Sekisui Kasei (4228) FY2026 FY Earnings Report

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Executive Summary

The current period represents a profit recovery phase without revenue growth, in which Operating Income, Ordinary Income, and Net Income all improved substantially through fixed-cost reductions despite declining revenue. Revenue declined to ¥1,139.3B (-16.9% YoY) due to a slowdown in demand in the European Industry sector, while Operating Income recovered sharply to ¥25.5B (¥6.4B in the previous period, +298.0%) and Ordinary Income to ¥22.5B (¥1.0B in the previous period). Net Income attributable to owners of the parent turned profitable at ¥21.5B (¥-62.8B in the previous period); however, this was significantly affected by the recognition of ¥23.7B in deferred tax income against a pretax loss of ¥2.1B after the recognition of ¥38.9B in extraordinary losses. Accordingly, it should be noted that the quality of Net Income is not as strong as the improvement in Operating Income and Operating Cash Flow (OCF).

Factors Affecting Performance

【Revenue】Revenue was ¥1,139.3B, down -16.9% YoY. The Industry segment declined sharply to ¥615.4B (-25.0%), primarily due to declines in Europe (Czech Republic -49.8%, Germany -39.7%, other Europe -47.8%). The Human Life segment was relatively stable at ¥524.0B (-4.7%), while sales to major customer FP Corporation were ¥184.4B (-7.9% YoY).

【Profit and Loss】Gross profit was ¥265.9B, with a gross margin of 23.3%, and the decline was limited to ¥7.4B relative to the decline in revenue. SG&A expenses decreased by ¥26.5B YoY to ¥240.4B, and cost reductions exceeding the revenue decline improved Operating Income to ¥25.5B, representing an Operating Income margin of 2.2% and an improvement of +1.7pt YoY. Industry segment profit, calculated on an Ordinary Income basis, increased 376.3% to ¥25.3B, indicating a substantial recovery in profitability despite declining revenue. Ordinary Income also improved to ¥22.5B; however, the recognition of ¥38.9B in extraordinary losses, including ¥3.7B in impairment losses, resulted in a pretax loss of ¥2.1B. Net Income turned profitable at ¥21.5B following the recognition of income taxes and other taxes as income of ¥23.7B, reflecting the contribution from deferred tax income. In conclusion, this was a case of profit growth despite declining revenue, driven by improvements in the cost structure.

Segment Analysis

The Industry segment recorded Revenue of ¥615.4B (-25.0% YoY), segment profit of ¥25.3B (+376.3%), and a profit margin of 4.1%. Profit recovered substantially despite the sharp decline in European sales, apparently reflecting the review of low-profitability transactions and locations, as well as improvements in the cost structure. The Human Life segment recorded Revenue of ¥524.0B (-4.7% YoY), segment profit of ¥30.3B (+0.9%), and a profit margin of 5.8%. It remained relatively stable and became the largest profit-contributing segment across the two segments. It should be noted that segment profit is calculated on an Ordinary Income basis and therefore differs from consolidated Operating Income of ¥25.5B. Against combined segment profit of ¥55.7B, adjustments for corporate expenses and other items amounted to -¥33.2B, indicating that company-wide costs, including headquarters and research and development expenses, are constraining consolidated profitability.

Key Financial Indicators

【Profitability】Operating Income margin improved to 2.2% from 0.5% in the previous period, while Net Income margin was 1.9% and ROE was 4.2%, turning positive from -12.0% in the previous period. SG&A expenses absorb 90.4% of gross profit against a gross margin of 23.3%. Although the absolute level remains below the industry standard, the trend is improving.【Cash Flow Quality】OCF of ¥66.5B was approximately 3.1 times Net Income of ¥21.5B, confirming cash-generation capacity even after excluding the impact of deferred tax income included in Net Income. However, the figure benefited from reductions in accounts receivable and inventories and therefore includes a temporary element arising from working-capital improvements.【Investment Efficiency】Capital expenditures of ¥42.1B were below depreciation and amortization of ¥50.6B, indicating a level centered on maintenance and replacement investment. Total asset turnover was approximately 0.93x, with no significant change in asset efficiency.【Financial Soundness】The Equity Ratio improved to 41.6% from 35.9% in the previous period. With a current ratio of 129.3% and cash and deposits of ¥95.5B against short-term borrowings of ¥69.7B and bonds due within one year of ¥70.0B, the company remains at a level requiring continued monitoring of funding arrangements for short-term financial obligations.

Cash Flow Analysis

OCF was ¥66.5B, up +40.0% YoY, generating cash substantially in excess of Net Income of ¥21.5B. Working-capital reductions, including an ¥11.5B decrease in accounts receivable and an ¥8.2B decrease in inventories, contributed to the result. While the reduction of inventories and receivables during a period of declining revenue supported cash conversion, accounts payable decreased by ¥13.9B, partially offsetting the improvement in working capital. Investing Cash Flow was -¥44.4B, most of which consisted of ¥42.1B in capital expenditures and was within the range covered by OCF. Financing Cash Flow was -¥20.8B. The company raised ¥256.0B in long-term borrowings while repaying ¥154.2B in long-term borrowings and reducing short-term borrowings by ¥114.6B on a net basis, restructuring its financing from short-term to long-term. As a result, Free Cash Flow remained positive at ¥22.1B, securing sufficient internal funds to cover capital expenditures and dividends.

Earnings Quality

Net Income of ¥21.5B resulted from income taxes and other taxes recorded as income of ¥23.7B, reflecting the contribution from deferred tax income, against a pretax loss of ¥2.1B. Accordingly, the result cannot be explained solely by an improvement in recurring earnings power. In extraordinary gains and losses, extraordinary gains totaled ¥14.2B, comprising a ¥7.1B gain on the sale of investment securities and a ¥7.1B gain on the sale of fixed assets. Meanwhile, extraordinary losses of ¥38.9B, including ¥3.7B in impairment losses, were recognized, representing a temporary net negative factor of -¥24.7B. Non-operating income was ¥10.6B, including ¥3.8B in dividend income, against non-operating expenses of ¥13.6B, including ¥7.9B in interest expenses. The structure in which financial expenses weigh on non-operating income and expenses has continued from the previous period. On the other hand, OCF was approximately 3.1 times Net Income, demonstrating cash generation exceeding accounting profit and confirming cash flow support for earnings from an accrual perspective. Overall, the sharp recovery in Net Income was significantly affected by tax effects and extraordinary gains and losses, making it important to monitor trends in recurring indicators such as Operating Income, Ordinary Income, and OCF.

Earnings Forecast and Guidance

The company forecasts Revenue of ¥1,050.0B (-7.8% YoY), Operating Income of ¥31.0B (+21.5%), and Ordinary Income of ¥26.0B (+15.6%) for the fiscal year ending March 2027. While assuming a decline in Revenue, the company plans to improve its Operating Income margin by approximately 0.8pt to approximately 3.0%, incorporating further cost efficiencies and product-mix improvements from the current-period result of 2.2%. Forecast EPS is ¥54.83 and forecast dividends are ¥17.00, representing a planned increase from the current-period dividend of ¥15. The achievement of the planned improvement in profit margins is a prerequisite.

Shareholder Returns

The annual dividend for the current period was ¥15 per share, resulting in a Payout Ratio of 31.8%. No share repurchases were recorded, and shareholder returns for the current period should therefore be assessed based on the Payout Ratio. Free Cash Flow of ¥22.1B exceeded total dividends of approximately ¥6.8B, and the current-period dividend was supported by OCF and FCF. For the fiscal year ending March 2027, the company plans to increase the annual dividend to ¥17. The Payout Ratio against forecast EPS of ¥54.83 is expected to be approximately 31.0%, indicating a plan to maintain the current Payout Ratio level after the dividend increase.

Risk Factors

1. Weak overseas Industry demand: Revenue in the Industry segment declined -25.0% YoY, with particularly pronounced declines at European locations: Czech Republic -49.8%, Germany -39.7%, and other Europe -47.8%. As the segment accounts for 54.0% of total company Revenue, a delay in demand recovery could have a significant impact on performance.

2. Customer and segment concentration: Sales to major customer FP Corporation were ¥184.4B, accounting for 16.2% of total company Revenue. Changes in demand for food containers or in the procurement policies of this customer could affect the stability of the Human Life segment.

3. Financial leverage and short-term financial obligations: Interest-bearing debt was ¥317.5B, against which the company held cash and deposits of ¥95.5B, short-term borrowings of ¥69.7B, and bonds due within one year of ¥70.0B. Although the maturity profile has improved through refinancing into long-term borrowings, the sustainability of earnings recovery relative to the debt level remains a monitoring point.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

The company's profitability is substantially below the industry median and remains at an improving but transitional level.

Growth and Capital Efficiency

Revenue growth is substantially below the industry median, placing the company among the group with the largest revenue declines within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Operating Income margin improved by +1.7pt YoY to 2.2%; however, this resulted from a ¥26.5B reduction in SG&A expenses amid declining Revenue and represents profit improvement without Revenue growth, which is a key feature of the financial results.

2. Net Income of ¥21.5B was strongly affected by deferred tax income of ¥23.7B and extraordinary gains and losses. Recurring indicators such as Operating Income, Ordinary Income, and OCF (¥66.5B) more accurately reflect the underlying earnings power.

3. Despite a 25.0% decline in Industry segment Revenue, segment profit increased 376.3%, demonstrating the effects of improvements in the cost structure and profitability. Meanwhile, trends in European demand will be key to future Revenue recovery.

Theoretical Share Price (Reference Value)

Sensitivity: ¥940–¥995 at ±1% cost of equity, and ¥963–¥970 at ω±0.1.

Note:

• As forecast ROE is below the cost of equity, the theoretical value will be below book value per share.

（Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices）

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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 discretion and responsibility, after consulting with professionals as necessary.

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