KH Neochem Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥86.59B
• Operating Income: ¥8.51B
• Net Income: ¥5.00B
• EPS: ¥156.27

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

KH Neochem (TSE:4189) reported FY2025 Q3 consolidated results under JGAAP with revenue of ¥86.6bn, down 0.2% year over year, indicating a largely flat top line amid a challenging chemicals demand environment. Despite the marginal revenue decline, operating income rose 16.2% YoY to ¥8.5bn, highlighting solid margin expansion and cost discipline. Gross profit was ¥16.7bn, implying a gross margin of 19.3%, which supports the narrative of improved spread management and/or favorable mix. Ordinary income came in at ¥8.26bn, slightly below operating income due to net non-operating expense, including ¥70m interest expense. Net income was ¥5.63bn, up 14.3% YoY, with EPS of ¥156.27, reflecting efficiency gains and controlled non-operating items. DuPont metrics show a net margin of 6.50%, asset turnover of 0.697x, and financial leverage of 1.79x, resulting in an ROE of 8.1%. On the balance sheet, total assets were ¥124.2bn and equity ¥69.4bn, implying an equity ratio of roughly 55.9% by our calculation, even though the reported equity ratio field is blank (0 indicates non-disclosure). Liquidity is sound with a current ratio of 148.7% and a quick ratio of 112.4%, supported by ¥22.7bn in working capital and inventories of ¥16.9bn. Leverage appears moderate, with total liabilities of ¥59.5bn and a debt-to-equity ratio of 0.86x, consistent with a conservatively capitalized specialty chemical maker. The effective tax rate inferred from reported income taxes (¥2.05bn) and net income is approximately 26–27%, contradicting the placeholder 0.0% metric shown for the tax rate. EBITDA and operating cash flow were not disclosed this period (zeros indicate unreported), which limits analysis of cash conversion and capex intensity; consequently, EBITDA margin and OCF-based quality metrics cannot be validated. Nonetheless, the operating income to interest expense coverage is strong at 121.5x, indicating low refinancing risk in the near term. The combination of stable sales, improved operating profit, and prudent leverage suggests resilient operations, likely supported by product mix in higher value-added segments. Dividend data were not disclosed (DPS and payout reported as zeros), so we cannot assess current distribution policy; historically, the company has balanced investment with shareholder returns, but confirmation awaits full-year disclosure. Overall, results show resilient profitability with healthy financial footing, but the absence of cash flow data is a key limitation for assessing earnings quality and dividend capacity. We focus forward on the sustainability of the margin uplift given flat revenue, raw material spread stability, and demand trends in end-markets such as electronics, automotive, and consumer care.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 0.065
• asset_turnover: 0.697
• financial_leverage: 1.79
• calculated_ROE: 0.081 margin_quality: Gross margin is 19.3% on ¥86.6bn revenue and ¥70.1bn COGS, indicating healthy spreads. Operating income grew 16.2% YoY while revenue declined 0.2%, implying operating margin expansion driven by product mix and/or cost efficiencies. Net margin of 6.50% aligns with typical specialty chemicals profitability in stable conditions. operating_leverage: Revenue was essentially flat (-0.2% YoY) while operating income rose +16.2% YoY, evidencing positive operating leverage from fixed-cost absorption, mix toward higher-margin products, and disciplined SG&A. Ordinary income (¥8.26bn) trails operating income (¥8.51bn) only modestly, showing limited drag from non-operating items.

Growth Assessment

revenue_sustainability: Top line of ¥86.6bn is stable YoY, suggesting end-market demand is holding but not accelerating. Stability likely reflects diversified exposures and pricing discipline amid mixed macro conditions. profit_quality: Operating profit outpaced sales, indicating margin-driven profit growth rather than volume expansion. The tax line (¥2.05bn) supports a normalized effective tax rate (~26–27%), and limited non-operating costs suggest core operations are driving earnings. outlook: Near-term earnings trajectory depends on sustaining improved spreads and mix in performance materials, with sensitivity to raw material costs and demand in electronics, automotive, and consumer care. With asset turnover at 0.697x and leverage at 1.79x, incremental ROE improvement chiefly requires further margin gains or faster asset turns.

Financial Health

liquidity:

• current_assets: 69366000000
• current_liabilities: 46649000000
• current_ratio: 1.487
• quick_ratio: 1.124
• working_capital: 22717000000
• commentary: Liquidity is solid with meaningful headroom over short-term obligations. Inventories of ¥16.9bn represent a notable component of current assets but quick ratio remains strong. solvency:
• total_assets: 124163000000
• total_liabilities: 59542000000
• total_equity: 69420000000
• debt_to_equity: 0.86
• equity_ratio_estimated: 0.559
• interest_coverage_operating_income_based: 121.5
• commentary: Capital structure is conservative with estimated equity ratio around 56% and robust interest coverage. This provides resilience against cyclical downturns. capital_structure: Leverage is moderate (liabilities/equity 0.86x). With ordinary income only slightly below operating income, financial costs and other non-operating items are well-contained.

Cash Flow Quality

earnings_quality: Operating cash flow and investing cash flow were not disclosed this period, limiting assessment of cash conversion and capital intensity. Given the rise in operating income despite flat revenue, monitoring working capital movements is essential to confirm cash realization. FCF_analysis: Free cash flow cannot be computed due to undisclosed OCF and capex. EBITDA is not available (D&A not disclosed), constraining alternative cash proxies. working_capital: Inventories at ¥16.9bn and strong quick ratio suggest manageable working capital. Without period-to-period changes, we cannot assess inventory normalization or receivable/payable cycles.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio are not disclosed for the period (zeros indicate non-reporting). Based on net income of ¥5.63bn and solid balance sheet, capacity for distributions would depend on cash generation and capex needs, which are currently undisclosed. FCF_coverage: Not assessable due to missing operating and investing cash flows. policy_outlook: Await full-year guidance and cash flow disclosure. Historically, specialty chemical companies balance growth capex with stable dividends; confirmation for this period is pending disclosed DPS and FCF.

Risk Assessment

Business Risks:

• Feedstock and energy price volatility affecting spreads and gross margins
• Demand cyclicality in end-markets (electronics, automotive, consumer care)
• Competitive pressures from regional chemical producers, especially in Asia
• Product mix risk if higher-margin specialty volumes soften
• Supply chain and logistics disruptions impacting inventories and delivery
• Regulatory and environmental compliance costs

Financial Risks:

• Working capital swings impacting cash conversion in a flat revenue environment
• Foreign exchange fluctuations influencing import costs and export pricing
• Potential capex requirements for capacity, safety, or environmental upgrades
• Interest rate changes, though current coverage is strong

Key Concerns:

• Lack of disclosed operating and investing cash flows obscures FCF visibility
• Sustainability of margin-driven profit growth without revenue expansion
• Inventory levels require monitoring for obsolescence or valuation risk if demand slows

Investment Implications

Key Takeaways:

• Revenue essentially flat at ¥86.6bn (-0.2% YoY) with strong operating profit growth (+16.2% YoY)
• Gross margin at 19.3% and net margin at 6.50% support an ROE of 8.1%
• Healthy liquidity (current ratio 1.49x, quick ratio 1.12x) and moderate leverage (D/E 0.86x)
• Interest coverage is robust at 121.5x, implying low near-term financial risk
• Cash flow data not disclosed, limiting assessment of earnings quality and dividend capacity

Metrics to Watch:

• Operating cash flow and free cash flow once disclosed
• Operating margin and gross spread versus feedstock costs
• Inventory days and receivables/payables turns
• Asset turnover and ROE trajectory
• Ordinary income to operating income gap (non-operating effects)
• DPS and payout once announced for FY2025

Relative Positioning: Within Japanese specialty chemicals, KH Neochem demonstrates resilient profitability and conservative balance sheet metrics, placing it in a stable, mid-ROE cohort; confirmation of cash conversion and capital allocation will be key to assessing differentiation versus peers with disclosed FCF.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis