HARIMA CHEMICALS GROUP,INC. FY2027 Q1 Earnings Report

Quick View

Executive Summary

The quarter concluded with increases in both revenue and earnings, while the operating margin improved significantly year on year, primarily due to a lower SG&A ratio. Revenue was ¥286.8B (+11.5% YoY), Operating Income was ¥13.1B (+71.8%), Ordinary Income was ¥14.6B (+117.1%), and consolidated Net Income, including income attributable to non-controlling interests, was ¥10.0B (+156.7%; of which Net Income attributable to owners of the parent was ¥9.96B). Revenue growth was driven by strong growth in Electronic Materials and solid increases in the core segments. Earnings growth reflected fixed-cost dilution resulting from the containment of SG&A expenses relative to revenue growth, as well as the contribution from higher non-operating income, including equity-method investment income and foreign exchange gains.

Factors Affecting Performance

【Revenue】Revenue was ¥286.8B, representing an increase of +11.5% year on year. By segment, Electronic Materials posted the highest growth among all segments at ¥43.6B (+38.8%), while Lawter recorded ¥101.5B (+9.7%), Resins and Tall Oil Products ¥62.2B (+9.6%), and Paper Chemicals ¥70.9B (+5.2%), with all major segments securing revenue growth.

【Profit and Loss】Operating Income was ¥13.1B (+71.8% YoY), and the operating margin improved to 4.6% from 2.96% in the previous year, an improvement of +1.6pt. The primary driver was the decline in the SG&A ratio (19.7%→18.0%), with fixed-cost dilution contributing as revenue growth (+11.5%) outpaced SG&A growth (+2.1%). Meanwhile, the gross margin was 22.6%, virtually unchanged from the previous year (22.6%), indicating limited improvement on the cost side. Ordinary Income was ¥14.6B (+117.1%), exceeding the growth rate of Operating Income due to the addition of ¥3.0B in equity-method investment income and ¥0.8B in foreign exchange gains. After deducting ¥0.2B in extraordinary losses (temporary factors), Profit Before Tax was ¥14.4B, and after deducting income taxes and other taxes of ¥4.4B, consolidated Net Income was ¥10.0B (+156.7%). Of this amount, Net Income attributable to owners of the parent was ¥9.96B (¥3.9B in the previous year, +153.4%). Both revenue and earnings exceeded the previous year, resulting in higher revenue and earnings.

Segment Analysis

By segment Operating Income, Paper Chemicals recorded ¥7.7B (+60.4% YoY; margin of 10.8%), while Resins and Tall Oil Products recorded ¥6.2B (+72.8%; margin of 9.9%), maintaining high profitability and serving as the primary contributors to company-wide earnings. Lawter was the largest segment by revenue, at ¥101.5B (+9.7%), but Operating Income declined to ¥1.4B (-13.9%), with its margin falling to 1.4%. Electronic Materials posted the highest revenue growth rate, with revenue of ¥43.6B (+38.8%), and Operating Income increased substantially to ¥0.6B (+375.0%); however, its margin remained at 1.3%. Company-wide Operating Income of ¥13.1B represents the segment profit total of ¥16.1B less adjustments of (△¥2.95B), including inventory adjustments and corporate expenses. The low profitability of Lawter and Electronic Materials is a factor depressing the company-wide margin.

Key Financial Indicators

【Profitability】The operating margin was 4.6%, improving +1.6pt from 2.96% in the same period of the previous year. The Net Income margin, based on Net Income attributable to owners of the parent, was 3.5%, improving +1.9pt from 1.5% in the previous year. ROE was 2.4% on the same basis, and despite the earnings growth phase, its absolute level remained low. 【Cash Quality】Accounts receivable were ¥238.8B (+15.5% from the end of the previous fiscal year), and inventories were ¥110.3B (+3.3%), with both increasing at a faster pace than revenue growth (+11.5%), indicating a time lag between earnings growth and cash conversion. 【Investment Efficiency】Property, plant and equipment increased to ¥354.0B (+4.8%), reflecting continued capital investment, while total assets expanded to ¥1097.7B (+6.7%). 【Financial Soundness】The Equity Ratio was 38.8%, the current ratio was 124.8%, and the quick ratio was 100.9%, indicating that short-term payment capacity was secured. However, short-term borrowings increased to ¥225.7B (+7.6%), while the ratio to cash and deposits of ¥59.4B remained at 26.3%, and interest expense increased to ¥0.314B (¥0.257B in the previous year).

Cash Flow Analysis

As cash flow statement items have not been disclosed, funding trends are assessed based on changes in the balance sheet. Accounts receivable increased by +¥32.1B from the end of the previous fiscal year, inventories increased by +¥3.5B, and investment in property, plant and equipment also increased by +¥16.1B. These funding needs were financed by increasing short-term borrowings by +¥16.0B, resulting in cash and deposits declining to ¥59.4B, down -¥3.3B (-5.2%) from the end of the previous fiscal year. Net assets increased by +¥10.3B due to the recognition of current-period earnings and the accumulation of comprehensive income, with no impairment of shareholders’ equity. Overall, the expansion of working capital appears to have tightened liquidity, with short-term financing used to cover the funding gap.

Quality of Earnings

Of Ordinary Income of ¥14.6B, Operating Income of ¥13.1B was the core earnings source, while net non-operating income contributed an increase of +¥1.6B. The ¥5.1B in non-operating income consisted mainly of equity-method investment income of ¥3.0B, foreign exchange gains of ¥0.8B, and dividend income of ¥0.4B. The primary component of non-operating expenses of ¥3.6B was interest expense of ¥3.1B. Equity-method investment income and foreign exchange gains are highly volatile items linked to market conditions and foreign exchange rates, respectively. Accordingly, the +117.1% growth in Ordinary Income includes a meaningful contribution from factors with temporary characteristics. Extraordinary losses were ¥0.2B, or approximately 2% of consolidated Net Income of ¥10.0B, and were not large enough to materially distort the earnings level. Comprehensive income was ¥15.4B, exceeding consolidated Net Income, with the primary source of the difference being foreign currency translation adjustments of +¥4.1B. This divergence results from translation differences related to overseas subsidiaries, and its different nature from Net Income, which reflects the profitability of the business activities themselves, should be noted. Increases in accounts receivable and inventories suggest that the conversion of recorded earnings into cash is lagging, making them monitoring points when assessing earnings quality.

Earnings Forecast and Guidance

Progress against the full-year company plan in Q1 was 26.1% for revenue, 37.3% for Operating Income, 52.2% for Ordinary Income, and 37.6% for Net Income based on income attributable to owners of the parent. All exceeded the 25% benchmark based on simple progress. The particularly high progress for Ordinary Income was attributable to the contribution of non-operating income, including equity-method investment income and foreign exchange gains, and was also high compared with progress on an Operating Income basis (37.3%). For the full year, the company plans revenue of ¥1100.0B (+6.0%), Operating Income of ¥35.0B (+6.6%), and Ordinary Income of ¥28.0B (-6.6%). While the company expects a decline in Ordinary Income year on year, it recorded substantial growth of +117.1% year on year as of Q1. No revision to the earnings forecast was made during the quarter, and the full-year plan remains unchanged.

Shareholder Returns

The company forecasts an annual dividend of ¥42.00 and did not revise its dividend forecast during the quarter. Based on the company’s forecast EPS of ¥109.07, the Payout Ratio is approximately 38.5%. Q1 EPS was ¥40.99, representing progress of 37.6% against the full-year forecast.

Risk Factors

1. Expansion of working capital and impact on cash generation: Accounts receivable were ¥238.8B (+15.5% from the end of the previous fiscal year), and inventories were ¥110.3B (+3.3%), with both increasing faster than revenue growth of +11.5%. Asset growth is preceding earnings growth, requiring monitoring from the perspective of cash-generation capacity.

2. Dependence on short-term funding and interest burden: Short-term borrowings reached ¥225.7B (+7.6% from the end of the previous fiscal year), while the ratio to cash and deposits of ¥59.4B remained at 26.3%. Interest expense was ¥0.314B, increasing from ¥0.257B in the previous year, and the impact of changes in the interest-rate environment on future earnings should be monitored.

3. Profitability disparities among segments: Lawter’s operating margin was 1.4% and Electronic Materials’ margin was 1.3%, both remaining below the levels of Paper Chemicals at 10.8% and Resins and Tall Oil Products at 9.9%. The two lower-margin segments account for approximately half of total revenue (Lawter 35.4%, Electronic Materials 15.2%), and company-wide margin improvement may depend on progress in improving the profitability of these segments.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

Both the operating margin and Net Income margin are below the industry median, indicating that profitability is relatively low within the industry.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median, indicating that top-line growth is relatively strong within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The operating margin improved to 4.6% from 2.96% in the same period of the previous year, an improvement of +1.6pt. The primary driver was the decline in the SG&A ratio (19.7%→18.0%), while the gross margin remained virtually unchanged at 22.6%. This reflects the operation of positive operating leverage, namely fixed-cost dilution resulting from revenue growth.

2. The 52.2% progress rate for Ordinary Income exceeded the 37.3% progress rate for Operating Income and included the contribution of non-operating income such as equity-method investment income and foreign exchange gains. Compared with growth in core earnings, or Operating Income, growth at the Ordinary Income level includes a meaningful contribution from highly volatile, temporary factors.

3. By segment, Paper Chemicals (margin of 10.8%) and Resins/Tall Oil Products (9.9%) maintained high profitability, while Lawter (1.4%) and Electronic Materials (1.3%) remained low-margin businesses. Electronic Materials recorded a high growth rate of +38.8% in revenue, making progress toward monetization a key focus going forward.

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

Sensitivity: ¥1,570–¥1,661 at ±1% for the cost of equity, and ¥1,610–¥1,617 at ±0.1 for ω.

Notes:

• Because Net Income progress against the full-year forecast (38%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with leading progress tend to exceed forecasts; adjustments 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 have been used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest-rate reference month: 2026-06 / This value does not predict or guarantee future stock prices)

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

---End of Report---