Dai Nippon Toryo (4611) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for 2026 fiscal year Q3 showed higher revenue due to the consolidated contribution from Shinto Paint Co., Ltd., but lower profit due to deteriorating profitability and a reduction in extraordinary income and losses, resulting in higher revenue but lower profit. Revenue was ¥702.5B (+27.5% YoY), Operating Income was ¥29.9B (-24.5%), Ordinary Income was ¥34.2B (-23.0%), and Net Income was ¥22.7B (-41.3%). While revenue growth included the contribution from the expansion of the consolidation scope, declining margins in the core Domestic Coatings Business pressured consolidated profitability.

Factors Affecting Results

【Revenue】Revenue increased significantly by 27.5% YoY to ¥702.5B. By segment, Domestic Coatings was the largest, at ¥548.5B (78.1% of total), up 38.5% YoY, including the new consolidation of Shinto Paint Co., Ltd. Overseas Coatings was ¥66.5B (+2.5%), Lighting Equipment was ¥76.4B (-0.2%), and Fluorescent Color Materials was ¥8.9B (-5.3%). It is necessary to distinguish between organic growth in existing businesses and the impact of the expanded consolidation scope.

【Profit and Loss】Operating Income was ¥29.9B (-24.5% YoY), and the Operating Income margin fell significantly to 4.3% from 7.2% a year earlier. The main factor was the decline in the Domestic Coatings segment margin from 4.6% to 1.9%; the increase in the cost of sales ratio could not be absorbed solely through the control of SG&A expenses. Ordinary Income was ¥34.2B (-23.0%), and Net Income was ¥22.7B (-41.3%). The decline in extraordinary income, from ¥9.8B in gains on the sale of investment securities recognized in the previous year to ¥6.0B in the current period, further increased the rate of profit decline. In conclusion, the results showed higher revenue but lower profit.

Segment Analysis

Domestic Coatings reported revenue of ¥548.5B (78.1% of total), Operating Income of ¥10.3B, and a margin of 1.9%, a significant decline from 4.6% a year earlier, making it the primary cause of deteriorating consolidated profitability. Overseas Coatings reported revenue of ¥66.5B, Operating Income of ¥2.9B, and a margin of 4.4%, improving from the previous year. Lighting Equipment reported revenue of ¥76.4B, Operating Income of ¥13.5B, and a margin of 17.7%, the highest profitability among all segments and a major contributor to consolidated earnings; however, Operating Income was down 10.2% YoY. Fluorescent Color Materials reported revenue of ¥8.9B, Operating Income of ¥0.4B, and a margin of 4.5%, remaining approximately flat. The low profitability of the large-scale Domestic Coatings Business is the key factor determining consolidated performance.

Key Financial Indicators

【Profitability】The Operating Income margin declined to 4.3% from 7.2% a year earlier, while the Net Income margin of 3.2% (based on profit attributable to owners of the parent) also deteriorated from the previous year. The gross margin declined by 377bp to 27.3% from 31.1% a year earlier, indicating that passing on higher raw material and energy costs remains a challenge. 【Cash Quality】Extraordinary income of ¥8.2B included ¥6.0B in gains on the sale of investment securities and ¥1.6B in gains on the sale of fixed assets; therefore, non-recurring items continued to contribute to Net Income. 【Investment Efficiency】Annualized ROE was 4.0%, a level indicating room for improvement in capital efficiency. 【Financial Soundness】The Equity Ratio was 55.1%, indicating that financial soundness was maintained, although it declined from the previous year. Current assets of ¥540.7B exceeded current liabilities of ¥396.8B, ensuring short-term liquidity.

Cash Flow Analysis

Cash and deposits declined to ¥111.9B from ¥126.5B a year earlier. Property, plant and equipment increased to ¥487.0B, indicating that capital investment has continued. Long-term borrowings increased significantly from ¥10.4B in the previous year to ¥53.3B, while short-term borrowings declined from ¥92.2B, suggesting that the financing structure may have been partially shifted from short-term to long-term funding. Accounts receivable and notes receivable of ¥148.7B and inventories of ¥86.7B increased in line with revenue growth, suggesting that the accumulation of operating assets was a factor behind the decline in cash on hand.

Quality of Earnings

Pre-tax income of ¥37.5B included extraordinary income of ¥8.2B (including ¥6.0B in gains on the sale of investment securities and ¥1.6B in gains on the sale of fixed assets) and extraordinary losses of ¥5.0B, resulting in a net upward impact of ¥3.3B. This was substantially below the net upward impact of ¥10.4B in the same period of the previous year, primarily attributable to ¥9.8B in gains on the sale of investment securities. Non-operating income of ¥9.0B was mainly composed of ¥2.7B in dividends received and ¥3.2B in other non-operating income. As these amounts were small relative to revenue, recurring business earnings power should be evaluated with Operating Income of ¥29.9B as the core measure. Comprehensive income was ¥13.9B, below Net Income of ¥22.7B, while foreign currency translation adjustments of -¥5.1B and adjustments related to retirement benefits of -¥5.1B had a negative impact on net assets. The divergence between Net Income and comprehensive income indicates that changes in the external environment, including foreign exchange rates and the valuation of pension assets, are affecting net assets along a different axis from profit and loss.

Earnings Forecast and Guidance

The full-year company forecasts are Revenue of ¥920.0B (+26.9% YoY), Operating Income of ¥41.0B (-13.1%), and Ordinary Income of ¥43.0B (-17.3%). Cumulative progress rates are 76.4% for Revenue and 72.8% for Operating Income. Revenue is ahead of the standard 75% progress benchmark, while profit progress is slightly below it. The company’s forecasts already incorporate higher revenue but lower profit, making improved profitability in Domestic Coatings the key focus for achieving the full-year targets.

Shareholder Returns

The Q2 dividend was ¥0. The full-year forecast dividend is ¥58 per share, and the Payout Ratio calculated based on forecast EPS of ¥101.75 is approximately 57.0%, remaining below the guideline of 60%. Against forecast full-year Net Income of ¥29.0B, the forecast total dividend amount (approximately ¥16.5B) is at a sustainable level. However, cumulative Net Income through Q3 of ¥22.7B was down 41.3% YoY, making profit generation in Q4 important for maintaining dividend capacity.

Risk Factors

1. Risk of deteriorating profitability in Domestic Coatings: The Domestic Coatings segment margin, which accounts for 78.1% of consolidated revenue, declined from 4.6% to 1.9%. If the Company is unable to pass on increases in raw material, energy, and logistics costs, the downside risk to consolidated profit will be significant.

2. Reliance on short-term borrowings: The proportion of short-term borrowings in interest-bearing debt is high, creating a risk of higher funding costs if refinancing rates rise. Long-term borrowings increased from ¥10.4B in the previous year to ¥53.3B, indicating progress toward a longer-term funding structure.

3. M&A integration risk: The revenue base expanded through the new consolidation of Shinto Paint Co., Ltd. and the conversion of Bonflon into a wholly owned subsidiary. However, if integration or optimization of the production structure does not proceed as planned, there is a risk that higher revenue will not translate into profit growth. Goodwill was ¥3.5B, equivalent to 0.5% of net assets, and current impairment exposure remains limited.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability is below the industry median, with both the Operating Income margin and Net Income margin positioned at the lower end of the industry range.

Growth and Capital Efficiency

The Revenue growth rate is substantially above the industry median, although the impact of the expanded consolidation scope should be taken into consideration.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Revenue increased by 27.5% YoY, while Operating Income declined by 24.5%, indicating that transforming the business structure to monetize revenue growth is a key challenge.

2. Lighting Equipment had the highest margin among all segments at 17.7% and serves as a major support for consolidated earnings, while the decline in the Domestic Coatings margin clearly demonstrates the pressure on overall consolidated performance.

3. Extraordinary income included non-recurring items such as gains on the sale of investment securities. In evaluating Net Income, it is useful to distinguish such items from recurring earnings power based on Operating Income.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,917–¥2,026 for a ±1% change in the cost of equity, and ¥1,961–¥1,977 for a ±0.1 change in ω.

Notes:

• 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 are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from 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 by AI through analysis of XBRL earnings release 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 a professional as necessary.

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