UBE Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥212.70B
• Operating Income: ¥8.25B
• Net Income: ¥11.47B
• EPS: ¥112.08

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: FY2026 Q2 was a mixed but improving quarter operationally, with solid margin repair and strong cash conversion offset by still-low capital efficiency and elevated leverage. Revenue declined 12.5% YoY to 2,127.04, but operating income rose 36.4% YoY to 82.50 as cost discipline and mix improved. Using the disclosed YoY changes, we estimate operating margin expanded roughly 140 bps to 3.9% from about 2.5% last year despite the topline contraction. Gross profit was 476.41 for a gross margin of 22.4%, indicating better spreads versus cost of sales of 1,650.63. Non-operating items were material: net non-operating income of about 76.6 (105.55 income less 28.93 expenses) lifted ordinary income to 159.12 (+737.9% YoY), highlighting earnings reliance beyond core operations. Profit before tax was 140.04 and net income reached 108.86 with an effective tax rate of 18.1%; however, the YoY decline in net income (-96.5%) implies a large prior-year one-off gain distorting comparability. Cash quality was robust: operating cash flow of 315.95 was 2.9x net income, signaling healthy conversion and likely working-capital inflows. Liquidity was solid with a current ratio of 165.5% and quick ratio of 127.8%, and working capital of 1,150.72 provides buffer against short-term obligations. Leverage is manageable on a D/E basis at 1.04x, but Debt/EBITDA of 10.54x points to high leverage relative to earnings capacity. ROE stands at 2.6% and ROIC at 1.1%, both below cost of capital and signaling capital efficiency challenges that need strategic attention. EBITDA of 205.33 (9.7% margin) and interest coverage of 4.95x sit near comfort thresholds, emphasizing the need for continued margin expansion and deleveraging. Dividend visibility is low due to unreported DPS; the calculated payout ratio of 107.3% may reflect depressed earnings and is likely not sustainable without FCF support. Balance sheet includes sizable investment securities (2,186.06) and goodwill/intangibles (982.74 combined), which carry valuation and impairment risk in a soft demand environment. Forward-looking, key levers are further price-cost spread improvement, utilization recovery, and non-operating income normalization. Overall, the quarter demonstrates operational progress and strong cash conversion but underscores the urgency to lift ROIC and reduce leverage reliance.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.6% = Net Profit Margin 5.1% × Asset Turnover 0.246 × Financial Leverage 2.04x. The margin component showed the most visible improvement this quarter, with operating margin estimated to expand ~140 bps YoY to 3.9% (operating income up 36.4% despite a 12.5% revenue decline), indicating better price-cost spreads and/or mix. Asset turnover remains low at 0.246, reflecting a capital-intensive base (total assets 8,658.34) versus mid-cycle revenues; no clear evidence of improvement given the revenue contraction. Financial leverage at 2.04x is moderate, contributing a stable but limited boost to ROE. Business drivers: chemicals benefited from cost tailwinds (e.g., energy/feedstock normalization vs prior-year peaks) and SG&A efficiency, partially offsetting demand softness. Sustainability: margin gains from input cost normalization and mix are partly sustainable but could be vulnerable to commodity re-inflation and currency swings; leverage is unlikely to be a structural ROE driver given already-elevated Debt/EBITDA. Concerning trends: reliance on non-operating items remains high (net non-operating +76.6; non-operating income ratio 97%), and ROIC at 1.1% is well below the 5% warning line, signaling insufficient returns on the invested base.

Growth Assessment

Topline contracted 12.5% YoY to 2,127.04, indicating weak demand or pricing in key chemical segments. Profit growth at the operating level (+36.4% YoY to 82.50) reflects favorable cost/mix rather than volume, which is less durable if end-demand stays soft. Ordinary income surged (+737.9% YoY) due to net non-operating gains, not a recurring growth engine. EBITDA of 205.33 (9.7% margin) shows improved underlying earnings power, but still modest for the asset base. Net income fell 96.5% YoY, likely due to a prior-year extraordinary gain; thus, headline YoY comparability is poor. Outlook hinges on maintaining price-cost spreads, stabilizing volumes in autos/construction/electronics, and FX tailwinds; absent revenue recovery, further margin gains may be harder to achieve. With ROIC at 1.1%, capital discipline and portfolio pruning are needed to re-accelerate profitable growth.

Financial Health

Liquidity is healthy: current ratio 165.5% and quick ratio 127.8%, with working capital of 1,150.72 providing cushion. No explicit warning on current ratio (<1.0) or D/E (>2.0); D/E is 1.04x, within conservative bounds. Maturity profile: short-term loans 639.84 are covered by cash (447.09) plus receivables (963.69), and overall current assets (2,907.62) exceed current liabilities (1,756.90), indicating low near-term refinancing risk. Solvency: long-term loans 1,525.08 support a sizeable asset base; however, Debt/EBITDA at 10.54x signals high leverage relative to earnings, raising sensitivity to earnings dips. Off-balance sheet obligations: none disclosed in the provided data.

Cash Flow Quality

OCF of 315.95 vs net income of 108.86 yields OCF/NI of 2.90x, indicating high earnings quality this period. FCF cannot be assessed due to unreported investing CF and capex, limiting visibility on sustainability of cash generation after growth and maintenance investments. Working-capital dynamics likely supported OCF (receivables/inventory levels suggest potential release), but changes are not disclosed; no direct signs of manipulation can be identified from static balances. Interest coverage at 4.95x is adequate but near the 5x benchmark, reinforcing the need for continued cash discipline. With dividends and capex unreported, coverage of shareholder returns cannot be confirmed.

Dividend Sustainability

DPS and total dividends are unreported; the calculated payout ratio of 107.3% indicates potential over-distribution against current earnings, likely influenced by depressed NI and possible policy-based stability in dividends. Without FCF and capex data, coverage is not verifiable; reliance on OCF (315.95) suggests room, but high leverage (Debt/EBITDA 10.54x) argues for balance-sheet prudence. Policy outlook likely emphasizes stable to progressive dividends, but sustainability hinges on restoring ROIC and reducing non-operating income dependence.

Risk Assessment

Business Risks:

• Commodity/feedstock price volatility (e.g., naphtha, ammonia, energy) impacting spreads
• End-demand softness in autos, construction, and electronics leading to volume pressure
• FX fluctuations (JPY vs USD/EUR) affecting export pricing and imported input costs
• Potential impairment risk given goodwill and intangibles totaling 982.74
• Execution risk in cost reductions and portfolio optimization to lift ROIC from 1.1%

Financial Risks:

• High leverage relative to earnings (Debt/EBITDA 10.54x) despite moderate D/E
• Interest coverage at 4.95x near threshold; vulnerable if EBITDA softens
• Dependence on non-operating income (net +76.6) to support ordinary income
• Refinancing risk if credit conditions tighten, given 639.84 short-term loans

Key Concerns:

• Capital efficiency: ROE 2.6% and ROIC 1.1% are below the cost of capital
• Visibility: unreported investing CF, capex, and DPS limit assessment of FCF and payout sustainability
• Earnings volatility: large YoY swing in ordinary income suggests non-recurring drivers

Investment Implications

Key Takeaways:

• Operational repair evident: operating margin ~3.9% (+~140 bps YoY) with strong OCF
• Earnings mix skewed: significant lift from non-operating items to ordinary income
• Balance sheet liquidity sound, but leverage vs EBITDA is elevated
• Capital returns below hurdle: ROE 2.6%, ROIC 1.1% necessitate improvement
• Dividend sustainability unclear given >100% calculated payout and missing FCF data

Metrics to Watch:

• Price–cost spread (gross and operating margins) and utilization rates
• EBITDA and interest coverage trend toward >6x
• Debt/EBITDA trajectory and net debt reduction
• Working capital turns (receivables/inventory) and OCF consistency
• Capex and investing CF disclosure to gauge FCF
• Any one-offs in non-operating items (FX, securities, equity-method gains/losses)

Relative Positioning: Compared with domestic chemical peers, UBE shows better near-term margin resilience and cash conversion in this quarter but lags on capital efficiency and leverage metrics; sustained improvement requires structural ROIC uplift and reduced dependence on non-operating gains.

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