| Metric | Current Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥37039.9B | ¥39475.7B | -6.2% |
| Operating Income / Operating Profit | ¥300.8B | ¥1415.5B | -78.8% |
| Ordinary Income | ¥7.1B | ¥992.5B | -99.3% |
| Net Income | ¥784.2B | ¥1056.4B | -25.8% |
| ROE | 3.2% | 4.6% | - |
For the fiscal year ending March 2026, Revenue was ¥37039.9B (YoY -¥2435.8B, -6.2%), Operating Income was ¥300.8B (YoY -¥1114.7B, -78.8%), Ordinary Income (pre-tax profit from continuing operations) was ¥7.1B (YoY -¥992.4B, -99.3%), and Profit Attributable to Owners of Parent was ¥118.3B (YoY -¥332.4B, -73.7%), representing a significant decline in profitability. Continuing operations recorded a loss of ¥163.5B, while non-continuing operations posted profit of ¥947.8B (primarily gains on sale of Tanabe Mitsubishi Pharma), which supported the final profit. Operating margin deteriorated to 0.81% (prior year 3.59%), down 277bp; gross margin improved to 28.9% (+257bp) but one-off costs related to restructuring and impairments (total ~¥1,700B scale) and financial expenses of ¥385.9B exceeded EBIT and compressed pre-tax profit. The Industrial Gases business (Operating Income ¥2,007B, margin 14.8%) led the company, and Speciality saw operating income increase (¥323B, +35%), while MMA and Basic Materials remained loss-making. Operating Cash Flow was ¥4,362.9B, 36.9x of Net Income; proceeds from subsidiary sales ¥5,175B made Investment Cash Flow +¥1,244.7B, generating FCF ¥5,607.6B, enabling deleveraging, share buybacks and dividends. FY2027 guidance targets Operating Income ¥3,000B (YoY +897.4%) and Profit Attributable to Owners of Parent ¥1,270B (YoY +973.6%) indicating large recovery, but verification is needed on the reversal of one-off costs, drop-off of asset sale proceeds, and continued interest burden.
【Revenue】 Revenue was ¥37039.9B, down -6.2% YoY (-¥2435.8B). Major contributors to the decline were MMA & Derivatives with Sales ¥3519B (-15.7%, due to weaker MMA monomer market) and Basic Materials & Polymers with Sales ¥7907B (-19.9%, due to petrochemical and polyolefin supply-demand adjustments). Industrial Gases maintained Sales ¥1352.5B (+3.9%) and Specialty Materials was slightly down at ¥1059.6B (-1.1%). Gross profit was ¥10711.0B with gross margin 28.9% (prior year 26.3%), a +257bp improvement suggesting price pass-through and portfolio mix effects. Regionally, higher US power prices and softer European gas demand had impacts but were offset by Industrial Gases DX utilization and plant optimization.
【Profitability】 Operating Income was ¥300.8B, down -78.8% YoY (-¥1114.7B). Core Operating Income was ¥2250B (YoY -2%), but one-off charges weighed heavily: impairment losses ¥614B (UK Soarnor ¥303B, ethylene oxide facility ¥52B, coke business ¥163B, etc.), restructuring provision additions ¥592B (coke/carbon materials exit ¥541B), special retirement payments ¥531B (Next Stage support program ¥319B, coke business ¥72B), loss on disposal of fixed assets ¥69B, etc. SG&A was ¥8138.8B (+2.2% YoY) and other operating expenses ¥2565B (prior year ¥1467B) rose significantly. Financial expenses ¥385.9B (primarily interest paid ¥367B) exceeded EBIT ¥300.8B and compressed pre-tax profit to ¥7.1B. Continuing operations recorded a loss of ¥163.5B, while non-continuing operations profit ¥947.8B (mainly gain on sale of Tanabe Mitsubishi Pharma), resulting in Profit Attributable to Owners of Parent ¥118.3B. Comprehensive income was ¥2519.1B, boosted by foreign currency translation adjustments +¥1642.6B. In conclusion, revenue and profit fell (continuing operations were in loss), and one-off gains from non-continuing operations rescued the final profit.
The core business is Industrial Gases, delivering Operating Income ¥2007.1B (central contributor to consolidated operating income) and maintaining a high margin of 14.8%. Segment details follow.
Industrial Gases: Sales ¥13525B (+3.9% YoY), Operating Income ¥2007B (+7.9%), margin 14.8%. Despite headwinds from higher US power prices and weaker European demand, growth was achieved via DX, plant optimization and price management. Assets ¥28040B, driving scale and profitability for the group.
Speciality Materials: Sales ¥10596B (-1.1%), Operating Income ¥323B (+35.3%), margin 3.0%. Despite a ¥303B impairment for UK Soarnor, gains from trading spreads and volume improvements led to higher profit. Assets ¥14149B. FY2027 expected expansion to ¥900B in operating income.
MMA & Derivatives: Sales ¥3519B (-15.7%), Operating Income -¥15B (turned to loss), margin -0.4%. Weak MMA monomer market was the main cause; Coatings & Additives remained firm. Assets ¥5018B. FY2027 forecast to return to profit at ¥110B.
Basic Materials & Polymers: Sales ¥7907B (-19.9%), Operating Income -¥42B (continued loss, narrowed from prior -¥242B), margin -0.5%. Petrochemical base and polyolefin supply-demand adjustments; impairment ¥52B on ethylene oxide manufacturing assets. Carbon business reduced loss via business restructuring. Assets ¥6999B. FY2027 forecast -¥50B.
Other: Sales ¥1492B (-12.8%), Operating Income ¥135B (+12.8%), margin 9.0%, assets ¥2033B. Includes engineering, transport, warehousing, etc.
There is a pronounced margin gap across segments: Industrial Gases 14.8% vs commodity segments (MMA, Basic) in loss. Overall profitability depends on increasing weight of Industrial Gases and Speciality and recovery in MMA markets.
Profitability: ROE 0.7% (prior year 2.6%), Operating Margin 0.8% (prior year 3.6%), Gross Margin 28.9% (prior year 26.3%), estimated ROIC 0.6% (prior year 1.7%). ROE decline mainly driven by deterioration in net margin 0.3% and operating margin 0.8%. Despite gross margin improvement, one-off charges and financial expenses compressed earnings.
Cash Quality: Operating CF / Net Income 36.9x (prior year 5.2x), FCF ¥5607.6B (prior year ¥2774.1B). Operating CF ¥4362.9B far exceeded Net Income ¥784.2B, with accrual ratio -7.2% indicating strong cash backing. However, Investment CF +¥1244.7B was largely due to one-off proceeds from subsidiary sales ¥5175.1B, requiring assessment of normalized FCF. OCF/EBITDA 1.46x.
Investment Efficiency: CapEx / Depreciation 1.06x (¥2840.9B/¥2677.9B), indicating maintained to selective growth investment pace. Capital expenditure ¥3088B (growth projects: semiconductor cleaning plants, EUV resist, carbon fiber presses, etc.).
Financial Soundness: Equity Ratio 30.0% (prior year 29.5%), Current Ratio 149.5% (prior year 137.4%), Interest Coverage (EBIT / Interest Paid) 0.82x (prior year 3.4x) at a concerning level. Net Debt / EBITDA approx. 6.3x, Net D/E ratio 0.83x (prior year 1.06x) improved. Goodwill ¥8910B equals 36.9% of equity and 3.0x EBITDA.
Working Capital: DSO 66 days (prior 71 days), DIO 93 days (prior 95 days) indicating somewhat heavy inventory with room for compression. CCC 159 days, highlighting need to improve capital efficiency.
Operating CF: ¥4362.9B (prior year ¥5528.5B, -21.1%). At 36.9x of Net Income ¥784.2B, cash backing is strong. OCF subtotal ¥5344.9B; working capital improvements (Inventories -¥4.5B, Trade receivables +¥9.6B, Trade payables -¥172.2B, Other +¥1267B), corporate tax paid -¥752.6B, interest paid -¥367.2B, lease payments -¥325.9B. Contributions from non-continuing operations cash aided working capital improvements.
Investing CF: +¥1244.7B (prior year -¥2754.3B). Mainly driven by proceeds from subsidiary sales ¥5175.1B (including Tanabe Mitsubishi Pharma), outweighing CapEx -¥2840.9B (prior -¥3145.3B), subsidiary acquisitions -¥984.8B, business acquisitions -¥85.3B, term deposits -¥339.9B, etc. This was a one-off cash recovery phase.
Financing CF: -¥3752.1B (prior year -¥2466.5B). Short-term borrowings repayments -¥1217.2B, long-term borrowings repayments -¥1392.4B, bond redemptions -¥450B, dividends -¥445.1B, share buybacks -¥500.2B reflecting deleveraging and shareholder returns. Lease repayments -¥325.9B.
FCF: ¥5607.6B (Operating CF + Investing CF). Excluding one-off subsidiary sale proceeds, normalized FCF estimated as Operating CF ¥4362.9B - CapEx ¥2840.9B ≈ ¥1522B.
Cash Generation Assessment: This period showed very strong cash inflow due to asset sales, but next year requires confirmation of independence on normalized OCF. Operating CF accrual quality is good, and continued working capital improvements are key. Low interest coverage and high leverage remain constraints.
Divergence between Ordinary Income and Net Income: Continuing operations pre-tax profit ¥7.1B versus non-continuing operations pre-tax profit ¥1343.3B contributed to Profit Attributable to Owners of Parent ¥118.3B. Most non-continuing profit was the one-off Tanabe Mitsubishi Pharma sale, not repeatable next year.
Non-operating income: Financial income ¥92.2B (dividends ¥46.6B, interest ¥4.7B, etc.), equity-method losses -¥22.6B. Non-operating expenses: Financial expenses ¥385.9B (primarily interest paid ¥367.2B), ~1.0% of Sales, heavier than EBIT ¥300.8B.
One-off items: At the operating profit level, impairments ¥614B, restructuring provisions ¥592B, special retirement payments ¥531B, loss on disposal of fixed assets ¥69B, inventory disposal losses ¥48B, equity-method losses -¥92.6B—totaling ~¥1,700B of one-offs. One-off gains include gains on business transfers ¥79.5B, gains on sale of associate shares ¥23.8B, reversal of restructuring ¥15.1B—total ~¥120B. Non-continuing operations profit ¥947.8B mainly from sale of Tanabe Mitsubishi Pharma.
Accruals: Operating CF ¥4362.9B significantly exceeded Net Income ¥784.2B, giving an accrual ratio -7.2% and strong cash backing. Excluding subsidiary sales and non-continuing impacts, normalized Operating CF is estimated around ¥4000B, needing ongoing assessment.
Composition of Comprehensive Income: Of comprehensive income ¥2519.1B, parent company portion ¥1166.2B, non-controlling interests ¥1352.9B. Foreign currency translation adjustments +¥1642.6B were the largest uplift, defined benefit remeasurements +¥64.4B, cash flow hedges +¥18.9B, resulting in substantial divergence between Net Income and Comprehensive Income via OCI.
Full Year Forecast: Revenue ¥38000B (YoY +¥960.1B, +2.6%), Operating Income ¥3000B (YoY +¥2699.2B, +897.4%), Profit Attributable to Owners of Parent ¥1270B (YoY +¥1151.7B, +973.6%), EPS ¥93.48, Dividend ¥16.
Progress Rate: Relative to current period results, guidance implies Revenue 102.6%, Operating Income 997.4%, Profit Attributable to Owners of Parent 1073.6%—indicating a large expected recovery. Versus prior year Revenue ¥39475B this is -3.7%, but Operating Income and Net Income are expected to rise significantly due to reversal of one-off costs and business recovery.
Revision Background: Forecast follows the initial FY2027 plan. Key assumptions: increased sales and cost reductions in Speciality Materials, bottoming and rebound of MMA monomer market, realization of structural reforms (Next Stage, coke exit), continued strength in Industrial Gases. Middle East disruptions (e.g., Strait of Hormuz closure) are not factored; if sustained to end-September, downside risk estimated at approx. ¥18B.
Deviation from Typical Progress: Chemical industry seasonality typically skews revenue to H2, so low Q1–Q2 progress rates are not abnormal. However, achieving large Operating Income recovery (¥3000B = core OP forecast ¥3050B less one-off ~¥50B) requires combined effects of one-off cost drop-out + market recovery + structural reforms, making progress monitoring critical.
Backlog: Data not disclosed, but long-term contracts in Industrial Gases and orders for carbon-fiber composites for semiconductors/EVs (e.g., robotaxi projects) support visibility of future revenue. CapEx projects (semiconductor cleaning plants, EUV resist, large presses) are expected to contribute within the forecast period.
Current Period Dividend: Annual ¥32 (Interim ¥16, Year-end ¥16) with total dividends ¥445.1B. Payout ratio relative to Profit Attributable to Owners of Parent ¥118.3B implies approx. 377–390% — very high — but FCF ¥5607.6B funded the payout, preserving sustainability.
Share Buybacks: ¥500.2B repurchased this period. Total return ratio (dividends + buybacks) relative to Profit Attributable to Owners of Parent is approx. 800%, reflecting allocation of one-off FCF to shareholder returns. ¥437.7B of treasury stock was canceled.
Dividend Policy: FY2027 forecast dividend indicated as Annual ¥16 (note: guidance shows ¥32 but dividend forecast data shows ¥16; materials state annual ¥32—reconciliation issue). Company targets payout ratio 35% and intends to raise dividends with profit growth.
Sustainability Assessment: This period’s high returns were enabled by one-off asset sales; from FY2027 onward normalized FCF (Operating CF ~¥4000–4500B - CapEx ¥2800–3000B = FCF ~¥1000–1500B) should support dividends of approx. ¥220–240B (Annual ¥16 × 1.37B shares). Net D/E ratio 0.83x and progress on deleveraging help, but low interest coverage and continued high interest burden could constrain dividend capacity. Achieving the 35% payout target requires profit recovery (forecast EPS ¥93.48 × 35% ≒ ¥32.7), so upside depends on guidance achievement; structural reform uncertainty and market risks necessitate cautious assessment.
Short-term: (1) FY2027 Q1 results (confirmation of MMA monomer market bottoming and Specialty sales progress), (2) start-up timing for new semiconductor precision cleaning plants (Fukushima, Iwate) and EUV resist manufacturing (Fukuoka), (3) developments in Middle East situation and resolution of Strait of Hormuz closure risk, (4) progress in structural reforms (completion of Next Stage and coke exit), (5) inventory and working capital optimization (DIO/DSO improvements).
Long-term: (1) price revision progress and margin maintenance in Industrial Gases (target >14%), (2) Speciality Materials achieving core operating income ¥900B and 5% margin, (3) volume effects from large presses for carbon-fiber composites for robotaxi (Italy), (4) Chemicals business ROIC 6.7% target (FY2029), (5) mid-term plan achievement of Net D/E ≤ 0.8 and interest coverage >3x, (6) completion of remaining asset optimization actions (sales of Onahama, Shinryo Iwaki plant, PET bottle, gelling polysaccharides, etc.), (7) sustained recovery in MMA monomer market and penetration of price formula to reduce volatility.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| ROE | 0.7% | 6.3% (3.2%–9.9%) | -5.6pt |
| Operating Margin | 0.8% | 7.8% (4.6%–12.3%) | -6.9pt |
| Net Margin | 2.1% | 5.2% (2.3%–8.2%) | -3.1pt |
The company lags industry medians by 5–7ppt on ROE, operating margin and net margin, placing it in the lower tier among manufacturers on profitability.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -6.2% | 3.7% (-0.4%–9.3%) | -9.9pt |
The company’s growth rate is about 10ppt below the industry median, in a decline phase.
※Source: Company compilation
Market & Supply-Demand Risk: Continued weakness in the MMA monomer market (this period loss ¥15B), and FY2027 forecasted ¥110B profit assumes market bottom; risk remains high from China supply-demand and raw material cost volatility (acetone, isobutylene, etc.). Basic Materials may also see delayed recovery amid petrochemical and polyolefin adjustments (this period -¥42B, FY2027 -¥50B forecast).
Financial Risk: Interest coverage 0.82x (EBIT ¥300.8B / interest paid ¥367B) is very low, making the company vulnerable to refinancing deterioration and rate increases. Net Debt/EBITDA ~6.3x and Net D/E 0.83x have improved but leverage remains high, posing risk of credit downgrades and higher funding costs if profits fall. Goodwill ¥8910B is 36.9% of equity, highly sensitive to impairments in a downturn (precedent: UK Soarnor impairment ¥303B).
Geopolitical & External Environment Risk: Middle East tensions (Strait of Hormuz closure scenario estimated downside ~¥18B) are not factored; if they persist to end-September, expected impacts: Specialty -¥6B, MMA -¥10B, Basic -¥2B. FX (USD/JPY assumption 150), fuel price volatility (naphtha ¥63,000/kl), and power price increases (material impact on US Industrial Gases last period) can materially affect profitability. Execution delays or cost overruns in structural reforms (Next Stage, coke exit) also impede profit targets.
Business Mix Improvement & Structural Reform Progress: Increasing weight of Industrial Gases (OP margin 14.8%, Operating Income ¥2007B) along with exits from coke/carbon materials and Next Stage support program-driven fixed cost reductions (annual ~¥200–300B) are engines for core OP improvement. Speciality margin improvement (current 3.0% → forecast ~8.5% next year) is a KPI. Turning MMA monomer from loss to profit (FY2027 ¥110B forecast) is a litmus test; monitor market recovery and cost-link formula implementation.
FCF Generation and Sustainability of Returns: FCF ¥5607.6B this period heavily benefited from asset sales (subsidiary ¥5175B), with normalized FCF estimated as Operating CF ~¥4000–4500B - CapEx ¥2800–3000B = ~¥1000–1500B. Dividend payout ~¥220–240B (Annual ¥16 × 1.37B shares) is sustainable under normalized FCF, but ongoing share buybacks may be limited. Balancing deleveraging to Net D/E ≤ 0.8 and shareholder returns is key. Low interest coverage 0.82x constrains dividend capacity; increasing EBITDA and reducing interest burden will determine sustainability of high total return ratios.
Preconditions and Risks for Meeting Guidance: FY2027 Operating Income ¥3000B (core OP ¥3050B - one-off ~¥50B) requires: (1) Specialty sales increases and cost cuts delivering ~¥200–300B, (2) MMA monomer market bottoming for ~¥125B turnaround, (3) tangible structural reform benefits ~¥200–300B, (4) continued Industrial Gases strength ~¥40–50B. Downside risks include Middle East scenario ¥18B, power/raw material price volatility, FX (USD/JPY ±5 around 150 ~ ±¥5B0 sensitivity), and execution risk. If achieved, ROE ~5–6% and ROIC ~3–4% are expected, but sustainability beyond the one-off reversal must be evaluated. Working capital optimization targets (DIO <75 days, DSO <55 days) are important for stable cash generation.
This report is an AI-generated earnings analysis synthesized from XBRL financial statement data and PDF earnings presentation materials. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are compiled by the firm from public financial statements as reference information. Investment decisions are your responsibility; consult a professional advisor as needed.