EIKEN CHEMICAL CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The Company posted higher revenue but lower profit in Q1 due to deterioration in the gross profit margin, with top-line growth offset by reduced profitability. Revenue increased to ¥10.73B (¥10.20B in the same period of the previous year, +5.2% YoY), while Operating Income fell to ¥0.667B (¥0.800B, -16.7%), Ordinary Income to ¥0.640B (¥0.813B, -21.3%), and Net Income attributable to owners of the parent to ¥0.445B (¥0.600B, -25.8%), resulting in double-digit declines across all major profit indicators. The primary factor was the decline in the gross profit margin to 38.0% from 40.2% in the previous year, meaning that the deterioration in gross profit could not be fully absorbed despite SG&A expenses being contained to a +3.3% increase.

Factors Affecting Financial Performance

【Revenue】Revenue increased to ¥10.73B, representing a +5.2% YoY increase. The Company operates as a single segment, the Testing Reagents Business, and detailed factors behind changes by business are not disclosed; however, revenue continues to trend upward due to volume, pricing, or a combination of both.

【Profit and Loss】Gross profit was ¥4.08B, a slight decrease from ¥4.099B? to ¥4.077B in the previous year, and the gross profit margin declined to 38.0% from 40.2%, a decrease of 2.2pt. SG&A expenses were ¥3.41B (¥3.30B in the previous year, +3.3%), increasing at a slower pace than revenue (+5.2%); however, the impact of the deterioration in the gross profit margin outweighed this factor, and Operating Income declined to ¥0.667B (-16.7%). Non-operating income and expenses shifted from net income of ¥0.013B in the previous year to net expenses of ¥0.026B in the current period. The increase in interest expenses to ¥0.019B (¥0.004B in the previous year) was a significant factor, resulting in Ordinary Income of ¥0.640B (-21.3%). Extraordinary income and expenses were virtually zero, and the impact of temporary factors was limited. The effective tax rate increased to 30.5% from 26.3% in the previous year, and Net Income was ¥0.445B (-25.8%). Revenue increased, but profit declined.

Key Financial Indicators

【Profitability】The Operating Income margin was 6.2%, down 1.6pt from 7.8% in the previous year, while the Net Income margin also declined to 4.1% (5.9% in the previous year). ROE was 1.0%, primarily due to the deterioration in the Net Income margin.【Cash Flow Quality】Comprehensive income was ¥0.419B, slightly below Net Income of ¥0.445B. Factors contributing to the divergence included adjustments related to retirement benefits of △¥0.016B and valuation differences on securities of △¥0.010B.【Investment Efficiency】Against total assets of ¥61.90B, Net Income was ¥0.445B. Basic EPS was ¥13.52 (¥18.21 in the previous year), while BPS was ¥1,316.79 (¥1,333.07 in the previous year), both showing slight declines.【Financial Soundness】The Equity Ratio was 70.3% (70.1% in the previous year), remaining virtually flat at a high level. Short-term liquidity was favorable, with a current ratio of 219.5% and a quick ratio of 190.4%. Interest coverage was 35.1x (EBIT of ¥0.667B / interest expenses of ¥0.019B), indicating a high capacity to withstand interest payment burdens.

Cash Flow Analysis

As no statement of cash flows has been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits were ¥9.89B, down 9.6% from ¥10.94B in the previous year, likely reflecting cash outflows associated with corporate tax payments and bonus payments. In fact, income taxes payable declined by ¥0.468B, from ¥0.708B in the previous year to ¥0.240B, while the provision for bonuses declined by ¥0.334B, from ¥0.693B to ¥0.359B. Both are considered to reflect balance reductions resulting from seasonal payments. Meanwhile, accounts payable increased to ¥5.23B (¥4.84B in the previous year, +8.1%), suggesting an increase in procurement activity or changes in payment terms. Inventories were ¥4.21B (¥4.35B in the previous year), showing a slight decline, while accounts receivable were ¥10.35B (¥10.17B in the previous year), remaining virtually flat. Construction in progress declined substantially from ¥0.767B in the previous year to ¥0.226B, indicating the completion of capital investment or progress in recognizing assets on the balance sheet.

Earnings Quality

Non-operating income and expenses shifted from net income of ¥0.013B in the previous year to net expenses of ¥0.026B in the current period, primarily due to the increase in interest expenses (¥0.004B → ¥0.019B). Although the Company recorded foreign exchange gains of ¥0.011B, the amount was small and had a limited impact on Ordinary Income. Extraordinary income and expenses were virtually nonexistent, consisting solely of extraordinary losses of ¥0.0B. Accordingly, temporary factors had an extremely limited impact on earnings, and Ordinary Income and Net Income are considered to broadly reflect the profitability of the core business. Meanwhile, the effective tax rate rose to 30.5% from 26.3% in the previous year, and the increased tax burden further pressured Net Income. Comprehensive income of ¥0.419B was slightly below Net Income of ¥0.445B, with other comprehensive income items unrelated to the core business, such as adjustments related to retirement benefits of △¥0.016B and valuation differences on securities of △¥0.010B, contributing to the divergence.

Earnings Forecasts and Guidance

Q1 progress against the full-year forecast was 25.5% for Revenue, at ¥10.73B / ¥42.00B; 21.7% for Operating Income, at ¥0.667B / ¥3.07B; 22.1% for Ordinary Income, at ¥0.640B / ¥2.90B; and 21.5% for Net Income, at ¥0.445B / ¥2.07B. While Revenue was progressing broadly in line with the standard quarterly progress rate of 25%, Operating Income, Ordinary Income, and Net Income were 3–4pt below the standard progress rate. As of the current quarter, there have been no revisions to the earnings or dividend forecasts, and the full-year plan remains unchanged.

Shareholder Returns

The full-year dividend forecast is ¥29.00, unchanged from the previous year's actual dividend of ¥29. Using the weighted-average number of shares outstanding during the period of 32.966 million shares, the annual dividend total is calculated at approximately ¥0.956B, resulting in a Payout Ratio of approximately 46.2% against the full-year Net Income forecast of ¥2.07B. No share repurchases have been confirmed, and shareholder returns are evaluated solely on the basis of dividends. Given the level of cash and deposits at ¥9.89B, the delay in profit progress during the current period is not considered to immediately constrain the continuation of dividend payments.

Risk Factors

1. Risk of gross profit margin deterioration: The gross profit margin was 38.0%, down 2.2pt from 40.2% in the previous year. If this declining trend continues, it could become a factor preventing the Company from achieving its full-year profit plan.

2. Delayed full-year progress: Progress rates for Operating Income, Ordinary Income, and Net Income were all 21–22%, below the standard quarterly progress rate of 25%. The extent of recovery in the second half will be a key point to monitor.

3. Increase in non-operating expenses: Interest expenses increased from ¥0.004B in the previous year to ¥0.019B, and non-operating income and expenses shifted from net income to net expenses. The increase in interest burdens is weighing on Ordinary Income.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company's Operating Income margin and Net Income margin are both substantially below the industry median, placing the Company at a lower level within the industry.

Growth and Capital Efficiency

Although the Revenue growth rate is below the industry median, it exceeds the lower bound of the IQR (2.9%), placing it at a below-median level within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Despite higher revenue, Operating Income declined because the gross profit margin fell by 2.2pt. The future trend in the gross profit margin will be a key focus as an inflection point in profitability.

2. Full-year progress was broadly in line with plan for Revenue at 25.5%, while profit progress was slightly behind at 21–22%. The extent of the recovery in profitability during the second half will be a key point to monitor.

3. Financial soundness remains strong, with an Equity Ratio of 70.3% and interest coverage of 35.1x, providing a foundation to support the continuation of shareholder returns at a Payout Ratio of approximately 46%.

Theoretical Share 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 to take any specific investment action.

Sensitivity: ¥1,125–¥1,189 at ±1% for the cost of equity, and ¥1,151–¥1,160 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).

(Model used: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not forecast or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI through analysis of 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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