Quick View
| Metric | Current Period | Same Period Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥5.47B | ¥5.74B | −4.6% |
| Operating Income | ¥0.35B | ¥0.37B | −6.3% |
| Ordinary Income | ¥0.38B | ¥0.40B | −6.1% |
| Net Income | ¥0.24B | ¥0.27B | −12.1% |
| ROE | 0.9% | 1.1% | - |
Executive Summary
In Q1 FY2026, revenue and earnings declined, primarily due to lower revenue from the core Coatings Business. Revenue was ¥5.47B (-4.6% year on year), Operating Income was ¥0.35B (-6.3%), Ordinary Income was ¥0.38B (-6.1%), and Net Income attributable to owners of the parent was ¥0.24B (-11.0%). Earnings contracted at a rate exceeding the decline in revenue, indicating that the fixed-cost burden and higher company-wide expenses pressured profitability. Meanwhile, progress rates against the full-year forecast were 23.8%–24.3% across the respective metrics, close to the standard quarterly progress level of 25%.
Factors Affecting Performance
【Revenue】Revenue was ¥5.47B, a year-on-year decline of -4.6%. The core Coatings Business, which accounted for 63.7% of external revenue, recorded revenue of ¥3.49B (-8.6%), making it the primary driver of the company-wide decline. The Fine Chemicals Business recorded revenue of ¥0.59B (+4.2%), while the Distillation Business recorded revenue of ¥1.47B (+3.4%); both businesses achieved revenue growth and partially offset the decline in the Coatings Business.
【Profit and Loss】Operating Income was ¥0.35B (-6.3%), Ordinary Income was ¥0.38B (-6.1%), and Net Income was ¥0.24B (-11.0%–12.1%). The gross profit margin improved to 23.2% from approximately 21.4% in the previous year, but the SG&A expense ratio increased to 16.9%, leaving the Operating Income margin at 6.3%. By segment, the Distillation Business achieved higher earnings, with profit of ¥0.14B (+21.8%); the Fine Chemicals Business recorded lower earnings of ¥0.12B (-5.8%) despite higher revenue; and the Coatings Business also recorded lower earnings of ¥0.27B (-8.9%). The adjustment for company-wide expenses and other items was negative ¥0.18B, increasing from negative ¥0.17B in the previous year and adding to the pressure caused by the lack of growth in aggregate segment profit. The fact that the decline in Net Income exceeded the decline in Operating Income reflects the burden of income taxes and other taxes, with an effective tax rate of 36.8%. Extraordinary gains and losses were immaterial, with a loss on disposal of fixed assets of ¥0.005B, and the impact of temporary factors was limited. Overall, the results represent declines in both revenue and earnings.
Segment Analysis
The Coatings Business recorded revenue of ¥3.49B (-8.6%) and Operating Income of ¥0.27B (-8.9%), accounting for 63.7% of external revenue and 51.0% of segment profit, making it the core business. Its declines in revenue and earnings were the largest downward factors affecting company-wide performance. The Fine Chemicals Business recorded revenue of ¥0.59B (+4.2%) and Operating Income of ¥0.12B (-5.8%). Despite higher revenue, its profit margin declined by approximately 210bp, from approximately 21.6% in the previous year to 19.5%, suggesting profitability pressure from raw material costs and product mix. The Distillation Business achieved higher revenue and earnings, recording revenue of ¥1.47B (+3.4%) and Operating Income of ¥0.14B (+21.8%); its profit margin improved from approximately 8.7% to 9.7%. The adjustment for company-wide expenses and other items was negative ¥0.18B, increasing from negative ¥0.17B in the previous year, and was one factor causing company-wide Operating Income to decline even though aggregate segment profit increased.
Key Financial Metrics
【Profitability】The Operating Income margin was 6.3% and the Net Income margin was 4.3%, with both metrics declining slightly from the same period of the previous year. ROE was low at 0.9%. Based on a DuPont decomposition of a 4.3% Net Income margin × 0.176x total asset turnover × 1.25x financial leverage, the low total asset turnover is the constraining factor.【Cash Flow Quality】Accounts receivable were ¥5.27B, and DSO had extended to 88 days on an annualized basis, warranting attention to the pace at which earnings are converted into cash. Inventories were ¥1.34B, comprising ¥1.34B of finished goods, ¥1.03B of raw materials, and ¥0.05B of work in process. The small proportion of work in process suggests that production-process stagnation was limited.【Investment Efficiency】The Equity Ratio was high at 79.7%. While the asset composition was centered on cash and deposits and accounts receivable, the asset base was large relative to the revenue scale accumulated during the current quarter, leaving room for improvement in capital efficiency.【Financial Soundness】Cash and deposits were ¥10.12B, accounting for 32.6% of total assets and substantially exceeding current liabilities of ¥5.54B. Property, plant and equipment amounted to ¥6.98B, while intangible assets amounted to ¥0.34B. Total liabilities were ¥6.31B and net assets were ¥24.76B, indicating a low level of debt capital and a conservative capital structure.
Cash Flow Analysis
As figures from the statement of cash flows have not been disclosed, fund movements are assessed based on changes in the balance sheet. Cash and deposits were ¥10.12B, slightly down from ¥10.71B in the same period of the previous year. Accounts receivable were ¥5.27B, and including electronically recorded receivables, the collection period was equivalent to approximately 88 days on an annualized basis, which is relatively long; the pace of cash collection from operating activities therefore requires attention. Accounts payable were ¥4.01B, remaining at approximately the same level as in the previous year, and the cash burden on the payment side was generally stable. Inventories were ¥1.34B, a slight decrease from the previous year, with no indication of cash pressure from inventory accumulation. Property, plant and equipment increased from the previous year to ¥6.98B, suggesting that a certain level of capital investment may be continuing. Overall, although cash and deposits remained at a high level, the lengthening collection period for accounts receivable is a monitoring point because it could affect the quality of Operating Cash Flow.
Quality of Earnings
Profit for the current quarter was composed primarily of recurring business activities, and the impact of extraordinary gains and losses was limited. Extraordinary losses were only ¥0.005B, mainly consisting of a loss on disposal of fixed assets, and had a very small impact on Net Income. Non-operating income was ¥0.04B, comprising ¥0.02B of interest income and ¥0.01B of dividend income, which supplemented Ordinary Income, while a foreign exchange loss of ¥0.01B partially offset these items. The fact that the decline in Net Income (-11.0%–-12.1%) exceeded the decline in Operating Income (-6.3%) indicates that the burden of income taxes and other taxes, with an effective tax rate of 36.8%, reduced bottom-line earnings. Comprehensive income was ¥0.39B, exceeding Net Income of ¥0.24B, due to a foreign currency translation adjustment of +¥0.07B and a valuation difference on available-for-sale securities of +¥0.09B. The divergence between Comprehensive Income and Net Income reflects non-recurring changes in asset values, such as the valuation of other securities and foreign exchange movements at overseas subsidiaries, and does not itself indicate the earning power of the core business.
Earnings Forecast and Guidance
Progress rates against the full-year forecasts of revenue of ¥23.00B, Operating Income of ¥1.45B, Ordinary Income of ¥1.55B, and Net Income of ¥1.00B were 23.8%, 23.8%, 24.3%, and 23.8%, respectively. The deviations from the standard quarterly progress level of 25% were small. However, while the full-year forecast assumes revenue and earnings growth of +3.3% and +3.7%, respectively, Q1 recorded declines in both revenue and earnings. Achieving full-year revenue and earnings growth will therefore require a recovery in demand for the core Coatings Business and improved profitability in the second half. No revisions have been made to the earnings forecast or dividend forecast.
Shareholder Returns
The full-year dividend forecast is ¥54.00 per share, representing a planned increase from ¥26 in the previous year, equivalent to the combined interim and year-end dividends. Based on the full-year EPS forecast of ¥132.37, the Payout Ratio is approximately 40.8%, a sustainable level below 60%. The financial base is robust, with an Equity Ratio of 79.7% and cash and deposits of ¥10.12B, securing dividend capacity on an earnings basis; however, actual return capacity will depend on the degree to which the full-year results are achieved. No disclosure has been made regarding share buybacks.
Risk Factors
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Weak demand in the core business: The Coatings Business continues to experience declines in both revenue and earnings, with revenue of ¥3.49B (-8.6% year on year) and Operating Income of ¥0.27B (-8.9%). As the core business accounts for 63.7% of external revenue, the extent of its recovery will have a significant impact on full-year performance.
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Lengthening accounts receivable collection period: Accounts receivable were ¥5.27B, and DSO was long at approximately 88 days on an annualized basis. A lengthening collection period while revenue is declining could place pressure on working capital.
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Profitability pressure in the Fine Chemicals Business: The business achieved higher revenue of ¥0.59B (+4.2%), but Operating Income declined to ¥0.12B (-5.8%), and its profit margin decreased from approximately 21.6% to 19.5%. Changes in raw material costs and product mix may be affecting margins.
Industry Benchmark (For Reference; Compiled by the Company)
Industry Benchmark (manufacturing)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income Margin | 6.3% | 7.2% (3.2%–12.5%) | −0.9pt |
| Net Income Margin | 4.3% | 5.9% (2.9%–12.5%) | −1.6pt |
The company's Operating Income margin and Net Income margin are both below the industry median, placing its profitability below average within the industry.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (Year on Year) | −4.6% | 5.6% (1.1%–13.9%) | −10.2pt |
The revenue growth rate is substantially below the industry median, and the revenue decline during the current quarter ranks among the lower levels within the industry.
※Source: Compiled by the Company
Key Takeaways from the Results
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Performance diverged across segments: the Distillation Business achieved both revenue and earnings growth, with its profit margin improving by approximately +1.0pt, while the core Coatings Business recorded declines in both revenue and earnings, and the Fine Chemicals Business achieved revenue growth but earnings declined. Recovery in the core business is structurally key to improving company-wide performance.
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The adjustment for company-wide expenses and other items increased from ¥0.17B in the previous year to ¥0.18B, becoming a factor that pressured company-wide Operating Income even though aggregate segment profit was trending upward.
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Progress rates for the full year were 23.8%–24.3% across the respective metrics, close to the standard benchmark. However, because the full-year forecast itself assumes revenue and earnings growth, the consistency of the forecast with the current quarter's trend of declining revenue and earnings should be verified in subsequent quarters.
This report is an earnings analysis document automatically generated by AI based on XBRL earnings flash report data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.
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AI Financial Analysis
Executive Summary
FY2026 Q1 performance was modestly weaker year on year, with lower sales and operating income despite a clear improvement in gross margin. Revenue declined 4.6% YoY to ¥5.47bn. Operating income fell 6.3% YoY to ¥345m. Ordinary income declined 6.1% YoY to ¥377m. Profit attributable to owners decreased 11.0% YoY to ¥238m, equivalent to EPS of ¥31.51. The gross profit margin improved to 23.2% from 21.4% in the prior-year quarter, an expansion of approximately 180bp. This indicates that the reduction in cost of sales, down 6.8% YoY, exceeded the decline in revenue. In contrast, the operating margin edged down by approximately 10bp to 6.3%, as SG&A expenses increased 7.4% YoY to ¥922m. Accordingly, the gross-margin benefit was more than absorbed by higher fixed corporate and administrative expenses. Net margin fell by approximately 30bp to 4.3%, reflecting the lower operating result, a higher effective tax rate of 36.8%, and a small extraordinary loss. Non-operating income of ¥44m supported ordinary income, led by interest income of ¥17m and dividend income of ¥11m. Interest expense was only ¥1m, resulting in exceptionally strong interest coverage of 648.5x. The core Coatings business remained the largest segment by profit contribution, but its sales and segment profit both declined. Distillation delivered the strongest segment profit growth and partly offset weakness elsewhere. The Q1 revenue and operating-income progress rates against full-year guidance were both approximately 23.8%, marginally below the standard 25% first-quarter pace but not materially off track. The balance sheet remains highly liquid and conservatively financed, with cash and deposits of ¥10.12bn and a current ratio of 376.4%. The principal operating issue is elevated receivable days of 88 days, which requires monitoring given the contraction in consolidated sales. Comprehensive income increased to ¥393m from ¥223m, supported by favorable valuation and foreign-currency translation movements rather than by stronger underlying earnings.
Profitability Analysis
The reported annualized DuPont ROE is 3.9%, comprising a 4.3% net profit margin, 0.704x asset turnover, and 1.25x financial leverage. The low-leverage capital structure is conservative, but it mechanically limits ROE amplification. The principal constraint on annualized ROE is the modest net margin rather than financial risk-taking. Gross margin rose to 23.2% from 21.4%, demonstrating favorable production cost absorption, pricing, sales mix, or procurement effects at the consolidated level. However, operating margin declined slightly to 6.3% from 6.4% because SG&A increased 7.4% while revenue fell 4.6%. This negative operating leverage is the most important profitability deterioration in the quarter. Unallocated corporate expenses increased to ¥185m from ¥167m, a 10.9% increase, contributing to the gap between total segment profit and consolidated operating income. The Coatings business, the core business by segment profit, recorded external sales of ¥3.48bn, down 8.7% YoY, and segment profit of ¥269m, down 8.9% YoY; its segment margin was broadly stable at approximately 7.7%. Fine Chemicals increased external sales 4.2% YoY to ¥592m, but segment profit fell 5.8% to ¥115m, compressing its segment margin by roughly 210bp to 19.5%. Distillation increased external sales 3.3% YoY to ¥1.40bn and expanded segment profit 21.8% to ¥143m; its segment margin improved by approximately 150bp to 9.8%. Distillation was therefore the principal positive contributor to segment-level margin development. The effective tax rate was 36.8%, producing a tax burden of 0.639, below the 0.70 reference level and a modest drag on conversion of pre-tax profit into net income. The interest burden of 1.079 reflects net non-operating financial income and negligible financing costs, rather than debt-related earnings pressure. A ¥5m loss on disposal of fixed assets was immaterial at about 2% of quarterly profit attributable to owners and does not materially undermine recurring earnings quality.
Growth Assessment
Top-line momentum was weak in Q1, with consolidated revenue declining 4.6% YoY. The decline was concentrated in Coatings, whose ¥332m sales reduction was larger than the combined sales growth in Fine Chemicals and Distillation. Fine Chemicals and Distillation together added approximately ¥67m of external sales, providing partial diversification against the Coatings downturn. The improvement in consolidated gross margin suggests that the earnings impact of the lower sales base was mitigated at the production-profit level. Nevertheless, overhead growth prevented this gross-profit improvement from translating into operating-profit growth. Full-year company guidance calls for revenue of ¥23.0bn, up 3.3% YoY, operating income of ¥1.45bn, up 3.7%, ordinary income of ¥1.55bn, up 2.7%, and profit attributable to owners of ¥1.0bn. Q1 progress was 23.8% for revenue, 23.8% for operating income, 24.3% for ordinary income, and 23.8% for profit attributable to owners. These rates are slightly below the standard 25% Q1 run rate, but the deviation is not large enough on its own to signal a material shortfall versus guidance. Achieving the full-year plan requires a return to positive year-on-year sales growth after the Q1 decline, particularly in the Coatings business. The guidance has not been revised, indicating that management has maintained its full-year assumptions. The improvement in Distillation profitability is a constructive factor, but sustainable recovery depends on whether Coatings volume and group overhead productivity improve over subsequent quarters.
Financial Health
Financial health is strong. Total assets were ¥31.07bn, of which current assets represented 67.2%, while total equity was ¥24.76bn. Cash and deposits were ¥10.12bn, equal to 32.6% of total assets and substantially exceeding current liabilities of ¥5.54bn. The current ratio was 376.4% and the quick ratio was 352.3%, indicating ample near-term liquidity. Working capital was ¥15.32bn. The debt-to-equity ratio was a conservative 0.25x, well below the 2.0x risk threshold. Total liabilities were only 20.3% of total assets, and equity financing represented the dominant funding source. Current liabilities declined ¥327m YoY to ¥5.54bn, while noncurrent liabilities increased ¥93m to ¥764m; this does not indicate a material maturity mismatch given the scale of liquid current assets. Trade payables were ¥4.01bn, broadly stable YoY, and electronically recorded obligations were ¥106m. Investment securities increased ¥228m, or 32.1% YoY, to ¥937m. The higher investment-securities balance modestly increases exposure to market-value fluctuations, although it remains only 3.0% of total assets. Total comprehensive income of ¥393m exceeded net income, with favorable valuation differences on securities and foreign-currency translation adjustments supporting equity. Property, plant and equipment totaled ¥6.98bn, or 22.5% of assets, indicating a meaningful but manageable manufacturing asset base. Intangible assets were limited to 1.1% of total assets, suggesting no material balance-sheet dependence on acquired intangible value.
Notable B/S Changes
Investment securities: +¥2.28bn (+32.1%) to ¥9.37bn — increases exposure to market valuation movements, although the balance remains 3.0% of total assets. Cash and deposits: -¥5.87bn (-5.5%) to ¥101.24bn — liquidity remains very substantial despite the decline. Electronically recorded monetary claims: +¥3.79bn (+26.4%) to ¥18.15bn — together with elevated DSO, this reinforces the need to monitor collection timing and working-capital efficiency. Provision for bonuses: -¥1.44bn (-47.5%) to ¥1.59bn — a notable reduction in accrued employee-bonus obligations within current liabilities. Deferred tax liabilities: +¥0.94bn (+482.1%) to ¥1.14bn — the increase is notable relative to the prior-year balance and is relevant to the quarter’s tax conversion.
Cash Flow Quality
The quarter generated profit attributable to owners of ¥238m while retaining a large liquidity reserve of ¥10.12bn in cash and deposits. Gross profit increased 3.3% YoY to ¥1.27bn despite lower sales, which is supportive of underlying earnings conversion before overheads. The small ¥5m fixed-asset disposal loss was not material relative to quarterly earnings. Trade receivables were ¥5.27bn and electronically recorded monetary claims were ¥1.82bn. Combined trade-related receivables increased by approximately ¥228m YoY despite the decline in revenue, indicating that cash conversion from sales should be monitored closely. The quality alert of annualized DSO of 88 days is material because it exceeds the 60-day warning threshold. Elevated DSO may reflect customer payment terms, collection timing, or a less favorable sales mix; regardless of the cause, it increases working-capital funding needs and sensitivity to collection delays. Inventories decreased 1.9% YoY to ¥1.34bn. Raw materials increased 10.2% YoY to ¥1.03bn, work in process rose 9.0% to ¥52m, and finished goods declined 1.9% to ¥1.34bn. The inventory composition does not indicate a build-up of finished goods, but the rise in raw materials warrants monitoring against future production demand and input-price conditions. Accounts payable were broadly stable at ¥4.01bn, so supplier financing did not expand materially to offset the higher trade-related receivables. The cash conversion profile is therefore primarily exposed to collection efficiency rather than inventory accumulation or aggressive extension of payables.
Dividend Sustainability
The full-year dividend forecast is ¥54 per share. Based on forecast EPS of ¥132.37, the implied dividend payout ratio is approximately 40.8%. This is below the 60% sustainability reference point and leaves a meaningful earnings retention buffer. The company’s equity base of ¥24.76bn and cash and deposits of ¥10.12bn provide substantial balance-sheet support for the stated dividend. Forecast profit attributable to owners of ¥1.0bn is approximately 4.2 times the Q1 result, consistent with the normal requirement for earnings to strengthen in the remaining quarters. Dividend sustainability therefore depends principally on execution of the full-year earnings plan and normalization of sales momentum in Coatings, rather than on liquidity or leverage constraints. No dividend forecast revision has been announced.
Risk Assessment
Business risks include Coatings business risk: external sales declined 8.7% YoY to ¥3.48bn and segment profit declined 8.9% YoY to ¥269m. As the largest segment by profit contribution, prolonged weakness would materially affect group earnings., Overhead absorption risk: SG&A expenses increased 7.4% YoY while consolidated revenue declined 4.6%, creating negative operating leverage and limiting the benefit of gross-margin expansion., Fine Chemicals margin risk: segment profit declined 5.8% despite 4.2% revenue growth, reducing the segment margin to approximately 19.5% from 21.6%., Chemical-manufacturing input and demand risk: profitability is exposed to fluctuations in raw-material, energy and logistics costs, as well as changes in industrial customer demand., Foreign-exchange risk: Q1 foreign-exchange losses were ¥11m, equal to approximately 3% of operating income. The amount is manageable in Q1 but demonstrates exposure to currency movements..
Financial risks include Receivables risk: annualized DSO of 88 days exceeds the 60-day warning threshold. Combined trade receivables increased year on year despite declining sales, increasing the importance of collection discipline., Market-value risk: investment securities increased ¥228m, or 32.1% YoY, to ¥937m, raising sensitivity to equity-market valuation movements., Tax-conversion risk: the effective tax rate of 36.8% reduced conversion of pre-tax profit to net profit, with the tax burden at 0.639..
Key concerns include The probability-weighted near-term concern is whether Coatings sales recover sufficiently to meet the full-year revenue-growth forecast., The highest operational earnings sensitivity is the combination of declining revenue and rising SG&A, which could cause further operating-margin pressure if not reversed., The high DSO alert is a priority monitoring item because slower collection can constrain operating cash generation even when accounting earnings remain positive., Distillation’s strong profit growth is constructive, but it is not yet large enough to fully offset a sustained downturn in the Coatings business..
Investment Implications
Key takeaways include Q1 earnings were below the prior-year level, but gross-margin expansion limited the decline in operating profit., Coatings remains the core earnings driver and is the main source of the sales decline., Distillation delivered the strongest improvement, with segment profit increasing 21.8% YoY., The company has a highly liquid, equity-rich balance sheet with very low financing pressure., The ¥54 full-year dividend forecast implies a moderate 40.8% payout ratio based on forecast EPS., Receivable collection efficiency is the key balance-sheet operating metric requiring attention..
Metrics to watch include Coatings segment external-sales growth and segment margin, Consolidated SG&A growth relative to revenue growth, Fine Chemicals segment margin recovery, Annualized DSO and the balance of trade receivables plus electronically recorded monetary claims, Distillation segment profit sustainability, Progress toward full-year revenue of ¥23.0bn and operating income of ¥1.45bn, Changes in investment-securities valuation.
Regarding relative positioning, The company is financially defensive, characterized by very strong liquidity, low leverage and negligible interest burden. Its earnings profile is less compelling than its balance-sheet profile: annualized ROE of 3.9% and a 6.3% operating margin indicate modest capital profitability, while the Q1 sales contraction and rising SG&A highlight the need for improved operating leverage.