TAKASAGO INTERNATIONAL CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥114.47B
• Operating Income: ¥6.21B
• Net Income: ¥5.85B
• EPS: ¥55.37

Income Statement

Balance Sheet

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

Verdict: Mixed quarter with resilient top line but notable operating margin pressure offset by non-operating gains and a lower tax burden, resulting in higher net income. Revenue was 1,144.67, up 0.8% YoY, indicating stable demand despite a challenging cost environment. Gross profit came in at 375.75 with a gross margin of 32.8%, suggesting some pricing power but not enough to prevent operating margin compression. Operating income declined 22.4% YoY to 62.09, implying operating margin compressed to 5.4%. Using reported YoY deltas, we estimate prior-year operating margin at roughly 7.0%, indicating about 162 bps of operating margin compression. Ordinary income fell only 2.4% YoY to 67.30, implying a mild ordinary margin compression of approximately 19 bps to 5.9% as non-operating income (8.82) cushioned the drop in operating profit. Net income increased 10.2% YoY to 53.96, lifting net margin to 4.7% from an implied 4.3% (+40 bps), aided by non-operating income and a 20.8% effective tax rate. SG&A was 313.65, implying a high SG&A-to-sales ratio of 27.4%; with sales up only 0.8% and OP down 22.4%, SG&A likely outpaced revenue growth. Interest coverage remains strong at 17.44x (62.09/3.56), mitigating near-term financial risk. Liquidity is solid with a current ratio of 196.8% and quick ratio of 152.5%, supported by 543.12 in receivables and 311.93 in inventories. Balance sheet is conservative to moderate with a reported D/E of 0.75x and total equity of 1,463.05; short-term loans (215.66) are well covered by current assets. ROE stands at 3.7% and ROIC at 2.8%, flagging capital efficiency as a key structural challenge. Cash flow data were not disclosed, preventing assessment of earnings quality via OCF/NI and FCF coverage. Dividend metrics are largely unreported; a calculated payout ratio of 448.2% appears elevated but should be treated cautiously due to data gaps. Forward-looking, restoring operating margin through price/mix optimization, SG&A discipline, and cost pass-through will be crucial to lift ROIC above the 5% warning threshold.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.7% = Net Profit Margin 4.7% × Asset Turnover 0.448 × Financial Leverage 1.75x. The primary adverse movement within the period was at the operating level: operating margin fell from an implied 7.0% to 5.4% (-162 bps), while net margin still increased by ~40 bps due to non-operating tailwinds and a lower effective tax rate. Business drivers: gross margin of 32.8% indicates pricing/mix held up reasonably, but SG&A intensity at 27.4% and likely growth ahead of sales compressed operating margin; cost inflation (materials, logistics, energy) and delayed pass-through likely contributed. Sustainability: the net margin uplift looks partly non-recurring, relying on non-operating income (dividends/interest) and tax; absent structural cost action, operating margin pressure could persist. Concerning trends: implied SG&A growth > revenue growth; dependence on non-operating income (non-operating income ratio 16.3%) to support ordinary profit; ROIC at 2.8% well below 5% warning level, indicating insufficient return on the invested base.

Growth Assessment

Top line grew 0.8% YoY to 1,144.67, indicating stable but modest demand in fragrances/flavors. Operating income declined 22.4% YoY to 62.09 despite the revenue increase, highlighting negative operating leverage. Ordinary income fell 2.4% YoY to 67.30, demonstrating partial cushioning from non-operating gains (dividend income 2.97, interest income 0.44) and controlled non-operating expenses (3.61). Net income rose 10.2% to 53.96, benefitting from a 20.8% effective tax rate and the above non-operating support. Gross margin at 32.8% suggests some pricing power, but SG&A at 27.4% of sales is heavy for the growth profile. Outlook hinges on: cost normalization in aroma chemicals/energy, effective price pass-through to FMCG clients, and product mix upgrade. Near-term growth quality is mixed: recurring operations weakened, while net profit strength relied on below-the-line items; sustainability requires restoration of operating leverage.

Financial Health

Liquidity is strong: current ratio 196.8% and quick ratio 152.5%. Working capital stands at 682.15, with receivables (543.12) and inventories (311.93) comfortably exceeding payables (218.34), limiting maturity mismatch risk. Short-term loans are 215.66 versus cash of 133.40, but overall current assets (1,387.02) provide ample coverage. Solvency is conservative-to-moderate: reported D/E 0.75x; interest coverage 17.44x indicates manageable debt burden. Total liabilities are 1,093.29 vs equity 1,463.05, providing cushion. No explicit off-balance sheet obligations were disclosed in the provided data. No warnings on Current Ratio (<1.0) or D/E (>2.0).

Cash Flow Quality

Operating cash flow was not disclosed, so OCF/Net Income and FCF cannot be assessed; earnings quality cannot be validated via cash conversion. With OP down 22.4% and net profit aided by non-operating/tax factors, cash conversion risk should be monitored once OCF data becomes available. Working capital appears sizable (AR + inventory = 855.05), which could tie up cash if sales growth remains low; any inventory build or extended receivable days would pressure OCF. Without capex or dividend cash data, FCF sustainability relative to shareholder returns and reinvestment needs is not assessable.

Dividend Sustainability

Dividend per share and cash dividends were not reported, and OCF/FCF data are missing. A calculated payout ratio of 448.2% was provided but should be treated with caution given the absence of DPS/FCF disclosures and potential methodology differences. Retained earnings are substantial at 1,032.92, offering balance sheet capacity; however, the structural ROIC of 2.8% and compressed operating margin argue for prudence until cash generation is evidenced. Policy outlook likely hinges on restoring operating cash flow and improving ROIC; without FCF, coverage cannot be confirmed.

Risk Assessment

Business Risks:

• Input cost volatility in aroma chemicals and energy potentially compressing gross/operating margins
• Pricing power and pass-through timing with large FMCG customers
• Product mix and innovation risk in flavors/fragrances impacting gross margins
• Geographic/FX exposure (USD/EUR/EM currencies) affecting revenue and costs
• Potential demand softness in discretionary categories affecting order timing

Financial Risks:

• Reliance on non-operating income to support ordinary profit (non-operating income ratio 16.3%)
• Working capital intensity (AR 543.12 and inventories 311.93) could weigh on OCF in slow-growth scenarios
• Short-term loans of 215.66 add refinancing needs, albeit mitigated by strong liquidity
• Capital efficiency risk with ROIC at 2.8% below the 5% warning threshold

Key Concerns:

• Operating margin compression of ~162 bps YoY despite positive sales growth
• SG&A intensity at 27.4% suggests negative operating leverage unless costs are addressed
• Lack of cash flow disclosure prevents validation of earnings quality and dividend coverage
• ROE 3.7% and ROIC 2.8% indicate subdued shareholder returns versus cost of capital

Investment Implications

Key Takeaways:

• Top line resilient (+0.8% YoY) but operating profit down 22.4% on higher SG&A and costs
• Net profit up 10.2% due to non-operating gains and lower tax, not core operations
• Liquidity strong; leverage moderate; interest coverage robust at 17.44x
• Capital efficiency weak (ROIC 2.8%, ROE 3.7%), requiring margin and asset turn improvements

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio (currently ~27.4%)
• Gross margin and raw material/energy cost pass-through timing
• Working capital days (AR and inventory) and OCF/Net Income once disclosed
• Non-operating income sustainability (dividends/interest) versus core profit recovery
• ROIC progression toward >5% and ideally 7–8% over the medium term

Relative Positioning: Within the Japan flavors and fragrances peer set, the company shows modest growth but weaker operating leverage and capital efficiency versus best-in-class peers; near-term outperformance depends on cost discipline, price/mix improvement, and normalization of input costs.

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