TOHO CHEMICAL INDUSTRY COMPANY,LIMITED FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥26.00B
• Operating Income: ¥890M
• Net Income: ¥859M
• EPS: ¥24.87

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Toho Chemical Industry Co., Ltd. (4409) reported FY2026 Q2 consolidated results under JGAAP showing resilient operating performance despite a mild top-line contraction and a sharp decline in the bottom line. Revenue fell 2.4% YoY to ¥26.0bn, while operating income was essentially flat at ¥0.89bn (-0.2% YoY), implying modest operating margin expansion through cost discipline. Gross profit reached ¥4.03bn with a gross margin of 15.5%, supporting an EBITDA of ¥2.30bn and an EBITDA margin of 8.9%. Ordinary income of ¥0.76bn indicates negative non-operating effects (e.g., higher interest expense), with interest expense of ¥0.19bn weighing on pre-tax earnings. Net income declined 39.0% YoY to ¥0.52bn as non-operating items and taxes compressed the bottom line, driving net margin down to 2.01%. The DuPont framework yields ROE of 2.48%, built from a 2.01% net margin, 0.381x asset turnover, and 3.24x financial leverage, highlighting leverage as a key ROE driver amid subdued margins. Liquidity remains sound with a current ratio of 155% and a quick ratio of 85%, supported by sizeable working capital of ¥13.17bn, though inventory at ¥16.68bn represents a notable portion of current assets. The balance sheet shows total assets of ¥68.30bn and total equity of ¥21.05bn, with total liabilities of ¥46.79bn, implying a debt-to-equity ratio of 2.22x and leverage above many mid-cap chemical peers. Interest coverage of roughly 4.8x (EBIT basis) is acceptable but leaves limited cushion if rates rise or earnings soften. Cash generation quality is solid with operating cash flow (OCF) of ¥0.92bn exceeding net income (OCF/NI = 1.77x), suggesting earnings are supported by cash rather than accruals. However, free cash flow cannot be reliably assessed due to unreported investing cash flows; given D&A of ¥1.41bn, underlying capex may be meaningful. Dividend payout is currently nil (annual DPS ¥0.00), implying a conservative stance or a focus on balance sheet resilience and/or capex. Overall, the company demonstrates cost control and decent cash conversion in a softer demand environment, but profitability remains modest and leverage is elevated, keeping financial flexibility a key focus. Inventory management and non-operating costs (interest and other items) will be decisive for restoring net margin trajectory. Data limitations (several items undisclosed or reported as zero) restrict granularity on cash, capex, and per-share metrics beyond EPS, and these gaps should be monitored in subsequent disclosures.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 2.01% (Net income ¥0.52bn on revenue ¥26.00bn)
• asset_turnover: 0.381x (Revenue ¥26.00bn / Assets ¥68.30bn)
• financial_leverage: 3.24x (Assets ¥68.30bn / Equity ¥21.05bn)
• calculated_ROE: 2.48% (matches reported 2.48%)
• interpretation: ROE is predominantly leverage-driven; low margin and modest turnover cap return potential. margin_quality:
• gross_margin: 15.5% (¥4.03bn/¥26.00bn)
• operating_margin: 3.42% (¥0.89bn/¥26.00bn), essentially flat YoY despite lower sales, indicating cost control
• ordinary_margin: 2.92% (¥0.76bn/¥26.00bn), reflecting non-operating drag (notably interest)
• net_margin: 2.01%, pressured by non-operating items and taxes
• tax_rate_estimate: Approx. 32–33% based on income tax ¥0.25bn and implied pre-tax profit ~¥0.77–0.78bn (company-provided 'effective tax rate 0.0%' appears non-representative due to data limitations). operating_leverage: Given revenue -2.4% YoY and operating income -0.2% YoY, the operating margin expanded slightly, suggesting positive operating leverage from cost actions and/or input price normalization. Sustainability will hinge on volume recovery and inventory discipline.

Growth Assessment

revenue_sustainability: Revenue declined 2.4% YoY to ¥26.0bn, implying softer end-market demand or pricing pressure typical in chemical cycles. Inventory at ¥16.68bn suggests careful monitoring of sell-through and potential normalization. profit_quality: Operating income resilience (-0.2% YoY) with lower sales indicates improved mix and/or procurement benefits, but ordinary and net profits are more volatile due to higher interest and other non-operating items. outlook: Near-term growth appears constrained by cyclical demand. A margin-driven recovery is plausible if input costs remain benign and inventories are optimized. Net income growth depends on easing non-operating headwinds (interest expense) and maintaining tax efficiency.

Financial Health

liquidity:

• current_ratio: 155.4% (CA ¥36.94bn / CL ¥23.78bn)
• quick_ratio: 85.2% (CA–Inventory ¥20.26bn / CL ¥23.78bn)
• working_capital: ¥13.17bn
• commentary: Liquidity is comfortable, though reliance on inventory (45% of current assets) reduces immediate flexibility. solvency_and_capital_structure:
• total_assets: ¥68.30bn
• total_liabilities: ¥46.79bn
• total_equity: ¥21.05bn
• debt_to_equity: 2.22x (Liabilities/Equity)
• interest_coverage: ≈4.8x (EBIT ¥0.89bn / Interest ¥0.19bn)
• leverage_assessment: Leverage is elevated for a mid-cap chemical company; coverage is adequate but could tighten if earnings soften or rates rise.

Cash Flow Quality

earnings_quality: OCF/Net income of 1.77x (¥0.92bn/¥0.52bn) indicates solid cash realization of earnings, suggesting limited accrual inflation this period. free_cash_flow: Not derivable from provided data as investing cash flows are unreported; D&A of ¥1.41bn implies underlying capex needs could be sizable. working_capital_dynamics: Large inventory balance (¥16.68bn) is a swing factor for OCF. Further normalization could release cash; conversely, demand softness could tie up cash in stock.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is ¥0.00 with a payout ratio of 0.0%, indicating retention of earnings. EPS is ¥24.87. FCF_coverage: Not assessable due to unreported investing cash flows (reported FCF figure of 0 likely reflects missing capex data rather than true zero). policy_outlook: Given elevated leverage and uncertain free cash flow, a conservative dividend stance appears consistent with balance sheet priorities until visibility on capex and cash generation improves.

Risk Assessment

Business Risks:

• Cyclical demand in key end-markets (automotive, electronics, construction) affecting volumes and pricing.
• Feedstock and energy price volatility impacting margins.
• Inventory valuation and obsolescence risks if demand weakens further.
• Regulatory and environmental compliance costs in chemical manufacturing.
• Foreign exchange fluctuations impacting input costs and export competitiveness.

Financial Risks:

• Elevated leverage (D/E 2.22x) increases sensitivity to earnings volatility.
• Interest rate risk and refinancing risk with interest coverage at ~4.8x.
• Potential covenant constraints if profitability declines.
• Cash flow dependency on working capital swings, particularly inventory.

Key Concerns:

• Net income compression (-39% YoY) despite stable operating profit highlights non-operating pressures.
• High inventory level relative to current assets may constrain quick liquidity.
• Inability to confirm capex and free cash flow due to unreported investing cash flows.

Investment Implications

Key Takeaways:

• Resilient operating income despite revenue decline indicates cost control and mix benefits.
• Net profit weakness driven by non-operating items (notably interest), compressing ROE to 2.48%.
• Liquidity is adequate but inventory-heavy; leverage is elevated, requiring disciplined cash management.
• Cash earnings quality is solid (OCF/NI 1.77x), but true FCF unknown due to missing capex data.

Metrics to Watch:

• Inventory turns and write-downs; working capital release/consumption.
• Capex outlays and investing cash flows to gauge FCF.
• Interest expense trajectory and interest coverage amid rate environment.
• Operating margin progression and pricing vs. feedstock cost trends.
• Ordinary income vs. operating income gap (non-operating gains/losses).

Relative Positioning: Within Japanese mid-cap chemical peers, profitability is modest with slightly improved operating efficiency, but leverage is on the high side; cash conversion looks decent, though the lack of visibility on capex/FCF tempers assessments of financial flexibility.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis