MATSUMOTO YUSHI-SEIYAKU (4365) FY2026 Q3 Earnings Report

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Executive Summary

In addition to the revenue decline, a decrease in the gross profit margin resulted in a double-digit decline in operating income, exceeding the rate of revenue decline. However, supported by non-operating and extraordinary gains, net income declined only slightly. Revenue was ¥307.4B (-7.4% YoY), operating income was ¥58.8B (-21.4%), ordinary income was ¥77.6B (-7.7%), and net income was ¥59.2B (-1.5%). Revenue declined in both Japan and Asia and across all product groups, while the contraction in the operating margin was primarily attributable to deterioration in the gross profit margin.

Factors Affecting Performance

【Revenue】Revenue was ¥307.4B, down 7.4% YoY. By region, revenue declined in both Japan, at ¥292.7B (-7.6%), and Asia, at ¥17.3B (-9.4%). By product, all product groups fell below the previous year, including nonionic surfactants (¥176.8B, -7.3% YoY) and polymers, inorganic products, etc. (¥97.5B, -8.0% YoY), indicating that the effects of demand, pricing, and product mix were broad-based.

【Profit and Loss】Gross profit was ¥90.5B, with a gross profit margin of 29.4%, down approximately 3.3pt from 32.7% in the previous year. Although SG&A expenses were controlled at ¥31.6B (-5.9% YoY), this was insufficient to offset the revenue decline, resulting in operating income of ¥58.8B (-21.4%) and an operating margin of 19.1% (22.6% in the previous year). Ordinary income was ¥77.6B (-7.7%), supported by ¥1.91B in non-operating income, including ¥8.8B in foreign exchange gains and ¥4.1B in dividend income. Net income of ¥59.2B (-1.5%) benefited from the one-time gain on sales of investment securities of ¥6.5B, which substantially mitigated the decline at the operating level. Overall, this was a decline in both revenue and profit, with earnings quality showing a high degree of dependence on non-operating and extraordinary factors.

Segment Analysis

By segment, the core Japan segment recorded revenue of ¥292.7B (95.4% composition ratio, -7.6% YoY), operating income of ¥57.5B (-14.3%), and a profit margin of 19.6%. Asia recorded revenue of ¥17.3B (5.6% composition ratio, -9.4% YoY), operating income of ¥1.4B (-32.7%), and a profit margin of 8.2%, representing a larger decline in profit than Japan. Both regions experienced declines in revenue and profit. Amid a high degree of dependence on the domestic market, the Asia Business remains relatively weak in both profitability and growth.

Key Financial Indicators

【Profitability】The operating margin was 19.1% (22.6% in the previous year), while the net profit margin was 19.3% (18.1% in the previous year). Although profitability at the operating level deteriorated, the final profit margin increased due to non-operating and extraordinary factors. The gross profit margin was 29.4%, down from 32.7% in the previous year. 【Cash Flow Quality】Accounts receivable were ¥109.5B, up 19.1% YoY. The increase amid declining revenue suggests a lengthening collection period. Inventories were ¥32.0B, largely unchanged. 【Investment Efficiency】ROE (annualized) was 8.9%. Despite the high net profit margin, the low total asset turnover and financial leverage constrained ROE. 【Financial Soundness】The equity ratio was 86.1%. The company held ¥341.5B in cash and deposits and ¥170.0B in short-term securities, providing substantial liquidity significantly exceeding current liabilities of ¥104.1B.

Cash Flow Analysis

Although a cash flow statement was not disclosed, an examination of funding trends based on balance sheet movements shows that cash and deposits increased to ¥341.5B from ¥320.4B in the same period of the previous year. Investment securities expanded to ¥244.1B, indicating that funds were concentrated in financial assets, together with an increase in valuation differences. Accounts receivable increased to ¥109.5B, while property, plant and equipment declined to ¥68.8B, suggesting that large-scale capital investment was limited. Net assets accumulated to ¥881.8B, with the accumulation of retained earnings and expansion of valuation differences further strengthening the capital base.

Earnings Quality

Ordinary income and net income did not decline as sharply as operating income. This difference was not due to an improvement in recurring earnings power, but rather to the contribution of temporary factors, including ¥1.91B in non-operating income, comprising ¥8.8B in foreign exchange gains, ¥4.1B in dividend income, and ¥2.6B in interest income, as well as a ¥6.5B gain on sales of investment securities. Non-operating expenses were only ¥0.3B against non-operating income, resulting in a structure in which non-recurring items boosted final profit. Profit before tax excluding the gain on sales of investment securities was limited to approximately ¥77.2B. Given the downward trend in operating income, the degree of recovery at the operating level should be prioritized when assessing full-year earnings. The increase in accounts receivable represents an accrual-related warning sign amid declining revenue and should be monitored when evaluating earnings quality.

Earnings Forecast and Guidance

Progress against the full-year plan was 74.5% for revenue (full-year plan: ¥412.4B) and 74.6% for operating income (full-year plan: ¥78.9B), broadly in line with the standard progress rate of 75%. Meanwhile, ordinary income was ¥77.6B on a cumulative basis, representing progress of 99.4% against the full-year plan of ¥78.1B. Net income was ¥59.2B on a cumulative basis, already reaching 109.0% of the full-year plan of ¥53.9B. This was largely driven by foreign exchange gains and gains on sales of investment securities. Unless operating income recovers, the growth in ordinary income and net income may slow from Q4 onward. No revisions were made to the earnings forecast or dividend forecast.

Shareholder Returns

The full-year dividend forecast is ¥400 per share, implying a forecast payout ratio of 21.5% against forecast full-year EPS of ¥1,857.12. The Q2 dividend was ¥0, suggesting a dividend policy concentrated at the fiscal year-end. The payout ratio remains low, and given the financial base of ¥341.5B in cash and deposits and an equity ratio of 86.1%, the company has substantial dividend-paying capacity. No information regarding share repurchases was provided, and the Total Return Ratio was not calculated.

Risk Factors

1. Continued revenue decline in core products: Nonionic surfactants (¥176.8B, -7.3% YoY) and polymers, inorganic products, etc. (¥97.5B, -8.0% YoY) led the overall revenue decline. Trends in demand, pricing, and product mix will determine the pace of future revenue recovery.

2. Structural decline in profitability: The operating margin was 19.1%, down approximately 3.5pt from 22.6% in the previous year, while the gross profit margin also declined by approximately 3.3pt. Raw material and energy costs and the timing of price pass-through may affect future profitability.

3. Dependence on non-operating and extraordinary factors: Foreign exchange gains of ¥8.8B were equivalent to approximately 15% of operating income, while the ¥6.5B gain on sales of investment securities accounted for approximately 11% of net income. If these temporary and volatile factors diminish, the volatility of ordinary income and net income may increase.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Return

The company’s profitability is substantially above the median for the manufacturing industry.

Growth and Capital Efficiency

The revenue growth rate is substantially below the industry median, and the revenue decline is relatively pronounced within the industry.

※Source: Company analysis

Key Points from the Earnings Results

1. Although the operating margin of 19.1% remains high compared with the industry, the approximately 3.5pt decline YoY represents the most significant change in the earnings structure. Trends in the pricing and raw material factors underlying the decline in the gross profit margin warrant close attention.

2. Progress rates for ordinary income and net income for the full year (99.4% and 109.0%, respectively) substantially exceed the 74.6% progress rate for operating income. It is important to note that this gap depends on foreign exchange gains and gains on sales of investment securities.

3. Accounts receivable increased 19.1% YoY despite declining revenue. Future collection trends warrant attention as an indication of changes in working capital efficiency.

Theoretical Share Price (Reference Value)

Sensitivity: ¥26,272–¥27,793 at ±1% for the cost of equity, and ¥26,906–¥27,088 at ±0.1 for ω.

Notes:

• Because progress of net income against the full-year forecast (109%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because 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 relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated at a somewhat elevated level.

(Calculation 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 future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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 professionals as necessary.

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