SAKATA INX CORPORATION FY2026 Q2 Earnings Report

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Executive Summary

The first half of 2026 FY, including Q2, recorded increases in both revenue and profit, with the stabilization of price revisions and improved profitability in Asia, Japan, and Europe driving performance. Revenue was ¥1420.3B (+12.4% YoY), Operating Income was ¥90.2B (+18.0%), Ordinary Income was ¥99.3B (+14.9%), and Net Income attributable to owners of the parent was ¥66.9B (+7.1%). The Operating Income margin improved to 6.4% from the previous year, although Net Income growth fell below Operating Income growth due to the impact of extraordinary losses and a higher tax burden.

Factors Affecting Performance

【Revenue】Revenue increased in all regions and segments, primarily due to the recovery in demand and the stabilization of price revisions. By region, Europe posted the largest increase at +22.1%, while Functional Materials (DigitalAndSpecialtyProducts) also expanded in new fields, increasing +15.8%. The Americas (+11.7%), Asia (+13.4%), and Japan (+8.0%) also remained solid, demonstrating stable growth supported by regional diversification.

【Profit and Loss】Operating Income increased +18.0% to ¥90.2B. This was supported by an improvement in the gross profit margin to 25.3% (approximately +0.4pt YoY), while the SG&A expense ratio edged up to 18.9%, partially offsetting the pace of profit growth. Ordinary Income increased +14.9%, boosted by ¥10.8B in equity-method investment gains. However, Net Income attributable to owners of the parent increased only +7.1% to ¥66.9B, slowing relative to Ordinary Income growth due to extraordinary losses of ¥3.8B, including losses on disposal of fixed assets, and a higher income tax burden. Revenue and profit both increased.

Segment Analysis

By segment, Asia was the largest earnings contributor, generating Operating Income of ¥33.5B (11.0% margin) and continuing stable growth of +7.1% YoY. Japan’s Operating Income improved significantly to ¥21.8B (+386.8% YoY), reflecting the realization of benefits from improved pricing and product mix. Europe generated Operating Income of ¥5.5B (+212.6% YoY) and is trending toward a return to profitability, although its margin remained low at 4.3%. The Americas had the largest scale, with Revenue of ¥562.7B (+11.7%), but Operating Income declined to ¥22.6B (-26.8%) due to higher costs and increased SG&A expenses. Functional Materials generated Operating Income of ¥12.1B (+9.2%), with continued expansion in new fields. Profitability gaps between segments remain substantial, with Asia’s high-profitability structure supporting overall earnings.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 6.4% from the previous year, comprising a gross profit margin of 25.3% and an SG&A expense ratio of 18.9%. The Net Income margin was approximately 4.7%, showing a downward trend relative to the improvement in the Operating Income margin, with extraordinary losses and the tax burden acting as downward pressure. 【Cash Quality】Operating Cash Flow (OCF) was ¥40.1B, approximately 0.60x Net Income of ¥66.9B, a low level. This was affected by the absorption of working capital resulting from increases in trade receivables (-¥62.3B) and inventories (-¥16.5B). 【Investment Efficiency】ROE was 5.4%, indicating a limited level of capital efficiency. Capital expenditures of ¥21.9B were below depreciation and amortization expense of ¥32.0B, indicating a period in which replacement investment is below depreciation. 【Financial Soundness】The Equity Ratio improved to 55.3% from 54.6% in the previous year, with the capital structure remaining at a conservative level.

Cash Flow Analysis

Operating Cash Flow (OCF) increased +26.8% YoY to ¥40.1B, but cash recovery remained limited compared with Net Income of ¥66.9B. The primary factors were increases of ¥62.3B in trade receivables and ¥16.5B in inventories, as the buildup of working capital accompanying demand expansion constrained cash generation. Meanwhile, the ¥25.0B increase in trade payables provided a certain degree of buffer. Investing Cash Flow was -¥40.5B, primarily reflecting capital expenditures of ¥21.9B. As a result, Free Cash Flow was -¥0.5B, remaining at an approximately balanced level. Financing Cash Flow was positive at ¥1.8B. Although the share repurchase of ¥10.0B resulted in a cash outflow, this was offset by short-term financing and other sources. The expansion of working capital appears to be a temporary factor during the growth phase, and normalization toward the second half of the fiscal year will be key to improving capital efficiency.

Earnings Quality

The core of recurring earnings was Operating Income of ¥90.2B. Of the ¥15.8B in non-operating income, equity-method investment gains of ¥10.8B were the primary contributor. Non-operating income represented approximately 1.1% of Revenue, indicating limited dependence on activities outside the core business. Extraordinary gains and losses totaled -¥3.5B net (extraordinary gains of ¥0.3B and extraordinary losses of ¥3.8B), having a limited impact on Net Income but including temporary factors such as losses on disposal of fixed assets. The gap between Ordinary Income of ¥99.3B and Net Income attributable to owners of the parent of ¥66.9B was mainly attributable to income taxes and other taxes of ¥23.6B and profit attributable to non-controlling interests of ¥5.3B. The tax burden and the portion attributable to minority shareholders created the difference in profit margins. From an accrual perspective, OCF has continued to fall below Net Income, and the increase in trade receivables and inventories, which is delaying the conversion of earnings into cash, requires monitoring.

Earnings Forecast and Guidance

The first-half progress rates against the full-year forecast (Revenue of ¥2865.0B, Operating Income of ¥170.0B, and Ordinary Income of ¥178.0B) were 49.6% for Revenue, 53.1% for Operating Income, and 55.8% for Ordinary Income, all exceeding the simple time-based progress rate of 50%. The factors behind the upside include the stabilization of price revisions and improved profitability in Asia, Japan, and Europe. In the second half, the normalization of working capital and restraint on SG&A expense growth will be areas of focus for achieving the full-year plan. Although the earnings forecast was revised during the current quarter, the dividend forecast was not revised.

Shareholder Returns

The interim dividend was ¥50 per share, while the full-year dividend forecast is ¥100 (¥45 per year in the previous year). Based on first-half Net Income attributable to owners of the parent of ¥66.9B, the Payout Ratio is estimated at approximately 36% based on the interim dividend. The Company conducted share repurchases of ¥10.0B, advancing shareholder returns together with dividends. First-half Free Cash Flow was -¥0.5B, an approximately balanced level, and the funding source for shareholder returns primarily depends on cash and deposits and cash flow from operating activities.

Risk Factors

1. Decline in cash conversion: OCF was ¥40.1B against Net Income of ¥66.9B, resulting in a low ratio of approximately 0.60x. The primary factors were increases in trade receivables and inventories, making the progress of working capital normalization in the second half a key monitoring point.

2. Regional margin disparities: Although the Americas had the largest scale, with Revenue of ¥562.7B, its Operating Income margin was 4.0% (Operating Income declined -26.8% YoY). Europe’s margin was also low at 4.3%, creating a substantial profitability gap versus Asia (11.0%). Vulnerability in regional margins due to changes in the external environment is a concern.

3. Dependence on short-term financing: Short-term borrowings increased +76.6% YoY, making the financing structure more short-term oriented. Attention should be paid to the somewhat increased sensitivity to changes in the interest-rate environment.

Industry Benchmark (For Reference; Based on Our Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability is slightly below the industry median, with the gap particularly pronounced for the Operating Income margin.

Growth and Capital Efficiency

The Revenue growth rate exceeds the industry median, placing top-line growth in a relatively favorable position.

※Source: Based on our analysis

Key Points in the Financial Results

1. In addition to increases in both revenue and profit, the improvement in the gross profit margin and the contribution of stabilized price revisions and profit recovery in Asia, Japan, and Europe to improved overall portfolio stability are noteworthy as qualitative changes in the business structure.

2. OCF has continued to remain below Net Income. The impact of the buildup of working capital during the growth phase on cash efficiency is an important observation point for assessing future cash-generation capacity.

3. Full-year progress for both revenue and profit is ahead of the time-based progress rate. This provides a reference point for evaluating the extent to which pricing can be maintained and working capital normalized in the second half.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using the residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,666–¥2,820 at Cost of Equity ±1%, and ¥2,741–¥2,742 at ω±0.1.

Notes:

• Goodwill amortization of ¥5.4 per share has been added back to earnings (as a non-cash expense and to enhance comparability with IFRS companies).
• Since forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest-rate reference month: 2026-07 / This value is not intended to predict or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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