Mitsubishi Gas Chemical Company,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥361.68B
• Operating Income: ¥25.14B
• Net Income: ¥-24.27B
• EPS: ¥-143.48

Income Statement

Balance Sheet

Cash Flow Statement

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: A mixed FY2026 Q2—core operations remained profitable with healthy liquidity, but a sizable one-time loss drove net income into the red and depressed capital efficiency. Revenue declined 6.8% YoY to 3,616.8, while operating income fell 25.5% YoY to 251.5, indicating pressure from softer demand/pricing and limited cost pass-through. Gross profit reached 808.1 (gross margin 22.3%), and operating margin was 6.9% (251.5/3,616.8). Based on last year’s inferred operating margin of ~8.7% (prior OI ~337.7 on revenue ~3,883), operating margin compressed by roughly 175 bps YoY. Ordinary income was 314.8 (-15.9% YoY), supported by non-operating income of 95.8 (notably dividend income 30.7 and interest income 7.0), partially offset by non-operating expenses of 32.4. Despite positive ordinary earnings, profit before tax was -141.3 and net income was -279.4, implying large special/extraordinary losses of roughly 456 (difference between ordinary and PBT), and an unusual negative effective tax rate (-71.8%), both characteristic of non-recurring items such as impairments or restructuring. EBITDA was 437.2 (margin 12.1%), and interest coverage remained strong at 21.1x, evidencing solid ability to service debt from operating profits. Balance sheet health is a bright spot: current ratio 176.8%, quick ratio 130.0%, and D/E 0.62x; equity ratio (calculated) is a robust ~61.9%, and net debt is moderate at ~979 (gross interest-bearing debt ~1,586 vs cash 608). Operating cash flow was positive at 298.5 despite the net loss, yielding an OCF/NI of -1.07x; while flagged by the rule-of-thumb threshold, this divergence likely reflects non-cash charges (e.g., impairments) and working capital releases rather than poor cash conversion. ROE was -4.2% (DuPont: NPM -7.7%, asset turnover 0.336, leverage 1.62x), and ROIC at 3.3% sits below the 5% warning threshold, underscoring depressed capital efficiency in this part of the cycle. With dividends not disclosed, payout analysis is constrained; historically the firm aims for stability, but the net loss raises the odds of a cautious stance until visibility improves. Forward-looking, recovery hinges on end-market normalization (methanol/derivatives, MMA chain, and electronic materials), stabilization of commodity spreads, and absence of repeat extraordinary charges. Near-term priorities are margin repair, disciplined capex, and ROIC uplift. Key watch points include inventory trends, price/cost spreads, and any disclosures on the nature of the special loss. If one-time losses do not recur, underlying ordinary earnings and cash generation suggest the potential for earnings normalization, but capital efficiency needs to improve to clear the 7–8% ROIC target.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = (-7.7%) × 0.336 × 1.62 ≈ -4.2%. The dominant driver of the weak ROE is the negative net profit margin, as operating income was positive but net income swung to a loss due to substantial extraordinary losses between ordinary income (314.8) and PBT (-141.3). Asset turnover at 0.336 reflects a mid-cycle utilization level for a capital-intensive chemicals portfolio, while financial leverage at 1.62x remains conservative and not the cause of ROE volatility. Business reason: soft top line (-6.8% YoY) and margin compression (operating margin down ~175 bps YoY) point to weaker spreads/demand, while the extraordinary loss likely relates to impairments or restructuring in underperforming assets. Sustainability: operating margin weakness could gradually normalize with pricing and volume recovery; however, the extraordinary loss is likely non-recurring, implying net margin should revert closer to ordinary earnings power absent further special charges. Flags: SG&A of 556.7 against revenue contraction suggests limited cost flexibility; with revenue -6.8% and OI -25.5%, operating deleverage is evident. Monitoring point: ensure SG&A growth does not outpace revenues in subsequent quarters and track gross-to-operating margin conversion.

Growth Assessment

Revenue declined 6.8% YoY to 3,616.8, indicating softer end-markets or pricing pressure in key chemical chains. Operating income fell 25.5% YoY to 251.5, underscoring negative operating leverage as fixed costs weighed on profitability. Ordinary income decreased 15.9% to 314.8, partly cushioned by non-operating income (dividends 30.7, interest 7.0), suggesting stable income from financial assets. Net income turned to a loss of -279.4 due to large special losses; this masks underlying operational resilience seen in positive EBITDA (437.2) and strong interest coverage (21.1x). Revenue sustainability will depend on commodity spread stabilization (e.g., methanol and MMA value chains) and demand recovery in electronics-related materials. Profit quality: operating profit is recurring; ordinary income includes financial components that are partially recurring; extraordinary losses are likely one-off. Outlook: if spreads improve and impairments do not repeat, ordinary earnings could better translate to net profit; however, ROIC at 3.3% signals a need for mix improvement, asset pruning, or higher-margin growth to reach a 7–8% target.

Financial Health

Liquidity is solid: current ratio 176.8% and quick ratio 130.0% (both above healthy thresholds). No warning on current ratio (<1.0) or leverage (D/E 0.62x well under 2.0). Working capital is strong at 1,895.8, with cash 607.8, receivables 1,442.0, and inventories 1,154.5 comfortably exceeding current liabilities 2,469.5; short-term loans of 874.6 are well covered by liquid assets. Solvency: total equity 6,655.4 implies an equity ratio ~61.9% (6,655.4/10,754.2), indicating a conservative capital structure. Net debt is ~978.6 (debt 1,586.4 minus cash 607.8), and Debt/EBITDA is ~3.6x—acceptable for chemicals given positive OCF and interest coverage of 21.1x. Maturity mismatch risk appears limited near-term, though reliance on short-term loans should be watched if market conditions tighten. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF was 298.5 against net income of -279.4, yielding an OCF/NI of -1.07x, which triggers a quantitative flag but qualitatively reflects strong non-cash charges (e.g., impairments) and likely working capital release rather than weak cash conversion. With capex and investing CF unreported, FCF cannot be precisely assessed; however, EBITDA of 437.2 and positive OCF imply underlying cash generation capacity remains intact. Earnings quality: ordinary profit-to-cash conversion looks decent; the gap between ordinary income (314.8) and net income (-279.4) stems from non-recurring items, not core cash erosion. Working capital: without period-to-period inventory/receivables data, we cannot confirm the extent of release; nonetheless, the positive OCF in a down quarter suggests some working capital tailwind. No signs of aggressive working capital management (e.g., receivables spike or inventory build) can be concluded from the snapshot alone.

Dividend Sustainability

Dividend data were not disclosed; the calculated payout ratio of -72.0% is not meaningful due to negative earnings. Capacity: positive OCF (298.5) and a robust balance sheet suggest room to maintain a modest dividend from cash flow, assuming capex is disciplined, but visibility is constrained without capex and dividend cash figures. Policy outlook: given the net loss and low ROIC (3.3%), management may emphasize balance sheet strength and ROIC recovery over dividend increases in the near term; a stable or conservative dividend stance is more likely until earnings normalize. FCF coverage of dividends is not calculable with the provided data.

Risk Assessment

Business Risks:

• Commodity and spread volatility in methanol/MMA and derivatives impacting margins
• Demand softness in electronics- and automotive-related materials pressuring volumes and pricing
• Execution risk on cost control amid revenue decline (operating deleverage)
• Potential for further impairments or restructuring in underperforming assets

Financial Risks:

• Lower ROIC at 3.3% raises risk of value dilution if capex/investments are not high-return
• Short-term loan reliance (874.6) exposes refinancing needs if credit conditions tighten
• Earnings sensitivity to non-operating income (dividends, financial income) during weak cycles
• Tax volatility evidenced by negative effective tax rate due to extraordinary items

Key Concerns:

• Large extraordinary loss (~456) that turned ordinary profit into a net loss
• Operating margin compression (~175 bps YoY) on top of a 6.8% revenue decline
• Capital efficiency below threshold (ROIC 3.3%), indicating need for portfolio/mix improvement
• Data gaps (capex, investing CF, dividends) limit FCF and payout assessment

Investment Implications

Key Takeaways:

• Core operations remain profitable (OI 251.5, EBITDA 437.2) with strong liquidity and coverage
• Net loss driven by likely one-off extraordinary charges rather than core cash erosion
• Operating margin compressed to 6.9%, highlighting cycle and cost pressures
• ROIC at 3.3% underscores imperative to improve asset productivity and mix
• Balance sheet strength (equity ratio ~61.9%, D/E 0.62x) provides resilience for a cyclical recovery

Metrics to Watch:

• Disclosure on the nature and recurrence risk of the extraordinary loss
• Operating margin trajectory and gross-to-operating conversion
• Working capital movements (inventories and receivables) vs OCF sustainability
• ROIC progression toward a 7–8% target and any portfolio optimization actions
• Commodity spread indicators (methanol/MMA) and FX sensitivity (USD/JPY)

Relative Positioning: Versus domestic chemical peers, Mitsubishi Gas Chemical enters the downcycle with a stronger-than-average balance sheet and solid interest coverage, but capital efficiency is currently lagging with ROIC below peers targeting mid/high single digits; normalization potential exists if one-off losses abate and spreads recover.

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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