Sekisui Kasei (4228) FY2026 Q3 Earnings Report

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Executive Summary

The most important point for the cumulative Q3 results is that, although Operating Income and Ordinary Income increased substantially despite lower revenue, the Company swung to a final loss due to significant extraordinary losses. Revenue was ¥904.1億 (-13.0% YoY), Operating Income was ¥17.0億 (+481.6%), and Ordinary Income was ¥13.0億 (+311.3%), indicating improved profitability in the core business, while Net Income was ¥-24.1億 (¥0.3億 in the same period last year). The primary drivers of the profit increase were an improved gross profit margin and reductions in SG&A expenses, while the final loss resulted from extraordinary losses of ¥36.4億, including losses on business transfers, exceeding extraordinary income of ¥11.4億.

Factors Affecting Performance

【Revenue】Revenue decreased 13.0% YoY to ¥904.1億. The core Industry field declined substantially to ¥502.8億 (55.6% of total, -19.9% YoY), mainly due to lower sales to Europe and Asia, while the Human Life field remained relatively resilient at ¥401.2億 (44.4% of total, -2.6% YoY). By region, Japan was relatively stable at ¥577.5億 (-2.4% YoY), whereas declines in Europe, including Germany and the Czech Republic, drove the overall decrease in revenue.

【Profit and Loss】Operating Income increased substantially to ¥17.0億 (+481.6% YoY), while Ordinary Income rose to ¥13.0億 (+311.3%). The gross profit margin improved to 22.6% (19.6% in the same period last year), and SG&A expenses decreased 6.9% to ¥187.2億, contributing to the profit increase. However, extraordinary losses of ¥36.4億, including ¥34.5億 in losses on business transfers, exceeded extraordinary income of ¥11.4億, resulting in Profit Before Tax of ¥-12.0億 and Net Income of ¥-24.1億. The divergence between Ordinary Income and Net Income was primarily attributable to extraordinary gains and losses, namely temporary factors associated with the restructuring of the business portfolio. In conclusion, the results reflected higher profits at the operating and ordinary income levels despite lower revenue, but a final decline in profit and a net loss due to extraordinary losses.

Segment Analysis

Segment profit, based on Ordinary Income, was ¥13.8億 for the Industry field (+82.2% YoY; profit margin 2.8%) and ¥24.7億 for the Human Life field (+34.2% YoY; profit margin 6.1%), with both segments posting higher profits. The Human Life field’s profit margin exceeded that of the Industry field by approximately 3.3pt, making a significant contribution to overall Company profit. Against combined profit of ¥38.5億 for the two fields, the adjustment for corporate expenses and other items was -¥25.5億, expanding from -¥22.8億 in the previous year, making it difficult for segment profit growth to be fully reflected in consolidated profit.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 1.9% (0.3% in the previous year), while the Net Profit margin declined to -2.7% (0.03% in the previous year). ROE was -5.2%, primarily due to the net loss. 【Cash Flow Quality】Operating Cash Flow (OCF) was positive at ¥25.4億, improving from ¥8.99億 in the previous year; however, the cash conversion ratio against EBITDA of ¥54.9億 remained at 0.46x. Trade receivables increased by ¥35.5億, weighing on OCF through a longer collection cycle. 【Investment Efficiency】Capital expenditures of ¥31.3億 were below depreciation and amortization of ¥38.0億, indicating that investment remained at maintenance and replacement levels. Free cash flow was -¥12.7億, meaning that investment could not be funded solely through internal funds. 【Financial Soundness】The Equity Ratio was 37.1%. Interest-bearing debt consisted mainly of long-term borrowings of ¥248.8億, indicating a shift toward long-term funding compared with the previous year. Cash and deposits of ¥81.1億 were below short-term borrowings of ¥87.8億, leaving the Company dependent on OCF and its financing capacity for liquidity.

Cash Flow Analysis

OCF was positive at ¥25.4億, improving by +183.1% from ¥8.99億 in the same period last year. In terms of working capital, trade receivables increased by ¥35.5億 and pressured OCF, while a ¥20.2億 increase in trade payables and a ¥7.9億 decrease in inventories partially offset the impact. Investing Cash Flow was -¥38.2億, including capital expenditures of ¥31.3億 and expenditures of ¥27.8億 associated with changes in the scope of consolidation, reflecting funding needs related to the restructuring of the business portfolio. Financing Cash Flow was -¥1.2億, comprising ¥256.0億 in proceeds from long-term borrowings, ¥146.5億 in repayments, and a net decrease of ¥103.2億 in short-term borrowings, indicating a shift toward longer-term financing. Free cash flow, combining OCF and Investing Cash Flow, was -¥12.7億, meaning that investment expenditures could not be fully covered by internal funds during the current period.

Earnings Quality

The increase in profit for the current period was supported by recurring factors, namely an improved gross profit margin and reductions in SG&A expenses. However, final earnings were significantly depressed by temporary extraordinary losses, primarily the ¥34.5億 loss on a business transfer. In non-operating gains and losses, interest expenses of ¥6.4億 exceeded dividend income of ¥3.8億, creating a structure in which recurring interest costs constrained growth in Ordinary Income. Extraordinary income also included non-recurring items such as a ¥4.3億 gain on the sale of investment securities and a ¥7.1億 gain on the sale of fixed assets. Overall, extraordinary gains and losses were characterized by one-time restructuring costs that substantially reduced Net Income. Comprehensive income was -¥29.0億, further below Net Income of -¥24.1億, with other comprehensive income items, including valuation differences on securities of -¥4.9億, also contributing negatively. The fact that the cash conversion ratio of OCF remained at 0.46x EBITDA is an important consideration in evaluating the quality of reported Operating Income.

Earnings Forecast and Guidance

Progress against the full-year forecast was 79.3% for Revenue, 72.2% for Operating Income, and 81.1% for Ordinary Income, generally in the vicinity of the standard progress benchmark of 75% as of the end of Q3. Progress for Operating Income was slightly below the benchmark, but the deviation was small. Meanwhile, the full-year forecast for Net Income attributable to owners of the parent was zero, against which the cumulative actual result was a loss of ¥-24.1億; therefore, an improvement in earnings of at least approximately ¥24.1億 will be required in Q4. No revisions were made to either the earnings forecast or the dividend forecast during the quarter.

Shareholder Returns

The Q2 dividend was ¥0 per share, and cumulative dividend payments through Q3 were zero. The full-year dividend forecast remains unchanged at ¥10 per share. As the full-year forecast for Net Income attributable to owners of the parent is zero, the Payout Ratio cannot be calculated. Cumulative Free Cash Flow for the current period was -¥12.7億, and the feasibility of paying the year-end dividend depends on a recovery in Q4 OCF and the Company’s cash on hand and financing capacity.

Risk Factors

1. Declining demand in the core segment: The Industry field, which accounts for 55.6% of total sales, experienced a 19.9% decline in revenue YoY. A delayed recovery in this field could constrain the recovery of consolidated revenue.

2. Financial leverage and interest costs: Interest-bearing debt is at a level equivalent to the 6x range on a Debt/EBITDA basis, while interest expenses of ¥6.4億 exceed interest and dividend income. Given the low Operating Income margin of 1.9%, resilience to changes in interest rates and business performance is limited.

3. Working capital and cash quality: Trade receivables increased by ¥35.5億, and the OCF-to-EBITDA cash conversion ratio remained at 0.46x. Cash and deposits of ¥81.1億 were below short-term borrowings of ¥87.8億, leaving the Company dependent on operating cash generation and financing.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability is significantly below the industry median, with the Net Profit margin in particular at a loss-making level.

Growth and Capital Efficiency

Revenue growth was also significantly below the industry median, with the Company reporting a decline in revenue while peer companies were generally on a growth trajectory.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Operating Income recovered from ¥2.9億 in the previous year to ¥17.0億 due to the improved gross profit margin and reductions in SG&A expenses. However, Net Income was a loss of ¥-24.1億 due to extraordinary losses of ¥36.4億, primarily consisting of the loss on a business transfer. The divergence between core business profitability and final earnings is a distinctive feature of the results.

2. The Human Life field’s profit margin of 6.1% exceeded the Industry field’s 2.8%, providing support for overall earnings. Meanwhile, the adjustment for corporate expenses and other items expanded on a negative basis, preventing the increase in segment profit from fully flowing through to consolidated profit.

3. OCF was positive, but the cash conversion ratio against EBITDA was 0.46x and Free Cash Flow was -¥12.7億. Achieving the full-year forecast of zero Net Income will require a substantial improvement in earnings in Q4, making future progress an important point for assessing earnings quality.

Theoretical Share Price (Reference Value)

Sensitivity: 741円–784円 for ±1% in the Cost of Equity, and 754円–768円 for ±0.1 in ω.

Notes:

• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.

(Valuation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)

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This report is an automatically generated earnings analysis document created 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 a professional as necessary.

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