Mitsui Chemicals,Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥813.59B
• Operating Income: ¥27.94B
• Net Income: ¥15.69B
• EPS: ¥41.76

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

Mitsui Chemicals (4183) reported FY2026 Q2 (IFRS, consolidated) results marked by a sharp profit contraction against lower sales, but with robust cash generation. Revenue was 8,135.90 (100M JPY), down 8.6% YoY, reflecting a softer demand/price environment across chemicals end-markets. Gross profit was 1,910.21, implying a 23.5% gross margin, while operating income declined 39.3% YoY to 279.37, translating to an operating margin of roughly 3.4%. Net income fell 64.7% YoY to 78.43, with a net margin of about 1.0%, weighed by a high effective tax rate of 51.4% and weaker operating leverage. The DuPont bridge indicates low ROE at 0.8%, driven by thin net margin (1.0%), modest asset turnover (0.387x), and moderate financial leverage (2.15x). EBITDA was 767.78 (margin 9.4%), supported by depreciation and amortization of 488.41, highlighting an asset‑intensive portfolio and cushioning operating income. Despite pressured earnings, operating cash flow was strong at 1,179.75, equal to 15.0x reported net income, aided by non‑cash charges and likely working capital inflows. Free cash flow was a solid 697.18 after capex of 488.75, enabling debt reduction and shareholder returns. Financing cash flow was negative at -1,044.71, reflecting net repayments and dividend outflows (-133.09) with negligible buybacks. The balance sheet remains sound with total assets of 21,001.63 and equity of 9,765.94 (equity ratio 40.7%), while the provided debt-to-equity ratio of 1.21x suggests moderate leverage for the sector. Liquidity appears adequate with cash and equivalents of 1,706.15, though current liabilities data are not disclosed, limiting precision on current and quick ratios. Inventory stood at 4,427.63, a key swing factor for cash generation as conditions normalize. Total comprehensive income of 299.14 materially exceeded net income, indicating favorable OCI movements (e.g., FX or securities valuation), which supported equity. Equity‑method income was 75.67, an important profit stabilizer amid cyclical headwinds. Dividends were covered by FCF (FCF coverage 2.31x), but the payout ratio based on net income was elevated at 384.1%, reflecting depressed earnings rather than an overly aggressive cash policy. Overall, profitability remains subdued due to weak spread environment and high tax rate, but cash flow resilience and balance sheet strength provide flexibility to traverse the downcycle.

Profitability Analysis

ROE_decomposition: DuPont: ROE 0.8% = Net margin 1.0% x Asset turnover 0.387x x Financial leverage 2.15x. The dominant drag is margin compression, with operating margin at ~3.4% and net margin ~1.0% due to weak pricing/spreads and a high effective tax rate of 51.4%. Asset turnover at 0.387x is modest for a capital-intensive chemicals business and likely reflects mid-cycle to soft demand conditions. margin_quality: Gross margin at 23.5% remains reasonable but downshifts at the operating line (3.4% margin), indicating elevated SG&A intensity (SG&A 1,437.42 vs gross profit 1,910.21). EBITDA margin of 9.4% shows underlying cash earnings capacity, yet conversion to operating income was limited by D&A of 488.41 and subdued contribution from other income lines (ordinary income unreported). Net margin at 1.0% was further compressed by the 51.4% tax rate. operating_leverage: Revenue declined 8.6% YoY, but operating income fell 39.3% YoY, evidencing negative operating leverage as fixed costs (including depreciation) weighed on profitability. This indicates high sensitivity of earnings to volume/price changes; a modest recovery in spreads or volumes could disproportionately lift operating profit, and vice versa.

Growth Assessment

revenue_sustainability: The 8.6% YoY revenue decrease suggests broad-based end-market softness or pricing pressure in key segments. Inventory levels at 4,427.63 and solid OCF imply some working capital release; normalization of restocking dynamics could moderate future revenue declines but visibility is limited. profit_quality: EBITDA of 767.78 versus operating income of 279.37 underscores substantial non-cash D&A burden typical for the asset base. Equity-method income of 75.67 provided some offset to weaker core profitability. The high effective tax rate weighed heavily on bottom line, depressing EPS (basic 41.76 JPY) despite stable operating cash generation. outlook: Near-term earnings trajectory hinges on spread recovery, product mix normalization, and tax rate normalization. Given the negative operating leverage observed, incremental improvements in pricing or utilization could drive outsized profit recovery, while persistent weakness would keep ROE subdued. Management’s capex pace appears disciplined, supporting medium-term efficiency and specialty mix, but detailed segment outlooks are not disclosed here.

Financial Health

liquidity: Cash and equivalents were 1,706.15 with operating CF of 1,179.75 in the period, indicating adequate liquidity. Current assets total 10,411.71; however, current liabilities were not disclosed, so current and quick ratios cannot be computed. Working capital is listed as 10,411.71, but without current liabilities, this figure should be interpreted cautiously. solvency: Equity was 9,765.94 (equity ratio 40.7%), and financial leverage (assets/equity) was 2.15x. The provided debt-to-equity ratio is 1.21x, indicating moderate leverage for a chemicals company. Interest expense was not reported, preventing calculation of interest coverage, but negative financing CF suggests some deleveraging during the period. capital_structure: Total liabilities were 11,833.49 against assets of 21,001.63. Interest-bearing debt was not disclosed, limiting precision on net debt. Comprehensive income exceeded net income, strengthening equity, and retained earnings stand at 6,183.07, providing a buffer for dividends and investment.

Cash Flow Quality

earnings_quality: OCF/Net income of 15.04x points to strong cash conversion, supported by sizeable D&A (488.41) and likely working capital inflows. This indicates that reported earnings understated cash-generating capacity in the period. FCF_analysis: Free cash flow was 697.18 after capex of 488.75, demonstrating capacity to fund investments and shareholder returns while reducing financing liabilities. Investing CF of -482.57 broadly matches capex, suggesting limited M&A or financial investments in the period. working_capital: Inventories were 4,427.63; accounts receivable and payable were unreported, constraining a detailed working capital cycle analysis. The strong OCF implies favorable working capital movements, but sustainability depends on demand and pricing stabilization.

Dividend Sustainability

payout_ratio_assessment: The calculated payout ratio is 384.1% based on depressed net income, indicating earnings-based coverage is weak this period. However, dividends paid of -133.09 compare to net income of 78.43 (headline payout ~170%), highlighting that the ratio is sensitive to methodology and timing. FCF_coverage: FCF coverage is 2.31x, indicating dividends were covered by free cash flow despite weak earnings. This suggests current dividends are funded from cash generation and balance sheet strength rather than incremental leverage. policy_outlook: Given volatile earnings and strong cash generation, the company can likely maintain a stable dividend through the downcycle, but sustainability ultimately depends on a recovery in operating profit and normalization of the tax rate. DPS and explicit policy details were unreported; monitoring guidance and mid-term plan targets is advisable.

Risk Assessment

Business Risks:

• Cyclical demand and price/spread volatility across petrochemicals and materials end-markets
• Negative operating leverage magnifying profit swings with modest volume/price changes
• Input cost fluctuations (naphtha, energy) impacting margins
• Inventory valuation and destocking risk affecting quarterly profitability and cash
• High effective tax rate depressing net margins
• Execution risk on capex and product-mix upgrade toward specialties

Financial Risks:

• Moderate leverage (debt-to-equity 1.21x) amid earnings weakness
• Interest coverage not measurable due to unreported interest expense
• Potential working capital volatility as demand normalizes
• Dividend commitments during low-profit periods increasing cash outflow rigidity

Key Concerns:

• Operating income down 39.3% YoY vs revenue down 8.6%, evidencing adverse operating leverage
• Net margin compressed to ~1.0% and ROE to 0.8%
• Effective tax rate elevated at 51.4%, materially weighing on EPS
• Limited disclosure on current liabilities and interest costs reduces visibility on liquidity and coverage metrics

Investment Implications

Key Takeaways:

• Revenue decline of 8.6% YoY with gross margin at 23.5% and operating margin at ~3.4%
• EBITDA margin of 9.4% vs significant D&A (488.41) constraining operating profit
• ROE at 0.8% driven by thin net margin and modest asset turnover
• OCF robust at 1,179.75; FCF of 697.18 despite weak earnings
• Equity ratio at 40.7% and leverage at moderate levels (assets/equity 2.15x; D/E 1.21x)
• Dividends covered by FCF (2.31x) but not by earnings, reflecting temporary profit pressure
• Total comprehensive income (299.14) materially above net income, supporting equity

Metrics to Watch:

• Spread recovery and price-cost dynamics by segment
• Operating margin trajectory and EBITDA/ton trends
• Effective tax rate normalization
• Working capital movements (inventory, receivables/payables) and OCF sustainability
• Capex execution and specialty mix progression
• Equity-method income stability
• Leverage and any change in interest cost once disclosed

Relative Positioning: Within Japanese diversified chemicals, Mitsui Chemicals currently exhibits below-par profitability (low ROE and net margin) but comparatively strong cash flow resilience and a solid equity base, positioning it to benefit from cyclical upturns while maintaining financial flexibility.

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
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