which can add volatility to ordinary income and ROE.

Growth Assessment

Top-line contracted slightly (−0.7% YoY), suggesting demand softness or portfolio pruning, but profitability improved on mix and cost. Operating income growth (+18.1% YoY) outpaced sales, evidencing margin execution. Ordinary income (+19.7% YoY) benefited from non-operating contributions (dividends and interest), consistent with a sizable cash and securities base. Net income (−53.1% YoY) was pressured by prior-year one-offs and/or tax effects; current period PBT exceeded ordinary income, indicating positive extraordinary items this year but still not enough to offset the prior-year high base. With ROIC at 2.2%, incremental growth needs to be capital-disciplined; otherwise, expansion risks diluting returns. Outlook hinges on sustaining the 100+ bps operating margin improvement amid input cost and FX dynamics; revenue recovery would further lift ROE via asset turnover. Near-term visibility is moderate given reliance on non-operating items and lack of CF disclosure.

Financial Health

Liquidity is strong: current ratio 228.2% and quick ratio 158.1% (both well above benchmarks). No warning on current ratio (<1.0) or leverage (D/E 0.50x) is necessary. Maturity mismatch risk appears low: current assets (1,084.26) comfortably exceed current liabilities (475.18), and short-term loans (113.75) are well-covered by cash (213.80) and receivables (517.65). Solvency is conservative with total liabilities at 661.00 versus total equity of 1,312.29. Interest coverage is robust at 29.53x, limiting refinancing risk in the near term. Off-balance sheet obligations are not disclosed; no information on guarantees, leases, or contingent liabilities was provided.

Cash Flow Quality

Operating, investing, and financing cash flows are unreported, so OCF/Net Income and FCF cannot be calculated. Consequently, we cannot validate earnings conversion to cash or assess working capital intensity this period. The presence of sizable dividends and interest income suggests meaningful financial assets that can buffer cash generation, but sustainability of such income depends on market conditions. No clear signs of working capital manipulation can be inferred without CF detail; balance sheet levels of AR and inventories appear proportionate to sales scale. Given the data gap, treat reported earnings quality as unverified pending OCF disclosure.

Dividend Sustainability

The calculated payout ratio is 75.1%, which is elevated versus a general sustainability benchmark (<60%). With ROE at 2.9% and ROIC at 2.2%, internal returns are modest, increasing the bar for sustaining a high payout without eroding balance sheet flexibility. FCF coverage is not calculable due to unreported cash flows, introducing uncertainty. Balance sheet strength (net cash-like liquidity and low leverage) offers some buffer, but long-term sustainability likely requires either stronger OCF/FCF or continued margin improvement. Policy outlook: if management prioritizes shareholder returns, the elevated payout could persist short term; however, medium-term prudence may point to aligning dividends with cash generation once CF data are available.

Risk Assessment

Business Risks:

• Raw material and energy price volatility affecting gross margin (petrochemical-linked inputs).
• Demand cyclicality in end markets (printing/packaging inks, coatings, plastics colorants).
• FX fluctuations impacting imported raw material costs and overseas earnings translation.
• Product mix shifts or pricing pressure from customers reducing margin gains.
• Potential environmental and regulatory compliance costs tied to chemicals handling and emissions.

Financial Risks:

• Earnings volatility from non-operating items (dividends, interest, and extraordinary items).
• Low capital efficiency (ROIC 2.2%, ROE 2.9%) limiting value creation if capex or M&A rises.
• Payout ratio at 75.1% may exceed sustainable cash generation in weaker years.
• Market value risk on investment securities (206.39) that could impact other comprehensive income and capital.

Key Concerns:

• Sharp YoY decline in net income despite stronger operating profit suggests prior one-offs and raises earnings volatility concerns.
• Unreported cash flow data prevents validating earnings-to-cash conversion and dividend coverage.
• Dependence on non-operating income contributes a notable share to ordinary income, adding variability.

Investment Implications

Key Takeaways:

• Operating execution improved: operating margin expanded ~106 bps with revenue slightly down.
• Headline net income decline (−53% YoY) reflects below-the-line/tax normalization rather than core weakness.
• Balance sheet is conservative with ample liquidity and low leverage; interest coverage is strong.
• Capital efficiency is weak (ROIC 2.2%, ROE 2.9%), constraining longer-term valuation support absent further improvements.
• Dividend payout appears high at 75%, with FCF coverage unknown—monitor sustainability once OCF is disclosed.

Metrics to Watch:

• Operating cash flow and free cash flow once reported; OCF/Net Income target >1.0.
• Operating margin trajectory and SG&A discipline versus revenue growth.
• Asset turnover improvement via sales recovery or asset optimization.
• Raw material and FX trends affecting gross margin.
• Non-operating income volatility (dividends/interest) and extraordinary items’ impact on net.
• ROIC progression toward >5% near term and >7–8% over the medium term.

Relative Positioning: Versus domestic chemical peers, the company exhibits stronger-than-average liquidity and conservative leverage but lags on capital efficiency and relies more on non-operating items, making the quality of earnings and dividend sustainability more sensitive to cash flow delivery.

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