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

Financial Highlights

• Net Sales: ¥61.72B
• Operating Income: ¥4.10B
• Net Income: ¥8.11B
• 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

DaNippon Ink & Chemicals (Daicolor Seiko; TSE: 4116) posted FY2026 Q2 consolidated results showing resilient operating performance amid flat top-line conditions. Revenue was ¥61.7bn, down 0.7% YoY, indicating relatively stable demand with modest pricing/mix headwinds or volume softness. Gross profit reached ¥12.5bn, implying a gross margin of 20.3%, which appears healthy for a specialty chemicals/industrial materials mix and suggests some cost pass-through and/or input cost normalization. Operating income rose 18.1% YoY to ¥4.10bn, lifting the operating margin to about 6.6%, evidencing positive operating leverage from cost controls and a better sales mix despite the slight revenue contraction. Ordinary income was ¥4.49bn, exceeding operating income by ¥0.38bn, indicating a net positive non-operating balance (e.g., financial income or other non-operating gains) after interest expense of ¥0.12bn. Net income was ¥3.76bn, down 53.1% YoY, creating a divergence versus the strong operating trend; this likely reflects tax effects and/or extraordinary items not visible in the provided dataset under JGAAP. The provided tax expense of ¥3.28bn appears elevated versus ordinary income, reinforcing the possibility of non-recurring tax items, timing differences, or extraordinary factor impacts. DuPont metrics show ROE at 2.87%, driven by a net margin of 6.10%, asset turnover of 0.313x, and financial leverage of 1.50x, indicating modest equity returns primarily constrained by low asset turnover. Liquidity looks strong with a current ratio of 220% and a quick ratio of 155%, supported by ¥60.1bn in working capital and inventories of ¥32.6bn. Interest coverage is robust at 33.1x, reflecting conservative leverage and a defensive balance sheet. The equity ratio is shown as 0.0% but should be treated as undisclosed rather than zero; total equity of ¥131.2bn against ¥197.3bn assets implies a solid capitalization. Cash flow statements are not disclosed (zeros represent unreported items), so operating cash conversion and free cash flow cannot be evaluated this quarter. Dividend data (DPS and payout) are also undisclosed in this extract, so no conclusions on distributions should be drawn from the shown zeros. Overall, the company delivered margin expansion and operating profit growth despite flat sales, but bottom-line volatility and the lack of cash flow disclosure temper visibility. Inventory levels and asset intensity keep asset turnover modest, framing the principal drag on ROE. Near-term focus should be on the sustainability of gross margin gains, working capital discipline, and clarity on tax/extraordinary impacts affecting net income.

Profitability Analysis

ROE (DuPont): 2.87% = Net margin 6.10% × Asset turnover 0.313 × Financial leverage 1.50. Net margin: At 6.10%, profitability at the bottom line appears reasonable versus the operating margin of ~6.6%, but YoY net income fell sharply, implying non-operational or tax-related drags. Gross margin: 20.3% supports the operating margin outcome; cost optimization and/or input cost tailwinds likely contributed given revenue softness. Operating leverage: Revenue declined 0.7% YoY while operating income rose 18.1%, indicating positive operating leverage from SG&A discipline and mix. Non-operating items: Ordinary income exceeds operating income by ~¥0.38bn, net of ¥0.12bn interest expense, implying some non-operating gains. Interest burden: Minimal, with coverage at 33.1x, limiting financial drag. Margin quality: Improvement appears operationally driven (gross and SG&A), but the gap between operating and net income underscores volatility from below-the-line items and tax. Efficiency: Asset turnover at 0.313x indicates an asset-heavy model or elevated working capital; inventory at ¥32.6bn implies inventory days around 118–120 on a half-year basis, warranting monitoring.

Growth Assessment

Revenue sustainability: Sales declined 0.7% YoY to ¥61.7bn, suggesting broadly steady demand with minor headwinds. Given the small contraction, the near-term revenue outlook hinges on end-market stabilization and pricing discipline; no segment data are provided to assess mix. Profit quality: Operating profit growth of 18.1% YoY despite lower revenue points to cost control and potentially improved product mix. Ordinary income also grew versus operating income, but net income fell 53.1% YoY, implying lower profit quality at the bottom line due to tax/extraordinary effects. Outlook: If gross margin gains stem from structural mix/pricing rather than transient input cost tailwinds, operating improvement could be sustainable; however, normalization of non-operating/tax items is needed to translate into stable EPS. With asset turnover modest, growth in ROE will rely on sustained margin enhancement and tighter working capital rotation more than leverage. Near-term growth risks include demand variability in industrial and specialty chemical end-markets and FX/commodity volatility affecting pricing power.

Financial Health

Liquidity: Current ratio 220% and quick ratio ~155% indicate ample short-term coverage. Working capital totals ¥60.1bn, providing a buffer against demand swings. Solvency: Debt-to-equity of 0.51x suggests moderate leverage; interest expense of only ¥0.12bn and coverage of 33.1x reflect conservative financial risk. Capital structure: Total equity of ¥131.2bn versus total assets of ¥197.3bn implies a strong capitalization base; the listed equity ratio of 0.0% should be viewed as undisclosed, not zero. Liability profile: Current liabilities are ¥50.1bn of total liabilities ¥66.3bn, indicating low long-term leverage and manageable refinancing risk. Overall: Balance sheet resilience is solid, enabling continued investment and cushioning cyclical pressures.

Cash Flow Quality

Earnings quality cannot be fully assessed because operating, investing, and financing cash flows are undisclosed in this dataset (zeros represent unreported items). Free cash flow cannot be computed. Working capital dynamics: Inventories are ¥32.6bn; based on half-year COGS of ¥49.6bn, inventory days approximate 118–120, which is material for cash conversion and should be tracked for normalization. Accrual considerations: With no D&A reported (undisclosed), EBITDA and non-cash add-backs cannot be assessed; thus, accrual intensity versus cash is indeterminable this quarter. Monitoring needs: Disclosure of OCF and capex is necessary to validate the sustainability of operating profit improvements in cash terms.

Dividend Sustainability

Dividend data in this extract (DPS 0.00, payout 0%) are undisclosed rather than actual zeros; therefore, no inference should be made about distributions. Given net income of ¥3.76bn and a strong balance sheet, coverage potential would typically be assessed against OCF and FCF, but these are not available. Policy outlook cannot be evaluated without management guidance or historical payout references. Key watchpoints: forthcoming disclosures on interim/final DPS, payout ratio, and FCF to gauge coverage and sustainability.

Risk Assessment

Business Risks:

• End-market cyclicality in industrial chemicals and materials
• Raw material and energy price volatility affecting gross margin
• FX fluctuations influencing input costs and export competitiveness
• Potential demand softness in key downstream sectors
• Product mix shifts impacting margin structure

Financial Risks:

• Working capital intensity (notably inventories) constraining cash conversion
• Bottom-line volatility from tax and non-operating/extraordinary items
• Exposure to interest rate shifts is low but non-zero given leverage
• Asset turnover constraints limiting ROE expansion without margin gains

Key Concerns:

• Sharp YoY decline in net income despite stronger operating profit
• Lack of cash flow disclosure prevents assessment of earnings-to-cash conversion
• Elevated apparent tax burden versus ordinary income suggests non-recurring effects
• Inventory levels imply sizable capital tied in operations

Investment Implications

Key Takeaways:

• Operating improvement with 18.1% YoY OI growth despite a 0.7% revenue decline
• Gross margin at 20.3% underscores better cost/mix; operating margin ~6.6%
• ROE modest at 2.87% due to low asset turnover (0.313x) despite adequate margins
• Balance sheet strong: current ratio 220%, interest coverage 33.1x, D/E 0.51x
• Net income down 53.1% YoY points to below-the-line/tax headwinds
• Cash flow and dividend data are not disclosed in this extract; visibility limited

Metrics to Watch:

• Gross and operating margin trajectory vs. input cost trends
• OCF and FCF once disclosed; capex and working capital swings
• Inventory days and receivables/payables turnover
• Tax rate normalization and any extraordinary gains/losses
• Asset turnover and capital efficiency initiatives
• Ordinary income vs. operating income bridge (non-operating items, FX)

Relative Positioning: Operational execution appears solid with cost control and positive operating leverage, supported by a conservative balance sheet; however, ROE remains constrained by asset intensity and near-term bottom-line volatility, leaving the company well-capitalized but return-diluted relative to peers that convert margins into higher asset turns and more stable net income.

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
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