Daicel Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥277.12B
• Operating Income: ¥20.12B
• Net Income: ¥19.18B
• EPS: ¥70.90

Income Statement

Balance Sheet

Cash Flow Statement

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

Verdict: Weak quarter with sharp profit compression despite resilient cash generation. Revenue was 2,771.19 (100M JPY), down 4.3% YoY, reflecting volume and/or pricing softness in key segments. Operating income fell to 201.21 (100M JPY), -36.3% YoY, and ordinary income declined to 203.71 (100M JPY), -33.7% YoY, underscoring margin pressure. Net income decreased 41.3% YoY to 188.02 (100M JPY), with EPS at 70.90 JPY. Gross margin printed at 26.0%, while operating margin was 7.3% and net margin 6.8%. Based on YoY deltas, operating margin compressed by roughly 365 bps (from ~10.9% to 7.3%). Net margin compressed by roughly 428 bps (from ~11.1% to 6.8%). EBITDA was 405.46 (100M JPY), giving a 14.6% margin, which also indicates significant deleverage on a modest revenue decline. Non-operating items were nearly neutral (income 42.39 vs expenses 39.88), but dividend and interest income provided some cushion. Cash generation was solid: operating cash flow of 327.55 (100M JPY) was 1.74x net income, indicating high earnings quality this quarter. However, capex of 354.29 (100M JPY) exceeded OCF, implying slightly negative FCF before dividends. Liquidity remains strong with a current ratio of 196.5% and quick ratio of 103.0%. Leverage is moderate with D/E at 1.15x and interest coverage healthy at 13.01x, yet ROIC at 2.9% sits well below the 7–8% target range, flagging capital efficiency concerns. Working capital appears manageable, with inventories at 1,859.65 (100M JPY) potentially a lever if end-demand remains soft. Forward-looking, improvement hinges on pricing recovery, raw material/energy cost normalization, and utilization gains; otherwise, margins may stay compressed. Dividend sustainability looks stretched near term given an 85.2% payout ratio and negative FCF after capex unless capex normalizes or cash flow strengthens.

Profitability Analysis

ROE (DuPont) = Net Profit Margin × Asset Turnover × Financial Leverage = 6.8% × 0.326 × 2.15x ≈ 4.8%. The principal driver of the ROE decline is margin compression: operating income fell 36.3% on a 4.3% revenue decline, indicating negative operating leverage. Asset turnover at 0.326 is low for chemicals and likely edged down YoY given a lower revenue base against a broadly stable asset base (total assets 8,489.07). Financial leverage at 2.15x is moderate and relatively stable; it did not offset margin pressure. Business drivers of margin compression likely include unfavorable price-cost spread (raw materials and energy vs. selling prices), product mix shift, and lower capacity utilization. This appears cyclical rather than structural, but recovery depends on end-market demand and input cost dynamics; sustainability of improvement is uncertain without evidence of price recovery. Watch for cost absorption issues: SG&A of 519.39 fell less visibly than operating income, implying operating deleverage; if SG&A growth outpaces or remains flat while revenue declines, it will continue to weigh on margins.

Growth Assessment

Revenue fell 4.3% YoY to 2,771.19 (100M JPY), indicating soft demand and/or price declines. Profit declines were outsized vs revenue, with operating income -36.3% and net income -41.3%, evidencing negative operating leverage and a weaker price-cost spread. Operating margin compressed approximately 365 bps and net margin by ~428 bps, signaling broad-based profitability pressure. Non-operating items were largely neutral with dividend income (11.68) and interest income (4.22) partially offset by interest expense (15.47). EBITDA margin at 14.6% suggests still-healthy underlying cash earnings, but not enough to offset the magnitude of deleverage. Outlook depends on normalization of raw materials/energy costs, pricing recovery in core chemistries, and inventory right-sizing; near-term growth visibility is limited. Absent top-line recovery or cost relief, profit growth will be constrained. A rebound is plausible with macro recovery in autos/electronics and improved spreads, but the timing is uncertain.

Financial Health

Liquidity is strong: current ratio 196.5% and quick ratio 103.0%, both above benchmarks. Solvency is acceptable: D/E at 1.15x within a conservative-to-moderate range, and interest coverage at 13.01x is solid. No explicit warning triggers (Current Ratio < 1.0 or D/E > 2.0) are present. Maturity mismatch risk appears low: short-term loans of 223.07 are comfortably covered by cash (646.84), receivables (1,028.39), and other current assets; current liabilities (1,988.54) are supported by current assets (3,907.25). Long-term loans stand at 1,588.64, implying steady amortization needs but manageable given cash generation. Off-balance sheet obligations are not reported; none can be assessed from provided data.

Cash Flow Quality

OCF/Net income is 1.74x, indicating strong earnings quality and positive working capital contribution or non-cash items (D&A 204.25) supporting cash flows. Free cash flow (OCF – Capex) is approximately -26.74 (100M JPY), as capex (354.29) exceeded OCF (327.55). Financing CF was -78.35, implying net outflows (debt repayment and/or dividends), funded by cash on hand and OCF. Sustainability: current dividend plus capex would not be fully covered by OCF this quarter; normalization requires either lower capex cadence or improved OCF. Working capital appears sizable (inventories 1,859.65), suggesting potential cash release if demand stabilizes; no clear signs of manipulation from the data provided.

Dividend Sustainability

Calculated payout ratio is 85.2%, above the <60% benchmark and elevated relative to current earnings power. With FCF approximately -26.74 (100M JPY) this period, dividends are not fully covered by internally generated free cash flow. Balance sheet liquidity is solid, which can bridge shortfalls in the near term, but sustained coverage requires better cash earnings or reduced capex. Policy outlook: absent a recovery in margins/OCF, the payout may face pressure; if capex is front-loaded and normalizes, coverage could improve. DPS and total dividend cash out are unreported, so assessment relies on the payout ratio and cash flow math.

Risk Assessment

Business Risks:

• Price-cost spread compression due to raw material and energy price volatility
• Demand cyclicality in key end markets (automotive, electronics, packaging)
• Product mix shift toward lower-margin lines
• Operational leverage risk from underutilized capacity leading to poor absorption
• Environmental and regulatory compliance costs impacting profitability

Financial Risks:

• ROIC at 2.9% well below 7–8% target range, indicating capital efficiency risk
• Negative FCF after capex, creating reliance on balance sheet liquidity
• Inventory build risk if demand remains soft, tying up working capital
• Exposure to FX fluctuations affecting export competitiveness and input costs
• Debt/EBITDA at 4.47x is elevated versus cash EBITDA, though interest coverage is currently adequate

Key Concerns:

• Margin compression of ~365–430 bps across operating and net levels
• High payout ratio (85.2%) despite negative FCF after capex
• Low asset turnover (0.326) constraining ROE alongside margin pressure
• Dependence on macro normalization for recovery without clear near-term catalysts
• Data gaps in segment detail and investing cash flows limit granularity of analysis

Investment Implications

Key Takeaways:

• Top line declined modestly (-4.3% YoY) but profits fell sharply, evidencing negative operating leverage
• Operating margin compressed from ~10.9% to ~7.3%; net margin from ~11.1% to ~6.8%
• Cash earnings quality is solid (OCF/NI 1.74x), but capex outlay led to slightly negative FCF
• Balance sheet liquidity and coverage are healthy; solvency is manageable
• ROIC at 2.9% highlights capital efficiency challenges; improvement is needed for value creation
• Dividend coverage is tight given negative FCF and an 85.2% payout ratio

Metrics to Watch:

• Price-cost spread (selling prices vs raw material and energy indices)
• Operating margin and EBITDA margin trajectory
• Inventory days and working capital turnover
• OCF/Net income ratio and FCF after capex
• ROIC vs WACC and asset turnover recovery
• Debt/EBITDA and interest coverage
• Capex cadence vs strategic projects and paybacks

Relative Positioning: Within the Japanese chemical sector, Daicel currently exhibits below-par profitability (compressed margins, low ROIC) but maintains stronger-than-average liquidity and acceptable leverage; near-term performance is more cyclical-spread dependent than peers with specialty mix and pricing power.

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