TOKYO OHKA KOGYO (4186) FY2026 Q2 Earnings Report

Quick View

Executive Summary

This earnings result reflects a clear improvement in profitability, with profit growth exceeding revenue growth. Revenue was ¥1,396.7B (+25.1% YoY), Operating Income was ¥288.5B (+45.4%), Ordinary Income was ¥302.7B (+48.5%), and Net Income was ¥236.1B (+44.4%), including ¥204.1B attributable to owners of the parent (+49.9%). In addition to revenue growth driven by expanding demand for semiconductor materials, operating leverage from fixed-cost absorption and an improved product mix drove the increase in profit margins.

Factors Affecting Earnings

【Revenue】Revenue was ¥1,396.7B, representing a +25.1% increase YoY. Although the company discloses a single segment and does not provide a segment-level breakdown, the expansion in demand for advanced semiconductor materials appears to have been the primary driver.

【Profit and Loss】Operating Income was ¥288.5B (+45.4%), exceeding the revenue growth rate by 20.3pt. The Operating Income margin improved to 20.7% from 17.8% in the same period of the previous year. Ordinary Income was ¥302.7B (+48.5%), supported by non-operating income, including ¥3.6B in dividend income. Extraordinary gains, including ¥9.4B in gains on sales of investment securities, made a net positive contribution of ¥12.6B; however, this represented only approximately 6.2% of Net Income attributable to owners of the parent of ¥204.1B and was a temporary factor. Net Income growth was primarily based on the expansion of Operating Income, supporting the conclusion that both revenue and profit increased.

Segment Analysis

The Group operates as a single segment and does not disclose segment-level revenue or profit-and-loss information.

Key Financial Metrics

【Profitability】The Operating Income margin was 20.7%, improving from 17.8% in the same period of the previous year. The gross margin was 38.6%, and the SG&A ratio was 18.0%. The Net Income margin attributable to owners of the parent was approximately 14.6%, up from approximately 12.2% in the same period of the previous year. 【Cash Flow Quality】Operating Cash Flow (OCF) of ¥216.4B was 1.06x Net Income attributable to owners of the parent of ¥204.1B, indicating sufficient cash backing for earnings; however, the conversion efficiency of OCF relative to EBITDA (OCF/EBITDA) remained at 0.63x. 【Investment Efficiency】ROE was 9.0% on a cumulative basis. Capital expenditures of ¥172.8B were 3.24x depreciation and amortization expense of ¥53.4B, indicating a phase of capacity expansion investment. 【Financial Soundness】The Equity Ratio was high at 72.5%. Cash and deposits of ¥707.9B exceeded current liabilities of ¥641.4B, indicating sufficient liquidity. Interest-bearing debt consisted primarily of ¥161.0B in long-term borrowings and ¥100.0B in bonds, with limited reliance on short-term borrowings.

Cash Flow Analysis

Operating Cash Flow was ¥216.4B, up +36.6% YoY, and Free Cash Flow remained positive at ¥49.3B. Investing Cash Flow represented an outflow of ¥167.1B, most of which consisted of ¥172.8B in capital expenditures, indicating that the company is in a growth investment phase. Cash flow from operating activities before changes in working capital was ¥286.0B, exceeding Net Income; however, accounts receivable increased by ¥65.8B and inventories increased by ¥40.7B, while the ¥34.5B increase in accounts payable was insufficient to offset these increases, thereby reducing actual Operating Cash Flow. Financing Cash Flow was an outflow of ¥83.4B, primarily due to dividend payments of ¥44.3B and dividends paid to non-controlling interests of ¥33.9B. Cash and cash equivalents at the end of the period were ample at ¥682.0B, with no liquidity concerns; however, the increase in working capital accompanying revenue growth will determine future cash generation capacity.

Earnings Quality

The primary source of profit was the expansion of Operating Income. Since the net contribution from extraordinary gains and losses was ¥12.6B, representing only approximately 6.2% of Net Income attributable to owners of the parent, earnings quality can be considered relatively high. Extraordinary gains included ¥9.4B in gains on sales of investment securities and ¥3.6B in gains on sales of property, plant and equipment, both of which were temporary factors. Non-operating income was ¥17.9B, or 1.3% of Revenue, and consisted primarily of ¥3.6B in dividend income and other items; it was not large enough to materially supplement the core business. Operating Cash Flow was 1.06x Net Income attributable to owners of the parent, indicating a small divergence between accrual-basis earnings and cash generation. However, increases in accounts receivable and inventories resulted in working-capital accruals, and the conversion efficiency of OCF relative to EBITDA remained comparatively low.

Earnings Forecast and Guidance

No revision has been made to the full-year earnings forecast of Revenue of ¥2,910.0B, Operating Income of ¥606.0B, and Ordinary Income of ¥630.0B. Progress toward the full-year forecast based on first-half results was 48.0% for Revenue, 47.6% for Operating Income, and 48.1% for Ordinary Income. Although these figures were slightly below the standard first-half progress rate of 50%, performance has generally remained in line with the plan. The full-year forecast assumes Revenue growth of +22.8% YoY and Operating Income and Ordinary Income growth of +27.9%. Compared with the first-half growth rates of +25.1% for Revenue and +45.4% for Operating Income, this implies a somewhat more moderate growth rate in the second half.

Shareholder Returns

The Q2 dividend was ¥40.00 per share, and the full-year dividend forecast remains unchanged at ¥80.00. The expected Payout Ratio based on forecast EPS of ¥355.21 is approximately 22.5%, indicating a modest dividend burden relative to earnings. The company has not disclosed the status of share repurchase activity; accordingly, the assessment is based solely on the dividend Payout Ratio. Given the financial foundation of ¥707.9B in cash and deposits and an Equity Ratio of 72.5%, dividend sustainability is considered favorable.

Risk Factors

1. Increase in inventory levels: Inventories increased YoY, comprising ¥194.8B in raw materials, ¥116.8B in work in process, and ¥171.2B in finished goods. Any change in demand trends could lead to inventory stagnation or the risk of inventory write-downs.

2. Increase in accounts receivable and collection period: Trade receivables and notes receivable reached ¥561.2B, up from ¥486.5B in the same period of the previous year. Collection management during a period of revenue expansion will affect the level of Operating Cash Flow.

3. Utilization risk associated with capital expenditures: Capital expenditures were ¥172.8B, equivalent to 3.24x depreciation and amortization expense, indicating an acceleration of capacity expansion investment. If investment recovery is delayed, pressure on Free Cash Flow could persist for an extended period.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Return

Both the Operating Income margin and Net Income margin significantly exceeded the industry median, placing profitability at a high level within the industry.

Growth and Capital Efficiency

The Revenue growth rate also significantly exceeded the industry median, indicating high growth close to the upper limit of the IQR.

Source: Company analysis

Key Earnings Highlights

1. Operating Income increased +45.4% versus Revenue growth of +25.1%, demonstrating profit growth exceeding revenue growth. The Operating Income margin improved by approximately 2.9pt to 20.7%, driven by fixed-cost absorption and an improved product mix.

2. Due to increases in accounts receivable and inventories, the conversion efficiency of OCF relative to EBITDA (OCF/EBITDA 0.63x) was comparatively low. Working-capital management during the period of revenue growth will therefore be a key focus going forward.

3. Capital expenditures reached 3.24x depreciation and amortization expense, indicating a phase of capacity expansion investment. The full-year progress rate was in the 47–48% range and remained in line with the plan. Utilization in the second half and trends in inventory and accounts receivable will be key to achieving the full-year results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,664–¥2,827 at ±1% for the cost of equity, and ¥2,729–¥2,766 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥1.9 per share has been added back to profit (as a non-cash expense and for comparability with IFRS companies).
• Net assets as of the quarter-end have been used (there is a time lag relative to 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 / This is a mechanically calculated value based solely on publicly disclosed data; it 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 based on 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, and after consulting a professional as necessary.

---End of Report---

---

AI Financial Analysis

Executive Summary

Tokyo Ohka Kogyo delivered a strong FY2026 Q2 earnings result, with sales growth translating into materially faster operating and net-profit growth. Revenue rose 25.1% year on year to ¥139.7bn. Operating income increased 45.4% to ¥28.9bn. Ordinary income rose 48.5% to ¥30.3bn, supported by a ¥1.8bn net non-operating income contribution. Profit attributable to owners of parent increased 49.9% to ¥20.4bn. The operating margin expanded 287bp year on year to 20.7%, from 17.8% in the prior-year period. Gross margin expanded 174bp to 38.6%, from 36.9%, indicating that the earnings acceleration was not solely a fixed-cost absorption effect. The attributable net margin improved 241bp to 14.6%, from 12.2%. EBITDA increased to ¥34.2bn and the EBITDA margin reached 24.5%, confirming robust underlying profitability. Reported annualized ROE was 15.6%, placing returns at the excellent threshold despite a conservative 1.38x financial-leverage factor. Cash earnings broadly supported accounting earnings, as operating cash flow of ¥21.6bn was 1.06x profit attributable to owners. However, operating cash conversion measured against EBITDA was 0.63x, below the 0.7x warning level, as working-capital investment consumed cash. Receivable days of 73 and inventory days of 103 are the principal operating-cash-flow watchpoints, particularly given the semiconductor-materials manufacturing cycle. The group nevertheless generated positive free cash flow of ¥4.9bn after ¥17.3bn of capital expenditure. CapEx was 3.24x depreciation, demonstrating an active capacity-expansion and modernization phase rather than maintenance-only spending. Balance-sheet capacity remains substantial, with a 288.4% current ratio, 0.38x debt-to-equity ratio, and 0.47x debt/EBITDA. Management maintained its full-year outlook, implying that Q2 results are broadly consistent with the annual plan rather than requiring a revision. Full-year sales guidance of ¥291.0bn and operating-income guidance of ¥60.6bn imply second-half execution remains important, while the favorable first-half margin profile provides a constructive starting point. Non-recurring gains on sales of securities and assets lifted pre-tax profit by a net ¥1.3bn before tax, so investors should distinguish the strong recurring operating result from this incremental contribution.

Profitability Analysis

The reported annualized DuPont ROE of 15.6% decomposes into a 14.6% net profit margin, 0.776x asset turnover, and 1.38x financial leverage. The central driver of return is profitability rather than balance-sheet leverage: financial leverage is modest and debt financing is not being used to manufacture the ROE outcome. The largest visible improvement versus the prior-year period is margin expansion, with operating margin rising 287bp and attributable net margin rising 241bp. Sales grew 25.1%, while SG&A grew 17.8% to ¥25.1bn, materially below revenue growth; this operating leverage supported the disproportionate 45.4% increase in operating income. Gross profit rose 31.1% to ¥54.0bn, faster than revenue, and gross margin improved to 38.6%, pointing to improved product mix, pricing and/or manufacturing absorption. EBITDA margin of 24.5% further supports the view that core profitability is strong. Ordinary income exceeded operating income by ¥1.4bn, equivalent to about 1.0% of revenue, reflecting a modest contribution from interest income, dividend income and other non-operating items. The 5-factor DuPont tax burden was 0.647, while the interest burden was 1.093 because profit before tax exceeded EBIT through non-operating and extraordinary income; this is not a leverage-driven earnings profile. The effective tax rate was 25.1%, which is reasonable for the period. Pre-tax income also included ¥0.9bn of gain on sale of investment securities and ¥0.4bn of gain on asset sales, partly offset by ¥0.05bn of fixed-asset disposal losses. These items account for roughly 6.4% of attributable profit before tax effects and should not be extrapolated as recurring earnings. JGAAP goodwill amortization was only ¥0.1bn, or less than 1% of EBITDA, so the distinction between EBITDA and EBITDA before goodwill amortization is immaterial for period profitability. The sustainability of margins will depend on maintaining semiconductor-material demand, factory utilization, product mix and input-cost discipline while absorbing the elevated investment program.

Growth Assessment

The growth profile was strong in FY2026 Q2: revenue increased ¥28.0bn year on year, while operating income increased ¥9.0bn and attributable profit increased ¥6.8bn. The faster earnings growth relative to sales demonstrates favorable operating leverage and improved gross profitability. Full-year guidance calls for ¥291.0bn of sales, ¥60.6bn of operating income, ¥63.0bn of ordinary income and ¥42.6bn of attributable profit. First-half progress is 48.0% for sales, 47.6% for operating income, 48.1% for ordinary income and 47.9% for attributable profit. Each is only around 2 percentage points below the standard 50% first-half run rate, so there is no material progress-rate deviation of more than 10 percentage points. The unrevised guidance therefore appears consistent with a normal second-half weighting rather than signaling a sharp slowdown. The forecast implies full-year growth of 22.8% in sales and 27.9% in operating and ordinary income, meaning the company must sustain healthy, albeit more moderate, growth in the second half. Growth investment is tangible: capital expenditure rose 24.8% year on year to ¥17.3bn and exceeded depreciation by 3.24x. This should support capacity and technology competitiveness if new facilities ramp on time and utilization remains high. Intangible assets more than doubled to ¥3.9bn, although they remain only 1.1% of total assets and do not yet create a material amortization burden. As a chemical manufacturer serving advanced technology supply chains, the durability of revenue growth remains sensitive to semiconductor production cycles, customer inventory adjustments, qualification timelines and geopolitical restrictions affecting end markets.

Financial Health

Financial health is strong. Current assets of ¥185.0bn exceed current liabilities of ¥64.1bn by ¥120.8bn, producing a 288.4% current ratio and a 261.7% quick ratio. Accordingly, there is no liquidity warning associated with a current ratio below 1.0. Cash and deposits were ¥70.8bn, exceeding total interest-bearing debt of ¥16.2bn by approximately ¥54.6bn. Interest-bearing debt represents only 5.8% of capital, while debt-to-equity was a conservative 0.38x and debt/EBITDA was 0.47x. Accordingly, there is no leverage warning associated with a debt-to-equity ratio above 2.0. Interest coverage was exceptionally high at 162.1x on EBIT and 192.1x on EBITDA. Maturity mismatch risk is low: short-term loans were only ¥0.07bn, or 0.4% of interest-bearing debt, and cash alone was more than 1,000x short-term debt. Long-term loans of ¥16.1bn and bonds payable of ¥10.0bn are readily supported by the operating asset base, cash resources and recurring EBITDA. Total equity was ¥261.0bn, equal to 72.5% of total assets, while the capital adequacy ratio improved to 68.9% from 67.9% a year earlier. The ¥3.1bn reduction in short-term loans, or 82.0% year on year, further reduces refinancing reliance; the absolute balance was already immaterial. Intangible assets rose ¥2.1bn, or 111.8%, to ¥3.9bn, likely reflecting acquired or internally capitalized technology-related assets and/or the newly consolidated subsidiary; at 1.1% of assets, the financial-statement risk from this increase remains limited. Goodwill amortization of ¥0.1bn confirms some acquisition-related balance-sheet exposure, but its earnings impact is negligible. The balance sheet has capacity to fund the ongoing capital-investment cycle without compromising solvency.

Notable B/S Changes

Intangible assets: +¥2.05bn (+111.8%) to ¥3.88bn — likely reflects technology-related investment and/or consolidation activity; the amount remains limited at 1.1% of total assets, constraining amortization and impairment exposure. Short-term loans: -¥0.31bn (-82.0%) to ¥0.07bn — further reduces already negligible short-term refinancing risk; liquidity is supported by ¥70.8bn of cash and deposits. Property, plant and equipment: +¥9.68bn (+8.8%) to ¥119.87bn — consistent with the elevated ¥17.28bn capital-expenditure program and an ongoing manufacturing capacity-expansion cycle. Trade receivables: +¥7.48bn (+15.4%) to ¥56.13bn — growth outpaced the need for cash efficiency and is consistent with the elevated 73-day DSO; collection trends warrant monitoring. Finished goods: +¥2.21bn (+14.9%) to ¥17.12bn — together with the reported 103-day DIO, this increases exposure to inventory normalization if customer demand weakens.

Cash Flow Quality

Cash-flow quality is mixed but remains acceptable overall. Operating cash flow was ¥21.6bn, exceeding ¥20.4bn of profit attributable to owners by 1.06x, above the 1.0x high-quality threshold and well clear of the 0.8x concern threshold. The accruals ratio was negative 0.3%, also supportive of earnings conversion over the period. Conversely, OCF/EBITDA cash conversion was 0.63x, below the 0.7x alert threshold. The root cause is principally working-capital absorption: trade receivables increased by ¥6.6bn and inventories increased by ¥4.1bn, partly offset by a ¥3.4bn increase in trade payables. Receivable days of 73 exceed the 60-day warning threshold, indicating slower collection or a sales mix tilted toward longer-credit customers. In a specialty chemical and semiconductor-materials business, extended receivables can arise from customer terms and shipment timing, but the elevated level raises sensitivity to customer demand corrections and collection discipline. Inventory days of 103 also exceed the 90-day warning threshold. This can reflect deliberate raw-material and finished-goods buffering for a technically demanding supply chain, but it also increases risks of demand mismatch, inventory write-downs and future cash absorption if end-market conditions weaken. These two alerts are material because they explain why EBITDA conversion trails the stronger OCF-to-net-income metric. Capital expenditure of ¥17.3bn was substantial, leaving free cash flow positive at ¥4.9bn. CapEx exceeded depreciation of ¥5.3bn by ¥12.9bn, or 3.24x, indicating an expansionary investment phase. Positive free cash flow is encouraging, but its narrow margin over shareholder distributions means that preserving collection quality and inventory discipline is important while investment remains elevated.

Dividend Sustainability

The Q2 dividend was ¥40 per share, and full-year guidance remains ¥80 per share. The interim dividend represents an implied payout ratio of approximately 23.5% against Q2 EPS of ¥170.21. The full-year forecast dividend represents an implied payout ratio of approximately 22.5% against forecast EPS of ¥355.21. These levels are conservative relative to the 60% sustainability benchmark and leave substantial earnings retention for capacity investment and balance-sheet resilience. The stated calculated payout ratio is 25.0%, which is likewise consistent with a modest dividend burden. Free cash flow was ¥4.9bn during the first half, while the provided FCF coverage measure was 0.96x, showing that investment spending makes near-term cash coverage tighter than the accounting payout ratio alone suggests. This is not a balance-sheet concern given net cash and low leverage, but it means dividend growth is likely to remain linked to the pace of capital expenditure, working-capital release and the durability of semiconductor-material demand. No dividend revision was announced. The current policy outlook is therefore sustainable under the full-year earnings plan, with the principal cash-allocation trade-off being growth CapEx rather than debt service.

Risk Assessment

Business risks include High priority — Semiconductor and electronics-cycle risk: revenue and margin momentum depend on customer wafer starts, technology-node transitions and inventory normalization; a downturn could pressure volume, factory utilization and pricing., High priority — Working-capital risk: receivable days of 73 and inventory days of 103 are above warning thresholds. A demand correction could extend collections further or require inventory adjustments., Medium priority — Capacity-ramp and execution risk: ¥17.3bn of first-half CapEx, equal to 3.24x depreciation, raises the importance of timely construction, qualification and utilization of new capacity., Medium priority — Chemical-manufacturing input and supply-chain risk: raw-material availability, energy costs, logistics disruption, product-quality incidents and customer qualification requirements can affect gross margin and deliveries., Medium priority — Foreign-exchange and geopolitical risk: the period included ¥0.2bn of FX losses, and export-oriented advanced-material supply chains remain exposed to currency movements, trade restrictions and regional technology-policy changes..

Financial risks include Low priority — Cash conversion risk: OCF/EBITDA of 0.63x is below the 0.7x threshold despite OCF exceeding attributable profit, making working-capital management the main financial monitoring point., Low priority — Investment cash-flow risk: positive free cash flow was only ¥4.9bn after elevated CapEx, so sustained expansion spending could temporarily constrain internally generated cash available for distributions., Low priority — Intangible-asset monitoring: intangible assets increased 111.8% to ¥3.9bn. The balance is small at 1.1% of assets, but returns from the underlying technology investment should be monitored..

Key concerns include The most important risk indicator is the simultaneous elevation in DSO and DIO, which can precede weaker cash conversion if customer demand softens., A net ¥1.3bn extraordinary gain increased pre-tax earnings; recurring operating income of ¥28.9bn is the better indicator of underlying performance., The capital-investment program is strategically constructive but heightens sensitivity to utilization, project execution and returns on invested capital., Leverage, liquidity and interest coverage are not current areas of concern: short-term debt is negligible, the current ratio is 288.4%, and debt/EBITDA is 0.47x..

Investment Implications

Key takeaways include Revenue grew 25.1%, operating income grew 45.4%, and the operating margin expanded 287bp to 20.7%, demonstrating strong operating leverage., Annualized ROE was 15.6%, driven primarily by a 14.6% net margin rather than financial leverage., Operating cash flow exceeded attributable profit, but 0.63x OCF/EBITDA conversion and elevated receivable and inventory days require attention., The company is investing aggressively, with CapEx of ¥17.3bn and CapEx/depreciation of 3.24x, while preserving positive free cash flow., Balance-sheet flexibility is substantial, with net cash, 0.38x debt-to-equity, 0.47x debt/EBITDA and 192.1x EBITDA interest coverage., First-half progress against full-year guidance is broadly on plan and management did not revise earnings or dividend forecasts..

Metrics to watch include Operating margin and gross margin, to assess whether the first-half 20.7% operating margin is sustained., Receivable days, currently 73 days, and trade-receivable growth., Inventory days, currently 103 days, inventory valuation and demand visibility., OCF/EBITDA cash conversion, currently 0.63x., CapEx execution, utilization and free-cash-flow generation after the elevated investment cycle., Second-half progress toward the ¥291.0bn sales and ¥60.6bn operating-income full-year forecasts., The scale and recurrence of investment-security and asset-sale gains relative to ordinary operating earnings..

Regarding relative positioning, The company combines excellent profitability, annualized ROE at the 15% benchmark, and unusually conservative credit metrics for a capital-investing advanced-materials manufacturer. Its relative strength is margin-led growth without balance-sheet strain; its principal relative weakness is slower cash conversion caused by elevated receivables and inventories during an intensive CapEx phase.