Tri Chemical Laboratories Inc. FY2027 Q2 Earnings Report

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Executive Summary

This earnings period saw continued growth in revenue and profit, together with improved profit margins, in the single-segment business of high-purity chemical compounds for semiconductor and other manufacturing applications. Revenue was ¥147.1B (+18.8% year on year), Operating Income was ¥38.4B (+20.8%), Ordinary Income was ¥45.3B (+19.1%), and Net Income was ¥33.7B (+21.5%). The Operating Income margin improved to 26.1% from 25.7% in the same period of the previous year, as the decline in the SG&A expense ratio more than offset the decline in the gross profit margin. Progress toward the full-year plan was generally steady, with achievement rates of 49.8% for Revenue and 51.5% for Operating Income; however, the second half requires high growth compared with the same period of the previous year.

Factors Affecting Financial Performance

【Revenue】Revenue increased 18.8% year on year to ¥147.1B. Although a breakdown by business is not disclosed because the Company operates a single business—high-purity chemical compounds for semiconductor and other manufacturing applications—the expansion of demand from semiconductor manufacturing equipment is considered the main driver. Progress toward the full-year plan of ¥295.0B was 49.8%, indicating that approximately 28% year-on-year revenue growth is required in the second half.

【Profit and Loss】Operating Income increased 20.8% year on year to ¥38.4B, and the Operating Income margin improved to 26.1% from 25.7% in the same period of the previous year. The gross profit margin declined to 36.2% from 38.1%, but the SG&A expense ratio declined from 12.4% to 10.1%, more than offsetting this decline. Ordinary Income increased 19.1% year on year to ¥45.3B, with ¥6.5B in equity-method investment income contributing to ¥7.4B in non-operating income. Net Income increased 21.5% year on year to ¥33.7B, resulting in higher revenue and profit.

Segment Analysis

The Group operates a single segment consisting of the high-purity chemical compounds business for semiconductor and other manufacturing applications; therefore, segment disclosures have been omitted.

Key Financial Indicators

【Profitability】The Operating Income margin of 26.1% and Net Income margin of 22.9% both improved from the same period of the previous year (25.7% and 22.4%, respectively), while the EBITDA margin remained high at 34.4%. 【Cash Quality】Operating Cash Flow (OCF) was ¥48.8B, equivalent to 1.45 times Net Income of ¥33.7B, indicating favorable cash conversion of earnings. 【Investment Efficiency】ROE of 8.8% is explained by the combination of a Net Income margin of 22.9% and total asset turnover of 0.30x, with the improvement in total asset turnover contributing to the increase in ROE. Capital expenditures of ¥29.7B were 2.45 times depreciation and amortization expense of ¥12.1B, indicating that capacity expansion investments are preceding. 【Financial Soundness】The Equity Ratio was 77.9%, while the Current Ratio was approximately 437%, based on current assets of ¥244.4B and current liabilities of ¥55.9B, providing substantial liquidity. Although long-term borrowings increased to ¥48.7B, financial leverage remained at a conservative level.

Cash Flow Analysis

Operating Cash Flow (OCF) increased significantly to ¥48.8B from ¥27.3B in the same period of the previous year. In addition to Profit Before Tax of ¥45.3B and depreciation and amortization expense of ¥12.1B, a ¥2.5B decrease in inventories contributed to cash inflows, while a ¥6.5B decrease in trade payables was a source of cash outflow. Investing Cash Flow was an outflow of ¥29.8B, of which capital expenditures accounted for ¥29.7B, representing an aggressive investment level equivalent to 2.45 times depreciation and amortization expense. Financing Cash Flow was positive at ¥8.6B, mainly due to ¥24.0B in funds raised through long-term borrowings; cash increased on a net basis even after repayments and dividend payments. As a result, Free Cash Flow of ¥19.0B was secured, and cash and deposits increased by ¥27.99B to ¥100.8B. The Company is funding a considerable portion of its capital expenditures with internal funds while also expanding its liquidity, indicating sound cash management.

Quality of Earnings

Of Ordinary Income of ¥45.3B, equity-method investment income of ¥6.5B accounted for the majority of non-operating income of ¥7.4B and approximately 14% of Ordinary Income. This represents a source of earnings distinct from the core Operating Income, and it is important to note that fluctuations in the performance of investees may affect Ordinary Income. The increase from Operating Income to Ordinary Income was primarily attributable to this equity-method investment income, and no temporary extraordinary gains or losses were identified. Comprehensive Income was ¥32.4B, slightly below Net Income of ¥33.7B, with negative ¥1.9B in other comprehensive income of equity-method affiliates being one factor behind the difference. Since Operating Cash Flow exceeded Net Income and accruals—the divergence between accrual and cash accounting—were limited, the cash backing of earnings was favorable, and the overall quality of earnings can be assessed as high.

Earnings Forecast and Guidance

The full-year forecast calls for Revenue of ¥295.0B (+23.5% year on year), Operating Income of ¥74.5B (+26.2%), and Ordinary Income of ¥87.2B (+23.0%), and the earnings forecast was revised during the current quarter. Progress against first-half results was 49.8% for Revenue, 51.5% for Operating Income, 51.9% for Ordinary Income, and 51.3% for Net Income, all broadly in line with the standard 50% level. The second half requires Revenue of ¥147.9B and Operating Income of ¥36.1B, and maintaining a growth pace above the level of the same period of the previous year is a prerequisite for achieving the plan.

Shareholder Returns

The dividend at the end of Q2 was ¥0, and the full-year dividend forecast is ¥35 per share. Against forecast Net Income of ¥65.7B, the forecast annual dividend amount is approximately ¥11.4B, resulting in a Payout Ratio of approximately 17.3%. Share repurchases were effectively zero, meaning that shareholder returns are evaluated solely through dividends. Free Cash Flow of ¥19.0B represented approximately 1.67 times coverage of the ¥11.4B dividend payment in the first half, while Operating Cash Flow of ¥48.8B exceeded the combined amount of dividends and capital expenditures. Together with the conservative financial structure reflected in an Equity Ratio of 77.9%, the sustainability of the current dividend forecast is supported by the financial data.

Risk Factors

1. Demand risk: Demand for high-purity chemical compounds for semiconductor and other manufacturing applications depends on customers’ capital expenditures and capacity utilization. Revenue of ¥147.9B is required in the second half to achieve the full-year plan, meaning that the impact of a slowdown in demand could be relatively significant.

2. Working capital efficiency: Work in process of ¥30.8B represents substantial asset investment within the production process even compared with the level of total inventories of ¥3.5B. Together with raw materials of ¥42.3B, inventory valuation and turnover efficiency could become challenges during periods of fluctuating demand.

3. Dependence on non-operating income: Equity-method investment income of ¥6.5B accounted for 14.3% of Ordinary Income of ¥45.3B. Fluctuations in the performance of investees may cause Ordinary Income to fluctuate through a channel distinct from the core Operating Income.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin substantially exceeded the industry median, placing profitability at an outstanding level within the industry.

Growth and Capital Efficiency

The Revenue growth rate also substantially exceeded the industry median, positioning the Company among the industry’s high-growth companies.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Income margin of 26.1% and Net Income margin of 22.9% substantially exceeded the industry median. Cash conversion of earnings was also favorable, with Operating Cash Flow reaching 1.45 times Net Income, indicating a high quality of earnings.

2. Capital expenditures of ¥29.7B reached 2.45 times depreciation and amortization expense, indicating that capacity expansion investments are preceding. A substantial financial buffer, reflected in an Equity Ratio of 77.9% and a Current Ratio of approximately 437%, is supporting this investment phase.

3. Q2 progress against the full-year plan was 49.8% for Revenue and 51.5% for Operating Income, broadly in line with the plan; however, the second half requires a higher growth rate than the same period of the previous year, making the pace of achievement an important point for monitoring.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,456–¥1,545 at Cost of Equity ±1%; ¥1,491–¥1,512 at ω±0.1.

Notes:

• Net assets as of the quarter-end are used (there is a timing gap relative to the full-year forecast).
• Because non-controlling interests are included in net assets, the theoretical value may be calculated somewhat higher.

(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 forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 with a professional as necessary.

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