Dai Nippon Toryo Company,Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥45.97B
• Operating Income: ¥1.82B
• Net Income: ¥2.83B
• EPS: ¥49.32

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

For FY2026 Q2, Dainippon Toryo (4611) delivered strong top-line momentum but experienced sharp profit compression, indicating adverse operating leverage and margin headwinds. Revenue rose 27.2% year over year to ¥45.97bn, supported by volume recovery and/or pricing initiatives, yet operating income fell 28.0% to ¥1.82bn, signaling significant cost pressure and/or elevated SG&A. Gross profit of ¥11.15bn implies a gross margin of 24.3%, adequate for a coatings portfolio but not enough to offset higher operating costs, as the operating margin declined to 3.95%. Ordinary income exceeded operating income by ¥0.31bn, pointing to non-operating gains (e.g., financial income or FX) cushioning operating weakness. Net income declined 48.3% YoY to ¥1.41bn, with EPS of ¥49.32, underscoring that cost inflation and/or mix effects outweighed revenue gains. The DuPont decomposition shows a low ROE of 1.87%, driven primarily by a modest net margin of 3.06% and slow asset turnover of 0.343x; financial leverage at 1.79x is not the constraining factor. Liquidity appears solid: current ratio 133.9% and quick ratio 112.6%, supported by ¥13.43bn in working capital. The balance sheet is conservatively positioned—based on the provided totals, equity is approximately 56% of assets—even though the reported equity ratio field is unpopulated. Operating cash flow of ¥2.43bn represents healthy cash conversion (OCF/NI = 1.73x), suggesting earnings quality is reasonable despite margin pressure. Interest coverage is very strong at 44.3x with low interest expense (¥41m), limiting near-term refinancing risk. Reported effective tax rate of 0.0% is clearly a data artifact; using the disclosed income tax expense, the implied rate is roughly in the low-40% range for the period. Free cash flow is not disclosed in this dataset, as investing cash flows and cash balances are unreported; conclusions on capex intensity must therefore be tentative. Dividend data are also not disclosed for the period (DPS and payout show as zero placeholders), so dividend policy assessment relies on historical norms rather than this print. Overall, the quarter shows healthy demand but strained profitability, with non-operating items and cash conversion mitigating, but not offsetting, pressure from costs and operating expenses. The key question is whether price increases and mix improvements can catch up to input costs and SG&A normalization in the second half. Inventory appears manageable relative to cost of sales, but working capital discipline remains important given growth. While solvency is comfortable and financial flexibility adequate, sustained improvement in operating margin and asset turnover is required to lift ROE. Management’s ability to pass through costs, optimize product mix, and maintain cost control will determine the trajectory of profit recovery in FY2026 H2 and beyond.

Profitability Analysis

ROE_decomposition: ROE 1.87% = Net margin 3.06% × Asset turnover 0.343× × Financial leverage 1.79×. The primary drag is profitability (low net margin) and slow asset turnover; leverage is moderate and not the driver of underperformance. margin_quality: Gross margin at 24.3% on revenue of ¥45.97bn and gross profit of ¥11.15bn is reasonable for coatings but insufficient given SG&A/other charges of roughly ¥9.33bn implied (Gross profit minus Operating income). Operating margin is 3.95% (¥1.82bn EBIT), down YoY (operating income -28% despite +27% revenue), indicating adverse price–cost timing, mix, and/or fixed-cost absorption. Ordinary margin is 4.62% (¥2.12bn), implying non-operating tailwinds (~¥0.31bn). Net margin is 3.06% (¥1.41bn), depressed by higher taxes and margin compression. operating_leverage: Revenue +27.2% YoY alongside Operating income -28.0% YoY indicates pronounced negative operating leverage this half. The divergence suggests raw material inflation, wage and logistics cost increases, or investments (R&D/SG&A) outpaced pricing and mix gains; fixed-cost absorption did not keep pace with volume.

Growth Assessment

revenue_sustainability: Top-line growth of +27.2% YoY is robust and likely reflects a combination of recovery in key end-markets (e.g., industrial/auto, construction), pricing actions, and possibly overseas contributions. Sustainability depends on continued demand normalization and the competitive ability to maintain price/mix in the face of cost volatility. profit_quality: Ordinary income exceeded operating income by ¥0.31bn, suggesting some reliance on non-operating gains (FX/dividends). EBITDA of ¥3.01bn (6.6% margin) indicates adequate cash earnings capacity, but the drop in operating profit implies that underlying profit growth lags revenue growth. The implied tax burden (using disclosed tax expense) pressures net profit. OCF/NI of 1.73x supports earnings quality despite margin headwinds. outlook: Near-term earnings trajectory hinges on price-cost catch-up, SG&A normalization, and product mix improvement. If input costs stabilize and price increases flow through, margins could recover in H2. Conversely, persistent cost inflation or weaker demand in industrial coatings/end-markets would cap margin expansion and keep ROE subdued.

Financial Health

liquidity: Current ratio 133.9% and quick ratio 112.6% indicate comfortable near-term coverage. Working capital stands at ¥13.43bn. Cash and equivalents are unreported in this dataset; however, the liquidity profile appears adequate given strong coverage ratios. solvency: Interest expense is low (¥41m) with EBIT/interest coverage at 44.3x, pointing to minimal financial strain. Using totals, equity/asset is approximately 56% (¥75.05bn/¥134.20bn), implying a conservative balance sheet, despite the equity ratio field showing as unreported. Debt-to-equity of 0.76x suggests moderate leverage. capital_structure: Total liabilities of ¥57.17bn vs total equity of ¥75.05bn indicates a balanced structure with headroom for investment. Ordinary income exceeding operating income hints at some financial asset income or FX effects, but funding costs remain contained.

Cash Flow Quality

earnings_quality: OCF of ¥2.43bn vs net income of ¥1.41bn (OCF/NI = 1.73x) indicates solid cash conversion and limited accrual risk in the period. FCF_analysis: Investing cash flow is unreported (0 placeholder), preventing a precise free cash flow calculation. EBITDA of ¥3.01bn provides capacity for capex, but actual capex and asset growth are undisclosed here. As such, FCF sufficiency cannot be concluded from this dataset. working_capital: Current assets of ¥53.07bn include inventories of ¥8.42bn. Relative to H1 cost of sales (¥24.99bn), inventory appears roughly in the 60–61 days range on a semiannual basis, which is reasonable. Continued discipline in receivables and inventories will be key given revenue growth.

Dividend Sustainability

payout_ratio_assessment: EPS is ¥49.32, but the dataset shows DPS and payout as zeros, which are placeholders for undisclosed amounts this period. Without an actual interim or full-year dividend figure, a payout ratio cannot be assessed for FY2026 H1. FCF_coverage: Free cash flow data are unavailable due to unreported investing cash flows; thus, cash dividend coverage cannot be evaluated from the provided figures. Financing cash outflow of ¥1.30bn may include debt repayments and/or dividends, but the split is not disclosed. policy_outlook: Assuming a stable historical policy, sustainability would depend on restoring operating margins and maintaining strong cash conversion. Clarity on capex plans and year-end DPS guidance will be important before judging coverage and trajectory.

Risk Assessment

Business Risks:

• Raw material price volatility (resins, solvents, pigments) affecting gross margin and price-cost timing
• End-market cyclicality in automotive, industrial machinery, and construction
• Competitive pricing pressure among domestic and regional paint/coatings producers
• Energy and logistics cost inflation impacting SG&A and COGS
• Product mix risk between higher-margin specialty coatings and lower-margin commodity lines
• Regulatory and environmental compliance costs (VOC, hazardous substances)
• Execution risk in passing through cost increases to customers

Financial Risks:

• Negative operating leverage if demand slows while fixed costs remain elevated
• Potential working-capital build tying up cash during growth phases
• FX exposure on imported inputs and overseas operations influencing ordinary income
• Uncertainty around capex intensity given unreported investing cash flows
• Tax rate variability impacting net income (implied tax expense significant in period)

Key Concerns:

• Operating margin compression despite strong revenue growth
• Dependence on non-operating gains to lift ordinary income above operating income
• Limited visibility on free cash flow and dividend outflows due to unreported items

Investment Implications

Key Takeaways:

• Strong top-line growth (+27.2% YoY) contrasted with a 28.0% YoY decline in operating income highlights adverse operating leverage.
• ROE at 1.87% is constrained by low net margin and slow asset turnover rather than leverage.
• Liquidity and solvency are solid (current ratio 134%, interest coverage 44x), providing financial resilience.
• Cash conversion is healthy (OCF/NI 1.73x), supporting earnings quality amid margin pressure.
• Visibility on capex, cash, and dividends is limited in this dataset, constraining FCF and payout analysis.
• Margin recovery in H2 depends on price-cost catch-up, mix improvements, and SG&A control.

Metrics to Watch:

• Price-cost spread and gross margin trajectory
• Operating margin and SG&A-to-sales ratio
• OCF/EBITDA and working-capital turns (inventory and receivables days)
• Capex and investing cash flows (for FCF assessment)
• Ordinary income composition (FX and financial income sensitivity)
• Asset turnover and ROE progression

Relative Positioning: Compared with larger Japanese peers in coatings, the company shows smaller scale and lower current ROE, but maintains a conservative balance sheet and strong interest coverage. Execution on pricing and cost control will be pivotal to close the margin gap.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis