SUGAI CHEMICAL INDUSTRY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.59B
• Operating Income: ¥216M
• Net Income: ¥216M
• EPS: ¥165.79

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: A strong FY2026 Q2, with profit metrics sharply higher on modest topline growth and strong cash generation, but capital efficiency (ROIC) remains weak and results show some line-item inconsistencies. Revenue grew 2.0% YoY to 25.92, while operating income jumped 83.6% YoY to 2.16 and net income rose 93.3% YoY to 2.16. Gross profit was 5.46 and SG&A was 4.28, indicating improved operating leverage despite limited sales growth. Operating margin improved significantly to 8.3%, and net margin also stands at 8.3%, reflecting margin accretion vs last year. Using YoY growth to back-solve, operating margin likely expanded roughly 370 bps YoY (from ~4.6% to ~8.3%). Similarly, net margin likely expanded roughly 390 bps YoY (from ~4.4% to ~8.3%). Ordinary income increased 45.1% YoY to 2.61, while non-operating income of 0.73 (including dividend income of 0.29) provided a meaningful boost (non-operating income ratio 33.8%). Cash flow quality was very strong: operating cash flow of 8.43 was 3.9x net income, indicating excellent earnings-to-cash conversion. Liquidity is solid with current ratio 197.5% and quick ratio 129.5%, and leverage is conservative at D/E 0.52x with ample interest coverage (44.2x). However, ROIC is flagged at 1.6%, well below a 5% warning threshold, implying underutilized assets or low-return investments. Balance-sheet composition (investment securities 17.64 and sizable noncurrent assets 59.75) weighs on capital efficiency despite better profitability. Some line items appear internally inconsistent (e.g., GP – SG&A vs operating income, and PBT vs net income), so conclusions emphasize reported headline figures. Forward-looking, the key is whether improved cost controls and input price relief are sustainable, and whether management can lift ROIC via mix optimization, asset efficiency, or pruning low-return assets. Overall, a quality quarter operationally with robust cash generation, but medium-term value creation hinges on improving capital efficiency and sustaining the higher margin base.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.8% = Net Profit Margin 8.3% × Asset Turnover 0.230 × Financial Leverage 1.45x. The largest drag is low asset turnover (0.230), suggesting a sizeable asset base relative to sales. The quarter’s big change driver versus last year appears to be margin expansion (operating income +83.6% on sales +2.0%), pointing to improved gross spread and SG&A efficiency. Business drivers likely include better raw-material spread, product mix, and fixed-cost absorption, with a meaningful contribution from non-operating income (dividend income 0.29) to ordinary profit. Sustainability: margin gains tied to input cost normalization and mix are partially sustainable but vulnerable to raw-material volatility; the non-operating contribution (33.8% of operating income) is less controllable. Concerning trend flags: none on cost blowouts this quarter; however, capital efficiency remains weak (ROIC 1.6%), and reliance on non-operating items elevates earnings variability.

Growth Assessment

Top-line growth was modest at +2.0% YoY to 25.92, but profit growth was outsized (OP +83.6%, NI +93.3%), indicating strong operating leverage. The implied operating margin rose by roughly 370 bps YoY to 8.3%, driven by cost control and likely better input spreads. Non-operating income (0.73) including dividend income (0.29) supplemented profits, but this is less recurring than core operations. EBITDA was 4.37 (margin 16.9%), supporting improved operating performance. Outlook: near-term, margins could remain elevated if input prices stay benign and mix holds; medium-term growth depends on demand resilience in end-markets and the company’s ability to convert higher margins into better ROIC. Given low asset turnover (0.230), growth via asset-light initiatives or inventory/receivables discipline would be most accretive.

Financial Health

Liquidity is strong: current ratio 197.5% and quick ratio 129.5%, with working capital of 27.16. No warning on current ratio (<1.0) or D/E (>2.0); D/E is conservative at 0.52x. Interest coverage is robust at 44.2x, indicating low refinancing stress. Maturity mismatch risk appears manageable: short-term loans of 7.00 are covered by current assets (55.02), including receivables 24.79 and inventories 18.93; cash is 4.09. Total liabilities are 40.24 vs equity 78.03, leaving ample solvency buffer. No off-balance sheet obligations are disclosed in the provided data. Overall, the balance sheet is healthy with moderate leverage and solid liquidity.

Cash Flow Quality

OCF/NI is 3.90x, well above the 1.0 threshold, signaling high-quality earnings with strong cash conversion. Operating cash flow of 8.43 comfortably covers reported capex of 1.52, implying positive pre-dividend FCF of approximately 6.91 (note: total investing CF is unreported, so this is an OCF−capex proxy). Financing CF was -7.17, likely reflecting debt reduction and/or shareholder returns, consistent with strong internal funding. No apparent signs of working-capital manipulation given the strong OCF vs NI, though detailed WC drivers are not disclosed. Overall, cash generation appears sufficient to fund operations and investment needs with room for distributions.

Dividend Sustainability

The reported payout ratio is 44.5%, which is within a generally sustainable range (<60%). Annual DPS and total dividends paid are unreported, limiting precision. Given proxy FCF (OCF − capex) of ~6.91 vs NI of 2.16, distributions at a ~45% payout appear covered by internal cash generation, subject to unreported investing cash flows. Policy outlook likely stable if margins hold and capex remains disciplined; sustainability is strongest if the company prioritizes ROIC accretion alongside steady payouts. Data gaps on DPS timing and FCF coverage prevent a full coverage test.

Risk Assessment

Business Risks:

• Raw-material price volatility impacting gross spreads and margins
• Demand cyclicality in downstream chemical end-markets
• Product mix shifts that could reverse recent margin gains
• Operational risks related to capacity utilization and fixed-cost absorption
• Environmental and regulatory compliance costs specific to chemical manufacturing

Financial Risks:

• Low capital efficiency (ROIC 1.6%) despite improved earnings
• Earnings variability due to non-operating income reliance (dividends 0.29; non-operating income ratio 33.8%)
• Potential refinancing needs if credit conditions tighten, despite current low leverage
• Working capital intensity (receivables 24.79, inventories 18.93) exposing cash conversion to cycle turns

Key Concerns:

• Internal inconsistencies among PBT, NI, and operating bridge limit precision of analysis
• Sustaining elevated margins amid input price and FX fluctuations
• Asset turnover at 0.230 constraining ROE despite better margins

Investment Implications

Key Takeaways:

• Earnings inflection with OPM ~8.3% and NI +93% YoY on just +2% sales
• Cash conversion is excellent (OCF/NI 3.9x) and leverage conservative (D/E 0.52x)
• Non-operating income is meaningful; core momentum should be watched ex-dividends
• Capital efficiency is the main drag (ROIC 1.6%); asset utilization improvements are key
• Liquidity is solid (current ratio 198%, quick ratio 130%), reducing near-term balance-sheet risk

Metrics to Watch:

• Operating margin sustainability and gross spread trends
• OCF/NI and working capital turns (receivables and inventory days)
• ROIC trajectory and asset turnover improvement
• Composition and volatility of non-operating income (dividend income and other items)
• Capex discipline and any plans to monetize low-return assets or securities

Relative Positioning: Within small-cap Japanese chemical peers, the company shows strong near-term earnings recovery and cash conversion with conservative leverage, but ranks weaker on capital efficiency (low ROIC and asset turnover). Sustained margin delivery and improvements in asset utilization would be needed to close the gap with higher-ROIC peers.

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