Sekisui Chemical Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

This quarter recorded higher revenue and operating and ordinary income, driven by double-digit profit growth in High Performance Plastics and Urban Infrastructure & Environmental Services, while net income declined due to the recognition of business portfolio restructuring expenses. Revenue was ¥3,329.7B (+9.1% YoY), operating income was ¥254.8B (+20.1%), and ordinary income was ¥280.8B (+39.1%), supported by a reversal from foreign exchange losses to gains and dividend income. Meanwhile, net income attributable to owners of the parent was ¥127.9B (-2.7%), as the one-time recognition of ¥7.37B in extraordinary losses, including ¥6.66B in business portfolio restructuring expenses, acted as a downward factor.

Factors Affecting Performance

【Revenue】Revenue of ¥3,329.7B (+9.1%) was driven by growth in High Performance Plastics at ¥1,283.8B (+18.6%, 38.6% of total revenue) and Urban Infrastructure & Environmental Services at ¥604.6B (+16.4%, 18.2% of total revenue). Medical also remained solid at ¥217.2B (+5.7%), while Housing was the only segment to report declining revenue, at ¥1,270.3B (-1.0%, 38.2% of total revenue).

【Profit and Loss】Operating income was ¥254.8B (+20.1%), and the operating margin improved to 7.7% from 6.9% in the same period of the previous year. High Performance Plastics generated operating income of ¥171.7B (+24.9%), while Urban Infrastructure & Environmental Services contributed ¥68.7B (+97.9%, 11.4% margin). These gains were partly offset by continued deterioration in Housing profitability, with operating income of ¥56.0B (-36.5%, 4.4% margin), diluting Group profitability. Ordinary income increased more than operating income, reaching ¥280.8B (+39.1%), supported by a ¥15.1B foreign exchange gain, compared with a foreign exchange loss in the previous year, and ¥15.2B in dividend income. However, following the recognition of ¥73.7B in extraordinary losses, including ¥66.6B in one-time business portfolio restructuring expenses, profit before tax was limited to ¥208.9B. After deducting income taxes and other taxes of ¥76.4B, representing an effective tax rate of approximately 36.6%, net income attributable to owners of the parent was ¥127.9B (-2.7%). Thus, revenue and profit increased through the ordinary income level, but net income declined due to one-time extraordinary losses.

Segment Analysis

In terms of segment profit margins, High Performance Plastics (13.4%), Urban Infrastructure & Environmental Services (11.4%), and Medical (11.1%) remained stable at double-digit levels, while Housing (4.4%) was relatively low, highlighting profitability disparities within the business portfolio. Operating income in Urban Infrastructure & Environmental Services nearly doubled, rising +97.9% YoY, the largest growth rate among all segments.

By geographic revenue, external customer sales in North America excluding Japan showed the strongest growth, reaching ¥426.9B (¥319.9B in the previous year, +33.4%). Asia at ¥198.1B (+19.9%) and Other regions at ¥31.4B (+23.3%) also recorded double-digit growth. Domestic Japan revenue was ¥2,188.5B (+5.0%), while Europe at ¥264.5B (+7.4%) and China at ¥220.3B (+5.2%) recorded only single-digit growth. The figures indicate that a recovery in overseas demand, particularly for High Performance Plastics, contributed to higher Group-wide revenue.

Key Financial Indicators

【Profitability】The gross profit margin improved slightly to 32.7% from 32.4% in the previous year, while the operating margin improved to 7.7% from 6.9% in the same period of the previous year. In contrast, the net profit margin based on net income attributable to owners of the parent declined to 3.8% from 4.3%, reflecting the recognition of extraordinary losses and the elevated effective tax rate of 36.6%. 【Cash Quality】Operating cash flow (OCF) was -¥64.9B, below net income attributable to owners of the parent of ¥127.9B, indicating delayed cash conversion of earnings due to inventory accumulation and tax payments. 【Investment Efficiency】ROE was 1.5% on a quarterly basis, almost unchanged from 1.5% in the same period of the previous year. Basic EPS was ¥31.69 (¥31.61 in the previous year, +0.3%); the decrease in the weighted-average number of shares during the period (403,712 thousand shares) supported EPS despite the decline in net income. 【Financial Soundness】The equity ratio was 60.3%, down 1.4pt from 61.7% in the same period of the previous year, while the current ratio declined slightly to 176.3% from 185.8%, but remained at a high level.

Cash Flow Analysis

Operating cash flow was -¥64.9B, a substantial deterioration from +¥82.7B in the same period of the previous year. Although OCF before changes in working capital was positive at ¥74.7B, increases in inventories (-¥161.2B), income tax payments (-¥156.0B), and decreases in trade payables (-¥81.7B) caused OCF to ultimately turn negative. Investing cash flow was -¥215.4B, including capital expenditures of ¥185.8B, which exceeded depreciation and amortization of ¥143.0B, indicating that growth investment is proceeding ahead of earnings. As a result, free cash flow was -¥280.3B, offset by financing cash flow of +¥277.8B, including an increase in short-term borrowings. Trends in working capital, including inventories and accounts receivable, will be a key factor determining future cash-generation capacity.

Earnings Quality

Recurring earnings power is centered on operating income of ¥254.8B. Non-operating income of ¥46.4B, equivalent to 1.4% of revenue, consisted mainly of dividend income of ¥15.2B and foreign exchange gains of ¥15.1B. The foreign exchange gain represents a reversal from the foreign exchange loss recorded in the same period of the previous year and is therefore subject to market conditions. Business portfolio restructuring expenses of ¥66.6B accounted for the majority of the ¥73.7B in extraordinary losses, creating a one-time drag on profit before tax. Excluding this one-time factor, core earnings power remains solid, as indicated by the growth in operating and ordinary income. However, OCF below net income attributable to owners of the parent of ¥127.9B indicates an increase in accruals, primarily due to inventory growth, and is an important monitoring point when assessing earnings quality.

Earnings Forecast and Guidance

The full-year forecast calls for revenue of ¥14,084.0B (+7.6%), operating income of ¥1,150.0B (+8.0%), ordinary income of ¥1,140.0B (-2.7%), and net income attributable to owners of the parent of ¥760.0B. Q1 progress rates were 23.6% for revenue, 22.2% for operating income, 24.6% for ordinary income, and 16.8% for net income. All were slightly below the simple 25% benchmark, with net income showing particularly low progress. This reflects the impact of the extraordinary loss recognition. Ordinary income was significantly ahead at +39.1% as of Q1, compared with the full-year forecast of -2.7% YoY, so a reversal may occur depending on foreign exchange trends from Q2 onward. While the earnings forecast for the cumulative Q2 period has been revised in this report, no revisions have been made to the full-year forecast or dividend forecast.

Shareholder Returns

The annual dividend forecast is ¥81, with no revision to the dividend forecast for the current quarter. The payout ratio against forecast EPS of ¥188.21 is approximately 43.0% and is at a similar level based on total dividends. No treasury share repurchases were conducted during Q1, and share buybacks have decreased from ¥9.99B in the same period of the previous year. With free cash flow at -¥280.3B, dividends cannot be funded solely from internally generated funds and are being supplemented through financing cash flow.

Risk Factors

1. Increase in working capital and decline in cash-generation capacity: OCF was -¥64.9B, below net income attributable to owners of the parent of ¥127.9B. Inventories increased by -¥161.2B, making normalization of inventory levels a key to improving future cash flow.

2. Deterioration in Housing profitability: Against revenue of ¥1,270.3B (-1.0%), operating income declined to ¥56.0B (-36.5%), with a margin of 4.4%, the lowest among all segments, diluting overall Group profitability.

3. One-time nature of extraordinary losses and tax burden: Extraordinary losses of ¥73.7B, including ¥66.6B in business portfolio restructuring expenses, were recognized, and the effective tax rate was high at approximately 36.6%. A recurrence of similar one-time expenses could become a source of net income volatility.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin are below the industry median, indicating that profitability is somewhat modest relative to peers.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median, placing top-line growth in the relatively strong range among peers.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Double-digit profit growth in High Performance Plastics and Urban Infrastructure & Environmental Services drove Group-wide operating income, confirming the diversification benefits of the business portfolio. However, the low profitability of the Housing segment, with a 4.4% margin, continues to dilute overall profitability.

2. OCF fell out of positive territory to -¥64.9B from the same period of the previous year, primarily due to inventory growth and tax payments. The divergence between net income and cash flow remains an ongoing point of review when assessing earnings quality.

3. Due to the recognition of extraordinary losses, including ¥66.6B in business portfolio restructuring expenses, the full-year progress rate based on net income was 16.8%, lower than that of other indicators, creating a gap versus the approximately 22–25% progress rates for operating and ordinary income.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type, explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,118–¥2,242 at cost of equity ±1%, and ¥2,179–¥2,179 at ω±0.1.

Notes:

• Amortization of goodwill of ¥3.4/share has been added back to earnings (to account for non-cash expenses and comparability with IFRS companies).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end have been used, resulting in 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 / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee the future share price)

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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, after consulting with a professional as necessary.

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