TAIYO HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥67.83B
• Operating Income: ¥15.19B
• Net Income: ¥9.21B
• EPS: ¥198.36

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

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

AI Integrated Analysis

Analysis integrating XBRL data (GPT-5) and PDF earnings presentation (Claude)

Executive Summary

Taiyo Holdings (46260) delivered solid FY2026 Q2 consolidated results under JGAAP, with clear evidence of operating leverage and margin expansion. Revenue increased 13.2% year over year to ¥67.83bn, while operating income rose 22.2% to ¥15.19bn, lifting the operating margin to roughly 22.4%. Net income was ¥11.02bn (+19.7% YoY), implying a net margin of 16.25%, a strong level for a specialty materials/chemicals-oriented business model. Gross profit reached ¥28.88bn, yielding a gross margin of 42.6%, and SG&A is inferred at ¥13.70bn (about 20.2% of sales), indicating disciplined cost control. Ordinary income (¥15.08bn) was only slightly below operating income, suggesting limited net non-operating drag despite ¥0.45bn of interest expense and implies stable financial income/expenses overall. The effective tax expense reported in the statements is ¥3.21bn, which implies an approximate effective tax rate of about 21–22% on ordinary income. The company’s DuPont metrics show a balanced ROE profile: 16.25% net margin, 0.354x asset turnover, and 1.79x financial leverage drive a calculated ROE of 10.3%. Liquidity is strong with a current ratio of 2.58x and working capital of ¥60.02bn; inventory of ¥10.54bn appears well-controlled relative to cost of sales. Balance sheet solvency looks sound, with total equity of ¥107.01bn versus assets of ¥191.59bn, implying a calculated equity ratio near 56% despite the reported equity ratio figure being unreported. Interest coverage is robust at 34.1x (operating income/interest expense), indicating ample buffer against rate or profit volatility. While earnings momentum and balance sheet strength are evident, cash flow statement items (OCF/FCF/Cash) are unreported in this dataset, limiting assessment of cash conversion and free cash flow durability. Dividend data are also not disclosed here; however, profitability and liquidity would generally support distribution capacity subject to board policy and capital allocation needs. The implied weighted-average share count is approximately 55.6 million based on EPS and net income, given shares outstanding are unreported. Overall, the quality of earnings appears high from a margin and cost discipline perspective, though validation via operating cash flow would be beneficial once disclosed. Key watchpoints include sustaining high margins, managing working capital as growth continues, and monitoring non-operating items and interest costs.

From Earnings Presentation: Taiyo Holdings' Q2 FY2026/3 presentation materials show strong performance in both Electronics and Pharmaceutical businesses, with an upward revision to full-year forecasts. In Electronics, cumulative sales increased YoY +9% and QoQ +8%, driven by PKG substrate materials (for memory) and rigid substrate materials (automotive and smartphones). The Pharmaceutical business grew +22% YoY cumulatively, supported by increased contract manufacturing orders and demand growth in manufacturing and sales. The interim dividend was increased by 20 yen to 165 yen, strengthening shareholder returns. A new medium-term management plan targeting March 2031 was formulated, setting goals of 30% ROE, 26% operating margin, and 58 billion yen EBITDA. A stock split (1:2) is scheduled for December 2025 to lower the minimum investment unit and expand the individual shareholder base. The undisclosed cash flow data pointed out by XBRL analysis remains unaddressed in this material, leaving visibility of cash generation capability as an ongoing issue. Foreign exchange impact (average USD/JPY 146.5 yen during the period, 5.8 yen stronger yen YoY) was a negative factor but was offset by improvements in volume and product mix.

Financial Analysis

Profitability

ROE_decomposition: ROE ~10.3% = Net margin 16.25% × Asset turnover 0.354x × Financial leverage 1.79x. This indicates returns are primarily margin-driven rather than asset-turnover-driven, with moderate leverage. margin_quality: Gross margin 42.6% (¥28.88bn on ¥67.83bn sales) reflects strong product economics. Operating margin ~22.4% (¥15.19bn) benefited from revenue growth outpacing operating cost growth; SG&A is inferred at ¥13.70bn (20.2% of sales). Net margin at 16.25% is solid even after ¥0.45bn interest expense and an implied ~21–22% effective tax rate. operating_leverage: Operating income growth (+22.2% YoY) outpaced revenue growth (+13.2% YoY), evidencing operating leverage and likely fixed-cost absorption benefits. The small gap between operating and ordinary income suggests limited non-operating volatility.

Growth

revenue_sustainability: Top-line growth of 13.2% YoY is healthy. Without segment disclosures in this dataset, the breadth across end-markets is unclear, but the magnitude suggests underlying demand stability or share gains. profit_quality: Margin expansion to ~22.4% OPM and 16.25% NPM indicates improved mix and/or cost discipline. Interest coverage of 34.1x underscores earnings resilience to financing costs. Validation via cash conversion is pending due to unreported cash flow data. outlook: If current cost structure and pricing hold, earnings growth can remain above sales growth near term. Key swing factors include input cost trends, FX, product mix, and capacity utilization; visibility would improve with segment and cash flow disclosure.

Financial Health

liquidity: Current assets ¥98.01bn vs current liabilities ¥37.99bn yields a current ratio of 2.58x and quick ratio of 2.30x, indicating strong near-term liquidity. Working capital is ¥60.02bn. solvency: Total equity ¥107.01bn vs total assets ¥191.59bn implies a calculated equity ratio of ~55.9%. Interest coverage is 34.1x, and the provided debt-to-equity of 0.83x suggests manageable leverage. capital_structure: Leverage appears moderate (assets/equity 1.79x). Ordinary income is close to operating income, implying limited reliance on non-operating gains. Balance sheet capacity remains for investment while maintaining prudence.

Cash Flow

earnings_quality: Accrual quality cannot be fully assessed due to unreported operating cash flow (OCF). Nevertheless, high gross/operating margins and strong interest coverage are supportive of earnings quality. FCF_analysis: Free cash flow is unreported. Absent OCF and capex data, FCF coverage of dividends or debt is indeterminable here. working_capital: Inventories at ¥10.54bn relative to half-year cost of sales (¥31.02bn) appear reasonable. Assuming annualized COGS, indicative inventory turns are healthy, but precise cash conversion cycle cannot be computed without receivables/payables details.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio are not disclosed in this dataset (reported as 0.00). With EPS at ¥198.36 and net income of ¥11.02bn, earnings capacity to fund distributions appears ample, but the actual policy and targeted payout are not provided here. FCF_coverage: FCF is unreported; therefore, cash coverage of any dividend cannot be assessed from this data alone. policy_outlook: Given solid profitability and liquidity, the company appears positioned to sustain or consider distributions, subject to reinvestment needs, capex, and board policy; confirmation awaits official guidance.

Business Outlook

Full-year FY2026/3 revised upward to sales of 128.8 billion yen (+2% vs. previous forecast), operating income of 26.9 billion yen (+9%), ordinary income of 26.5 billion yen (+12%), and net income of 18.4 billion yen (+15%). Main driver is Electronics business exceeding targets (first half progress rate 107%), with conservative assumptions maintaining initial forecasts for the second half. Medium-term, targeting sales of 180 billion yen, operating income of 47 billion yen (26% margin), and 30% ROE by FY2031/3. Electronics business aims for 30% operating margin (slightly above current 30% level), while Pharmaceutical business plans to significantly improve margin from 6% to 21%. Key pillars for Electronics are shift to high-function PKG and rigid products and expansion of BU (buildup) materials; for Pharmaceuticals, CDMO contract expansion and manufacturing/sales portfolio optimization. Foreign exchange assumption for second half is USD/JPY 145.0 yen, with yen appreciation risk acknowledged but currently incorporated. Orders remain strong, but inventory adjustments and customer production slowdowns in the second half are monitored as risks.

Management Guidance

Management has clearly stated a 'shareholder return policy targeting a consolidated total return payout ratio of 100%' and decided on a 20 yen increase in interim dividend (to 165 yen). Year-end dividend will be flexibly and dynamically adjusted based on performance. Stock split (1:2) will lower the investment unit to expand the individual shareholder base and improve liquidity. Upward revision of full-year forecasts is based on 'Electronics business expected to exceed initial forecasts' and 'booking of extraordinary income from consolidated subsidiary liquidation and non-operating income from CVC fund sale.' Second half conservatively maintained, leaving room for upside. Medium-term management plan emphasizes balance between capital efficiency improvement and M&A/growth investments, targeting 30% ROE toward realizing the 2030 long-term vision. Cash flow information disclosure remains absent in this material, requiring supplementation in future full-year disclosures.

Strategic Initiatives

• Electronics Business: Accelerate development and expand market share of PKG substrate materials (for memory HBM, etc.). Expand sales of high-function rigid products (for automotive, 5G, AI servers). Promote new adoption of BU (buildup) materials and add higher value
• Pharmaceutical Business: Expand CDMO contracts (deepen existing customers and scale up new clients). Optimize manufacturing/sales product portfolio (maintain pricing for long-listed products and shift to high-value-added products). Absorb impact of selective medical care system and capture replacement demand
• Company-wide: Drive dual approach of profit margin improvement (targeting 32% EBITDA margin) and capital efficiency enhancement to achieve 30% ROE by FY2031/3. Target operating margins of 26% company-wide, 30% for Electronics, and 21% for Pharmaceuticals
• Shareholder Returns: Dynamically combine dividend increases/continuation and share buybacks, targeting a consolidated total return payout ratio of 100%. Lower investment unit through stock split to expand individual investor base and improve liquidity
• R&D and Capital Investment: Accelerate customer engagement enhancement and early market introduction of next-generation materials, including showroom development at Electronics business Technology Development Center 'InnoValley' (Good Design Award winner)
• Global Expansion: Expand sales in China, Taiwan, South Korea, and ASEAN. By region, China accounts for 61% of sales; promote recovery in local customer capital investment and new adoption
• Sustainability: Enhance environmental regulation compliance and chemical substance management. Improve corporate brand through design recognition of welfare facilities and showrooms

Risk Assessment

Business Risks:

• Exposure to cyclical end-markets in electronics/materials that can affect volume and pricing.
• Input cost volatility (raw materials, energy) potentially impacting gross margins.
• FX fluctuations influencing both revenue competitiveness and cost base.
• Product mix shifts that could pressure margins if higher-value lines slow.
• Customer concentration risk common in specialty materials, though not disclosed here.

Financial Risks:

• Cash flow data unreported, limiting visibility on cash conversion and capex needs.
• Interest rate risk despite high coverage, if leverage or rates rise.
• Working capital expansion requirements in growth phases could absorb cash.
• Potential tax-rate variability (implied ~21–22%) impacting net margins.

Key Concerns:

• Lack of reported cash flow statements in this period constrains FCF assessment.
• Dividend policy and payout details are not disclosed in this dataset.
• Sustainability of elevated operating margins amid potential cost or demand normalization.

Risk Factors from Presentation:

• Foreign Exchange Risk: Average rate during the period was 5.8 yen stronger yen YoY, negatively impacting performance. Second half assumes 145.0 yen/USD, but further yen appreciation would pressure sales and profits
• Demand Fluctuation and Inventory Adjustment Risk: PKG substrate materials strong for memory applications, but second half concerns about customer inventory adjustments and capital investment slowdowns
• Product Concentration Risk: PKG substrate materials account for approximately 39% of sales (Q2 standalone), with high dependence on specific applications. Memory market fluctuations significantly affect performance
• Pharmaceutical Business Regulatory Risk: Selective medical care system started in October 2024 reduced sales volume of long-listed products. While offset by capturing replacement demand, ongoing monitoring of regulatory changes required
• Raw Material and Energy Cost Risk: Potential for rising raw material costs (petrochemicals, solvents, etc.) in Electronics business and API costs in Pharmaceutical business to pressure profit margins
• Geopolitical Risk: High dependence on China and Taiwan (combined over 70%), with supply chain disruptions or regulatory tightening potentially affecting business continuity
• Competition and Price Pressure Risk: Intensifying competition in PKG and rigid markets. While differentiation pursued through shift to high-function products, downward price pressure on commodity products continues

Investment Implications

Key Takeaways:

• Strong YoY earnings momentum with operating leverage: revenue +13.2%, operating income +22.2%.
• High profitability profile: ~42.6% gross margin and ~22.4% operating margin.
• Balanced ROE of 10.3% driven mainly by margins rather than leverage.
• Robust liquidity (current ratio 2.58x) and solid solvency (calculated equity ratio ~56%).
• Interest coverage of 34.1x provides cushion against financing cost shocks.
• Cash flow and dividend data are unreported; FCF and payout sustainability cannot be validated from this dataset.

Metrics to Watch:

• Operating cash flow and free cash flow disclosures in subsequent quarters.
• Operating margin trajectory and SG&A ratio as growth continues.
• Working capital metrics (DSO, DPO, inventory turns) to gauge cash conversion.
• Non-operating items and interest expense trends affecting ordinary income.
• Tax rate normalization relative to implied ~21–22% this period.

Relative Positioning: Within Japan’s specialty chemical/materials peers, Taiyo’s margin and liquidity profile appear above-average, while asset turnover is moderate; overall returns are margin-led with conservative leverage.

Supplementary Insights (Key Highlights)

• Upward revision of FY2026/3 full-year forecasts: Sales of 128.8 billion yen (+2%), operating income of 26.9 billion yen (+9%), net income of 18.4 billion yen (+15%). Reasons for revision include Electronics business exceeding targets and booking of liquidation gains from consolidated subsidiary and CVC fund sale gains
• Interim dividend increased from 145 yen to 165 yen, an increase of 20 yen. Year-end dividend will be flexibly considered based on performance, following the shareholder return policy targeting a 100% payout ratio
• Medium-term management plan targeting FY2031/3 formulated. Targets consolidated sales of 180 billion yen, operating income of 47 billion yen (26% operating margin), and 30% ROE, aiming for Electronics at 128 billion yen (30% operating margin) and Pharmaceuticals at 43 billion yen (21% operating margin)
• Stock split (1:2, effective date December 1, 2025) will reduce minimum investment amount from approximately 800,000 yen to approximately 400,000 yen to expand individual investor base
• Electronics business shows significant growth in PKG substrate materials by product category, up +18% YoY (+2,569 million yen) cumulatively. Main driver is recovery in memory demand. High-function rigid also up +5%, supported by automotive and smartphones
• Pharmaceutical business contract manufacturing expanded rapidly, up +43% (+3,434 million yen) cumulatively. Contributed by increased orders from existing customers and full-scale contracts from new clients. Manufacturing and sales partially decreased due to the selective medical care system, but captured replacement demand from other companies' product shortages
• By region, China grew +13% (+3,247 million yen) cumulatively to 14,589 million yen (61% of total), the largest market. Taiwan also strong at +9%. Japan remained flat
• Operating margin maintained at high levels: Electronics 30% (Q2 standalone), Pharmaceuticals 13% (first half cumulative). Overall operating margin at 22% (first half cumulative), consistent with XBRL analysis of 22.4%
• Taiyo Ink Manufacturing's Technology Development Center 'InnoValley' showroom received the 2025 Good Design Award. Initiative for customer engagement and brand value enhancement
• Yen appreciation impact (average rate down 5.8 yen YoY during the period) was negative for performance but absorbed by volume and mix improvements. Second half forecast rate maintained at 145.0 yen/USD

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