Gun Ei Chemical Industry Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

During the quarter, significant increases in operating income and ordinary income were achieved through improved profitability in the Chemicals Business; however, net income declined due to the recognition of extraordinary losses. Revenue was ¥84.3B (+9.2% year on year), operating income was ¥10.3B (+58.6%), and ordinary income was ¥11.4B (+56.5%), representing increases in both revenue and income across all three measures. Meanwhile, consolidated net income was ¥4.2B (-17.9%), while net income attributable to owners of the parent was limited to ¥3.8B (-18.1%). Extraordinary losses totaling ¥3.9B, including impairment losses of ¥1.3B and business withdrawal-related expenses of ¥2.6B, weighed on final earnings. While the Company’s earning power at the operating level improved, final profit was affected by temporary factors and an increased tax burden.

Factors Affecting Performance

【Revenue】The Chemicals Business, which accounted for 83.9% of revenue and generated ¥70.7B, recorded an 11.2% increase in revenue, driven by improvements in volume and unit prices, and led the increase in company-wide revenue. The Food Business generated ¥13.0B, essentially flat (-0.2%), while the Real Estate Utilization Business generated ¥0.6B, a slight decline (-1.6%), indicating a high degree of dependence on the Chemicals Business for revenue growth.

【Profit and Loss】The gross margin improved by +3.5pt to 25.9% (22.4% in the same period of the previous year), while the SG&A ratio declined to 13.7% (14.0% in the previous year), expanding the operating margin by +3.8pt to 12.2% (8.4% in the previous year). Ordinary income increased by 56.5%, supported by non-operating income including dividend income of ¥0.4B, foreign exchange gains of ¥0.3B, and interest income of ¥0.2B. However, due to the recognition of ¥3.9B in extraordinary losses (impairment losses of ¥1.3B and business withdrawal-related expenses of ¥2.6B), the increase in profit before tax was limited to +6.4%. In addition, the increase in the effective tax rate to 44.2% (income taxes of ¥3.4B / profit before tax of ¥7.6B) resulted in a decline in net income. Although revenue and income increased at the operating and ordinary income levels, the final stage reflected an increase in revenue but a decline in income due to extraordinary losses and the increased tax burden.

Segment Analysis

The Chemicals Business recorded revenue of ¥70.7B (83.9% of total revenue, +11.2% year on year), operating income of ¥9.4B (+74.4%), and an operating margin of 13.3%, demonstrating a significant improvement in profitability. It is the Company’s core business, accounting for approximately 91% of company-wide operating income (¥10.3B). The Food Business generated revenue of ¥13.0B (15.4% of total revenue, -0.2% year on year), essentially flat, but operating income declined to ¥0.6B (-18.6%), with the margin falling to 4.4%, indicating that costs or delays in passing through price increases are pressuring profitability. Although the Real Estate Utilization Business is small, with revenue of ¥0.6B, it maintained a high operating margin of 59.0% and remains a stable profit-contributing segment. Profit margins differ significantly among segments, and the Company-wide increase in income is almost entirely dependent on the improvement in the Chemicals Business.

Key Financial Indicators

【Profitability】The operating margin was 12.2%, improving by +3.8pt from 8.4% in the same period of the previous year (¥651 million / ¥7,724 million), while the gross margin also increased by +3.5pt to 25.9% (22.4% in the previous year). The SG&A ratio declined slightly by -0.3pt to 13.7% (14.0% in the previous year), indicating that the improvement in profitability was primarily attributable to a lower cost of sales ratio. However, the net income margin attributable to owners of the parent remained at 4.5% (¥3.8B / ¥84.3B), and as indicated by the effective tax rate of 44.2% (income taxes of ¥3.4B / profit before tax of ¥7.6B), the improvement at the operating level did not fully flow through to final earnings due to the impact of extraordinary losses and the increased tax burden.【Cash Flow Quality】Cash and deposits totaled ¥107.1B, increasing by ¥5.1B from ¥101.96B in the previous year, while accounts receivable increased to ¥72.9B (¥68.4B in the previous year) and inventories increased to ¥24.7B (¥23.3B in the previous year), indicating an accumulation of working capital accompanying the increase in revenue.【Investment Efficiency】ROE was 0.7%. The level of net income attributable to owners of the parent, at ¥3.8B against total assets of ¥725.7B, indicates that the large asset base, including investment securities of ¥199.1B (27.4% of total assets), is diluting profitability.【Financial Soundness】The equity ratio was 81.8%, down -1.8pt from the previous year (approximately 83.6% on a net assets basis), but remained at a high level. With cash and deposits of ¥107.1B against current liabilities of ¥71.7B, short-term payment capacity is sufficient.

Cash Flow Analysis

As the Company does not disclose a statement of cash flows for this financial period, cash trends are analyzed based on changes in the balance sheet. Cash and deposits totaled ¥107.1B, increasing by ¥5.1B from ¥101.96B at the end of the previous year, and liquidity on hand remains ample. Meanwhile, accounts receivable increased to ¥72.9B (¥68.4B in the previous year) and inventories increased to ¥24.7B (¥23.3B in the previous year), indicating continued accumulation of working capital accompanying the increase in revenue. Accounts payable increased to ¥48.5B (¥40.8B in the previous year), with the expansion of trade payables absorbing part of the increase in working capital. On the fixed asset side, investment securities increased by +24.2% to ¥199.1B (¥160.4B in the previous year), apparently mainly due to the expansion of valuation gains resulting from rising equity markets. Construction in progress was ¥43.0B (¥41.1B in the previous year), indicating that capital investment projects are ongoing and that funding needs are expected as operations commence in the future. Given the equity ratio of 81.8% and substantial cash on hand, the Company has sufficient financial capacity to fund investment activities entirely through internal funds.

Quality of Earnings

The quality of recurring earnings is generally stable. Non-operating income was ¥1.1B, equivalent to only 1.3% of revenue, consisting of dividend income of ¥0.4B, foreign exchange gains of ¥0.3B, and interest income of ¥0.2B, indicating limited dependence on any specific factor. Meanwhile, extraordinary losses of ¥3.9B (impairment losses of ¥1.3B and business withdrawal-related expenses of ¥2.6B) were recognized, reducing profit before tax after offsetting extraordinary income of ¥0.1B. As a result, profit before tax was limited to ¥7.6B against ordinary income of ¥11.4B, representing a divergence of approximately -33% from the ordinary income level. In addition, the recognition of income taxes of ¥3.4B resulted in a high effective tax rate of 44.2% (tax expense of ¥3.4B / profit before tax of ¥7.6B), compressing consolidated net income to ¥4.2B and net income attributable to owners of the parent to ¥3.8B. While operating income and ordinary income increased by +58.6% and +56.5%, respectively, final profit declined (-17.9% and -18.1%, respectively). This reflects the combined impact of temporary and structural factors, namely extraordinary losses and the increased tax burden, and it is important to note that a divergence has arisen between earnings quality and final profit during the period.

Earnings Forecast and Guidance

Progress against the Company’s full-year plan was 24.7% for revenue (¥84.3B / ¥342.0B), 39.7% for operating income (¥10.3B / ¥26.0B), 37.9% for ordinary income (¥11.4B / ¥30.0B), and 22.3% for net income attributable to owners of the parent (¥3.8B / ¥17.0B). Compared with the standard quarterly progress rate of 25%, operating income and ordinary income are significantly ahead of schedule, suggesting that the improvement in profitability in the Chemicals Business is progressing at a pace exceeding the plan. Conversely, net income progress is below the standard level, due to the recognition of extraordinary losses and the increase in the effective tax rate. During the quarter, both the earnings forecast and the dividend forecast were revised.

Shareholder Returns

The Company revised its full-year dividend forecast to ¥65 per share. The actual dividend for the previous fiscal year was ¥50, representing a planned increase of +¥15 (+30.0%). The payout ratio against forecast full-year EPS of ¥256.18 is approximately 25.4% (¥65 / ¥256.18), a sustainable level. The strong financial base, consisting of an equity ratio of 81.8% and cash and deposits of ¥107.1B, supports the sustainable payment of dividends.

Risk Factors

1. Segment concentration risk: The Chemicals Business accounts for 83.9% of revenue (¥70.7B / ¥84.3B) and the majority of operating income, creating a structure in which market conditions and supply-demand fluctuations in this business have a significant impact on company-wide performance.

2. Potential recurrence of extraordinary losses: During the period, the Company recognized ¥3.9B in extraordinary losses, including impairment losses of ¥1.3B and business withdrawal-related expenses of ¥2.6B, which reduced profit before tax. If similar one-time expenses occur in the future, net income volatility may increase.

3. Investment securities price fluctuation risk: Investment securities totaled ¥199.1B, representing 27.4% of total assets, and increased by +24.2% from the previous year. Fluctuations in equity markets may affect comprehensive income and equity through valuation gains and losses.

Industry Benchmark (Reference, Compiled by the Company)

Profitability and Return

The operating margin exceeds the industry median, while the net income margin is below the industry median due to the impact of extraordinary losses and the tax burden.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median, indicating that the pace of revenue growth is relatively high.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The improvement in profitability in the Chemicals Business is notable. Its operating margin expanded to 13.3% (a significant improvement year on year), serving as the primary factor driving the company-wide operating margin to 12.2%. The sustainability of improvements in pricing, product mix, and cost management will be the focus going forward.

2. Operating income and ordinary income are progressing at a pace exceeding the full-year plan, while progress in net income is relatively slow due to extraordinary losses and the increase in the effective tax rate. Achievement of full-year final profit depends on whether extraordinary losses recur.

3. The financial base remains strong, with an equity ratio of 81.8% and cash and deposits of ¥107.1B, and a +30.0% dividend increase is planned. On the other hand, ROE is 0.7%, indicating that profit levels are relatively small compared with the asset base, which should be noted as a structural characteristic.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥7,147–¥7,563 at ±1% for the cost of equity, and ¥7,298–¥7,385 at ±0.1 for 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 end of the quarter 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 somewhat higher.

(Model used: Residual Income Model / Interest Rate Base Month: 2026-06 / This value does not forecast 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 responsibility, and after consulting a professional as necessary.

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