Mitsubishi Gas Chemical Company (4182) FY2026 FY Earnings Report

Quick View

Executive Summary

FY2026 results reflected a decline in revenue and earnings, with the increase in profit from the Functional Chemicals Business Segment insufficient to offset the sharp decline in the Green Energy & Chemicals Business Segment. In addition, the Company recorded a net loss due to large-scale impairment losses. Revenue was ¥7,382.4B (-4.6% YoY), Operating Income was ¥452.9B (-10.9%), and Ordinary Income was ¥519.5B (-13.9%). Net Income was ¥-341.4B (or ¥-403.2B attributable to owners of the parent, reversing from ¥+455.4B in the prior year). The primary reason for the decline in earnings was deteriorating market conditions and lower segment profit margins in the Green Energy & Chemicals Business Segment, while the primary reason for the net loss was impairment losses of ¥784.5B.

Factors Affecting Business Performance

【Revenue】Revenue decreased 4.6% YoY to ¥7,382.4B. By segment, the Functional Chemicals Business Segment remained firm at ¥4,480.0B (+1.0%), while the Green Energy & Chemicals Business Segment declined significantly to ¥2,779.0B (-11.3%), weighing on consolidated revenue. By region, sales to the United States declined by -13.2% and sales to other regions declined by -10.8%, representing relatively large decreases, while sales to China remained comparatively firm at -2.8%.

【Profit and Loss】The gross profit margin improved to 21.9% from approximately 21.2% in the prior year; however, as SG&A expenses increased by +2.3% YoY, the Operating Income margin declined to 6.1% from 6.6%. Segment profit (on an Ordinary Income basis) in the Green Energy & Chemicals Business Segment declined 81.2% to ¥38.6B, with the profit margin deteriorating to 1.4%. In contrast, the Functional Chemicals Business Segment increased segment profit by 11.8% to ¥491.2B, with a profit margin of 11.0%. Extraordinary losses of ¥827.4B, including impairment losses of ¥784.5B, substantially exceeded extraordinary gains of ¥147.3B, resulting in a loss before tax of ¥-160.7B and Net Income of ¥-341.4B. Overall, the Company recorded lower revenue and earnings, while final profit was substantially negative due to temporary impairment-related factors.

Segment Analysis

The Green Energy & Chemicals Business Segment deteriorated significantly, with revenue of ¥2,779.0B (-11.3% YoY), segment profit (on an Ordinary Income basis) of ¥38.6B (-81.2%), and a profit margin of 1.4%. This appears to have been driven by deteriorating market conditions for methanol- and ammonia-based chemicals, aromatic chemicals, and electricity. The segment recorded impairment losses of ¥561.5B, which is consistent with the decline in its segment profit margin.

The Functional Chemicals Business Segment maintained higher revenue and earnings, with revenue of ¥4,480.0B (+1.0% YoY), segment profit of ¥491.2B (+11.8%), and a profit margin of 11.0%. As the core business accounting for 60.7% of consolidated revenue, it supported Company-wide earnings. Although the segment also recorded impairment losses of ¥223.0B, its earnings growth trend was maintained.

Other Businesses recorded revenue of ¥123.4B (-25.1% YoY) and segment profit of ¥13.2B (+17.7%).

Key Financial Indicators

【Profitability】The Operating Income margin declined to 6.1% from 6.6% in the prior year. Operating leverage deteriorated as the SG&A ratio increased to 15.7% from approximately 14.7%, despite the improvement in the gross profit margin to 21.9% from approximately 21.2%. The Net Income margin was negative, and ROE deteriorated substantially to -5.0% (approximately the same level on an attributable-to-owners-of-the-parent basis) from the prior-year level of approximately 6.9%. 【Cash Flow Quality】Operating Cash Flow (OCF) remained high at ¥747.3B, in contrast to the net loss. EBITDA was ¥835.4B and the EBITDA margin was 11.3%, indicating that the business’s cash-generating capacity was maintained excluding impairment, a non-cash item. 【Capital Efficiency】Total asset turnover was approximately 0.66x, reflecting the capital-intensive business structure. Longer DSO and DIO (approximately 74 days and 131 days on an annualized basis, respectively) resulted in a longer CCC of approximately 147 days. 【Financial Soundness】The Equity Ratio was 61.1% (down YoY), the current ratio was 196.0%, and interest-bearing debt remained at a sound level, with Debt/EBITDA at approximately 2.0x, indicating healthy liquidity and leverage.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥747.3B, remaining broadly flat at -0.9% YoY and demonstrating strong cash-generation capacity despite the net loss. This was because impairment losses of ¥784.5B, a non-cash item, reduced Net Income but had no impact on cash flow. In terms of working capital, a decrease in accounts receivable contributed +¥124.7B to OCF, while a decrease in inventories contributed +¥55.7B; however, a decrease in accounts payable resulted in a cash outflow of -¥149.7B. Investing Cash Flow was -¥613.1B, as investment in property, plant and equipment and intangible assets continued. As a result, Free Cash Flow was secured at a positive ¥134.2B. Financing Cash Flow was -¥143.6B, with dividend payments of ¥194.7B representing the primary outflow.

Earnings Quality

The earnings structure maintained a certain degree of quality through the Ordinary Income level, supported by non-operating income such as foreign exchange gains of ¥46.6B and dividend income of ¥37.9B, which enabled the Company to secure Ordinary Income of ¥519.5B. However, in extraordinary items, although temporary gains such as gains on the sale of investment securities of ¥49.3B and gains on the sale of fixed assets of ¥90.2B were recorded, impairment losses of ¥784.5B substantially exceeded these gains, bringing total extraordinary losses to ¥827.4B. As a result, loss before tax was ¥-160.7B and Net Income was ¥-341.4B. The gap between Ordinary Income and Net Income was primarily caused by the temporary factor of impairment losses. The coexistence of OCF of ¥747.3B and a net loss indicates that current-period earnings were strongly affected by accruals, specifically the non-cash accounting loss from impairment. Accordingly, Operating Income, EBITDA, and OCF should be used together when assessing the cash-generating capacity of the core business. Comprehensive Income was ¥50.8B, while the portion attributable to owners of the parent was ¥-26.0B, an improvement from Net Income, reflecting contributions from other comprehensive income items such as foreign currency translation adjustments and valuation differences on securities.

Earnings Forecast and Guidance

The Company’s Full-Year outlook is Revenue of ¥8,400.0B (+13.8% YoY), Operating Income of ¥590.0B (+30.3%), Ordinary Income of ¥660.0B (+27.1%), and Net Income of ¥360.0B. Compared with current-period results, this requires an increase of approximately ¥1,017.6B in Revenue and approximately ¥137.1B in Operating Income. Net Income also assumes a substantial turnaround from ¥-341.4B in the current period. Recovery in earnings in the Green Energy & Chemicals Business Segment and avoidance of a recurrence of the large-scale impairment recorded in the current period are considered prerequisites for achieving the outlook.

Shareholder Returns

The annual dividend was ¥100 per share (¥50 interim and ¥50 year-end), with total dividend payments of ¥194.7B. As the Company recorded a net loss for the current period, the numerator for the Payout Ratio was negative, making it difficult to assess sustainability in the ordinary sense of the Payout Ratio. Share repurchases were minor at ¥0.1B, and the Total Return Ratio was also centered on dividends. Dividend payments of ¥194.7B exceeded Free Cash Flow of ¥134.2B, meaning that dividends could not be fully covered by current-period FCF alone. On the other hand, OCF of ¥747.3B exceeded dividend payments, indicating capacity for shareholder returns on an operating-cash-flow basis. The Company plans to increase the next fiscal year’s annual dividend to ¥110, an increase of ¥10, with a turnaround to Net Income of ¥460.0B serving as a prerequisite for sustainability.

Risk Factors

1. Deterioration in the Green Energy & Chemicals Business Segment and risk of additional impairment: The segment deteriorated to Revenue of -11.3%, segment profit of -81.2%, and a profit margin of 1.4%, and recorded impairment losses of ¥561.5B in the current period. If market conditions and operating rates deteriorate further, additional impairment losses may arise.

2. Declining working capital efficiency: DSO was approximately 74 days on an annualized basis, DIO was approximately 131 days, and CCC was approximately 147 days, all exceeding generally recognized warning levels. Within inventories of ¥1,101.4B, stagnation of finished products and raw materials could lead to the risk of inventory write-downs during a period of slowing demand.

3. Reduced flexibility in capital allocation: Dividend payments of ¥194.7B exceeded Free Cash Flow of ¥134.2B, resulting in FCF coverage below 1x. Long-term borrowings increased 28.9% YoY to ¥1,024.4B. The combination of continued investment and the policy of increasing dividends could reduce the Company’s capital allocation capacity.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin were below the industry median. In particular, the Net Income margin substantially underperformed due to the impact of impairment losses.

Growth and Capital Efficiency

The Revenue growth rate was also below the industry median, positioning the Company among manufacturers experiencing a decline in revenue.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The Functional Chemicals Business Segment maintained higher revenue and earnings (Revenue +1.0%, profit +11.8%, profit margin 11.0%) and, as the core business accounting for 60.7% of consolidated revenue, supported Company-wide earnings. At the same time, the structure in which the sharp decline in earnings in the Green Energy & Chemicals Business Segment weighed on overall performance became clear.

2. Impairment losses of ¥784.5B resulted in a net loss attributable to owners of the parent of ¥403.2B. However, EBITDA of ¥835.4B and OCF of ¥747.3B indicate that the business retains cash-generating capacity. Caution is therefore warranted against equating the net loss with a deterioration in the business itself.

3. Financial soundness was maintained, including an Equity Ratio of 61.1% and a current ratio of 196.0%. However, challenges in working capital efficiency, reflected in longer DSO, DIO, and CCC, as well as the operating status of the investment pipeline including construction in progress, are key points to monitor in assessing the Company’s ability to achieve its future earnings outlook.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,104–¥3,284 at Cost of Equity ±1%; ¥3,188–¥3,195 at ω±0.1.

Notes:

• Goodwill amortization of ¥8.3 per share is added back to earnings (as a non-cash expense and for comparability with IFRS companies).
• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.

(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 future share prices.)

---

This report is an earnings analysis document automatically generated by AI through analysis of 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 where necessary.

---End of Report---