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

Toyo Gosei (4970) reported FY2026 Q2 (non-consolidated, JGAAP) revenue of ¥19.35bn, up 3.2% YoY, but profitability weakened significantly with operating income of ¥0.94bn (-57.0% YoY) and net income of ¥0.57bn (-59.0% YoY). Gross profit was ¥4.61bn, implying a gross margin of 23.8%, which, given the magnitude of profit decline, likely compressed YoY despite top-line growth. The operating margin fell to 4.8%, indicating higher cost pressure and/or elevated SG&A and depreciation burden. EBITDA was ¥2.51bn (13.0% margin), highlighting that depreciation and amortization of ¥1.58bn is a meaningful drag at the operating level, consistent with a capital-intensive profile or recent investment cycle. DuPont shows ROE of 2.26% driven by a low net margin (2.95%), modest asset turnover (0.302x), and financial leverage of 2.54x; the profit margin is the primary constraint on returns. Cash conversion was strong for the half-year with operating cash flow (OCF) of ¥3.93bn, equating to 6.89x net income, suggesting favorable working capital dynamics and non-cash expense support. Liquidity is adequate but not abundant: the current ratio is 113.9% and the quick ratio 74.1%, revealing reliance on inventories to meet short-term obligations. Balance sheet leverage appears moderate-to-high with total liabilities of ¥41.03bn versus equity of ¥25.28bn (debt-to-equity, proxied by liabilities/equity, at 1.62x), while interest coverage of roughly 9.9x indicates manageable financing costs under current earnings. Revenue growth was modest and likely driven by pockets of demand resilience, but the large YoY compression in operating profit points to margin headwinds, possibly from weaker product mix, pricing pressure, cost inflation, or under-absorption. Ordinary income of ¥0.83bn trails operating income due to net financial/other costs, and net income of ¥0.57bn implies a net margin below 3%, well under historical specialty chemical mid-cycle norms. Working capital sits at ¥2.94bn, and inventories of ¥8.42bn are substantial relative to current assets, an area to monitor for demand normalization risk. Several disclosures are not reported in the dataset (e.g., equity ratio, cash balances, investing cash flows, DPS, shares), so conclusions on solvency buffers, free cash flow (FCF), and dividend policy must be qualified. Overall, the quarter reflects resilient sales but a sharp earnings reset, with cash generation providing a cushion amid tighter margins and moderate leverage. Near-term focus should be on stabilizing gross and operating margins, managing inventory, and sustaining cash conversion as capex and depreciation remain elevated. Given the non-consolidated basis, group dynamics (if any) and external market conditions could further influence outlook.

Profitability Analysis

ROE of 2.26% decomposes into a net profit margin of 2.95%, asset turnover of 0.302x, and financial leverage of 2.54x; the net margin is the dominant constraint on return. Gross margin stands at 23.8% (¥4.61bn/¥19.35bn), versus an operating margin of 4.8% (¥0.94bn/¥19.35bn), indicating substantial operating cost intensity. EBITDA margin is 13.0%, and D&A of ¥1.58bn consumes roughly two-thirds of EBITDA, highlighting a heavy depreciation load that depresses operating income. Interest expense of ¥95m is well covered by operating income (~9.9x), suggesting financing costs are not the main driver of profit decline. The YoY drop in operating income (-57%) versus revenue growth (+3.2%) evidences negative operating leverage in the period, likely from mix/pricing pressure and/or higher fixed costs. Ordinary income of ¥0.83bn below operating income implies net financial and other non-operating costs. The net margin at 2.95% is low for specialty chemicals and underscores sensitivity to cost inflation and utilization rates. Margin quality appears pressured at both gross and operating levels; recovery hinges on price discipline, mix improvement, and normalization of fixed-cost absorption. Given the capital intensity implied by D&A, maintaining high capacity utilization is important to restore operating leverage.

Growth Assessment

Top-line growth was modest at +3.2% YoY, indicating stable but not robust demand. However, operating profit declined 57% YoY and net income fell 59% YoY, signaling pronounced margin compression overshadowing revenue gains. The deterioration suggests unfavorable pricing/mix or higher input and fixed costs outweighing volume growth. EBITDA of ¥2.51bn versus D&A of ¥1.58bn implies prior capacity investments; near-term utilization and pricing will drive earnings trajectory. Revenue sustainability appears reasonable in the near term given positive YoY growth, but profit quality is weak until gross and operating margins stabilize. The strong OCF relative to net income suggests temporary working capital tailwinds; sustainability depends on inventory turnover and receivables collection as growth normalizes. Outlook depends on downstream electronics/semiconductor and specialty materials cycles (typical for this issuer’s portfolio), where a gradual recovery could aid margins, while prolonged softness would maintain pressure. Without segment data, the contribution of higher-value versus commodity-like products to growth is unclear, a key limitation. Overall, expect earnings recovery to lag sales until cost pass-through and utilization improve.

Financial Health

Liquidity: current ratio 113.9% (¥24.07bn CA/¥21.13bn CL) and quick ratio 74.1% indicate adequate but tighter short-term coverage, with reliance on inventories (¥8.42bn) to bridge liquidity. Working capital is ¥2.94bn, providing a modest buffer. Solvency/capital structure: total liabilities of ¥41.03bn vs equity of ¥25.28bn implies a liabilities-to-equity ratio of 1.62x, reflecting moderate-to-high leverage for a specialty chemicals firm. Interest coverage around 9.9x is comfortable at current earnings, though sensitivity exists if operating income weakens further. Total assets are ¥64.12bn; asset turnover of 0.302x indicates relatively heavy asset base, consistent with capital intensity. The reported equity ratio is unreported in the dataset (0 indicates not disclosed), so we cannot comment on that specific metric. Cash and equivalents are also unreported, limiting precise liquidity assessment beyond working capital ratios.

Cash Flow Quality

Earnings quality appears solid this half, with OCF of ¥3.93bn equating to 6.89x net income, supported by non-cash expenses (D&A ¥1.58bn) and likely working capital inflows. This conversion suggests that despite margin pressure, cash generation remained strong, potentially aided by inventory/receivables management. Free cash flow cannot be determined because investing cash flow is unreported (0 indicates not disclosed). Financing cash flow of ¥1.65bn suggests active balance sheet management (e.g., debt drawdowns or other financing), but details are not available. Working capital stands at ¥2.94bn; inventories of ¥8.42bn constitute a meaningful share of current assets, raising sensitivity to demand shifts and potential cash release or absorption as conditions change. The key question is sustainability: OCF may normalize lower if working capital reverses and margins remain compressed. Absent capex data, we cannot assess maintenance versus growth investment needs or true FCF capacity.

Dividend Sustainability

Dividend data (annual DPS, payout ratio, FCF coverage) are unreported in this dataset, so we cannot assess policy or coverage quantitatively. From an earnings capacity perspective, the half-year net income of ¥0.57bn is modest, and operating margin compression limits distributable capacity unless conditions improve. Cash generation was strong in the period (OCF ¥3.93bn), but without capex disclosure we cannot gauge FCF available for dividends. Balance sheet leverage (liabilities/equity 1.62x) suggests management may prioritize reinvestment or balance sheet strength over distributions in a weak earnings phase. Outlook for dividends will depend on margin recovery, capex intensity, and inventory normalization. We refrain from drawing conclusions on payout sustainability until DPS and capex/FCF are disclosed.

Risk Assessment

Business Risks:

• Margin pressure from raw material inflation and pricing/mix shifts reducing gross and operating margins
• Under-absorption risk due to high fixed costs and elevated D&A, amplifying earnings volatility
• Demand cyclicality in end-markets (e.g., electronics/semiconductors, specialty materials) affecting volumes and pricing
• Inventory risk given sizeable inventories (¥8.42bn) relative to current assets, with potential for write-downs if demand weakens
• Customer concentration or product concentration risks typical in specialty chemicals (data not disclosed but relevant structurally)

Financial Risks:

• Moderate-to-high leverage (liabilities/equity 1.62x) increasing sensitivity to earnings downturns
• Liquidity reliance on inventories (quick ratio 74.1%), which may be less liquid in stress scenarios
• Potential reversal of working capital tailwinds that boosted OCF, pressuring cash flows
• Exposure to interest rate changes on financing costs (interest expense ¥95m), though current coverage is adequate

Key Concerns:

• Sharp YoY decline in operating and net income despite revenue growth
• Low net margin (2.95%) and compressed operating margin (4.8%) dragging ROE to 2.26%
• Limited disclosure on cash balances, investing cash flows, and dividends constrains FCF and payout assessment
• High depreciation relative to EBITDA, implying dependence on utilization to restore profitability

Investment Implications

Key Takeaways:

• Revenue grew 3.2% YoY to ¥19.35bn, but operating income fell 57% YoY to ¥0.94bn, indicating severe margin compression
• ROE is low at 2.26%, constrained primarily by a 2.95% net margin
• Cash generation was strong (OCF ¥3.93bn; 6.89x net income), likely aided by working capital
• Liquidity is adequate but inventory-reliant (current ratio 113.9%, quick ratio 74.1%)
• Leverage is moderate-to-high (liabilities/equity 1.62x) but interest coverage is comfortable at ~9.9x
• Key disclosures (equity ratio, cash balances, investing CF, DPS) are not reported, limiting FCF/dividend analysis

Metrics to Watch:

• Gross and operating margin recovery (price/mix and cost pass-through)
• Working capital movements, especially inventory turnover and receivables collection
• Capex and investing cash flows to assess FCF and depreciation trajectory
• Interest coverage and liabilities/equity as earnings normalize
• Order trends in key end-markets (electronics/semiconductor-related demand) impacting utilization

Relative Positioning: Within specialty chemicals/materials peers, the company shows resilient sales but weaker profitability in the period, with stronger-than-peers cash conversion offset by higher apparent operating leverage and a heavier depreciation burden.

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