TOKYO OHKA KOGYO (4186) FY2026 Q1 Earnings Report

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Executive Summary

The first quarter of FY2026 delivered higher revenue and higher earnings, with profit growth exceeding the rate of revenue growth. Revenue increased to ¥670.8B (+23.6% year on year), while Operating Income rose to ¥150.7B (+53.8%), Ordinary Income to ¥153.7B (+56.2%), and Net Income attributable to owners of the parent to ¥117.3B (+55.8%), representing substantial increases across the board. The Operating Income margin expanded to 22.5% from 18.1% in the same period of the previous year, supported by an improved product mix with higher profitability and better fixed-cost absorption. However, Profit Before Tax included ¥9.4B in gains on the sale of investment securities and a total of ¥13.0B in extraordinary gains, among other items; therefore, recurring earnings power should be assessed somewhat below the reported figures.

Factors Affecting Results

【Revenue】Revenue increased to ¥670.8B, up +23.6% year on year. Although the Company does not disclose a business-by-business breakdown because it operates as a single segment, the primary factors are believed to be improvements in volume and product mix against the backdrop of semiconductor materials demand. Progress against the full-year forecast of ¥2,610.0B was 25.7%, approximately in line with the standard quarterly progress rate of 25%.

【Profit and Loss】Operating Income increased to ¥150.7B (+53.8% year on year), with earnings expanding at a faster pace than revenue under a structure characterized by a high contribution margin, including a gross margin of 40.3% and an SG&A expense ratio of 17.9%. Ordinary Income reached ¥153.7B (+56.2%), while Net Income reached ¥117.3B (+55.8%). However, Net Income included temporary factors such as a ¥9.4B gain on the sale of investment securities and a ¥3.6B gain on the sale of fixed assets; consequently, recurring earnings growth is considered somewhat lower than the reported rate. Non-operating items included a ¥2.0B foreign exchange loss, although its impact relative to Operating Income was limited. Overall, the results show higher revenue and higher earnings, with operating leverage evident as earnings growth significantly outpaced revenue growth.

Segment Analysis

The Group operates as a single segment, and disclosure of segment-level revenue and profit or loss has been omitted.

Key Financial Indicators

【Profitability】The Operating Income margin improved substantially to 22.5% (up +441bp from 18.1% in the same period of the previous year), while the Net Income margin rose to 17.5% (up +361bp from 13.9% in the same period of the previous year). The high gross margin of 40.3% and the SG&A expense ratio of 17.9% were the background factors supporting the margin expansion. 【Cash Flow Quality】Profit Before Tax of ¥166.5B included ¥13.0B in extraordinary gains (a ¥9.4B gain on the sale of investment securities and a ¥3.6B gain on the sale of fixed assets), meaning that part of Net Income depended on non-recurring factors. 【Investment Efficiency】ROE was 5.4% (based on quarterly results), while EPS increased significantly to ¥97.81 (up +55.5% from ¥62.91). 【Financial Soundness】With an Equity Ratio of 72.2% and cash and deposits of ¥643.6B, the Company has a strong financial position. Although it carries ¥161.0B in long-term borrowings and ¥100.0B in bonds, its interest-bearing debt level is low relative to net assets of ¥2,462.7B, indicating a robust financial base.

Cash Flow Analysis

As the figures from the cash flow statement are not disclosed in this report, funding trends are analyzed based on changes in the balance sheet. While cash and deposits declined to ¥643.6B from ¥709.6B at the end of the previous fiscal year, accounts receivable and notes receivable increased to ¥521.3B (from ¥483.6B in the previous year), and inventories increased to ¥162.6B (from ¥149.1B in the previous year), indicating an expansion in working capital items. As trade receivables and inventories accumulate in line with revenue growth, a key area for future confirmation will be whether earnings growth is being sufficiently converted into cash generation. Accounts payable of ¥294.5B provides funding through trade credit, but it is necessary to assess whether the pace of growth in receivables and inventories will exceed revenue growth.

Quality of Earnings

Profit Before Tax of ¥166.5B for the current period included ¥13.0B in extraordinary gains, comprising a ¥9.4B gain on the sale of investment securities and a ¥3.6B gain on the sale of fixed assets; this represents approximately 11.1% of Net Income attributable to owners of the parent of ¥117.3B. Non-operating income totaled ¥6.2B, including interest and dividend income, while non-operating expenses totaled ¥3.2B, including a ¥2.0B foreign exchange loss, resulting in only a modest net positive contribution. Accordingly, Operating Income of ¥150.7B and Ordinary Income of ¥153.7B reflect the earning power of the core business, but it should be noted that the increase from Profit Before Tax to Net Income included a boost from temporary gains on asset sales. Comprehensive Income was ¥131.2B, while the portion attributable to owners of the parent was ¥115.7B, approximately the same level as Net Income of ¥117.3B. The foreign currency translation adjustment of -¥6.3B and valuation difference on available-for-sale securities of +¥9.2B had offsetting effects, limiting the divergence between Net Income and Comprehensive Income.

Earnings Forecast and Guidance

The full-year earnings forecast calls for Revenue of ¥2,610.0B (+10.1% year on year), Operating Income of ¥522.0B (+10.2%), and Ordinary Income of ¥538.0B (+9.2%), with no revisions as of the current quarter. Q1 progress rates were 25.7% for Revenue, 28.9% for Operating Income, and 28.6% for Ordinary Income, all exceeding the standard quarterly progress rate of 25%. In particular, the progress of Operating Income and Ordinary Income is ahead of schedule, suggesting an improved product mix with higher profitability and better fixed-cost absorption. However, as the full-year forecast remains unchanged, the sustainability of any upside will need to be monitored in subsequent quarters.

Shareholder Returns

The full-year dividend forecast is ¥80.00 per share, with no revision as of the current quarter. Based on the full-year forecast EPS of ¥291.62, the Payout Ratio is approximately 27.4%, below the generally cited sustainable level of approximately 60%. Given cash and deposits of ¥643.6B and an Equity Ratio of 72.2%, the Company is considered to have substantial capacity to pay dividends. Treasury stock of ¥165.9B was recorded, but the amount of share repurchases during the current period was not disclosed; therefore, the Total Return Ratio has not been calculated.

Risk Factors

1. Deterioration in working capital efficiency: Trade receivables increased to ¥521.3B (from ¥483.6B in the previous year), while inventories increased to ¥162.6B (from ¥149.1B in the previous year), indicating an expansion in working capital items alongside revenue growth. If the conversion of receivables and inventories into cash is delayed, it could put pressure on the conversion of earnings into cash flow during a period of revenue growth.

2. Dependence on extraordinary gains: Of Profit Before Tax of ¥166.5B, a ¥9.4B gain on the sale of investment securities and a ¥3.6B gain on the sale of fixed assets, totaling ¥13.0B, were recorded as extraordinary gains. These factors have low recurrence potential and contributed to a portion of the Net Income progress rate of 33.5%, which exceeded the Operating Income progress rate of 28.9% for the quarter.

3. Impact of foreign exchange fluctuations: A ¥2.0B foreign exchange loss was recorded as a non-operating expense. Although its impact on Operating Income for the current quarter was limited to approximately 1.3%, continued monitoring is necessary given the business structure involving overseas transactions.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability significantly exceeds the industry median and is positioned at a high level.

Growth and Capital Efficiency

The Revenue growth rate also significantly exceeds the industry median, with the pace of revenue growth standing out within the industry.

※Source: Company analysis

Key Points from the Earnings Results

1. The Operating Income margin of 22.5% and the Net Income margin of 17.5% both improved substantially from the same period of the previous year, indicating an earnings structure characterized by operating leverage, with profit growth outpacing revenue growth.

2. The progress rate of 28.9% against the full-year Operating Income forecast exceeds the standard rate of 25%; however, the Net Income progress rate of 33.5% includes extraordinary gains such as the gain on the sale of investment securities, so the quality of the progress must be assessed separately.

3. Trade receivables and inventories increased alongside revenue growth. The conversion of working capital into cash during this period of revenue growth will be a key point in assessing the consistency between future earnings and cash flow.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,357–¥2,499 at ±1% for the cost of equity, and ¥2,417–¥2,441 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only 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.)

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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 responsibility, after consulting a professional as necessary.

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AI Financial Analysis

Executive Summary

Tokyo Ohka Kogyo delivered a strong FY2026 Q1, with revenue growth translating into materially faster operating and attributable-profit growth. Revenue increased 23.6% year on year to ¥67.1bn. Operating income rose 53.8% to ¥15.1bn. Ordinary income increased 56.2% to ¥15.4bn. Profit attributable to owners increased 55.8% to ¥11.7bn, or ¥97.81 per share. Gross margin expanded to 40.3% from 37.7% a year earlier, a 260bp improvement. Operating margin expanded to 22.5% from 18.1%, a 440bp improvement. SG&A expenses increased 12.3%, substantially below revenue growth, reducing the SG&A-to-sales ratio by approximately 180bp to 17.9% and demonstrating favorable operating leverage. The reported annualized ROE was an excellent 19.0%, supported principally by profitability rather than aggressive balance-sheet leverage. Net margin was 17.5%, placing the company well above the 10% threshold generally associated with high profitability. Profit before tax included ¥1.30bn of extraordinary income, led by a ¥945m gain on sales of investment securities and a ¥357m gain on asset sales. These gains represented 10.9% of profit attributable to owners, so underlying profit growth remains strong but is lower than the headline bottom-line increase. The balance sheet remains highly liquid, with a 281.3% current ratio, ¥64.4bn of cash and deposits, and a 6.3% debt-to-capital ratio. Management has maintained its full-year forecast and dividend forecast, with no revisions announced. Q1 progress was ahead of a straight-line seasonal benchmark for operating profit and attributable profit, while sales progress was broadly in line. The principal operational point requiring monitoring is working-capital intensity: annualized receivable days of 71 and inventory days of 105 are both elevated. For the full year, the sustainability of margin gains, conversion of receivables and inventories into cash, and the degree to which strong Q1 profit reflects recurring semiconductor-material demand rather than asset-sale gains will be central considerations.

Profitability Analysis

The annualized DuPont ROE of 19.0% decomposes into a 17.5% net profit margin, 0.787x asset turnover, and 1.38x financial leverage. The dominant driver of returns is the exceptionally high margin rather than leverage, consistent with a conservatively financed specialty-materials manufacturer. The most significant year-on-year operating change was margin expansion: gross margin increased 260bp and operating margin increased 440bp. Revenue growth of 23.6% exceeded SG&A growth of 12.3%, producing positive operating leverage and lowering the SG&A ratio to 17.9% from approximately 19.7%. Cost of sales increased 18.4%, below revenue growth, which also supported the gross-margin improvement. EBIT margin was 22.5%, while the tax burden was 0.704 and effective tax rate was 19.9%, both consistent with solid conversion of pretax profit into earnings. The interest burden of 1.104 reflects pretax profit exceeding EBIT because non-operating income and extraordinary gains more than offset financing costs; it should not be interpreted as recurring core-operating profitability. Interest expense was only ¥89m and interest coverage was 169.37x, confirming that debt servicing is not constraining earnings. However, ¥1.27bn of net extraordinary gains lifted profit before tax, including securities and fixed-asset sale gains. Excluding the ¥1.27bn net extraordinary gain, attributable profit would be approximately ¥10.5bn before considering related tax effects, indicating that core earnings were still substantially above the prior-year ¥7.5bn but that headline earnings contain a non-recurring contribution. The sustainability of the current operating margin will depend on continued demand and product mix in electronic and semiconductor-related materials, as well as the ability to retain the favorable fixed-cost absorption demonstrated in Q1.

Growth Assessment

Q1 growth was robust, with revenue up ¥12.8bn year on year and operating income up ¥5.3bn. The operating-income growth rate of 53.8% was more than twice the sales growth rate, evidencing strong incremental profitability. Gross profit rose 32.2% to ¥27.1bn, and the resulting gross-margin improvement indicates that growth was not purchased through price or mix deterioration. The company operates as a single reported segment, so consolidated growth is the relevant measure of the core business. The full-year forecast calls for revenue of ¥261.0bn, operating income of ¥52.2bn, ordinary income of ¥53.8bn, and attributable profit of ¥35.0bn. Q1 revenue represents 25.7% of the full-year forecast, only 0.7 percentage points above the 25% straight-line benchmark. Q1 operating income represents 28.9% of the full-year forecast, 3.9 percentage points ahead of the straight-line benchmark. Q1 attributable profit represents 33.5% of the full-year forecast, 8.5 percentage points ahead of the benchmark, although this includes the effect of asset-sale gains. The forecast implies full-year revenue growth of 10.1% and operating-income growth of 10.2%, so management appears to assume moderation from the Q1 growth rate over the remaining quarters. Raw-material inventory was broadly stable year on year at ¥18.1bn, while work in process increased 6.3% to ¥11.5bn and finished goods increased 9.0% to ¥16.3bn. The inventory mix comprises approximately 39.4% raw materials, 25.1% work in process, and 35.5% finished goods, which does not indicate an unusually high work-in-process concentration. Nonetheless, elevated total inventory days suggest that demand realization and inventory discipline should be monitored as production volumes expand.

Financial Health

Financial health is strong. Current assets of ¥173.2bn exceeded current liabilities of ¥61.6bn by ¥111.7bn, producing a 281.3% current ratio and a 254.9% quick ratio. These ratios are well above conventional liquidity thresholds and provide a substantial cushion against short-term obligations. Cash and deposits were ¥64.4bn, exceeding short-term loans of ¥0.5bn by 137.83x. Short-term loans represented only 2.8% of interest-bearing loans, so there is little maturity-mismatch risk between near-term debt obligations and current assets. Long-term loans were ¥16.1bn and bonds payable were ¥10.0bn, while the reported debt-to-capital ratio was a conservative 6.3%. The reported debt-to-equity ratio was 0.38x, reflecting a balance sheet with total liabilities of ¥94.7bn against total equity of ¥246.3bn. Equity funded 72.2% of total assets, and the capital adequacy ratio improved to 68.9% from 67.9% a year earlier. Interest coverage of 169.37x reinforces the low financial-risk profile. Property, plant and equipment totaled ¥116.5bn, equal to 34.2% of total assets, reflecting a meaningful but manageable manufacturing asset base. Intangible assets increased ¥2.04bn year on year, or 111.2%, to ¥3.87bn, partly alongside the consolidation of one new subsidiary. Despite the percentage increase, intangibles account for only 1.1% of total assets and therefore do not create a material balance-sheet concentration or meaningful goodwill-amortization/impairment dependency. No off-balance-sheet obligations are identified in the provided financial information.

Notable B/S Changes

Intangible assets: +¥2.04bn (+111.2%) to ¥3.87bn — partly alongside consolidation of one new subsidiary; the increase warrants monitoring for integration and investment returns, but intangibles remain low at 1.1% of total assets.

Cash Flow Quality

The earnings-to-cash conversion assessment should focus on working-capital discipline. Annualized receivable days were 71, exceeding the 60-day warning threshold. The root cause is that trade receivables of ¥52.1bn are large relative to annualized Q1 sales; receivables also increased 7.2% year on year, although more slowly than revenue growth. In a specialty chemical and semiconductor-materials business, customer qualification processes and global customer terms can lengthen collection cycles, but 71 days remains above the stated manufacturing benchmark. The impact is that a greater portion of reported growth is tied up in customer balances, raising sensitivity to collection timing and any slowdown in downstream semiconductor demand. Annualized inventory days were 105, exceeding the 90-day warning threshold. The root cause is the combined inventory base of raw materials, work in process, and finished goods relative to annualized cost of sales. Total manufacturing inventory increased approximately 0.3% year on year to ¥45.9bn, so the elevated days figure appears primarily related to the production and cost structure rather than a sharp year-on-year inventory build. Even so, 105 days is high for the stated benchmark and may expose the company to inventory valuation, obsolescence, and demand-normalization risk if customer ordering patterns weaken. Estimated annualized payable days are approximately 67 days, slightly above the 30-60 day reference range; supplier financing partly offsets receivable and inventory funding needs. The resulting estimated annualized cash conversion cycle is approximately 109 days, below the 120-day warning point but longer than the 60-90 day healthy range. The balance sheet's ¥64.4bn cash position and substantial working-capital surplus provide considerable capacity to absorb this working-capital requirement. Extraordinary gains of ¥1.27bn before tax also mean that a portion of Q1 accounting profit arose from asset disposals rather than recurring operating activity.

Dividend Sustainability

The full-year dividend forecast is ¥80 per share, unchanged from management's prior guidance. Against forecast EPS of ¥291.62, the implied dividend payout ratio is 27.4%. This is well below the 60% sustainability reference level and leaves substantial earnings retention capacity for manufacturing investment, technology development, and balance-sheet resilience. Q1 basic EPS was ¥97.81, equivalent to 33.5% of the full-year EPS forecast, so first-quarter earnings provide a solid initial base for the planned dividend. Retained earnings were ¥191.4bn and total equity was ¥246.3bn, providing a strong capital base. The low 6.3% debt-to-capital ratio and very high interest coverage further support financial flexibility. The unchanged dividend forecast signals that management currently sees no need to alter shareholder distributions following the strong first-quarter result. The planned dividend appears sustainable on forecast earnings and available balance-sheet resources. The durability of dividend capacity will nevertheless remain linked to the continuity of high operating margins and the eventual conversion of elevated receivables and inventories into cash.

Risk Assessment

Business risks include Semiconductor and electronic-materials demand cyclicality: the 23.6% Q1 sales increase and 440bp operating-margin expansion may moderate if customer fab utilization, inventory adjustment, or capital-spending conditions weaken., Working-capital and demand-forecast risk: annualized DSO of 71 days and DIO of 105 days are above warning thresholds, increasing exposure to delayed collections, inventory obsolescence, and production-demand mismatch., Chemical manufacturing input and supply-chain risk: raw-material availability, energy costs, logistics disruption, and qualification requirements can pressure gross margin or delay deliveries., Foreign-exchange risk: Q1 foreign-exchange losses were ¥202m; overseas operations and export-oriented customers can create earnings volatility despite the limited current-period impact., Quality, environmental, and regulatory risk: as a chemical-materials producer, product contamination, customer qualification failure, environmental compliance costs, or plant incidents could impair customer relationships and margins..

Financial risks include Non-recurring earnings contribution: net extraordinary gains of ¥1.27bn before tax, principally securities and asset sale gains, supported Q1 pretax income and are not a recurring operating-profit source., Receivables concentration: trade receivables of ¥52.1bn represent 15.3% of assets, making collections and customer credit quality relevant despite strong overall liquidity., Investment execution risk: the 111.2% increase in intangibles to ¥3.87bn, partly associated with one newly consolidated subsidiary, requires monitoring of integration and returns, albeit from a low 1.1% of-assets base..

Key concerns include Highest priority: whether elevated receivable and inventory days normalize as revenue growth progresses; persistent elevation would weaken cash conversion and could signal slower downstream demand., High priority: whether the Q1 operating-margin expansion can be retained while the full-year forecast assumes much slower growth than Q1., Moderate priority: separation of recurring earnings from gains on sales of investment securities and fixed assets when evaluating progress toward the ¥35.0bn full-year attributable-profit forecast., Moderate priority: exposure to semiconductor-industry cycles, customer inventory corrections, and currency movements..

Investment Implications

Key takeaways include Q1 operating performance was strong: revenue grew 23.6%, operating income grew 53.8%, and operating margin expanded 440bp to 22.5%., Annualized ROE of 19.0% is driven primarily by a 17.5% net margin, not by financial leverage., Liquidity and solvency are robust, with a 281.3% current ratio, ¥64.4bn cash balance, 6.3% debt-to-capital ratio, and 169.37x interest coverage., Q1 operating-income progress reached 28.9% of full-year guidance, ahead of the 25% straight-line benchmark, while sales progress of 25.7% was broadly in line., Profit attributable to owners benefited from ¥1.27bn of net extraordinary gains before tax, requiring attention to the recurring earnings run rate., Working-capital efficiency is the principal financial monitoring item, given 71 annualized receivable days and 105 annualized inventory days..

Metrics to watch include Operating margin and gross margin versus the Q1 levels of 22.5% and 40.3%, respectively, Revenue and operating-income progress against the ¥261.0bn and ¥52.2bn full-year forecasts, Annualized DSO, DIO, payable days, and cash conversion cycle, Receivables growth relative to revenue growth and inventory growth relative to cost of sales, The scale of future securities/asset disposal gains relative to recurring operating profit, FX gains or losses and indications of overseas customer-demand conditions, Intangible-asset growth and returns following the newly consolidated subsidiary.

Regarding relative positioning, The company presents as a high-margin specialty manufacturing business with an unusually strong balance sheet: annualized ROE of 19.0%, operating margin of 22.5%, and low debt reliance compare favorably with broad manufacturing profitability and solvency benchmarks. Its relative weakness is not leverage but the length of the operating cash cycle, particularly receivables and inventories, which merits close monitoring in a cyclical semiconductor-materials environment.