Daicel Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥277.12B
• Operating Income: ¥20.12B
• Net Income: ¥32.58B
• 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

Daicel Co., Ltd. (TSE:4202) reported FY2026 Q2 (cumulative) consolidated results showing top-line softness and pronounced operating leverage. Revenue was ¥277.1bn, down 4.3% YoY, while operating income fell 36.3% YoY to ¥20.1bn, indicating significant margin compression as fixed costs weighed on profitability. Gross profit of ¥84.0bn implies a gross margin of 30.3%, while operating margin contracted to 7.3%, and EBITDA margin stood at 14.4%. Net income declined 41.3% YoY to ¥18.8bn, with net margin at 6.78%. Ordinary income of ¥20.37bn modestly exceeded operating income, suggesting small net non-operating gains, despite interest expense of only ¥0.80bn and a robust interest coverage ratio of 25.2x. DuPont decomposition yields ROE of 4.77% (net margin 6.78% × asset turnover 0.326 × financial leverage 2.15), a subdued level for a chemicals company and below typical cost-of-equity hurdles. The low asset turnover reflects the calculation against period-end assets and half-year revenue, so the figure is mechanically conservative; nevertheless, the YoY drop in operating income signals true earnings pressure beyond any measurement nuance. Liquidity remains a strength: current ratio is 188%, quick ratio 104%, and working capital is ¥185.3bn, implying ample near-term funding capacity. Solvency appears solid with total liabilities of ¥438.8bn against equity of ¥394.2bn (D/E 1.11x); the implied equity ratio (equity/total assets) is approximately 46% despite the reported equity ratio being unpopulated. Cash generation was strong, with operating cash flow (OCF) of ¥50.7bn, or 2.7x net income, supported by non-cash charges (¥19.7bn D&A) and likely favorable working capital dynamics. Investing cash flow and cash balance were unreported in XBRL (shown as zero), limiting free cash flow and net cash/debt assessment. Dividend-related data were also unreported (DPS and payout ratio shown as zero), preventing policy and coverage analysis from source data alone. Overall, Daicel’s earnings quality looks sound (high OCF/NI, strong interest coverage), but profitability is under pressure from negative operating leverage as revenue softness translates into outsized operating income decline. Key uncertainties include underlying demand by end-markets, input cost/spread dynamics, and the sustainability of working capital tailwinds. Data gaps around capex, investing CF, cash, and dividends temper the precision of cash return and balance sheet assessments.

Profitability Analysis

ROE of 4.77% reflects: net profit margin 6.78%, asset turnover 0.326, and financial leverage 2.15. Operating margin of 7.3% (¥20.1bn/¥277.1bn) compressed significantly vs. revenue decline of 4.3% YoY, evidencing negative operating leverage. Gross margin at 30.3% versus EBITDA margin of 14.4% suggests a substantial fixed-cost base and/or SG&A burden from R&D, logistics, or energy. The ordinary margin (~7.35%) is slightly above operating margin, indicating limited but positive non-operating contribution despite ¥0.80bn interest cost. Effective tax rate in the summary table is shown as 0.0%, but income tax expense of ¥9.19bn implies the displayed ETR is not meaningful; tax normalization would likely reduce after-tax profitability further than suggested. Overall margin quality is mixed: gross margin remains healthy for a diversified chemicals portfolio, yet the step-down from gross to operating margin underscores cost pass-through challenges and/or weaker product mix. With D&A at ¥19.7bn, EBIT-to-EBITDA conversion indicates a capital-intensive model typical of chemicals, which can exacerbate operating leverage in down-cycles. Near-term ROE is dampened by low turnover (measured on period-end assets against half-year sales) and margin compression; leverage is moderate and not the primary ROE driver.

Growth Assessment

Revenue declined 4.3% YoY to ¥277.1bn, pointing to softer volume and/or price declines across key product lines. Operating income dropped 36.3% YoY to ¥20.1bn, implying revenue pressure was amplified by fixed costs and/or weaker spreads. Net income fell 41.3% YoY to ¥18.8bn, reflecting both operating compression and tax drag, despite small non-operating gains. EBITDA of ¥39.8bn (14.4% margin) suggests capacity utilization and product mix likely deteriorated YoY. The sustainability of revenue depends on end-market demand (automotive-related, industrial, consumer applications) and the company’s ability to pass through raw material and energy costs. Profit quality remains supported by strong OCF-to-NI (2.7x), indicating earnings are cash-backed; however, this could partially stem from working capital releases that may not recur. Outlook hinges on stabilization of volumes, improved pricing/spreads, and cost control; any recovery in high-value specialty lines could support margin restoration. Without guidance in the dataset, base-case expectations should be cautious on near-term growth while monitoring order trends and inventory normalization.

Financial Health

Total assets were ¥848.9bn and equity ¥394.2bn, implying an equity ratio of roughly 46% (derived) and financial leverage (A/E) of 2.15x. Total liabilities were ¥438.8bn, yielding D/E of 1.11x, a manageable level for the sector. Liquidity is strong: current ratio 188%, quick ratio 104%, and working capital of ¥185.3bn provide ample buffer against short-term obligations of ¥210.4bn. Interest expense was ¥0.80bn with 25.2x coverage on operating income, indicating low refinancing risk at current earnings levels. The reported equity ratio of 0.0% is unpopulated; using the provided balance sheet, solvency looks solid. Cash and equivalents were unreported; thus, net cash/debt and immediate liquidity headroom cannot be precisely assessed. Overall, the capital structure is balanced with moderate leverage and substantial current assets, though visibility into cash, debt maturity schedule, and off-balance commitments is limited by data gaps.

Cash Flow Quality

OCF was ¥50.7bn, 2.7x net income, indicating strong earnings quality supported by non-cash D&A (¥19.7bn) and likely working capital inflows. Investing CF was unreported (shown as zero), preventing direct estimation of capex and, therefore, true free cash flow. The displayed FCF of zero should be treated as unreported, not an actual absence of free cash flow. Given sector norms, sustaining capex is typically significant; without capex data, normalized FCF cannot be determined. Working capital appears well managed given the quick ratio of 104% and sizeable inventories of ¥177.9bn; the OCF strength suggests either inventory drawdown or receivables collection contributed. Earnings-to-cash conversion looks favorable this period, but persistence depends on ongoing working capital discipline and spread/volume stability.

Dividend Sustainability

Dividend per share and payout ratio are shown as zero due to non-disclosure in the dataset; thus, dividend status and policy cannot be inferred from this filing excerpt. EPS is ¥70.90 for the period, and OCF is robust, suggesting capacity for distributions could exist under normal conditions; however, without capex and cash balances, coverage analysis is incomplete. Free cash flow is unreported, so FCF coverage cannot be evaluated. In the absence of disclosed DPS, we cannot assess adherence to any target payout or shareholder return framework. Policy outlook remains unknown from the provided data; future disclosures of DPS, capex, and cash will be necessary to judge sustainability.

Risk Assessment

Business Risks:

• End-market cyclicality in chemicals and materials (automotive, industrial, consumer).
• Raw material and energy price volatility affecting spreads.
• Foreign exchange fluctuations (notably USD/JPY) impacting input costs and export competitiveness.
• Product mix shifts from higher-margin specialties to commoditized products.
• Regulatory and safety compliance risk across chemical production and safety components.
• Competitive pricing pressure from regional and global peers.
• Demand softness in China and other Asian markets affecting volumes.

Financial Risks:

• Margin compression driving negative operating leverage, as seen this period.
• Working capital swings that can materially affect cash generation.
• Capex intensity and potential for large investment cycles without immediate returns.
• Limited visibility on cash and net debt due to unreported cash and investing CF data.
• Potential asset impairments during downturns in specific product lines.

Key Concerns:

• Operating income declined 36.3% YoY on a 4.3% revenue drop, indicating high operating leverage.
• ROE at 4.77% is subdued, pressured by low turnover and compressed margins.
• Capex, FCF, and cash balances are unreported, constraining assessment of cash returns and leverage trajectory.

Investment Implications

Key Takeaways:

• Revenue softness (-4.3% YoY) translated into outsized operating profit decline (-36.3% YoY) due to fixed-cost absorption.
• Margins reset lower: operating margin 7.3%, EBITDA margin 14.4%, net margin 6.78%.
• ROE is modest at 4.77%; leverage is moderate and not the main ROE driver.
• Liquidity and solvency look solid with current ratio 188%, quick ratio 104%, D/E 1.11x, and interest coverage 25.2x.
• Cash conversion is strong (OCF/NI 2.7x), but FCF is indeterminable due to unreported capex.
• Dividend metrics are undisclosed; payout capacity cannot be evaluated from provided data.

Metrics to Watch:

• Segment volumes, pricing, and spread trends (particularly in higher-value specialty lines).
• Operating margin and EBITDA margin trajectory versus raw material and energy costs.
• Working capital intensity (inventory days, receivable/payable cycles) and its impact on OCF.
• Capex commitments and resulting FCF; disclosure of investing cash flows.
• ROE and ROIC versus WACC; asset turnover normalization as demand stabilizes.
• FX impacts and hedging; interest expense and coverage amid rate changes.

Relative Positioning: Within Japanese diversified chemicals, Daicel shows solid liquidity and moderate leverage but weaker current-period profitability and ROE due to negative operating leverage. Balance sheet resilience compares favorably to more leveraged peers, while margin pressure places it behind higher-mix specialty operators in the near term.

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