ISHIHARA CHEMICAL CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In addition to revenue and profit growth, this earnings result was led by profitability, with the rate of profit growth significantly exceeding the rate of revenue growth. Revenue was ¥62.8B (+12.8% YoY), Operating Income was ¥11.1B (+75.1%), Ordinary Income was ¥11.7B (+80.0%), and Net Income attributable to owners of the parent (hereinafter, “Net Income”) was ¥8.4B (+83.6%). The gross margin improved to 37.9%, up +4.2pt YoY, while the Operating Income margin improved to 17.6%, up +6.2pt. Price revisions, a favorable product mix, and a decline in the SG&A ratio (20.2%, down -2.1pt) were the primary drivers of profit growth.

Factors Affecting Financial Results

【Revenue】Revenue was ¥62.8B, representing a +12.8% YoY increase. Metal surface treatment agents and equipment, which account for the largest proportion of the revenue mix (55.3%), increased revenue by +20.8% and drove overall growth, while electronic materials also recovered, increasing by +26.9%. Meanwhile, industrial chemicals declined by ▲1.6%, and automotive chemical products and related businesses increased by only +8.0%, indicating variation in growth rates among segments.

【Profit and Loss】Operating Income was ¥11.1B, a +75.1% YoY increase that significantly exceeded revenue growth. Both the gross margin of 37.9% (+4.2pt YoY) and the SG&A ratio of 20.2% (-2.1pt YoY) improved, expanding the Operating Income margin to 17.6% (+6.2pt YoY). Ordinary Income was ¥11.7B (+80.0%), also benefiting from ¥0.7B in non-operating income, mainly dividends and interest received. A one-time extraordinary gain of ¥0.4B, representing gains on the sale of investment securities, was recorded; however, its contribution to Pre-Tax Income of ¥12.0B was limited to approximately 3%. Net Income was ¥8.4B (+83.6%), and the effective tax rate was 30.1%, with no significant change from the previous year. Revenue and profit both increased, with margin improvement serving as the primary source of growth.

Segment Analysis

Metal surface treatment agents and equipment generated revenue of ¥34.7B (55.3% of the mix, +20.8%) and Operating Income of ¥8.2B (+86.2%), with a margin of 23.6%, making it the largest driver of profit growth. Automotive chemical products and related businesses generated revenue of ¥10.6B (+8.0%) and Operating Income of ¥2.9B (+23.5%), maintaining the highest profitability among the four segments at 27.6%. Industrial chemicals generated revenue of ¥14.5B (▲1.6%) but Operating Income of ¥0.6B (+11.3%), with a low margin of 4.2%. Electronic materials generated revenue of ¥2.9B (+26.9%) and Operating Income of ¥0.2B (+431.4%), showing substantial profit improvement despite its small scale. The adjustment for corporate expenses was ▲¥0.9B, remaining almost flat from the previous year.

Key Financial Indicators

【Profitability】The Operating Income margin of 17.6% (11.4% in the previous year) and Net Income margin of 13.4% (8.2% in the previous year) both improved substantially, originating from the expansion of the gross margin to 37.9% (33.6% in the previous year). ROE was 3.3%.【Cash Quality】Cash and deposits continued to increase, reaching ¥98.5B (¥91.7B in the previous year), while trade receivables of ¥46.8B and inventories of ¥11.7B remained almost flat from the previous year. The absence of working capital expansion despite revenue growth can be viewed positively from the perspective of earnings cash conversion. 【Investment Efficiency】Against total assets of ¥309.0B and equity of ¥253.9B, asset turnover for the quarter (Revenue / Total Assets) remained at 0.20x. The high proportion of non-operating assets, including cash of ¥98.5B, investment securities of ¥25.4B, and marketable securities of ¥30.8B, weighs on asset efficiency.【Financial Soundness】The Equity Ratio was 82.2% (82.4% in the previous year), the current ratio was 481.7%, and the D/E ratio was 0.22x due to the low level of liabilities. Operating Income covered interest expense by 730x, indicating an extremely robust financial base.

Cash Flow Analysis

Cash and deposits increased by ¥6.8B (+7.4%) YoY to ¥98.5B, and the accumulation of funds continued. While Revenue increased by +12.8%, trade receivables (¥46.8B) and inventories (¥11.7B) remained almost flat from the previous year, a notable feature indicating no working capital expansion even during a period of revenue growth. Trade payables increased to ¥22.8B (+¥3.5B YoY, +18.0%), potentially contributing to funding efficiency through the use of payment terms. Income taxes payable were ¥3.9B (▲¥3.5B YoY, ▲47.6%), apparently reflecting payment of the finalized tax return for the previous period and serving as a temporary factor compressing funds during the quarter. Investment securities increased to ¥25.4B (+¥1.1B YoY), reflecting a mixture of accumulated valuation gains and partial sales (¥0.4B gain on the sale of investment securities). Overall, cash generation originating from operating activities appears to have been the primary driver of the increase in cash and deposits, and concerns regarding liquidity are limited.

Earnings Quality

The majority of quarterly profit resulted from the expansion of Operating Income (¥11.1B), indicating low dependence on one-time factors. Non-operating income of ¥0.7B consisted primarily of dividends received of ¥0.3B and other income of ¥0.3B. This represents stable income from financial assets and remained at a modest level of approximately 1% of Revenue. The extraordinary gain of ¥0.4B, representing a gain on the sale of investment securities, accounted for only approximately 3% of Pre-Tax Income of ¥12.0B, indicating a limited impact from one-time factors. The effective tax rate was 30.1% (¥3.6B in income taxes and other taxes / ¥12.0B in Pre-Tax Income), broadly in line with the previous year. The gap between Ordinary Income and Net Income resulted from the normal tax burden, with no particular qualitative concerns identified. Comprehensive Income of ¥9.6B exceeded Net Income of ¥8.4B due to the addition of ¥0.4B in foreign currency translation adjustments and ¥0.8B in valuation differences on securities. The gap between the two was primarily attributable to changes in the fair value of securities held.

Earnings Forecast and Guidance

Progress against the Full-Year forecast was 24.5% for Revenue, 29.5% for Operating Income, 30.4% for Ordinary Income, and 30.5% for Net Income, with profit progressing ahead of the 25% benchmark based on simple quarterly allocation. Progress for each profit item exceeded Revenue progress, and if the quarterly gross margin and SG&A level are sustained, the likelihood of achieving the Full-Year plan (Operating Income of ¥37.6B, Ordinary Income of ¥38.5B, and EPS of ¥201.86) will increase. However, the Full-Year forecast itself assumes declines of ▲2.1% in Operating Income and ▲3.6% in Ordinary Income YoY, and it should be noted that consistency with the substantial profit growth in the current quarter will depend on trends from the second half onward. There were no revisions to the Q1 earnings forecast or dividend forecast.

Shareholder Returns

The company’s forecast annual dividend is ¥48, implying a Payout Ratio of approximately 23.8% based on forecast EPS of ¥201.86. There was no revision to the dividend forecast during the quarter. With a substantial financial cushion reflected in an Equity Ratio of 82.2% and a current ratio of 481.7%, and with the Payout Ratio remaining restrained relative to the profit level, the financial foundation supporting dividend sustainability is stable.

Risk Factors

1. Segment concentration risk: Metal surface treatment agents and equipment, which represent the largest proportion of the revenue mix, account for 55.3% of total revenue. Accordingly, supply-demand and pricing trends in this field have a relatively significant impact on overall financial results.

2. Variation in segment profitability: The Operating Income margin for industrial chemicals is 4.2%, the lowest among the four segments, and the gap with automotive chemical products and related businesses (27.6%) is substantial. Future changes in the segment mix could affect the company-wide profit margin.

3. Structurally low asset efficiency: Total asset turnover remains at 0.20x, and the high proportion of non-operating assets such as cash and securities is a structural factor suppressing ROE (3.3%).

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin substantially exceeded the industry median, placing the company among the more profitable companies in its peer group.

Growth and Capital Efficiency

The Revenue growth rate also exceeded the industry median, placing the company at a high level among its peers in both profitability and growth.

※Source: Compiled by the Company

Key Takeaways from the Earnings

1. The +4.2pt improvement in gross margin and +6.2pt improvement in Operating Income margin resulted from the combined effects of price revisions, product mix changes, and SG&A efficiency improvements, directly leading to a profit growth rate exceeding the revenue growth rate.

2. Full-Year progress is ahead for Operating Income, Ordinary Income, and Net Income (29.5%–30.5%) compared with Revenue (24.5%), making consistency with the forecast for a YoY decline in Full-Year profit a key point of focus from the second half onward.

3. Trade receivables and inventories remained almost flat YoY despite revenue growth. Although asset efficiency remains low, this has supported the accumulation of cash and deposits from a working capital management perspective.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from 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: ¥1,912–¥2,026 at Cost of Equity ±1%; ¥1,966–¥1,972 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).
• 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 the future share price)

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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 with professionals as necessary.

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