Soken Chemical & Engineering Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥22.75B
• Operating Income: ¥2.97B
• Net Income: ¥2.80B
• EPS: ¥126.12

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

Soken Chemical & Engineering Co., Ltd. (4972) reported FY2026 Q2 consolidated results under JGAAP showing softer topline and sharper profit contraction, set against a robust balance sheet and solid operating cash generation. Revenue declined 6.5% YoY to 22.75bn yen, reflecting demand softness and/or pricing pressure in key end markets. Gross profit was 8.31bn yen with a gross margin of 36.5%, indicating still-healthy value-add but likely a YoY contraction given the profit slump. Operating income fell 21.7% YoY to 2.97bn yen (13.0% margin), highlighting negative operating leverage as fixed costs weighed more heavily on a lower sales base. Ordinary income was 2.88bn yen, modestly below operating income, indicating small net non-operating expenses (interest and other). Net income declined 25.4% YoY to 2.09bn yen, with a reported net margin of 9.19%. DuPont analysis shows ROE of 5.51% driven by a 9.19% net margin, 0.429x asset turnover, and 1.40x financial leverage—profitability-driven rather than leverage-dependent. Interest coverage is very strong at 48.8x, underscoring limited financial risk. Liquidity is ample, with a current ratio of 251% and quick ratio of 221%, and working capital of 20.1bn yen. The capital structure is conservative, with total liabilities of 16.1bn yen and an implied equity ratio around 71.5% (equity/assets), despite the disclosed equity ratio being shown as 0.0% due to reporting limitations. Operating cash flow of 2.75bn yen exceeded net income (OCF/NI 1.31x), indicating decent earnings quality and cash conversion for the period. EBITDA was 4.15bn yen (18.2% margin), suggesting reasonable operating resilience despite revenue pressure. The decline in operating profit outpacing sales implies margin compression likely from mix, pricing, and/or cost factors; the small non-operating headwind further trimmed bottom-line results. Dividend, investing cash flows, and cash balances are not disclosed in this dataset (zeros reflect non-disclosure), which constrains conclusions on capital allocation and FCF. Overall, the company presents a high-quality balance sheet and strong liquidity, with near-term earnings under pressure and ROE at a mid-single-digit level. Key watchpoints are demand recovery across end-markets, pricing/mix discipline, input cost trends, and capex plans that will shape free cash flow and future ROE.

Profitability Analysis

ROE (3-step DuPont): Net margin 9.19% x Asset turnover 0.429 x Financial leverage 1.40 = 5.51% ROE. Margin quality: Gross margin 36.5% supports value-add in formulations/chemicals; however, operating margin at 13.0% and net income decline of 25.4% YoY indicate margin compression vs. last year. The larger drop in operating income (-21.7%) relative to revenue (-6.5%) signals negative operating leverage, consistent with cost absorption and possibly less favorable product mix/pricing. Ordinary income (2.88bn) below operating income (2.97bn) suggests modest non-operating expenses, mainly interest (61m) and other items. EBITDA margin of 18.2% indicates decent operating buffer, with D&A at 1.18bn (~5.2% of sales) reflecting an asset base that is not overly heavy but meaningful. Interest burden is light given high coverage (48.8x), so financing costs are not materially dragging profitability. Tax burden appears normal: income tax is 776m against a pre-tax proxy near ordinary income (~2.88bn), implying an effective tax rate around 27%, despite the reported 0.0% placeholder in the calculated metrics. Overall profitability remains positive and cash-generative but is trending down due to operating deleverage and likely mix/pricing headwinds.

Growth Assessment

Revenue declined 6.5% YoY to 22.75bn yen, indicating demand softness or mix shifts in key markets (e.g., electronics, automotive, packaging). The sharper declines in operating income (-21.7% YoY) and net income (-25.4% YoY) point to deteriorating operating efficiency and weaker pricing/margins. EBITDA of 4.15bn yen (18.2% margin) shows some resilience, yet the trend suggests near-term growth headwinds. Profit quality remains reasonable given OCF/NI at 1.31x; cash conversion offsets some profit compression. Without disclosed investing cash flow, capex trajectory is unclear, limiting visibility on capacity expansion or productivity investments that could underpin future growth. Near-term outlook likely hinges on end-market recovery, inventory normalization at customers, raw material/energy cost trends, and FX. Sustained gross margin above mid-30% would be supportive, but restoring operating margin requires better volume leverage and/or price-cost management. In the absence of capex detail and guidance, revenue sustainability should be treated cautiously until an inflection in orders or improved backlog/mix is evident.

Financial Health

Liquidity is strong: current ratio 251.5% and quick ratio 221.3%, supported by current assets of 33.44bn yen versus current liabilities of 13.30bn yen. Working capital is ample at 20.14bn yen, offering operational flexibility. Solvency is solid: total liabilities of 16.11bn yen against equity of 37.92bn yen implies a conservative balance sheet; debt-to-equity measures (using total liabilities) at 0.42x and an implied equity ratio near 71.5% (equity/assets) reflect low leverage. Interest expense is modest at 61m yen with very high coverage (48.8x). Asset base of 53.02bn yen with inventories of 4.01bn yen suggests manageable inventory intensity. Overall capital structure is robust, providing cushion against cyclical downturns and capacity for selective investment.

Cash Flow Quality

Operating cash flow of 2.75bn yen exceeds net income of 2.09bn yen, yielding an OCF/NI ratio of 1.31x, supportive of earnings quality for the period. The positive spread likely reflects healthy working capital management and non-cash charges (D&A of 1.18bn yen). Free cash flow cannot be assessed due to non-disclosure of investing cash flows (reported as zero, which should be interpreted as undisclosed); thus, actual FCF could be materially different depending on capex. Working capital appears ample, but period-over-period movements are not available, limiting deeper analysis of inventory and receivables cycles. Overall, cash conversion is solid in the half, but the absence of capex data is the key constraint to evaluating sustainable FCF.

Dividend Sustainability

Dividend per share and payout ratio are not disclosed in this dataset (zeros denote non-disclosure). Therefore, we cannot assess the actual dividend outlay or coverage. From a capacity standpoint, the company generated OCF of 2.75bn yen with low financial leverage and strong liquidity, which would generally support dividend-paying ability if management prioritizes distributions. However, without capex and financing/cash balance detail, true free cash flow and distributable capacity cannot be concluded. Policy outlook is therefore indeterminate from this data; future disclosure on DPS and capex is needed to assess sustainability and potential trajectory.

Risk Assessment

Business Risks:

• End-market cyclicality in electronics/automotive/packaging potentially impacting volumes and mix
• Pricing pressure and customer bargaining power affecting margins
• Raw material and energy cost volatility influencing gross margin
• FX fluctuations impacting both competitiveness and reported results
• Product mix shifts toward lower-margin items reducing profitability
• Technology substitution and competitive innovation in specialty chemicals/adhesives

Financial Risks:

• Potential working capital swings in a downturn affecting OCF
• Unknown capex commitments due to non-disclosed investing CF, which could compress FCF
• Dependence on a limited set of end-markets increasing earnings volatility
• Counterparty risk in receivables during weaker macro conditions

Key Concerns:

• Margin compression with operating leverage working negatively as sales decline
• Limited visibility on capex and cash balances due to non-disclosure, constraining FCF assessment
• ROE at 5.5% below typical mid-cap chemical peers, requiring margin and/or asset turnover improvement

Investment Implications

Key Takeaways:

• Revenue down 6.5% YoY to 22.75bn yen; operating income down 21.7% YoY to 2.97bn yen
• Net margin 9.19% and ROE 5.51%; profitability under pressure but still positive
• Operating leverage negative; operating margin 13.0% vs. resilient gross margin 36.5%
• Strong balance sheet with implied equity ratio ~71.5% and interest coverage 48.8x
• OCF/NI at 1.31x indicates decent earnings quality; FCF unclear due to undisclosed investing CF
• Low leverage (liabilities/equity 0.42x) and high liquidity (current ratio 2.5x) provide resilience

Metrics to Watch:

• Sales trajectory by end-market and order momentum
• Gross and operating margin trends (price-cost and mix)
• Capex and investing cash flows to determine sustainable FCF
• Working capital turns (inventory and receivable days)
• ROE drivers: asset turnover improvement and margin recovery
• FX and raw material cost indices

Relative Positioning: Within Japanese mid-cap specialty chemicals/adhesives, the company exhibits stronger-than-average balance sheet strength and liquidity, but current ROE (5.5%) is below sector norms, reflecting near-term margin and volume headwinds; execution on pricing, mix, and capex discipline will be key to close the gap.

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