DIC Corporation FY2026 Q1 Earnings Report

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Executive Summary

FY2026 Q1 results delivered Revenue of ¥2,824.9B (YoY +¥203.8B +7.8%), Operating Income of ¥245.1B (YoY +¥114.5B +87.7%), Ordinary Income of ¥238.5B (YoY +¥139.7B +141.4%), and Quarterly Net Income attributable to owners of the parent of ¥195.0B (YoY +¥132.6B +212.4%), achieving higher sales and significantly higher profits. Operating margin improved to 8.7% (up +3.7pt from 4.98% a year earlier), and Net Income margin rose to 6.9% (up +4.6pt from 2.3%), indicating a marked improvement in profitability. All segments achieved revenue growth, with Functional Products operating profit up +75.3% YoY and Color & Display up +200.9% YoY; gross margin expanded to 24.6% (up +2.3pt from 22.3%) as price revisions and cost reductions materialized.

Factors Driving Performance

【Revenue】Revenue was ¥2,824.9B (YoY +7.8%). By segment, Packaging & Graphic reported ¥1,452.2B (+8.4%), accounting for 51.4% of the total; Functional Products ¥767.3B (+8.4%, 27.2% share); Color & Display ¥696.7B (+1.5%, 24.7% share), with all three major segments recording revenue increases. Double-digit growth in packaging/printing inks and functional materials led the expansion; electronic materials growth was modest but demand recovery was confirmed across the board.

【Profitability】Cost of sales was ¥2,131.1B (YoY +4.6%), growing less than revenue (+7.8%), causing gross margin to improve substantially to 24.6% (up +2.3pt from 22.3%). SG&A was ¥448.6B (slightly down from ¥452.6B), yielding an SG&A-to-sales ratio of 15.9% (improved -1.4pt from 17.3%) and demonstrating operating leverage. Operating Income was ¥245.1B (+87.7%) with an operating margin of 8.7% (up +3.7pt from 4.98%). Non-operating income included interest income ¥6.7B and equity in earnings of affiliates ¥14.0B; non-operating expenses included interest expense ¥14.4B and foreign exchange losses ¥17.2B, resulting in Ordinary Income of ¥238.5B (+141.4%). Extraordinary items comprised ¥30.5B in special gains including ¥6.1B gain on sale of fixed assets and ¥19.5B in special losses, netting +¥11.0B, making profit before tax ¥249.6B. After income taxes ¥54.5B and non-controlling interests ¥3.1B, Net Income attributable to owners of the parent was ¥195.0B (+212.4%), delivering higher sales and substantial profit growth.

Segment Analysis

Packaging & Graphic posted Revenue ¥1,452.2B (YoY +8.4%) and Operating Income ¥83.2B (+25.0%), with an operating margin of 5.7%, achieving higher sales and profits. Functional Products recorded Revenue ¥767.3B (+8.4%) and Operating Income ¥90.6B (+75.3%), with an operating margin of 11.8%, maintaining double-digit margins and delivering the highest profitability across segments. Color & Display reported Revenue ¥696.7B (+1.5%) and Operating Income ¥84.6B (from ¥28.1B a year earlier, +200.9%), with an operating margin of 12.1%; despite modest revenue growth, margin improved markedly, making it a high-return segment on par with Functional Products. Corporate expenses declined to ¥13.3B (from ¥15.8B), reflecting cost control at central research institutes and elsewhere.

Key Financial Indicators

【Profitability】Operating margin 8.7% (up +3.7pt from 4.98%), gross margin 24.6% (up +2.3pt from 22.3%), Net Income margin 6.9% (up +4.6pt from 2.3%), showing marked improvement at each stage. ROE was 3.9% (annualized), still low in absolute terms but driven by Net Income margin improvement. 【Cash Quality】DSO (days sales outstanding) was 316 days (shortened 5 days from 321), DIO (days inventory outstanding) was 510 days (extended 170 days from 340), leading to CCC (cash conversion cycle) of 595 days (extended 120 days from 475), indicating a pronounced deterioration in working capital efficiency. 【Investment Efficiency】Total asset turnover was 0.87x (annualized), and an ROIC-equivalent metric (Operating Income ÷ Total Assets) was 7.5% (annualized), suggesting substantial room to improve asset efficiency. 【Financial Soundness】Equity Ratio was 38.5% (up +1.5pt from 37.0%), Current Ratio 171.0% (up +8.7pt from 162.3%), Quick Ratio 122.6% (up +9.4pt from 113.2%), indicating healthy liquidity and solvency. Interest coverage was 17.0x (Operating Income ÷ Interest Expense), showing ample ability to service interest.

Cash Flow Analysis

Cash and deposits rose materially to ¥850.2B (up ¥161.1B +23.4% from ¥689.1B), strengthening liquidity. Receivables were ¥2,447.3B (up 5.7% from ¥2,314.5B), inventories ¥1,859.2B (down 1.8% from ¥1,892.9B), remaining at a high level despite a slight reduction; DIO extended to 510 days (from 340 days). Accounts payable were ¥1,351.0B (up 5.7% from ¥1,277.6B), and CCC extended to 595 days (from 475 days), making working capital efficiency deterioration evident. Short-term borrowings were significantly reduced to ¥930.5B (down -26.3% from ¥1,262.5B), CP was ¥33.0B (up 120.0% from ¥15.0B), and bonds due within one year were ¥150.0B (up 200.0% from ¥50.0B), changing the short-term funding composition. Long-term borrowings were ¥2,298.8B (up 15.6% from ¥1,989.1B) and bonds ¥850.0B (down -10.5% from ¥950.0B), indicating a shift toward long-term financing. Free Cash Flow generation is being pressured by working capital build-up; inventory correction and accelerated receivables collection will be key to generating cash.

Quality of Earnings

Against Operating Income of ¥245.1B, non-operating income was ¥26.3B (interest income ¥6.7B, equity in earnings of affiliates ¥14.0B, etc.), and non-operating expenses were ¥32.9B (interest expense ¥14.4B, foreign exchange losses ¥17.2B, etc.), resulting in net non-operating loss of -¥6.6B which slightly pressured recurring earnings. Extraordinary items netted +¥11.0B (including ¥6.1B gain on sale of fixed assets), contributing 5.6% to Net Income of ¥195.0B, thus limited in magnitude. Comprehensive income was ¥264.3B (¥69.3B above Net Income of ¥195.0B), driven mainly by ¥77.6B in foreign currency translation adjustments, reflecting valuation gains from yen depreciation that boosted comprehensive income. The improvement in operating-stage margins was the primary driver of profit growth, and excluding extraordinary items and FX valuation effects, the quality of earnings can be assessed as high.

Forecasts & Guidance

Full Year guidance was maintained at Revenue ¥11,000.0B (YoY +4.5%), Operating Income ¥560.0B (+7.3%), Ordinary Income ¥480.0B (+8.5%), and Net Income attributable to owners of the parent ¥330.0B. Q1 progress rates against the full year plan were: Revenue 25.7% (around the standard 25% level), Operating Income 43.8% (standard +18.8pt), Ordinary Income 49.7% (standard +24.7pt), and Net Income 59.1% (standard +34.1pt), indicating materially higher-than-normal profit progress. Gross margin improvement and SG&A control delivering operating leverage are progressing faster than the full-year plan; if profitability is maintained in Q2 onwards, there is upside potential for full-year results.

Shareholder Returns

Full-year dividend forecast was maintained at ¥70.00. Payout Ratio against Full-year EPS forecast ¥348.54 is 20.1%, a conservative level. Q1 EPS amounted to ¥202.71 (from ¥64.41 a year earlier, +214.7%), indicating sufficient quarterly dividend coverage. Given cash balance ¥850.2B, high profit progress, and interest coverage of 17x, dividend sustainability is high, and there is potential for dividend increases depending on future performance progress.

Risk Factors

1. Deterioration in working capital efficiency: DIO 510 days (up +170 days from 340), CCC 595 days (up +120 days from 475), with rising inventory and receivables tying up cash and pressuring cash generation. High inventory levels carry risks of write-downs and obsolescence and increase sensitivity to demand fluctuations.

2. Foreign exchange volatility and non-operating income/expense volatility: Foreign exchange losses of ¥17.2B partially offset operating improvements. While comprehensive income shows ¥77.6B in foreign currency translation adjustments (valuation gains), non-operating FX losses were recognized; the effectiveness of FX hedging and price pass-through will influence future earnings stability.

3. Short-term funding rollover risk: Although short-term borrowings were reduced, CP ¥33.0B (YoY +120%), and bonds due within one year ¥150.0B (YoY +200%) have changed the short-term maturities profile; market conditions or rating changes could affect funding costs.

Industry Benchmark (Reference, Company Data)

Profitability & Return

Profitability metrics exceed the industry median, placing the company in the upper group for both operating and net margins.

Growth & Capital Efficiency

Growth lags the industry median, indicating a moderate growth pace within the manufacturing sector.

※Source: Company aggregation

Earnings Highlights to Watch

1. If operating and gross margins sustain their substantial improvements, the upside to full-year results will grow. Q1 operating margin 8.7% (up +3.7pt from 4.98%) and gross margin 24.6% (up +2.3pt) reflect successful price adjustments and cost reductions; key focus is whether price pass-through and SG&A restraint continue in Q2 and beyond. Progress rate vs full-year plan is high (Operating Income 43.8%, Net Income 59.1%), and continuation of profitability momentum is critical to potential upside.

2. Deterioration in working capital efficiency (DIO 510 days, CCC 595 days) is pressuring capital efficiency and cash generation; inventory correction and accelerated receivables collection are next priorities for value creation. Under Vision 2030 Phase2, ROIC targets are set by segment and improving capital efficiency is a key theme, but the effectiveness of improving total asset turnover (0.87x annualized) and compressing working capital will be central to future assessment. The shift in funding structure—reduced short-term borrowings and increased CP/bond liquidity—is positive, but without working capital improvement, generating returns above shareholders’ cost of capital will be limited.

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This report is an AI-generated earnings analysis based on XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference data compiled by the Company from public financial statements. Investment decisions are your responsibility; consult a professional advisor as needed.