HARIMA CHEMICALS GROUP (4410) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for Q3 of the fiscal year ending March 2026 featured higher revenue and earnings, with profit improvement significantly outpacing revenue growth. Revenue was ¥779.0B (+2.9% YoY), Operating Income was ¥26.6B (+36.8%), Ordinary Income was ¥24.4B (+63.5%), and Net Income attributable to owners of the parent was ¥18.0B (+149.2%). The Operating Income margin improved to 3.4% from approximately 2.6% in the same period of the previous year, as increased sales volumes and price revisions absorbed higher manufacturing expenses. Progress against the full-year company forecast was 72.1% for Revenue and 80.7% for Operating Income, indicating that profit progress is running ahead of the standard 75% pace.

Factors Affecting Results

【Revenue】Revenue increased 2.9% YoY to ¥779.0B. Growth in the core Rotor and Paper Chemicals businesses drove the increase, with domestic and U.S. growth in sizing agents contributing to higher sales of Paper Chemicals. Meanwhile, Electronic Materials remained nearly flat, increasing 0.3% YoY.

【Profit and Loss】Operating Income increased to ¥26.6B (+36.8%), while Ordinary Income increased to ¥24.4B (+63.5%). The primary driver of earnings growth was a ¥26.2B boost from increased sales volumes, which absorbed the ¥20.3B deterioration in manufacturing expenses caused by higher raw material and energy costs. A gain on the sale of investment securities of ¥1.5B was recorded as extraordinary income, meaning that a certain portion of Net Income of ¥18.0B was attributable to a temporary factor. The divergence between Ordinary Income and Net Income was limited. In conclusion, revenue and earnings increased.

Segment Analysis

The Rotor Business had the largest revenue composition ratio (Revenue of ¥278.6B; composition ratio of 35.8%) and is positioned as a core business. However, Rotor Business Operating Income was ¥2.3B, with a margin of 0.8%, the lowest among all segments, and decreased YoY, resulting in a limited contribution to profitability. The profit leader was not Pulp Chemicals, but Pulp and Paper Chemicals (PaperChemicals), which recorded the highest Operating Income of ¥17.5B and a margin of 8.2%, accounting for approximately 60% of total company profit. Resins and Specialty Chemicals also secured high profitability, with Operating Income of ¥10.9B and a margin of 6.6%. Electronic Materials recorded Operating Income of ¥2.6B and a margin of 2.6%, representing a decline YoY. The significant disparity in margins among segments, with revenue composition diverging from profit composition, is a structural characteristic.

Key Financial Indicators

Profitability: ROE 4.6%; Operating Income margin 3.4% (improved from 2.6% in the previous year)
Cash flow quality: No data available for Operating CF or FCF
Investment efficiency: Capital expenditures of ¥28.2B (▲29.8% YoY); no comparative data with depreciation and amortization
Financial soundness: Equity Ratio 37.7% (37.3% in the previous year); Current Ratio 125.4%

Cash Flow Analysis

Specific figures for Operating CF, Investing CF, and Financing CF were not included in the disclosed data. Capital expenditures were ¥28.2B, a reduction of ▲29.8% from ¥40.2B in the previous year, suggesting that capital allocation priorities are focused on strengthening cash flow soundness. Cash and deposits were ¥49.2B, a slight increase from ¥47.5B in the previous year. Given the high dependence on short-term borrowings in the financial structure, cash generation should be monitored.

Earnings Quality

Against Ordinary Income of ¥24.4B, Net Income attributable to owners of the parent was ¥18.0B, with the divergence within the normal range due to the burden of income taxes and other taxes (effective tax rate of approximately 31%). A gain on the sale of investment securities of ¥1.5B was recorded as extraordinary income, representing a temporary factor equivalent to approximately 8% of Net Income. Interest expense of ¥9.0B was recorded under non-operating expenses, reaching approximately 34% of Operating Income of ¥26.6B and making financial expense burdens a factor depressing Ordinary Income.

Earnings Forecast and Guidance

The full-year forecast (Revenue of ¥1,080B, Operating Income of ¥33.0B, Ordinary Income of ¥28.0B, and Net Income of ¥18.5B) was maintained. Progress rates were 72.1% for Revenue, 80.7% for Operating Income, 87.1% for Ordinary Income, and 97.5% for Net Income, with profit items progressing ahead of the standard 75% pace. In particular, the 97.5% progress rate for Net Income is high; however, as it includes gains on the sale of investment securities, greater emphasis should be placed on the progress of Operating Income and Ordinary Income when evaluating the remaining quarter.

Shareholder Returns

The dividend was maintained at ¥21.00 for the Q2 result and ¥42.00 for the full-year forecast (¥21.00 each for the interim and year-end dividends). Based on the full-year Net Income forecast of ¥18.5B, the Payout Ratio is approximately 55.2%, and this indicator applies only to dividends. There has been no disclosure regarding share repurchases, and no Total Return Ratio has been calculated.

Catalysts

【Short term】Whether the full-year plan can be achieved in Q4, and the divergence between the actual exchange rate and the assumed exchange rate of ¥150/USD (Q3 actual: ¥148.08/USD). 【Long term】Expansion of the high-margin Paper Chemicals and Resins and Specialty Chemicals segments, recovery in the profitability of the Rotor Business, and improvement of the financial structure away from dependence on short-term borrowings.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin are significantly below the industry median, placing profitability toward the lower end of the industry.

Growth and Capital Efficiency

The Revenue growth rate is approximately in line with the industry median and falls within the IQR.

※Source: Compiled by the Company

Risk Factors

1. Vulnerability of the earnings structure: The Operating Income margin of 3.4% is below the industry median of 8.6%, and the structure is vulnerable to pressure on earnings from higher raw material and energy costs (▲20.3B deterioration in manufacturing expenses).

2. Financial expense burden: Interest expense of ¥9.0B is equivalent to approximately 34% of Operating Income, while short-term borrowings of ¥261.6B account for more than half of interest-bearing debt. Consequently, higher interest rates or changes in refinancing terms could affect earnings.

3. Segment volatility: Although the Rotor Business has the largest revenue composition ratio, its Operating Income margin is low at 0.8%, while Electronic Materials also experienced a decline in earnings YoY. Recovery in the profitability of core segments remains a challenge.

Key Takeaways from the Earnings Results

1. The Operating Income margin improved from approximately 2.6% in the previous year to 3.4%, with increased sales volumes and the effects of price revisions exceeding cost increases. This represents the key structural change during the current period.

2. Although full-year progress rates for profit items are ahead of the standard pace, Net Income includes the temporary factor of gains on the sale of investment securities. Accordingly, the trends in Operating Income and Ordinary Income are more appropriate for evaluating recurring earnings power.

3. The policy of reducing capital expenditures by approximately 30% YoY while maintaining dividends is viewed as an effort to balance financial soundness and shareholder returns.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,366–¥1,444 at ±1% for the cost of equity, and ¥1,398–¥1,408 at ±0.1 for ω.

Notes:

• As Net Income progress against the full-year forecast (98%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of plan tend to outperform their forecasts. The adjustment may be excessive for businesses with strong seasonality).
• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end have been 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.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this 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 through AI-integrated analysis of XBRL earnings summary data and PDF earnings presentation materials. 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 with a professional as necessary.

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