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

Sugai Chemical Industry Co., Ltd. (single-entity, JGAAP) delivered solid margin recovery in FY2026 Q2, with revenue up 2.0% YoY to ¥2.592bn and operating income up 83.6% YoY to ¥216m. Gross profit of ¥546m implies a 21.1% gross margin, with operating margin at 8.3% and net margin also 8.3%, reflecting tight cost control and likely easing of input costs. Ordinary income reached ¥261m, indicating ¥45m of net non-operating gains despite modest interest expense of ¥4.9m. On a DuPont basis, net margin of 8.33%, asset turnover of 0.230, and financial leverage of 1.45 produce a reported ROE of 2.77% for the period; on a simple annualized view this would be higher, but seasonality should be considered. Cash generation was particularly strong: operating cash flow of ¥843m was 3.9x net income and 1.93x EBITDA, suggesting a favorable working capital swing. Liquidity is healthy, with a current ratio of 197.5% and quick ratio of 129.5%, backed by ¥2.716bn of working capital. The balance sheet is conservative: total liabilities of ¥4.02bn versus equity of ¥7.80bn imply debt-to-equity of 0.52x and an implied equity ratio near 69% (the reported equity ratio field is unreported). Interest coverage is robust at 44.2x, underscoring low financial risk. Inventory of ¥1.893bn is sizable relative to the half-year cost base, pointing to potential inventory duration risk typical for specialty chemicals. EBITDA of ¥437m (16.9% margin) together with significant D&A of ¥221m indicates meaningful asset intensity and operating leverage. Financing cash outflow of ¥717m likely reflects debt service or other financing uses; dividends appear unreported/zero at this stage (DPS 0.00, payout 0.0%). EPS was ¥165.79; shares outstanding were not disclosed in the feed, limiting per-share balance sheet analysis beyond EPS. The effective tax rate shown as 0.0% in the calculated metrics appears understated; using ordinary income and income tax provided implies an effective tax rate around 21–22% for the period. Overall, profitability momentum, strong OCF, and conservative leverage are positive; key watch points are the sustainability of margin gains, inventory management, and visibility on capex/dividend policy given unreported investing cash flows and DPS.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 8.33%
• asset_turnover: 0.230x
• financial_leverage: 1.45x
• calculated_ROE: 2.77% (half-year basis; not annualized)
• context: Annualizing ROE would roughly double if performance holds, but chemical demand and cost seasonality can be material. margin_quality:
• gross_margin: 21.1% (GP ¥546.2m on revenue ¥2.592bn)
• operating_margin: 8.3% (OP ¥216.0m)
• ordinary_margin: 10.1% (OI ¥261.0m, aided by ~¥45m net non-operating gains)
• net_margin: 8.3% (NI ¥216.0m)
• commentary: YoY operating profit surged +83.6% on +2.0% revenue, indicating improved cost pass-through and/or raw material normalization. SG&A approximates ¥330.2m (~12.7% of sales), implying operating leverage benefits. operating_leverage:
• D_and_A: ¥220.9m (≈8.5% of sales), indicating notable asset intensity
• EBITDA: ¥436.9m (16.9% margin)
• implication: High D&A and a large swing in OP on modest sales growth suggest meaningful operating leverage; margin gains are sensitive to volume mix and utilization.

Growth Assessment

revenue_sustainability: Top-line growth of 2.0% YoY is modest; durability depends on downstream demand in specialties and potential pricing retention after prior cost inflation. profit_quality: Profit expansion outpaced sales, driven by mix and cost normalization; ordinary income exceeded operating income, aided by non-operating gains, which may not be recurring. outlook: If current margin structure persists, H2 could maintain elevated profitability; however, inventory levels and potential raw material price variability pose risks to steady-state margins.

Financial Health

liquidity:

• current_ratio: 197.5%
• quick_ratio: 129.5%
• working_capital: ¥2,715,576,000
• note: Liquidity is ample; receivables and inventories are the key components to monitor. solvency:
• debt_to_equity: 0.52x (liabilities/equity)
• interest_coverage: 44.2x (EBIT/interest)
• equity_ratio_implied: ≈69.1% (equity ¥7.803bn / assets ¥11.291bn)
• commentary: Low leverage and strong coverage provide a sizable buffer against cyclical swings. capital_structure: Conservative balance sheet with equity predominance; financing CF outflow (¥716.5m) likely reflects debt service or other financing uses, not dividends (DPS unreported/zero).

Cash Flow Quality

earnings_quality: OCF/Net income of 3.90x and OCF/EBITDA of ~1.93x indicate high cash conversion, likely from working capital release. free_cash_flow: Not assessable from provided feed due to unreported investing CF and capex; Free Cash Flow shown as 0 reflects missing data, not economic zero. working_capital: Inventories ¥1.893bn are substantial relative to H1 COGS; implied inventory days are elevated, requiring vigilant management to avoid obsolescence or price markdowns.

Dividend Sustainability

payout_ratio_assessment: Payout ratio reported 0.0%; EPS ¥165.79 with DPS unreported/zero at this stage. No inference on policy shift can be made from the feed. FCF_coverage: Not determinable due to unreported investing cash flows; OCF would comfortably cover a modest dividend if instituted. policy_outlook: Given conservative leverage and strong OCF, capacity for distributions exists, but clarity on capex needs and management policy is required before assessing sustainability.

Risk Assessment

Business Risks:

• Raw material and energy price volatility impacting gross margins
• Demand cyclicality in end-markets for specialty chemicals
• Inventory valuation risk given sizable stock levels
• Customer concentration and pricing pressure risk (typical in chemicals)
• Potential non-recurring nature of non-operating gains

Financial Risks:

• Working capital swings affecting OCF despite strong current period
• Capex requirements given high D&A could absorb OCF when investing resumes
• Limited disclosure on cash and investing CF in the period feed
• Exposure to interest rate changes is low but present

Key Concerns:

• Sustainability of margin gains achieved on modest sales growth
• Visibility on capex and investment needs (investing CF unreported)
• Inventory duration and potential write-down risk if demand softens

Investment Implications

Key Takeaways:

• Material profitability recovery with operating margin at 8.3% and ordinary margin at 10.1%
• Strong cash conversion (OCF/NI 3.9x) indicating robust earnings quality
• Conservative balance sheet (implied equity ratio ~69%, D/E 0.52x) reduces financial risk
• Inventory is high relative to period activity and merits monitoring
• Dividend not visible in the feed; financing CF outflow likely non-dividend in nature

Metrics to Watch:

• Gross and operating margin trajectory in H2
• Capex and investing cash flows as disclosed later in the fiscal year
• Inventory days and receivables collection to sustain OCF
• Ordinary income composition (recurring vs non-recurring items)
• Asset turnover improvement as volumes recover

Relative Positioning: Within small-cap Japanese chemicals, Sugai appears conservatively financed with improving margins and strong cash conversion, though top-line growth is modest and inventory intensity is higher than some 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
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