FUSO CHEMICAL CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Revenue and operating income both increased, driven by expanding demand in the Electronic Materials Business; however, the sharp rise in net income was largely attributable to a temporary factor related to extraordinary income. Revenue was ¥228.2B (+22.3% YoY), operating income was ¥61.7B (+31.5%), and ordinary income was ¥63.6B (+40.4%). Net income increased substantially to ¥66.9B (+115.4%), supported by ¥37.0B in extraordinary income related to fixed assets. Core earnings improvement is reflected in the growth at the operating income level.

Factors Affecting Earnings

【Revenue】Revenue was ¥228.2B (+22.3% YoY). By segment, the Electronic Materials Business generated ¥129.7B (+33.8%), accounting for 56.9% of total revenue and driving growth. The Life Science Business also remained solid at ¥98.5B (+9.9%). The recovery in demand for electronic materials and an improved product mix were the primary drivers of revenue growth.

【Profitability】Operating income was ¥61.7B (+31.5% YoY), and the operating margin improved to 27.0% from 25.2% in the previous year, an increase of +1.8pt. The gross margin also improved to 39.9% from 38.7%, while the SG&A ratio declined to 12.9% from 13.5%. Ordinary income was ¥63.6B (+40.4%), supported by an increase in interest income and ¥0.8B in foreign exchange gains. Net income was ¥66.9B (+115.4%); however, extraordinary income of ¥37.0B, primarily a temporary factor related to fixed assets, accounted for more than half of net income, resulting in a significant divergence from ordinary income. In conclusion, the Company achieved higher revenue and earnings, and improvement in core earnings power was confirmed, while the increase in net income was significantly affected by temporary factors.

Segment Analysis

The Electronic Materials Business is the Company’s core business, generating the majority of total operating income, with revenue of ¥129.7B (¥97.0B in the previous year, +33.8%) and segment income of ¥50.8B (¥40.7B in the previous year, +24.6%, margin of 39.1%). The Life Science Business recorded revenue of ¥98.5B (¥89.6B in the previous year, +9.9%) and segment income of ¥17.9B (¥12.2B in the previous year, +47.4%, margin of 18.2%), exceeding the Electronic Materials Business in terms of growth rate. The two businesses have an approximately 21pt difference in profit margins, creating a structure in which changes in the business mix have a significant impact on the Company-wide operating margin. Company-wide adjustments (corporate administrative expenses) were ▲¥6.9B, resulting in operating income of ¥61.7B after reflection of these adjustments.

Key Financial Indicators

【Profitability】The operating margin improved to 27.0% from 25.2% in the previous year, and the gross margin improved to 39.9% from 38.7%. ROE was 5.4%, with a net margin of 29.3% serving as an upward factor.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥47.2B, only 0.71 times net income of ¥66.9B, indicating limited cash backing for reported earnings.【Investment Efficiency】Capital expenditures were substantial at ¥50.1B, resulting in free cash flow of ▲¥10.0B. Construction in progress accumulated to ¥173.3B and forms part of property, plant and equipment.【Financial Soundness】The equity ratio was 73.7% (77.0% in the previous year), with cash and deposits of ¥382.9B and long-term borrowings of ¥119.0B. The debt level remains low, and the financial foundation is stable.

Cash Flow Analysis

OCF increased 10.7% YoY to ¥47.2B, but remained only 0.71 times net income of ¥66.9B, indicating a delay in the conversion of earnings into cash. The primary factor was an increase in trade receivables (▲¥29.2B), reflecting longer credit terms associated with revenue expansion. Investing Cash Flow was ▲¥57.1B, primarily consisting of ¥50.1B in capital expenditures, and capacity expansion investments continue, as indicated by the accumulation of construction in progress. Financing Cash Flow was ▲¥24.4B, mainly reflecting dividend payments and partial repayment of borrowings. As a result, free cash flow (OCF + investing cash flow) was ▲¥10.0B, as investment outlays exceeded operating cash generation. Cash and deposits remained ample at ¥382.9B, ensuring financial resilience even as investment continues.

Earnings Quality

The gap between ordinary income of ¥63.6B and net income of ¥66.9B was slightly less than approximately 5%, primarily due to extraordinary income of ¥37.0B, mainly a temporary factor related to fixed assets. Extraordinary income accounted for more than half of net income, indicating that the increase in net income for the period was highly dependent on temporary factors. Non-operating income was ¥2.2B, less than 1% of revenue, and was primarily composed of ¥1.3B in interest income and ¥0.8B in foreign exchange gains; its scale was limited. OCF was ¥47.2B, only 0.71 times net income, and the increase in trade receivables expanded accruals (the difference between accounting earnings and cash). Accordingly, while improvement in earnings at the operating level indicates enhanced underlying earnings power, it is appropriate to evaluate net income based on core earnings power excluding temporary factors.

Earnings Forecast and Guidance

Progress toward the full-year plan was 26.6% for revenue, 25.4% for operating income, and 26.0% for ordinary income, representing generally steady progress in line with the quarterly benchmark of 25%. Net income progress was ahead at 34.8%, primarily due to the temporary boost from the recognition of ¥37.0B in extraordinary income; on a core basis, progress can be viewed as steady. As of the current quarter, the Company has not revised its earnings or dividend forecasts, and there has been no significant change in the full-year outlook.

Shareholder Returns

The full-year forecast dividend per share is ¥28.00, and forecast EPS is ¥181.48, implying a payout ratio of approximately 15.4%, a conservative level. The Company conducted a 3-for-1 stock split effective April 1, 2026; the dividend amount for the current period is stated as the actual dividend amount before the stock split. Dividend payments for the current period were ¥1.4B, and the Company has ample payment capacity relative to cash and deposits of ¥382.9B and OCF of ¥47.2B. No revision was made to the dividend forecast during the current quarter.

Risk Factors

1. Demand volatility risk: The Electronic Materials Business accounts for 56.9% of revenue, and its operating margin of 39.1% drives the Company-wide performance. Accordingly, fluctuations in semiconductor and electronic materials market conditions could have a significant impact on overall results.

2. Delayed cash generation: OCF was only 0.71 times net income, while trade receivables increased by ¥29.2B. Cash flow could come under pressure while investments continue.

3. Risk concerning the timing of investment returns: Construction in progress accumulated to ¥173.3B and forms part of property, plant and equipment. Depending on the timing of equipment commencement, the Company may experience increased depreciation expenses and a lag in investment recovery.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability is substantially above the industry median and ranks at a high level within the manufacturing industry.

Growth and Capital Efficiency

Revenue growth also substantially exceeds the industry median, placing the Company among the high-growth companies in the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The operating margin improved by +1.8pt to 27.0% due to the recovery in demand for electronic materials and an improved product mix, confirming strengthened core earnings power. The substantial increase in net income (+115.4%) was primarily driven by the ¥37.0B boost from extraordinary income; attention should be paid to the difference from ordinary income growth (+40.4%).

2. The OCF-to-net-income ratio was 0.71 times, indicating a delay in the conversion of earnings into cash, primarily due to the increase in trade receivables. Free cash flow was ▲¥10.0B, and investment is currently ahead of cash generation, as indicated by the accumulation of ¥173.3B in construction in progress.

3. Full-year progress was steady for revenue, operating income, and ordinary income (25–27%), and no revisions were made to the earnings or dividend forecasts. Net income progress was ahead at 34.8% due to temporary factors; evaluation on a normalized full-year basis is therefore appropriate.

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 period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,375–¥1,459 at cost of equity ±1%, and ¥1,410–¥1,426 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value 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 responsibility, after consulting professionals as necessary.

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