SANYO CHEMICAL INDUSTRIES,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The increase in revenue and operating income was extremely strong, with ordinary income expanding substantially by +187.0% YoY. Although net income declined due to the reversal of a one-time tax benefit recognized in the previous year, the Company’s underlying earnings power has instead expanded. Revenue was ¥386.8B (¥319.9B in the previous year, YoY +20.9%), operating income was ¥51.3B (¥18.6B in the previous year, YoY +176.0%), and ordinary income was ¥65.6B (¥22.9B in the previous year, YoY +187.0%). Net income attributable to owners of the parent was limited to ¥4.68B (¥89.9B in the previous year, YoY -48.0%); however, the previous year included an unusual tax benefit, with income taxes being negative ¥72.6B, while the current period’s effective tax rate of 20.4% represents a normalized level by comparison. The primary drivers of earnings growth were the recovery in volumes and improved spreads at CoreMaterials, as well as the continued high proportion of highly profitable projects at ICT.

Factors Affecting Performance

【Revenue】Revenue was ¥386.8B, representing a YoY increase of +20.9%. By segment, CoreMaterials was the largest contributor at ¥308.5B (79.8% composition ratio, YoY +20.8%), while Wellness at ¥42.3B (10.9% composition ratio, YoY +20.1%) and ICT at ¥35.9B (9.3% composition ratio, YoY +22.5%) also achieved double-digit revenue growth. All segments recorded double-digit growth, indicating an overall recovery in demand that was not concentrated in any particular field.

【Profit and Loss】Operating income was ¥51.3B (YoY +176.0%), and the operating margin improved significantly to 13.3% from 5.8% in the previous year. In addition to the improvement in the gross margin to 29.1%, fixed-cost absorption progressed as SG&A expenses increased by +5.7%, below revenue growth of +20.9%. Ordinary income was ¥65.6B (YoY +187.0%), supported by non-operating income of ¥14.7B (including dividend income of ¥6.8B and foreign exchange gains of ¥1.8B). Extraordinary losses of ¥2.6B (loss on disposal of fixed assets of ¥1.5B, business restructuring expenses of ¥0.5B, and impairment losses on investment securities of ¥0.6B) were reflected as temporary factors in profit before tax of ¥63.0B. Net income attributable to owners of the parent was ¥4.68B, down -48.0% YoY; however, this reflected the reversal of a one-time tax benefit from the previous year, when income taxes were negative ¥72.6B, and the Company clearly achieved higher revenue and earnings at the operating and ordinary income levels.

Segment Analysis

CoreMaterials was the largest earnings growth driver, with revenue of ¥308.5B (79.8% composition ratio, YoY +20.8%) and operating income of ¥40.8B (YoY +208.2%, margin 13.2%). ICT maintained the highest profitability among the three segments, with revenue of ¥35.9B (YoY +22.5%), operating income of ¥11.1B (YoY +29.9%), and a margin of 30.9%. Wellness achieved a return to profitability, with revenue of ¥42.3B (YoY +20.1%) and operating income of ¥0.15B (a loss of ¥0.04B in the previous year), reflecting progress in profitability improvement. The Company changed its reportable segments from the previous five categories (including fields related to the lifestyle and health industries) to three categories—CoreMaterials, Wellness, and ICT—from the beginning of the fiscal year ended March 2026. The YoY figures above are comparisons based on the revised segment classifications.

Key Financial Indicators

【Profitability】The operating margin was 13.3%, improving by +7.5pt from 5.8% in the previous year, while the net profit margin (based on net income attributable to owners of the parent) was 12.1%. ROE was 3.0% (quarterly basis), declining due to the reversal of the temporarily high net income generated by the tax benefit in the previous year; however, it should be noted that this level was achieved under a normalized tax burden, represented by an effective tax rate of 20.4%. 【Cash Quality】Operating Cash Flow (OCF) was ¥35.8B, and its ratio to net income attributable to owners of the parent of ¥4.68B was limited to 0.77x. Increases of +¥69.0B in trade receivables and +¥11.4B in inventories placed pressure on cash conversion. 【Investment Efficiency】Basic EPS was ¥211.53 (¥406.51 in the previous year, YoY -48.0%), BPS was ¥7,340.18 (¥7,198.31 in the previous year, YoY +2.0%), and capital expenditures of ¥1.15B remained within the ¥2.20B level of depreciation and amortization. 【Financial Soundness】The equity ratio was 79.7%, down 1.7pt from 81.4% at the end of the previous fiscal year but still at a high level. Interest-bearing debt was limited relative to cash and deposits of ¥35.10B, including long-term borrowings of ¥1.55B, resulting in low financial leverage.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥35.8B, an increase of +22.0% YoY, but the increase was modest compared with the growth in profit before tax of +225.8%. Against subtotal OCF before changes in working capital of ¥34.4B, the increase in trade receivables of -¥69.0B and the increase in inventories of -¥11.4B placed pressure on funds, partially offset by an increase in trade payables of +¥49.1B. Income tax payments were -¥6.5B, down from -¥9.4B in the previous year. Investing CF was -¥10.6B, with investment remaining below depreciation and amortization of ¥22.0B. Financing CF was -¥21.1B, primarily due to dividend payments of ¥1.86B. Free CF (OCF + investing CF) was ¥25.2B, securing a level sufficient to cover dividend payments and capital expenditures for the current period. Cash and cash equivalents at the end of the period were ¥34.95B, a slight increase from ¥34.88B at the end of the previous fiscal year.

Quality of Earnings

Operating income, which indicates recurring earnings power, was ¥51.3B. The ¥14.4B difference between operating income and ordinary income of ¥65.6B represented net non-operating income (non-operating income of ¥14.7B less non-operating expenses of ¥0.3B), consisting of dividend income of ¥6.8B, equity-method investment income of ¥4.3B, and foreign exchange gains of ¥1.8B, and therefore includes items with a certain degree of volatility. Extraordinary losses of ¥2.6B (loss on disposal of fixed assets of ¥1.5B, business restructuring expenses of ¥0.5B, and impairment losses on investment securities of ¥0.6B) were reflected as temporary factors in profit before tax of ¥63.0B, with a limited impact on net income. The primary reason for the -48.0% decline in net income attributable to owners of the parent, from ¥89.9B in the previous year to ¥46.8B, was the one-time tax benefit in the previous year, when income taxes were negative ¥72.6B, effectively resulting in a negative tax burden. The current period’s effective tax rate of 20.4% is a normalized level by comparison. Comprehensive income was ¥53.6B (¥50.3B attributable to owners of the parent). The difference of +¥3.5B from net income attributable to owners of the parent of ¥46.8B resulted from valuation differences on securities of +¥2.3B, foreign currency translation adjustments of +¥1.8B, and adjustments related to retirement benefits of -¥0.6B, indicating a limited divergence between net income and comprehensive income.

Earnings Forecasts and Guidance

Progress in Q1 against the full-year forecast was 25.8% for revenue (¥386.8B/¥1,500B), 39.5% for operating income (¥51.3B/¥130B), 43.7% for ordinary income (¥65.6B/¥150B), and 42.5% for net income (¥46.8B/¥110B). Compared with the 25% benchmark for quarterly progress, profit-related indicators are substantially ahead of schedule. The Company’s full-year forecast itself assumes higher revenue and earnings YoY (revenue YoY +17.3%, operating income YoY +29.9%, ordinary income YoY +22.4%), and Q1 results are progressing at a pace exceeding these assumptions. During the quarter, the Company announced revisions to its earnings forecast and dividend forecast (an increase in dividends), reflecting the accelerated progress in these revisions.

Shareholder Returns

During Q1, the Company announced revisions to its earnings forecast and dividend forecast (an increase in dividends). In addition, it resolved to conduct a four-for-one stock split of its common shares, with October 1, 2026 as the effective date. Without considering the impact of the stock split, the forecast year-end dividend per share for the fiscal year ending March 2027 is ¥100.00, and total annual dividends are ¥200.00, representing a significant increase from the previous fiscal year’s annual dividend of ¥85. The dividend payment recorded in the cash flow statement for the quarter was ¥1.86B, remaining within free CF of ¥25.2B.

Risk Factors

1. Segment concentration risk: CoreMaterials accounts for 79.8% of revenue (¥308.5B/¥386.8B), and demand trends as well as fluctuations in raw material prices and spreads in this segment could have a significant impact on overall consolidated performance.

2. Cash conversion risk from increased working capital: Trade receivables increased by +¥69.0B and inventories increased by +¥11.4B, while OCF of ¥35.8B was limited to 0.77x net income attributable to owners of the parent of ¥46.8B. Trends in collection and inventory cycles during the demand expansion phase will be a focus for future cash flow.

3. Reliance on non-operating income: Of ordinary income of ¥65.6B, ¥14.7B was attributable to non-operating income (dividend income of ¥6.8B, foreign exchange gains of ¥1.8B, and equity-method investment income of ¥4.3B). These items may fluctuate depending on foreign exchange rates and the performance trends of investee companies.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin exceed the manufacturing industry median, placing the Company’s profitability among the top tier within the industry.

Growth and Capital Efficiency

The revenue growth rate exceeds both the industry median and the upper quartile (14.6%), indicating a high growth pace within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The operating margin was 13.3%, a significant improvement from 5.8% in the previous year, while progress against the full-year forecast was also well ahead of the quarterly benchmark of 25%, at 39.5% for operating income and 43.7% for ordinary income.

2. The -48.0% YoY decline in net income attributable to owners of the parent resulted from the reversal of a one-time tax benefit in the previous year, when income taxes were negative ¥72.6B. It is important when assessing the quality of the earnings results that both profit before tax and ordinary income recorded substantial earnings growth.

3. OCF growth of +22.0% has not kept pace with earnings growth due to increases in trade receivables and inventories. Working capital trends will determine future cash flow generation, and the Company also announced an increase in dividends and a stock split during the quarter.

Theoretical Stock 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 five-year fade). It is not a forecast of the market price or a recommendation of any specific investment action.

Sensitivity: ¥5,631–¥5,957 at ±1% for the cost of equity, and ¥5,741–¥5,823 at ±0.1 for ω.

Notes:

• Because net income progress against the full-year forecast (43%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of schedule tend to outperform their forecasts; the adjustment 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 at the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee the future stock price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings flash 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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