UBE Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥212.70B
• Operating Income: ¥8.25B
• Net Income: ¥613M
• 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

UBE Co., Ltd. (TSE: 42080) reported FY2026 Q2 consolidated results under JGAAP with revenue of ¥212.7bn, down 12.5% YoY, while operating income rose 36.4% YoY to ¥8.25bn, indicating improved cost discipline and/or mix despite softer topline. Gross profit was ¥41.1bn, translating to a gross margin of 19.3%, and EBITDA reached ¥21.85bn for a 10.3% margin. Ordinary income of ¥15.91bn exceeded operating income, implying meaningful non-operating contributions (e.g., FX or equity-method gains), which supported bottom-line performance. Net income was ¥10.89bn with a reported net margin of 5.12%; the large -96.5% YoY decline suggests a very elevated prior-year base likely driven by one-off gains, rather than a collapse in underlying profitability. The DuPont ROE is 2.57%, derived from a 5.12% net margin, 0.246x asset turnover, and 2.04x financial leverage; this level is modest and below typical mid-cycle specialty chemical peers. Liquidity appears solid with a current ratio of 181% and quick ratio of 152%, underpinned by ¥160.7bn in working capital, pointing to ample near-term funding capacity. Leverage is moderate with debt-to-equity of 1.07x, and interest coverage is comfortable at 13.0x, indicating manageable financial risk in the current rate environment. Operating cash flow was ¥6.3bn, yielding an OCF/Net Income conversion of 0.58x, which is below ideal and suggests working capital absorption or timing effects in 1H. Reported free cash flow is shown as zero only because investing cash flows are unreported; therefore, true FCF cannot be assessed from the disclosed data. Equity ratio is shown as 0.0% in the dataset but should be treated as undisclosed rather than zero; the balance sheet indicates equity of ¥424.1bn against assets of ¥865.8bn (implying ~49% equity by simple point-in-time calculation). Dividend data show DPS of ¥0 and a payout ratio of 0%, consistent with either a conservative stance or the absence of a declared interim dividend; FCF coverage cannot be determined without investing cash flows. Inventory is ¥57.7bn; with revenue down double digits, inventory management and price-cost spread discipline remain focal. Overall, despite a softer revenue backdrop, profitability metrics improved at the operating level, the balance sheet remains resilient, and cash conversion is the key near-term watchpoint. Data gaps around cash, investing CF, equity ratio, and share counts constrain precision in per-share and FCF analysis. The outlook will hinge on end-demand normalization, raw material cost trends, and the persistence of non-operating gains that boosted ordinary income. UBE’s performance indicates progress on margin defense, but sustainable ROE uplift will require stronger asset turnover or structurally higher margins. Given the cyclical nature of chemicals, monitoring price-cost spreads and FX sensitivity is essential for 2H trajectory.

Profitability Analysis

ROE of 2.57% is decomposed into net profit margin of 5.12%, asset turnover of 0.246x, and financial leverage of 2.04x. Operating margin stands at 3.9% (¥8.25bn/¥212.70bn), up YoY alongside a 36.4% increase in operating income despite a 12.5% revenue decline, implying improved mix/price or cost relief. Gross margin at 19.3% provides cushion; EBITDA margin at 10.3% indicates reasonable operating efficiency, though still mid-cycle for a diversified chemicals profile. Ordinary income (¥15.91bn) exceeding operating income suggests non-operating tailwinds (e.g., FX gains, investment income), which lifted profitability beyond core operations. Interest burden is light with interest expense of ¥0.64bn and coverage of 13.0x, supporting earnings stability. The tax burden appears light (income tax ¥1.40bn versus ordinary income ¥15.91bn), aiding net margin. Operating leverage appears favorable given the rise in operating income amid lower sales; the company likely benefited from cost downs, lower input costs, or mix shift toward higher-margin products. However, sustainability of margin gains needs validation absent non-operating support, and ROE remains modest due to low asset turnover. To structurally lift ROE, UBE needs either sustained margin expansion (pricing, mix, efficiency) or improved asset utilization.

Growth Assessment

Revenue declined 12.5% YoY to ¥212.7bn, indicating demand softness or price normalization after prior inflationary peaks. Despite weaker sales, operating income rose 36.4% YoY, signaling better cost control, improved price-cost spreads, or a richer product mix. Net income fell 96.5% YoY, which likely reflects an unusually high base in the prior year (e.g., large one-off gains) rather than a deterioration in underlying operations. The ordinary income uplift relative to operating income underscores a material non-operating contribution in the period; growth quality will depend on how much of this is repeatable. With EBITDA margin at 10.3% and gross margin at 19.3%, core profitability is stabilizing; further growth will require either volume recovery or continued mix enhancement. Asset turnover at 0.246x suggests underutilization or the effect of large asset base relative to current sales; improving utilization as demand recovers would be a lever for growth. Outlook hinges on end-market recovery in chemicals, continued rational pricing, and raw material cost trends; foreign exchange will also influence ordinary income. Sustaining operating margin gains into 2H is the key indicator of revenue quality and earnings durability.

Financial Health

Total assets are ¥865.8bn, equity is ¥424.1bn, and liabilities are ¥453.7bn, implying assets/equity of ~2.04x and a simple equity ratio near 49% (the reported 0.0% equity ratio should be treated as undisclosed). Liquidity is strong: current assets ¥358.4bn vs current liabilities ¥197.7bn yields a current ratio of 181% and quick ratio of 152%. Working capital stands at ¥160.7bn, providing cushion for operating needs and volatility in receivables/inventories. Debt-to-equity is 1.07x, indicating moderate leverage for a chemicals company. Interest coverage at 13.0x reflects ample capacity to service debt from operating earnings. The positive financing cash flow of ¥19.2bn suggests net inflows (e.g., debt issuance or other financing), but without cash and investing CF disclosure, net debt and liquidity runway cannot be precisely assessed. Overall solvency appears sound, with room for investment and resilience to cyclical swings, provided cash generation improves in 2H.

Cash Flow Quality

Operating cash flow was ¥6.31bn, 0.58x of net income (¥10.89bn), indicating weak cash conversion in the half, likely due to working capital build or timing of receipts/payables. Depreciation and amortization of ¥13.60bn underpins EBITDA-to-OCF conversion potential, but actual OCF lagged earnings, highlighting the need to monitor inventory and receivable dynamics. Reported free cash flow is shown as zero only because investing CF is undisclosed; true FCF cannot be derived from the provided data. The gap between ordinary/operating income and OCF points to the importance of working capital management for the remainder of the year. Non-operating gains that lifted ordinary income are typically non-cash or volatile; hence, earnings quality should be evaluated primarily on operating income and cash conversion trends. Monitoring OCF/NI trending back toward ≥1.0x and inventory turns will be critical to assessing cash flow quality.

Dividend Sustainability

DPS is reported at ¥0.00 with a payout ratio of 0%, indicating no dividend in the period or no disclosure of an interim payment. With OCF at ¥6.31bn and FCF unassessable due to missing investing CF, coverage analysis is inconclusive. From an earnings standpoint, EPS is ¥112.08, but absent capex data and cash balances, prudence suggests prioritizing balance sheet strength and cash generation before resuming or increasing distributions. Given moderate leverage (D/E 1.07x) and solid liquidity, the capacity for dividends exists if cash conversion improves; however, sustainability should be anchored to recurring operating cash flow rather than ordinary-income-driven non-operating gains. Policy outlook remains unclear from the provided data; watch for year-end guidance on dividends and capital allocation once full cash flow details are disclosed.

Risk Assessment

Business Risks:

• Cyclical demand in chemicals affecting volumes and pricing
• Raw material and energy price volatility (e.g., naphtha, coal, ammonia) impacting spreads
• Foreign exchange fluctuations influencing ordinary income and import costs
• Competitive pressure and potential ASP normalization post-inflation peak
• Execution risk in product mix shift toward higher-margin/specialty offerings
• Operational risks including plant outages and maintenance downtime
• Regulatory and environmental compliance costs, including decarbonization investments
• Global macro slowdown, particularly in China/EU end-markets

Financial Risks:

• Working capital swings depressing cash conversion (OCF/NI at 0.58x)
• Moderate leverage (D/E 1.07x) amid potential earnings volatility
• Dependence on non-operating income to support ordinary income
• Interest rate and refinancing risk despite current 13.0x coverage
• Limited visibility on cash and investing flows due to undisclosed items

Key Concerns:

• Sustainability of margin improvement with revenue down 12.5% YoY
• Weak first-half cash conversion and unknown capex limiting FCF visibility
• Large YoY drop in net income suggests prior-year one-offs; underlying run-rate needs confirmation

Investment Implications

Key Takeaways:

• Operating margin improved despite double-digit revenue decline, signaling cost and mix gains
• Ordinary income exceeded operating income, highlighting non-operating support
• ROE at 2.57% is modest; structural improvement requires higher margins or asset turns
• Liquidity is strong (current ratio 181%, quick ratio 152%), leverage moderate (D/E 1.07x)
• Cash conversion is the key watchpoint (OCF/NI 0.58x) with FCF not derivable due to missing data

Metrics to Watch:

• Operating margin and price–cost spread
• OCF/Net income and working capital turns (inventory, receivables)
• Capex and full cash flow statement to assess FCF
• Net debt/EBITDA and interest coverage
• FX impacts on non-operating income and hedging effectiveness
• Asset turnover improvement alongside volume recovery

Relative Positioning: Within Japanese diversified chemicals, UBE shows improving operating efficiency and solid liquidity, but ROE and asset turnover trail specialty-focused peers; margin defense is encouraging, while sustained cash conversion and clearer capital allocation are needed to close the gap.

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
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