Aica Kogyo (4206) FY2027 Q1 Earnings Report

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Executive Summary

In addition to double-digit revenue growth, operating income increased significantly faster than revenue, resulting in higher revenue and profit accompanied by improved profitability. Revenue was ¥713.8B (+19.4% YoY), operating income was ¥91.6B (+44.9%), ordinary income was ¥96.7B (+34.8%), and net income attributable to owners of the parent was ¥47.3B (+5.7%). The background to the profit growth rate substantially exceeding the revenue growth rate was the expansion of highly profitable businesses in the Construction and Building Materials segment. However, the occurrence of an extraordinary loss of ¥9.1B meant that the increase in operating income was not sufficiently converted into growth in net income.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥713.8B, an increase of +19.4% YoY. By segment, Construction and Building Materials generated ¥341.2B (+27.7%), while Chemicals generated ¥383.8B (+12.6%); both segments contributed to revenue growth, with the growth of Construction and Building Materials particularly driving consolidated revenue.

【Profit and Loss】Operating income was ¥91.6B (+44.9%), and the operating margin improved to 12.8% from approximately 10.6% in the same period of the previous year. Segment profit increased in both segments: Construction and Building Materials generated ¥69.5B (20.4% margin, +30.0%), while Chemicals generated ¥35.0B (9.1% margin, +66.8%). Meanwhile, profit before tax, after deducting the extraordinary loss of ¥9.1B from ordinary income of ¥96.7B, was limited to ¥87.7B. After deducting income taxes of ¥31.7B and profit attributable to non-controlling interests of ¥8.7B, net income attributable to owners of the parent was ¥47.3B, an increase of only +5.7%. This indicates that the increase in profit at the operating level was not sufficiently converted into net income; overall, the company recorded higher revenue and profit.

Segment Analysis

Construction and Building Materials generated revenue of ¥341.2B (+27.7%) and segment profit of ¥69.5B (+30.0%), with a 20.4% margin, making it the largest contributor to consolidated profit. Chemicals generated revenue of ¥383.8B (+12.6%) and segment profit of ¥35.0B (+66.8%), representing a substantial profit increase; however, its 9.1% margin was approximately 11.3pt below that of Construction and Building Materials. Company-wide expenses were ¥12.9B (¥11.2B in the previous year), remaining within the range of revenue growth and not impairing operating leverage. Both segments recorded higher revenue and profit, but given the difference in margin levels, Construction and Building Materials was the primary factor driving consolidated profitability.

Key Financial Indicators

【Profitability】The operating margin of 12.8% improved from approximately 10.6% in the same period of the previous year, reflecting a structure consisting of a gross margin of 29.0% and an SG&A ratio of 16.1%. 【Cash Quality】Cash and deposits were ¥547.3B, while accounts receivable of ¥571.3B represented 16.6% of total assets; together with inventories of ¥207.6B, this indicates a certain level of funds tied up in working capital. 【Investment Efficiency】ROE, based on net income attributable to owners of the parent, was 2.5% on a quarterly basis and remained at approximately the 8% level on an annualized basis, with low asset turnover being the primary factor determining ROE. 【Financial Soundness】The equity ratio was 64.2%, and the current ratio was calculated at approximately 210% based on current assets of ¥1957.9B and current liabilities of ¥930.4B, indicating a stable financial foundation.

Cash Flow Analysis

As cash flow statement figures have not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥547.3B, down from ¥592.1B at the end of the previous fiscal year, while accounts receivable of ¥571.3B exceeded cash and deposits, suggesting funds tied up in working capital. Inventories increased from the previous year to ¥207.6B, notably due to an increase in raw materials of ¥196.8B. Interest-bearing debt consisted primarily of short-term borrowings of ¥330.2B, with long-term borrowings limited to ¥7.7B, indicating a high reliance on short-term funding. Retained earnings increased to ¥1473.6B, confirming the accumulation of internal reserves during a period of profit growth.

Earnings Quality

Of ordinary income of ¥96.7B, non-operating income of ¥8.2B consisted primarily of dividend income of ¥3.2B and other non-operating income of ¥3.4B, indicating that recurring income was the main component. Meanwhile, the extraordinary loss of ¥9.1B arising from the adjustment to profit before tax is classified as a temporary factor and was the primary reason why net income growth was restrained relative to operating income growth. Comprehensive income was ¥87.5B, exceeding net income of ¥56.0B. The addition of valuation-related items, including foreign currency translation adjustments of ¥17.6B and valuation difference on securities of ¥14.9B, indicates changes in asset values that cannot be fully captured by net income alone; this divergence should therefore be considered when evaluating earnings quality.

Earnings Forecast and Guidance

Progress against the full-year company forecast was 24.6% for revenue, 26.3% for operating income, 27.4% for ordinary income, and 24.2% for net income attributable to owners of the parent. None deviated significantly from the standard quarterly progress benchmark of 25%. While the full-year forecast operating margin is approximately 12.0%, the Q1 actual result was slightly higher at 12.8%, indicating that profit progress is currently slightly ahead of the company’s plan. Both the earnings forecast and dividend forecast were revised in the full-year financial results.

Shareholder Returns

The full-year dividend forecast is ¥144.0, resulting in a payout ratio of approximately 46.7% based on the full-year EPS forecast of ¥308.17. This payout ratio uses dividends alone as the numerator and is not the Total Return Ratio, which includes share repurchases. Based on the period-average number of shares outstanding of 63,275,671 shares, total annual dividends are estimated at approximately ¥91.1B, within the full-year net income forecast of ¥195.0B. The Q1 net income progress rate of 24.2% is broadly consistent with the full-year forecast, and there is currently no significant divergence between the dividend level and the earnings plan.

Risk Factors

1. Risk of passing through raw material and energy prices: Both the Chemicals and Construction and Building Materials businesses are exposed to fluctuations in raw material, energy, and logistics costs. The improvement in the gross margin to 29.0% and the operating margin to 12.8% could reverse if cost increases cannot be passed through to prices.

2. Concentration in short-term funding: Short-term borrowings of ¥330.2B account for the majority of interest-bearing debt, resulting in a high proportion of short-term liabilities. Cash and deposits of ¥547.3B and a current ratio of approximately 210% provide a buffer, but changes in refinancing terms require monitoring.

3. Potential recurrence of extraordinary losses and conversion into net income: An extraordinary loss of ¥9.1B occurred against ordinary income of ¥96.7B, resulting in net income of ¥47.3B after profit before tax of ¥87.7B, income taxes of ¥31.7B, and profit attributable to non-controlling interests of ¥8.7B. While operating income increased by 44.9%, net income growth was limited to 5.7%; the trend in this conversion rate will be an item to monitor going forward.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

Both the operating margin and net income margin exceeded the industry median, indicating that profitability is relatively high within the industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeded the industry median, indicating a high growth pace within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The operating margin improved by approximately 2.3pt YoY to 12.8%, remaining above the full-year company plan of a 12.0% operating margin. The 20.4% segment profit margin of Construction and Building Materials is driving consolidated profitability, and the sustainability of this high profitability will be a point to monitor going forward.

2. Operating income growth of 44.9% exceeded revenue growth of 19.4%, demonstrating operating leverage accompanying the increase in profit; however, net income growth was limited to 5.7%. The extraordinary loss of ¥9.1B and the tax burden on an attributable-to-parent basis prevented the increase in operating income from being sufficiently converted into net income.

3. Financial soundness is high, with an equity ratio of 64.2% and a current ratio of approximately 210%. However, the fact that the majority of interest-bearing debt consists of short-term borrowings, as well as the fact that accounts receivable of ¥571.3B exceeds cash and deposits, should be monitored as points relating to the funding structure.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥3,420–¥3,618 at a ±1% change in the cost of equity, and ¥3,516–¥3,517 at a change of ±0.1 in ω.

Notes:

• Net assets as of the end of the quarter are used (there is 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 (Ohlson-type, explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market price or a recommendation of any specific investment action, and does not predict or guarantee future stock prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL financial results summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed financial results data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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AI Financial Analysis

Executive Summary

Aica Kogyo delivered a strong FY2027 Q1 operating performance, with revenue growth and substantial operating-margin expansion, although growth in profit attributable to owners was constrained by an extraordinary loss and a higher effective tax charge. Revenue increased 19.4% year on year to ¥71.38bn. Operating income rose 44.9% to ¥9.16bn, materially outpacing sales growth. Gross profit expanded 26.0% to ¥20.67bn as the gross margin improved to 29.0% from 27.5%, a 150bp expansion. The operating margin rose to 12.8% from 10.6%, an approximately 225bp expansion. This places operating profitability within the good 8-15% benchmark range for the sector. SG&A expenses increased 14.1% to ¥11.51bn, below the revenue growth rate, indicating favorable operating leverage. Ordinary income grew 34.8% to ¥9.67bn, supported by ¥0.82bn of non-operating income, including ¥0.32bn of dividend income and ¥0.16bn of interest income. However, profit before tax increased only 22.2% to ¥8.77bn because of a ¥0.91bn extraordinary loss. Profit attributable to owners increased just 5.7% to ¥4.73bn, and the attributable net margin declined to 6.6% from 7.5%, despite the improvement in operating margins. The reported effective tax rate was 36.2%, above a typical Japanese statutory-rate range and a meaningful drag on conversion from pre-tax profit to consolidated net income. Annualized ROE was 8.6%, supported principally by the improved earnings margin rather than aggressive leverage. The Chemical Products segment and the Construction and Building Materials segment both contributed to the earnings acceleration, with the latter remaining the core business by segment-profit contribution. The company has maintained full-year guidance of ¥290.0bn in sales and ¥34.8bn in operating income, with Q1 progress broadly in line with a seasonal 25% pace. Balance-sheet liquidity is strong, but the concentration of debt in short-term borrowings warrants continued attention despite substantial cash coverage. The large increase in goodwill and intangible assets reflects a more acquisition-intensive asset mix following the consolidation of one subsidiary, making integration execution and future amortization or impairment outcomes increasingly relevant. The full-year dividend forecast of ¥144 per share implies a manageable payout ratio based on forecast EPS, supporting shareholder distributions within current earnings capacity.

Profitability Analysis

Annualized DuPont ROE is 8.6%, comprising a 6.6% net profit margin, 0.829x asset turnover, and 1.56x financial leverage. The key Q1 change is margin-led: operating margin expanded by approximately 225bp year on year to 12.8%, while gross margin expanded 150bp to 29.0%. Gross profit growth of 26.0% exceeded revenue growth of 19.4%, indicating improved pricing, mix, procurement conditions, or production efficiency. SG&A grew 14.1%, below revenue growth, adding positive operating leverage and supporting the larger increase in operating income. The Chemical Products segment reported external sales of ¥37.25bn, up 12.8%, and segment profit of ¥3.50bn, up 66.8%; its segment margin improved to 9.1% from 6.2%. Construction and Building Materials, the core business based on its ¥6.95bn segment-profit contribution, reported sales of ¥34.12bn, up 27.7%, and segment profit of ¥6.95bn, up 30.0%; its segment margin was 20.4%, compared with 20.0% a year earlier. Segment profit growth exceeded sales growth in both businesses, with especially sharp margin recovery in Chemical Products. The improvement is operationally constructive, but its translation to owner earnings was diluted by the ¥0.91bn extraordinary loss and the elevated tax burden. The five-factor analysis shows an interest burden of 0.957 and interest coverage of 58.72x, confirming that financing costs are not materially constraining returns. Financial leverage of 1.56x is moderate, so the annualized 8.6% ROE is principally an operating-return outcome rather than debt-driven.

Growth Assessment

Top-line growth was broad-based across both reported segments. Construction and Building Materials was the principal sales-growth contributor, adding ¥7.40bn of external sales year on year, versus a ¥4.22bn increase in Chemical Products. Consolidated Q1 sales represent 24.6% of the ¥290.0bn full-year sales forecast, close to the standard 25% Q1 progress rate. Operating income represents 26.3% of the ¥34.8bn full-year forecast, 1.3 percentage points ahead of the standard pace but not a material deviation. Ordinary income progress is 27.4% against the ¥35.3bn forecast, while profit attributable to owners represents 24.2% of the ¥19.5bn forecast. The guidance profile assumes full-year sales growth of 15.2% and operating-income growth of 19.4%, implying that the Q1 operating result is consistent with the company’s planned margin improvement. The gap between 44.9% Q1 operating-income growth and the 19.4% full-year operating-income growth target suggests a prudent forecast stance or an expectation of less favorable growth comparisons later in the year. Growth quality at the operating level is solid because it is supported by both gross-margin expansion and SG&A discipline. At the net-income level, the exceptional loss and tax expense reduce near-term earnings conversion and should be monitored for recurrence.

Financial Health

Liquidity is strong, with a current ratio of 210.4%, a quick ratio of 188.1%, and working capital of ¥102.75bn. Cash and deposits of ¥54.73bn exceed short-term loans of ¥33.02bn by 1.66x, providing a substantial immediate liquidity buffer. Total interest-bearing debt was ¥33.78bn, while debt-to-capital was a conservative 13.2% and the reported debt-to-equity ratio was 0.56x, well below the 2.0x risk threshold. Interest coverage of 58.72x further indicates ample capacity to service interest obligations. The principal financing concern is maturity concentration: 97.7% of interest-bearing debt is short term, which creates refinancing risk even though current assets substantially exceed current liabilities. This maturity mismatch is presently mitigated by ¥195.79bn of current assets, ¥54.73bn of cash, and a 210.4% current ratio; nevertheless, continued access to bank funding and the maintenance of cash balances remain important. Goodwill increased by ¥18.52bn, or 1,116.8% year on year, to ¥20.18bn, while intangible assets rose ¥18.35bn, or 203.3%, to ¥27.38bn. These increases, alongside the newly consolidated subsidiary, point to an acquisition-related expansion of the balance sheet. Goodwill is still moderate at 9.1% of equity and 5.9% of total assets, well below common warning thresholds, but M&A integration and value-retention execution are now more relevant. Long-term loans decreased 41.2% to ¥0.77bn, reinforcing the shift toward short-tenor funding. Provisions for bonuses of ¥3.41bn and net defined-benefit liabilities of ¥2.28bn are recognized obligations within the capital structure.

Notable B/S Changes

Goodwill: +¥18.52bn (+1,116.8%) to ¥20.18bn - acquisition-related balance-sheet expansion following the consolidation of one subsidiary; goodwill remains moderate at 9.1% of equity but integration and impairment risk should be monitored. Intangible assets: +¥18.35bn (+203.3%) to ¥27.38bn - acquired intangible assets materially increased the non-current asset base; future JGAAP amortization and acquired-business performance are relevant to earnings quality. Long-term loans: -¥0.54bn (-41.2%) to ¥0.77bn - long-tenor borrowings declined while short-term loans remain ¥33.02bn, reinforcing the short-term funding concentration. Property, plant and equipment: +¥11.46bn (+15.2%) to ¥86.91bn - the productive asset base expanded and represents 25.2% of total assets, consistent with the company’s manufacturing profile. Non-controlling interests: +¥10.83bn (+64.5%) to ¥27.63bn - a larger share of consolidated equity is attributable to non-controlling shareholders, which affects conversion from consolidated net income to profit attributable to owners.

Cash Flow Quality

Operating cash flow, investing cash flow, free cash flow, and cash-conversion metrics are not reported in the available financial data; therefore, no OCF-to-net-income or free-cash-flow coverage conclusion is drawn. Earnings quality can nevertheless be assessed from the income statement. Operating income of ¥9.16bn was supported by a 19.4% revenue increase, 150bp gross-margin expansion, and SG&A growth below sales growth, which are constructive operating-quality indicators. Conversely, the ¥0.91bn extraordinary loss reduced pre-tax income by 9.9% of operating income and was equivalent to 19.2% of profit attributable to owners. The resulting gap between 44.9% operating-income growth and 5.7% growth in profit attributable to owners indicates weaker below-the-line conversion in the quarter. The elevated receivable-days alert of 73 days is a working-capital risk indicator for a manufacturer because slower collections can delay cash realization as sales grow. Trade accounts receivable increased 12.7% year on year to ¥57.13bn, below sales growth, but the reported collection period remains above the 60-day warning benchmark. Inventory increased 15.3% to ¥20.76bn, also below sales growth, which does not indicate disproportionate inventory accumulation based on the reported balance-sheet comparison. Raw materials were ¥19.68bn, work in process ¥2.17bn, and finished goods ¥20.76bn, with finished goods representing the largest disclosed inventory category.

Dividend Sustainability

The full-year dividend forecast is ¥144 per share, compared with forecast EPS of ¥308.17. This implies a forecast dividend payout ratio of approximately 46.7%, below the 60% sustainability benchmark. Q1 basic EPS was ¥74.71, equivalent to 24.2% progress toward full-year forecast EPS, broadly consistent with the 25% seasonal benchmark. Retained earnings were ¥147.36bn and owners' equity was ¥193.62bn, providing a substantial capital base relative to the planned distribution. The balance sheet also has net cash relative to reported interest-bearing debt, with cash of ¥54.73bn against debt of ¥33.78bn. Dividend sustainability therefore appears supported by forecast earnings, retained capital, and liquidity. A free-cash-flow coverage assessment is not made because the required cash-flow data is not reported.

Risk Assessment

Business risks include Chemical and building-materials demand risk: the two operating segments are exposed to customer activity in manufacturing, construction, renovation, and related end markets; a slowdown could pressure the strong Q1 sales trajectory., Input-cost and energy-cost risk: as a chemical and materials manufacturer, margin gains can be vulnerable to volatility in petrochemical-derived inputs, other raw materials, logistics, and energy costs., M&A integration risk: goodwill rose ¥18.52bn and intangible assets increased ¥18.35bn following the consolidation of one subsidiary, requiring successful integration and realization of the acquired business plan., Collection-cycle risk: reported annualized DSO of 73 days exceeds the 60-day warning benchmark, which may lengthen cash conversion if customer payment behavior weakens..

Financial risks include Refinancing risk is elevated because 97.7% of interest-bearing debt is short term. The root cause is the funding-tenor concentration rather than excessive absolute leverage. The impact is mitigated by cash covering short-term loans 1.66x, current ratio of 210.4%, and interest coverage of 58.72x, but funding-market disruption could still affect liquidity flexibility., The quality alert for high tax burden reflects a tax-burden ratio of 0.539 when profit attributable to owners is divided by profit before tax. Its root cause includes the use of owner-attributable profit after non-controlling interests and the Q1 extraordinary loss; the reported consolidated effective tax rate based on income tax expense and profit before tax was 36.2%. The impact is lower conversion of operating profit into owner earnings, as attributable profit rose only 5.7% despite 44.9% operating-income growth., Acquisition-related intangible-asset risk has increased. Goodwill remains modest at 9.1% of equity and 5.9% of assets, so current balance-sheet dependence on acquired value is limited, but adverse acquired-business performance could result in future JGAAP goodwill amortization and/or impairment pressure..

Key concerns include Sustainability of the 225bp operating-margin expansion, particularly given the full-year operating-income growth forecast is materially lower than Q1 growth., Recurrence and nature of the ¥0.91bn extraordinary loss, which materially reduced Q1 owner-profit conversion., Receivable days of 73, above the stated 60-day warning threshold; this is an important manufacturing working-capital metric even though receivables grew more slowly than revenue., Execution against revised full-year earnings and dividend forecasts..

Investment Implications

Key takeaways include Q1 operating income rose 44.9% to ¥9.16bn on 19.4% sales growth, driven by gross-margin expansion and positive SG&A leverage., Construction and Building Materials is the core profit engine, generating ¥6.95bn of segment profit and a 20.4% segment margin., Chemical Products delivered the strongest incremental profitability improvement, with segment profit rising 66.8% and margin improving to 9.1% from 6.2%., Annualized ROE of 8.6% is adequate but remains below the 10% level generally associated with stronger equity returns., Liquidity and absolute leverage are sound, but short-term debt concentration, high receivable days, and enlarged acquisition-related intangibles are key balance-sheet monitoring items., The forecast ¥144 dividend implies a 46.7% payout ratio on forecast EPS and is supported by earnings and balance-sheet capacity..

Metrics to watch include Operating-margin trajectory versus the Q1 12.8% level and the full-year operating-income forecast., Chemical Products segment margin following the Q1 recovery to 9.1%., Construction and Building Materials sales growth and maintenance of its 20.4% segment margin., Receivable days relative to the reported 73 days and the 60-day warning benchmark., Short-term borrowing balances, refinancing conditions, and cash-to-short-term-debt coverage., Goodwill and intangible-asset movements, including any amortization or impairment charges., Further extraordinary items and the effective tax rate..

Regarding relative positioning, Aica Kogyo combines good operating profitability, strong liquidity, conservative debt-to-capital, and a moderate goodwill burden. Its annualized 8.6% ROE is supported by improving margins but is below the stronger 10-15% return range, while the high short-term debt ratio and above-benchmark receivable days temper an otherwise robust Q1 operating profile.