Toyo Gosei Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥19.35B
• Operating Income: ¥937M
• Net Income: ¥570M
• EPS: ¥71.83

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

Verdict: A weak FY2026 Q2 characterized by sharp margin compression and low ROE, partially offset by very strong operating cash flow. Revenue grew modestly to 193.49 (+3.2% YoY), but operating income fell 57.0% to 9.37, driving operating margin down to 4.8%. Ordinary income declined 59.7% to 8.31 despite non-operating income of 1.45, as non-operating expenses increased to 2.62 (including 0.95 interest). Net income dropped 59.0% to 5.70, implying a net margin of roughly 2.9–3.0%. Based on the YoY change, we estimate prior operating margin around 11.6%, implying about 680 bps compression to 4.8% this period. Gross margin sits at 23.8% (46.09/193.49), indicating cost pressure and/or unfavorable mix. EBITDA was 25.13, for a 13.0% margin, highlighting that elevated D&A (15.76) weighed heavily on operating profit. Ordinary income margin of 4.3% trails operating margin, reflecting adverse non-operating items (likely higher interest and other losses). Notably, profit before tax is reported at 20.09, far above ordinary income (8.31), indicating material special/extraordinary items in the quarter; however, net income still ended at 5.70 after taxes, signaling limited contribution to bottom line. ROE is low at 2.3%, driven by thin net margin (3.0%), slow asset turnover (0.302), and moderate leverage (2.54x). Cash flow quality is strong: operating cash flow of 39.26 is 6.9x net income, supported by substantial non-cash charges and working capital movements. Liquidity is adequate but tight (current ratio 113.9%, quick ratio 74.1%), and leverage is elevated versus conservative benchmarks (D/E 1.62x), though interest coverage remains comfortable at 9.86x. Capex of 49.30 exceeded OCF, implying negative FCF on a capex-only basis, which pressures dividend capacity if sustained. ROIC is a weak 1.5%, well below the 7–8% target band, indicating capital efficiency issues amid ongoing investment. Forward-looking, earnings need margin recovery and better asset turns to lift ROE/ROIC; near-term focus should be on converting the capex pipeline into profitable growth while managing liquidity and inventory.

Profitability Analysis

ROE decomposition: 2.3% ROE = 3.0% Net Profit Margin × 0.302 Asset Turnover × 2.54x Financial Leverage. The most impactful driver is the sharp contraction in net margin, evidenced by operating income -57% YoY despite revenue +3.2% and operating margin falling to 4.8% (estimated ~-680 bps YoY). Business rationale: cost inflation, product mix headwinds, and higher D&A compressed operating profit; non-operating headwinds (interest and other items) further reduced ordinary income. Asset turnover at 0.302 reflects a heavy asset base (Total assets 641.20) relative to sales, likely from recent capacity investments and elevated inventories (84.16). Leverage (2.54x) supports ROE but cannot offset margin/turn pressures. Sustainability: the margin compression appears cyclical/operational rather than structural if driven by costs and mix; recovery is possible with pricing, mix improvement (e.g., higher value-add products), and normalization of utilization. However, D&A load will persist near term, capping rapid margin rebound. Concerning trend flags: operating expenses (incl. SG&A at 12.6% of sales) and D&A intensity are high relative to revenue growth; ordinary income lagging operating income points to rising non-operating burdens (interest, other).

Growth Assessment

Topline growth was modest at +3.2% YoY (193.49), suggesting stable demand but not robust expansion. Profitability deteriorated sharply (operating income -57.0%, ordinary income -59.7%, net income -59.0%), indicating negative operating leverage and adverse mix/cost dynamics overwhelming modest sales growth. EBITDA margin (13.0%) remains decent, but conversion to operating profit is weak due to high D&A, implying recent investments are not yet fully translating to earnings. Non-operating line turned more adverse (net -1.17), pulling ordinary income below operating levels. The reported profit before tax (20.09) suggests extraordinary factors; since NI was only 5.70 and tax was 6.18, special items did not translate into proportional bottom-line gains, limiting quality of the PBT jump. Outlook hinges on margin normalization (pricing, procurement, yield) and accelerating asset turns as new capacity ramps; absent that, ROE/ROIC will remain depressed. Near-term growth visibility appears cautious given compressed margins and inventory intensity.

Financial Health

Liquidity: Current ratio 113.9% (adequate but below the 150% comfort benchmark); Quick ratio 74.1% is below 1.0, signaling reliance on inventories to meet short-term obligations. Warning threshold check: Current ratio is above 1.0 (no explicit warning), but quick ratio <1.0 warrants caution. Solvency: D/E is 1.62x (above the 1.5x conservative benchmark but below the 2.0x warning threshold). Interest coverage 9.86x indicates manageable debt service for now. Maturity mismatch: Short-term loans 46.00 alongside cash 35.97 and receivables 73.71 (cash+AR 109.68) are below current liabilities 211.32, implying dependence on inventory (84.16) and ongoing OCF to cover near-term needs; this raises execution risk if inventory turns slow. Long-term loans are sizable at 170.05, consistent with an investment phase. Off-balance sheet obligations: not disclosed (N/A), so additional commitments (leases, purchase obligations) may exist but are unreported.

Cash Flow Quality

OCF/NI of 6.89x signals high earnings quality this quarter, aided by strong non-cash charges (D&A 15.76) and likely favorable working capital movements. Free cash flow (OCF – Capex) is approximately -10.0 on a capex-only basis (39.26 – 49.30), indicating investment outflows exceeded cash generation; full investing CF not disclosed. This level of capex is consistent with capacity/technology upgrades but is a near-term cash drain. Sustainability: If OCF normalizes alongside margin recovery, FCF could turn positive; however, persistent high capex would constrain cash available for dividends and deleveraging. Working capital: Inventories are high (84.16), and quick ratio is weak; any inventory build or slower collections could pressure OCF in subsequent quarters. No overt signs of working capital manipulation from available data, but monitoring inventory and receivables turns is key.

Dividend Sustainability

Payout ratio is indicated at 64.3%, slightly above the <60% benchmark. With negative FCF on a capex-only basis this quarter and leverage at 1.62x D/E, dividend headroom is limited unless OCF improves or capex moderates. Total dividends paid and DPS are unreported, so we infer the payout from earnings rather than cash. Coverage: Current period OCF could cover dividends if capex were lower, but given Capex > OCF, dividends are effectively funded by balance sheet this quarter. Policy outlook: Absent disclosure, we assume a maintenance stance; however, sustained negative FCF would necessitate reassessment, particularly if margins do not recover.

Risk Assessment

Business Risks:

• Margin compression from raw material cost inflation and product mix shifts
• Demand cyclicality in end-markets (e.g., electronics/semiconductor-related chemicals)
• Execution risk on capital projects with delayed earnings ramp vs. D&A burden
• Customer concentration risk typical for specialty chemicals (not disclosed but common)

Financial Risks:

• Tight liquidity (quick ratio 0.74) and reliance on inventories to meet obligations
• Elevated leverage vs conservative benchmark (D/E 1.62x) and higher interest burden (non-op expenses 2.62 incl. 0.95 interest)
• Negative FCF this quarter due to heavy capex (49.30) exceeding OCF (39.26)
• ROIC at 1.5% well below target levels, implying low capital efficiency

Key Concerns:

• Operating margin compression of roughly 680 bps YoY to 4.8%
• Gap between ordinary income (8.31) and profit before tax (20.09) suggests significant special items; bottom-line translation is weak
• Inventory intensity (84.16) heightens cash conversion risk if demand slows
• Potential sensitivity to interest rate increases given debt load

Investment Implications

Key Takeaways:

• Revenue grew modestly (+3.2%), but profits fell sharply across operating, ordinary, and net levels
• Operating margin compressed to 4.8% (~-680 bps YoY by estimate), driving ROE down to 2.3%
• Cash flow quality is strong (OCF/NI 6.9x), but capex outpaced OCF, yielding negative FCF on a capex-only basis
• Liquidity is adequate but tight (current 114%, quick 74%), and leverage is elevated (D/E 1.62x) though interest coverage remains comfortable
• ROIC of 1.5% indicates under-earning on the invested base; improving asset turns and margins is critical

Metrics to Watch:

• Operating margin and gross margin recovery trajectory
• Inventory days and receivables turnover (cash conversion cycle)
• Capex cadence vs. project ramp and EBITDA contribution
• ROIC and ROE progression as capacity utilization improves
• Non-operating items detail (interest, FX, special gains/losses) and their impact on ordinary income
• OCF/NI ratio stability and FCF after capex
• Leverage and interest coverage amid rate environment

Relative Positioning: Within specialty chemicals, the company currently exhibits below-peer capital efficiency (ROIC 1.5%) and compressed operating margins, offset by solid cash generation this quarter. Balance sheet flexibility is moderate given D/E of 1.62x and a weak quick ratio, suggesting less room to absorb prolonged downturns without margin/turn improvements.

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
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