SK KAKEN CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥52.96B
• Operating Income: ¥5.76B
• Net Income: ¥4.62B
• EPS: ¥393.67

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

SK Kaken (TSE:4628) reported FY2026 Q2 consolidated results under JGAAP showing modest top-line growth but pressure at the operating profit level, with solid bottom-line support from non-operating income. Revenue rose 1.6% YoY to ¥52.96bn, while operating income declined 6.2% YoY to ¥5.76bn, implying negative operating leverage amid cost headwinds or higher SG&A. Gross profit was ¥15.95bn, yielding a healthy gross margin of 30.1%, but the operating margin compressed to 10.9%, reflecting increased operating costs. Ordinary income was ¥6.91bn, above operating income by ¥1.15bn, suggesting sizable non-operating gains (likely interest and other income, given minimal interest expense). Net income increased 15.0% YoY to ¥5.31bn, lifting the net margin to 10.03%; EPS was ¥393.67. DuPont decomposition points to ROE of 3.20% with low asset turnover (0.274) and very modest leverage (1.17x), indicating returns primarily driven by margin rather than balance sheet risk. The balance sheet is exceptionally strong: equity of ¥165.68bn versus total assets of ¥193.44bn implies an equity ratio around 85.6% (despite the reported 0% figure, which appears undisclosed in XBRL), and liabilities are only ¥27.59bn. Liquidity is ample with current assets of ¥140.5bn against current liabilities of ¥23.27bn, resulting in a 603.8% current ratio and robust working capital of ¥117.23bn. Cash conversion was weak this half: operating cash flow (OCF) was ¥1.43bn versus net income of ¥5.31bn (OCF/NI = 0.27), pointing to working capital absorption or timing effects; investing cash flow was not disclosed, preventing a reliable free cash flow (FCF) estimate. Depreciation is light at ¥0.28bn, and interest expense is negligible (¥0.02bn), yielding a very high interest coverage of 339x and underlining minimal financial risk. The effective tax rate computed from the provided tax charge is approximately 22.9%, despite the tabulated metric showing 0.0% (likely undisclosed). On dividends, DPS and payout ratio appear unreported for the period, so dividend sustainability cannot be concluded from this dataset. Overall, SK Kaken demonstrates strong balance sheet resilience and healthy gross profitability, but near-term operating margin softness and low cash conversion warrant monitoring. Given the low leverage, the company has substantial flexibility to navigate input cost volatility and demand swings. Data limitations (notably zeros indicating undisclosed items) constrain certain interpretations, especially around cash balances, capex, and dividends.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 10.03% (NI ¥5.31bn / Revenue ¥52.96bn)
• asset_turnover: 0.274 (Revenue ¥52.96bn / Assets ¥193.44bn; note half-year denominator timing dampens turnover)
• financial_leverage: 1.17x (Assets ¥193.44bn / Equity ¥165.68bn)
• calculated_ROE: 3.20% (consistent with provided DuPont ROE) margin_quality:
• gross_margin: 30.1% (¥15.95bn GP / ¥52.96bn revenue), healthy for architectural coatings
• operating_margin: 10.9% (¥5.76bn OI / ¥52.96bn), -6.2% YoY OI on +1.6% sales indicates cost pressure
• ordinary_income_margin: 13.1% (¥6.91bn / ¥52.96bn), boosted by non-operating gains (~¥1.15bn)
• net_margin: 10.0%, aided by non-operating income and modest tax rate operating_leverage: Negative in the period: revenue +1.6% YoY vs operating income -6.2% YoY implies higher input costs and/or SG&A intensity (SG&A ~¥10.18bn, ~19.2% of sales). Depreciation is low (¥0.28bn), so cost pressure is likely not from D&A but from materials, logistics, or personnel. Tight cost discipline needed to restore operating leverage.

Growth Assessment

revenue_sustainability: Low-single-digit growth (+1.6% YoY) suggests a stable domestic demand environment with limited volume/price expansion. Sustainability hinges on construction activity, repainting cycles, and price-cost pass-through of raw material inputs. profit_quality: Bottom line outperformed operating line due to non-operating income (ordinary income > operating income by ¥1.15bn). Core profitability softened at OPM level despite solid GPM, indicating SG&A or other operating cost pressure. Effective tax rate around 22.9% supported net income. outlook: For the second half, key drivers are: pricing actions versus raw material costs, normalization of working capital to convert earnings into cash, and stability of non-operating gains. With a strong balance sheet and minimal interest burden, the company can prioritize margin recovery. However, absent acceleration in volume or additional price increases, full-year operating profit growth may remain constrained.

Financial Health

liquidity:

• current_ratio: 603.8% (CA ¥140.5bn / CL ¥23.27bn)
• quick_ratio: 593.2% (inventory is small at ¥2.47bn; majority of CA likely cash/receivables though cash balance not disclosed)
• working_capital: ¥117.23bn, providing substantial buffer for operations solvency:
• equity_ratio: Approx. 85.6% (Equity ¥165.68bn / Assets ¥193.44bn); reported 0% likely undisclosed
• debt_to_equity: 0.17x (Total liabilities ¥27.59bn / Equity ¥165.68bn)
• interest_coverage: 339x (EBIT ¥5.76bn / Interest expense ¥0.017bn), indicating negligible financial risk capital_structure: Highly equity-heavy with minimal leverage, offering resilience through cycles. Ordinary income enhancement likely reflects interest/other income on a sizeable asset base.

Cash Flow Quality

earnings_quality: OCF of ¥1.43bn versus NI of ¥5.31bn yields OCF/NI = 0.27, indicating weak cash conversion in H1—likely due to receivable buildup or other working capital outflows. Earnings quality therefore leans on accruals this period. FCF_analysis: Investing CF and capex are not disclosed (reported as 0), preventing a reliable FCF calculation. Using OCF alone is not appropriate for FCF assessment; thus the provided FCF=0 and FCF coverage metrics should be treated as placeholders. working_capital: Large working capital position (¥117.23bn) and small reported inventories (¥2.47bn) suggest timing effects in receivables/payables dominated cash flow. Monitoring days sales outstanding and payables terms is key to cash normalization in H2.

Dividend Sustainability

payout_ratio_assessment: Payout ratio shown as 0.0% and DPS at 0.00 appear to be undisclosed rather than actual zeros. With NI of ¥5.31bn in H1 and a strong balance sheet, capacity appears ample, but no conclusion can be drawn without DPS or policy disclosure. FCF_coverage: Not assessable—capex and investing cash flows are not provided, making FCF unknown. policy_outlook: Absent disclosure, infer that any dividend policy assessment depends on the company’s historical stance and H2 cash conversion. Balance sheet strength supports flexibility, but sustainability should be tied to normalized OCF rather than current-period accrual earnings.

Risk Assessment

Business Risks:

• Raw material price volatility (resins, solvents, pigments) impacting gross margin
• Construction and repainting cycle sensitivity in Japan; weather seasonality affecting application volumes
• Competitive pricing pressure in architectural coatings and external insulation materials
• Execution risk in passing through cost increases to end-customers
• Potential slowdown in non-residential and public sector demand affecting mix and margins

Financial Risks:

• Weak H1 cash conversion (OCF/NI 0.27) suggesting working capital risk
• Dependence on non-operating income to bridge operating softness
• FX exposure on imported raw materials (if applicable) could pressure costs
• Concentration risk if cash/marketable securities constitute a large share of current assets (cash details undisclosed)

Key Concerns:

• Negative operating leverage despite revenue growth
• Sustainability of non-operating gains supporting ordinary income
• Visibility on capex and investing outflows is limited due to undisclosed data
• Dividend trajectory unclear given lack of DPS disclosure

Investment Implications

Key Takeaways:

• Top-line grew modestly (+1.6% YoY) but operating income declined (-6.2% YoY), indicating margin pressure
• Gross margin remains solid at 30.1%, yet OPM compressed to 10.9%
• Non-operating gains (~¥1.15bn) boosted ordinary and net income
• Balance sheet is exceptionally strong: equity ratio ~85.6%, D/E ~0.17x
• Cash conversion weak (OCF/NI 0.27); working capital normalization is critical in H2
• Interest burden negligible with coverage at 339x
• Several key cash, FCF, and dividend data points are undisclosed, limiting conclusions

Metrics to Watch:

• OCF/NI ratio and working capital movements (receivables, payables)
• Operating margin trajectory and SG&A ratio
• Price-cost spread versus raw material indices
• Ordinary vs operating income mix (sustainability of non-operating gains)
• Capex and investing cash flows (to assess FCF and capital allocation)
• Effective tax rate normalization (~23% from computed figures)

Relative Positioning: Within domestic coatings peers, SK Kaken appears more conservatively financed with a very high equity ratio and minimal leverage, providing resilience, but its near-term operating margin pressure and weak cash conversion contrast with the strength in gross margin and bottom-line support from non-operating items.

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