OSAKA ORGANIC CHEMICAL INDUSTRY (4187) FY2026 Q1 Earnings Report

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Executive Summary

This earnings period achieved higher revenue and profit, as well as a significant improvement in profitability, driven by improved margins centered on the Electronic Materials Business in addition to revenue growth. Revenue was ¥9.07B (+6.5% YoY), Operating Income was ¥1.83B (+34.2%), Ordinary Income was ¥1.90B (+28.6%), and Net Income attributable to owners of the parent for the quarter was ¥1.29B (+24.2%). The Operating Income margin expanded to 20.2% from 16.0% in the same period of the previous year, primarily due to the increased contribution of the Electronic Materials Business and margin improvement in that business.

Factors Affecting Performance

【Revenue】Revenue was ¥9.07B, representing a 6.5% YoY increase. The Electronic Materials Business was ¥4.55B (+22.2% YoY), accounting for 50.2% of company-wide revenue and serving as the largest growth driver. The Functional Chemicals Business also remained solid at ¥1.86B (+16.7% YoY), while the Chemical Products Business declined to ¥2.81B (-15.4% YoY), making the differences in performance among businesses clear. By region, domestic sales accounted for 74.6% and increased YoY, while sales in the Americas declined significantly.

【Profit and Loss】Operating Income was ¥1.83B (+34.2% YoY), and the Operating Income margin improved to 20.2% from 16.0% in the same period of the previous year. Segment profit for the Electronic Materials Business increased significantly to ¥0.98B (+85.6% YoY), with a 21.6% margin, leading the improvement in the company-wide margin. The Chemical Products Business posted segment profit of ¥0.42B (-20.6% YoY), representing a decline and serving as a headwind within the portfolio. Non-operating income was a modest ¥0.07B, while extraordinary losses were also limited at ¥0.003B; consequently, Ordinary Income and Net Income increased broadly in line with the growth in Operating Income. In conclusion, the company achieved both revenue and profit growth.

Segment Analysis

The Electronic Materials Business generated the largest profit contribution among all segments, with revenue of ¥4.55B (50.2% of total, +22.2% YoY) and Operating Income of ¥0.98B (+85.6% YoY, 21.6% margin). The Functional Chemicals Business maintained the highest margin among the three businesses, with revenue of ¥1.86B (+16.7% YoY) and Operating Income of ¥0.44B (+39.8% YoY, 23.7% margin). The Chemical Products Business was the only segment to record both lower revenue and lower profit, with revenue of ¥2.81B (-15.4% YoY) and Operating Income of ¥0.42B (-20.6% YoY, 14.9% margin). The profit concentration structure is evident, with the Electronic Materials Business accounting for 53.4% of total company profit.

Key Financial Indicators

【Profitability】The Operating Income margin of 20.2% improved by approximately 4.2pt from 16.0% in the same period of the previous year, while the Net Income margin attributable to owners of the parent also rose to 14.2%. ROE was 2.5% on a quarterly actual-results basis, remaining at approximately the high-9% range on an annualized basis. 【Cash Quality】Comprehensive Income of ¥3.11B substantially exceeded Net Income of ¥1.33B, with the primary source of the difference being a ¥1.76B valuation difference on investment securities. This represents an increase in equity arising from valuation gains unrelated to the core business and must be distinguished from the underlying earning power reflected in Operating Income. 【Investment Efficiency】Accounts receivable of ¥11.25B and finished goods inventories of ¥5.15B indicate substantial levels of working capital, and the total asset turnover ratio remains low on a quarterly basis. 【Financial Soundness】With an Equity Ratio of 80.8% and Cash and deposits of ¥15.22B against only ¥0.69B in long-term borrowings, the company remains in a net cash position and has an extremely strong financial foundation.

Cash Flow Analysis

Although the cash flow statement has not been disclosed, the balance sheet indicates that Cash and deposits were ¥15.22B, a slight decline from ¥15.92B in the previous year, while the company maintained a net cash position substantially exceeding interest-bearing debt of ¥0.69B. Working capital items such as Accounts receivable of ¥11.25B, finished goods of ¥5.15B, and work in process of ¥2.32B may be tying up funds, suggesting that the pace of cash conversion is somewhat lagging the pace of profit growth. Current assets of ¥37.63B provide substantial coverage against Current liabilities of ¥9.80B, and there are no concerns regarding short-term liquidity.

Earnings Quality

The growth in Operating Income to ¥1.83B resulted from higher revenue and profit based on actual demand in the Electronic Materials Business, reflecting an improvement in recurring earning power. Non-operating income was limited to ¥0.07B, or 0.8% of Revenue, and consisted primarily of dividend income of ¥0.04B, indicating a low dependence on non-operating factors. Extraordinary losses consisted solely of a ¥0.003B loss on disposal of fixed assets, with a limited impact on Net Income for the period and almost no distortion from temporary factors. On the other hand, the gap between Comprehensive Income of ¥3.11B and Net Income of ¥1.33B was substantial, with most of the difference attributable to the ¥1.76B valuation difference on investment securities. Because these valuation gains are subject to market fluctuations, they should be evaluated separately from Operating Income and Net Income, which indicate the earning power of the core business.

Earnings Forecasts and Guidance

The full-year company forecasts are Revenue of ¥37.50B (+3.4% YoY), Operating Income of ¥6.40B (+3.4% YoY), and Ordinary Income of ¥6.60B (+0.6% YoY), resulting in Q1 progress rates of 24.2%, 28.6%, and 28.8%, respectively. While the Revenue progress rate is broadly in line with the standard 25%, the profit progress rates exceed the standard, indicating that profitability improvements centered on the Electronic Materials Business are progressing at a pace above plan as of Q1. The earnings forecasts and dividend forecasts have not been revised.

Shareholder Returns

The full-year dividend forecast is ¥80 per share, and the forecast EPS is ¥220, resulting in a Payout Ratio of 36.4%. With Cash and deposits of ¥15.22B and retained earnings of ¥44.65B, the company has ample capital capacity, and the Payout Ratio of 36.4% remains a comfortable level relative to earnings. The company holds ¥5.33B in treasury stock; however, as acquisition results for the current period cannot be confirmed from the disclosed data, this section evaluates shareholder returns based solely on the Payout Ratio.

Risk Factors

1. Profit concentration in the Electronic Materials Business: This business is the core business, accounting for 53.4% of segment profit. If demand fluctuations or customer inventory adjustments occur in the semiconductor and electronic components-related markets, the impact on the company-wide profit margin could be significant.

2. Declining revenue and profit in the Chemical Products Business: Revenue declined 15.4% YoY and segment profit declined 20.6% YoY. If demand recovery in this business is delayed, the diversification benefits of the business portfolio may weaken.

3. Working capital tying up funds: Working capital items are substantial, including Accounts receivable of ¥11.25B, finished goods of ¥5.15B, and work in process of ¥2.32B. The pace of cash conversion may be somewhat slow relative to profit growth.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin substantially exceed the industry median, placing the company’s profitability among the top tier of the industry.

Growth and Capital Efficiency

Although the Revenue growth rate slightly exceeds the industry median, it falls short of the upper quartile of the IQR (13.9%), leaving growth at a mid-range level within the industry.

※Source: Compiled by the Company

Key Earnings Highlights

1. The Operating Income margin of 20.2% substantially exceeds the industry median of 7.2% and has also improved YoY, confirming a qualitative enhancement in the earnings structure centered on the Electronic Materials Business.

2. The progress rate of 28.6% against the full-year Operating Income forecast exceeds the standard 25%, making whether the profitability improvement as of Q1 can be sustained throughout the full year a key point for future monitoring.

3. Working capital items such as Accounts receivable and inventories are substantial, and the pace of cash conversion relative to profit growth will be an important financial metric to monitor going forward.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥2,481–¥2,626 at ±1% for the Cost of Equity, and ¥2,550–¥2,553 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• 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 solely from publicly disclosed data; this is not a forecast of the market stock price or a recommendation of any specific investment action, and does not forecast or guarantee future stock prices）

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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 and, where necessary, after consulting with a professional.

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AI Financial Analysis

Executive Summary

FY2026 Q1 was a strong earnings start, with profit growth materially outpacing a 6.5% increase in revenue. Revenue increased to ¥9.07bn from ¥8.52bn. Operating income rose 34.2% to ¥1.83bn. Ordinary income increased 28.6% to ¥1.90bn. Profit attributable to owners increased 24.2% to ¥1.29bn. The gross margin expanded by 310bp year on year to 34.5%, reflecting a favorable increase in gross profit of 17.0% versus revenue growth of 6.5%. The operating margin expanded by 417bp to 20.2%, an excellent level for a specialty chemical manufacturer. SG&A expense declined 0.9% year on year despite higher revenue, producing substantial operating leverage. Net margin rose by 202bp to 14.2%. The Electronic Materials business was the principal earnings driver, with segment profit up 85.6% to ¥984m and its margin rising to 21.6%. Functional Chemicals also delivered strong profit growth of 39.9%, while Chemicals saw lower sales and profit. Domestic revenue increased 15.6% to ¥6.77bn and more than offset weaker sales in the Americas and Europe. Ordinary-income growth was slower than operating-income growth because the prior-year comparison included ¥97m of insurance income within non-operating income. The effective tax rate rose to 30.2% from approximately 26.9% a year earlier, moderating the conversion of pre-tax profit into net profit. Comprehensive income more than tripled to ¥3.11bn, principally reflecting a ¥1.76bn positive valuation difference on securities. The balance sheet remains exceptionally conservative, with a 383.9% current ratio, 79.4% equity ratio, and only 1.3% debt-to-capital. The principal operational concern is working-capital intensity, as receivable days of 113, inventory days of 153, and a 171-day cash conversion cycle are elevated. Management's full-year forecast implies a more moderate second-half earnings trajectory than the annualized Q1 run rate, although Q1 profit progress is ahead of the normal seasonal benchmark.

Profitability Analysis

Annualized DuPont ROE is 9.7%, comprising a 14.2% net profit margin, 0.554x asset turnover, and 1.24x financial leverage. Profitability is therefore driven primarily by high margins rather than balance-sheet leverage, which is consistent with the company's net-cash-rich capital structure. The most important year-on-year operating change was margin expansion: gross margin increased to 34.5% from 31.4%, and operating margin rose to 20.2% from 16.0%. This reflects gross profit growth of 17.0% and SG&A expense declining 0.9%, versus revenue growth of 6.5%. Electronic Materials drove the improvement, as revenue rose 22.2% to ¥4.55bn and segment profit rose 85.6% to ¥984m; its segment margin expanded to 21.6% from 14.2%. Functional Chemicals revenue rose 16.0% to ¥1.71bn and segment profit increased 39.9% to ¥441m, lifting margin to 25.7% from 21.3%. Chemicals revenue declined 15.3% to ¥2.81bn and segment profit fell 20.6% to ¥419m, with its margin easing to 14.9% from 15.9%. Electronic Materials is the core business by operating-income contribution, accounting for 53.4% of total segment profit before eliminations. The tax burden factor was 0.676, below the 0.70 normal benchmark, while the interest burden of 1.038 reflects net non-operating financial income and negligible financing costs. Interest coverage was extremely strong at 1,588.9x. Annualized ROE of 9.7% is solid but remains below the 10-15% benchmark range, constrained by modest asset turnover and low leverage rather than inadequate operating profitability.

Growth Assessment

The revenue increase was concentrated in the domestic market, where sales increased 15.6% to ¥6.77bn. Asia and Oceania sales were essentially flat at ¥2.08bn, down 0.2%. Americas sales fell 79.1% to ¥88m, while Europe declined 13.5% to ¥135m. The geographical mix therefore became more dependent on Japanese demand during the quarter. Electronic Materials provides the clearest growth signal, combining 22.2% sales growth with an 85.6% increase in segment profit. Functional Chemicals also demonstrated favorable volume and/or mix momentum, with segment profit growth exceeding sales growth by a wide margin. Chemicals remains the principal drag, and its 15.3% revenue contraction should be monitored for evidence of continuing end-market weakness. The full-year plan calls for revenue of ¥37.50bn, operating income of ¥6.40bn, ordinary income of ¥6.60bn, and profit attributable to owners of ¥4.50bn. Q1 progress against the full-year forecast is 24.2% for revenue, 28.6% for operating income, 28.8% for ordinary income, and 28.6% for attributable profit. Revenue progress is broadly in line with the standard 25% Q1 pace, while each profit metric is 3.6-3.8 percentage points ahead of that pace. The full-year forecast implies only 3.4% operating-income growth, substantially below Q1's 34.2% growth, suggesting management has retained a prudent outlook for margins and/or market conditions. No forecast revision was announced.

Financial Health

Liquidity is very strong, with current assets of ¥37.63bn against current liabilities of ¥9.80bn, resulting in working capital of ¥27.83bn and a current ratio of 383.9%. The quick ratio is also 383.9%, indicating that liquidity does not depend on inventory liquidation. Cash and deposits of ¥15.22bn alone exceed total liabilities of ¥12.54bn. Current liabilities include ¥509m of current maturities of long-term loans, which are readily covered by cash and broader current assets; there is no material maturity mismatch. Long-term loans were ¥691m, while reported debt-to-capital was only 1.3%. The reported debt-to-equity ratio of 0.24x remains comfortably below the 2.0x warning threshold, and the balance sheet is not reliant on financial leverage. Total equity increased ¥2.38bn year on year to ¥52.92bn, supported by ¥1.29bn of attributable profit and a substantial positive securities valuation movement. Investment securities increased ¥2.57bn year on year, or 34.1%, to ¥10.11bn and now account for 15.5% of total assets. This portfolio adds balance-sheet value but also increases exposure to market-price movements, as reflected in the securities valuation gain recognized in OCI. Deferred tax liabilities increased by ¥775m year on year to ¥1.89bn, consistent with unrealized gains embedded in the securities portfolio. PPE was ¥16.46bn, or 25.2% of total assets, indicating a meaningful but manageable manufacturing asset base. Intangible assets were only ¥35m, or 0.1% of assets, and there is no material goodwill-related balance-sheet dependency.

Notable B/S Changes

Investment securities: +¥2.57bn (+34.1%) to ¥10.11bn — portfolio expansion and/or valuation appreciation increased securities exposure to 15.5% of total assets; the associated positive valuation movement materially lifted OCI. Deferred tax liabilities: +¥775m to ¥1.89bn — consistent with increased unrealized gains, particularly in investment securities, and indicates sensitivity of net assets to market valuations. Total inventories (raw materials, WIP, and finished goods): +¥841m to ¥10.00bn — higher inventory investment, led by finished goods of ¥5.15bn, reinforces the elevated 153-day inventory metric and cash-conversion risk. Cash and deposits: -¥704m to ¥15.22bn — liquidity remains very strong, but the decline alongside higher inventories and securities highlights the importance of monitoring capital allocation and working-capital absorption. Total equity: +¥2.38bn (+4.7%) to ¥52.92bn — attributable profit and positive OCI strengthened an already high-equity balance sheet.

Cash Flow Quality

Working-capital quality is the main earnings-quality issue indicated by the available operating metrics. Receivable days were 113 days, exceeding the 60-day quality-alert threshold and indicating a long customer collection cycle. Trade receivables were ¥11.25bn and electronically recorded monetary claims were ¥464m. Inventory days were 153 days, above the 90-day alert threshold and indicative of a substantial amount of capital tied up in the production and distribution cycle. Total reported raw materials, work in process, and finished goods were ¥9.997bn. Finished goods were ¥5.15bn, or 51.5% of reported inventory, while work in process was ¥2.32bn, or 23.2%, and raw materials were ¥2.52bn, or 25.2%. The finished-goods weighting raises the importance of monitoring demand alignment, product-cycle risk, and potential inventory revaluation risk. The cash conversion cycle was 171 days, above the 120-day alert threshold. The root cause is the combination of slow collections and high inventory holdings relative to the payable cycle. For a chemical manufacturer, some inventory is necessary to secure feedstocks, support production scheduling, and meet customer specifications, but the reported levels remain elevated against the stated manufacturing benchmarks. The impact is that reported profitability is strong, but cash conversion and incremental working-capital needs may constrain the cash available for shareholder returns and investment if sales growth slows. Accounts payable increased 7.7% to ¥6.22bn, providing some supplier financing, but not enough to offset the elevated receivable and inventory cycle. These metrics should be assessed alongside subsequent changes in inventory, receivables, and operating cash generation.

Dividend Sustainability

The full-year dividend forecast is ¥80 per share, unchanged from management's original plan. Against forecast EPS of ¥220, the implied dividend payout ratio is 36.4%. This is comfortably below the 60% sustainability benchmark and leaves meaningful retained earnings capacity for capital expenditure, working-capital needs, and balance-sheet resilience. Q1 EPS was ¥63.22, representing 28.7% of full-year forecast EPS, broadly consistent with the 28.6% attributable-profit progress rate. Retained earnings were ¥44.65bn, providing a substantial accumulated capital base relative to the planned dividend. The conservative debt position, large cash balance, and strong operating margin further support ordinary dividend capacity. However, the elevated 171-day cash conversion cycle means dividend cash coverage should be monitored through changes in receivables and inventories rather than inferred solely from accounting earnings. Treasury shares were ¥5.33bn, or 8.1% of total assets, but no current-period share repurchase amount is provided; therefore, assessment is limited to the dividend payout ratio rather than a total return ratio.

Risk Assessment

Business risks include Electronic Materials is the core earnings contributor, making consolidated profitability more sensitive to demand conditions, product cycles, and pricing in electronics-related end markets., Chemical segment revenue declined 15.3% and segment profit declined 20.6%, indicating an area of weaker demand or mix that could offset gains elsewhere if it persists., Americas revenue declined 79.1% and Europe revenue declined 13.5%, increasing reliance on domestic sales growth and exposing the group to uneven regional demand., Chemical manufacturing is exposed to raw-material, energy, environmental-regulation, plant-operation, product-quality, and supply-chain disruption risks., The ¥10.11bn investment securities portfolio creates exposure to equity-market valuation movements; positive OCI in Q1 could reverse in weaker markets..

Financial risks include DSO of 113 days is above the 60-day alert threshold, creating collection-cycle and customer-credit exposure., DIO of 153 days is above the 90-day alert threshold, increasing inventory obsolescence, demand-forecast, and cash-lockup risk., The 171-day cash conversion cycle is above the 120-day alert threshold and could cause operating cash conversion to lag earnings during periods of growth or weaker demand., Deferred tax liabilities of ¥1.89bn are associated with unrealized valuation gains and could fluctuate with the securities portfolio..

Key concerns include The high receivable-days alert is concerning because funds remain outstanding from customers for an extended period; its impact is reduced financial flexibility despite strong reported liquidity., The high inventory-days alert is concerning because finished goods represent 51.5% of reported inventory; this increases the importance of matching output to customer demand and avoiding ageing stock., The long cash-conversion-cycle alert is concerning because it combines slow collections and inventory intensity; this is the principal factor that could weaken cash realization of otherwise high-margin earnings., No debt-stress warning is indicated: the 383.9% current ratio, 1.3% debt-to-capital ratio, and 1,588.9x interest coverage provide substantial protection against financing risk..

Investment Implications

Key takeaways include Q1 operating income grew 34.2%, substantially ahead of 6.5% revenue growth, supported by a 417bp operating-margin expansion to 20.2%., Electronic Materials was the central source of earnings acceleration, with segment profit rising 85.6% and margin expanding 740bp to 21.6%., The company has a highly conservative balance sheet, including ¥15.22bn of cash, a 383.9% current ratio, and 79.4% capital adequacy., Q1 operating and attributable-profit progress of approximately 28.6% is modestly ahead of the standard 25% first-quarter pace relative to the unchanged full-year forecast., Working-capital efficiency is the key counterweight to the earnings strength, particularly the 113-day DSO, 153-day DIO, and 171-day cash conversion cycle..

Metrics to watch include Electronic Materials revenue growth, segment margin, and the durability of its Q1 profit expansion, Recovery or further deterioration in Chemicals segment revenue and profit, Domestic versus overseas revenue mix, especially the Americas and Europe, Receivable days, inventory days, finished-goods inventory, and cash conversion cycle, Operating cash generation relative to attributable profit, Investment-securities valuation movements and associated OCI/deferred-tax effects, Progress against full-year operating-income forecast of ¥6.40bn and attributable-profit forecast of ¥4.50bn.

Regarding relative positioning, The company combines excellent operating and net margins with very low financial risk, positioning it favorably among specialty chemical manufacturers on balance-sheet resilience. Its annualized 9.7% ROE is underpinned by profitability rather than leverage, but remains below the 10-15% benchmark range because asset turnover is moderate. Relative performance will depend on whether Electronic Materials growth can remain durable and whether working-capital intensity can be contained.