Dexerials Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥57.46B
• Operating Income: ¥19.90B
• Net Income: ¥13.41B
• EPS: ¥79.65

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Dexerials Co., Ltd. (4980) reported FY2026 Q2 (cumulative) results under IFRS showing resilient profitability and strong cash generation despite softer topline. Revenue declined 3.7% YoY to 574.56, while operating income fell 14.7% YoY to 199.02, indicating negative operating leverage as fixed costs weighed on earnings. Gross margin remained high at 59.7%, reflecting a defensible value-add profile, but EBITDA margin eased to 40.3% and operating margin to 34.6%, highlighting some pressure on cost absorption or pricing. Net income decreased 15.4% YoY to 134.10, with an effective tax rate of 33.7% roughly consistent with recent norms. DuPont analysis indicates ROE of 13.0%, driven by a healthy net margin of 23.3%, moderate asset turnover of 0.362, and conservative leverage of 1.54x. Operating cash flow was strong at 197.11, equating to 1.47x net income, and free cash flow was solid at 145.78 after 27.23 of capex, implying high earnings quality. The balance sheet is robust with total equity of 1,032.22, an equity ratio of 65.0%, and ample cash and equivalents of 349.79, supporting flexibility through cycles. Reported debt-to-equity of 0.54x appears to reflect total liabilities/equity rather than interest-bearing debt, as interest-bearing debt was unreported. Liquidity ratios (current and quick) and several income statement line items (non-operating items, interest expense) were not disclosed, limiting full diagnostic precision; however, available data point to low financial risk. Working capital appears well-managed with receivables of 179.79, inventories of 87.39, and payables of 122.79, though full current liability detail is unavailable. Cash conversion looks healthy with OCF/EBITDA at about 85%, and capex below depreciation suggests limited expansionary spend or timing effects in the half. Dividend disclosures are incomplete; cash dividends paid of 37.16 are well-covered by both OCF and FCF, but the provided payout ratio (144.7%) likely reflects a different basis (e.g., annualized DPS versus period EPS) and should be reconciled. Overall, Dexerials maintains high margins, robust cash generation, and a strong balance sheet, offset by cyclical demand softness that has increased profit sensitivity to revenue. Near-term outlook hinges on end-market normalization, pricing discipline, utilization rates, and FX. Data gaps (e.g., current liabilities, interest-bearing debt, non-operating items, DPS) constrain deeper ratio analysis but do not detract from the core narrative of resilient fundamentals and prudent financial policy.

Profitability Analysis

ROE_decomposition: ROE 13.0% = Net margin 23.3% × Asset turnover 0.362 × Financial leverage 1.54x. The primary driver remains margin strength, with modest asset efficiency and conservative leverage. margin_quality: Gross margin 59.7% and EBITDA margin 40.3% point to strong value-add products and mix. Operating margin at 34.6% declined faster than revenue (-14.7% OI vs -3.7% sales), suggesting negative operating leverage, some pricing/mix headwinds, or less favorable absorption. Tax rate at 33.7% is a drag but within historical ranges. operating_leverage: Revenue fell 3.7% YoY while operating income declined 14.7% YoY, implying high fixed-cost intensity or lower yield on incremental sales. D&A of 32.74 (16% of OI) indicates capital intensity that can amplify leverage to volumes. Continued focus on utilization and cost discipline is key to stabilizing margins if demand remains soft.

Growth Assessment

revenue_sustainability: Sales declined to 574.56 (-3.7% YoY), implying softer demand in key end-markets. High gross margin suggests pricing/mix remains supportive, but lower operating profit indicates less favorable fixed-cost absorption. profit_quality: Net margin at 23.3% and OCF/NI of 1.47x indicate high-quality earnings with strong cash conversion. EBITDA margin of 40.3% remains elevated versus many peers, but contraction signals headwinds in scale or price/mix. outlook: Given cyclical exposure typical for advanced materials/components, near-term growth will depend on end-market recovery (consumer electronics, industrial/auto-related applications), pricing resilience, and FX. With capex below D&A this period, growth capex appears measured; if demand improves, operating leverage can aid profit rebound. Conversely, if softness persists, margins could face further pressure.

Financial Health

liquidity: Cash and equivalents: 349.79. Current assets: 635.59. Current liabilities are unreported, so current and quick ratios cannot be computed. Working capital is shown as 635.59 (proxy), but this likely overstates true working capital absent current liability detail. solvency: Equity ratio 65.0% evidences a strong capital base. Reported debt-to-equity 0.54x appears to reflect total liabilities/equity (559.05 / 1,032.22) rather than interest-bearing debt (unreported). Interest coverage is N/A due to missing interest expense, but low leverage suggests limited solvency risk. capital_structure: Total assets 1,587.83 vs equity 1,032.22 implies modest leverage (assets/equity 1.54x). Noncurrent assets 882.62 (56% of assets) indicate capital intensity but within manageable bounds given cash generation.

Cash Flow Quality

earnings_quality: OCF/Net income at 1.47x and OCF/EBITDA around 85% (197.11 / 231.76) indicate strong cash realization of earnings. Effective tax cash cost aligns with P&L tax rate, and there is no sign of aggressive working-capital-driven earnings. FCF_analysis: FCF of 145.78 after 27.23 of capex demonstrates ample internal funding capacity. Capex below D&A suggests either maintenance-level spend or timing lag; watch for normalization in H2 if growth projects proceed. working_capital: Receivables 179.79, inventories 87.39, and payables 122.79 appear balanced relative to sales scale; however, the absence of full current liabilities limits precise cash conversion cycle analysis. Positive OCF suggests no material working capital build this period.

Dividend Sustainability

payout_ratio_assessment: Provided payout ratio (Calculated) is 144.7%, but cash dividends paid of 37.16 equate to approximately 27.7% of net income (37.16 / 134.10), indicating ample coverage on a cash basis. The 144.7% figure likely reflects a different methodology (e.g., annual DPS versus interim EPS) or timing. FCF_coverage: Dividends paid of 37.16 are covered 5.3x by OCF (197.11) and about 3.9x by FCF (145.78). The provided FCF coverage of 0.75x is inconsistent with cash flow disclosures and may stem from a differing basis or period alignment. policy_outlook: With high equity ratio, strong FCF, and moderate cash dividends, sustainability appears solid. Future distributions will depend on capital allocation between growth capex and shareholder returns; lack of DPS detail and buyback data constrains full policy assessment.

Risk Assessment

Business Risks:

• Cyclical demand in end-markets (e.g., electronics-related applications) leading to volume and price volatility
• Negative operating leverage from high fixed-cost base if utilization declines
• Pricing pressure and product mix shifts impacting margins
• Customer concentration risk typical in component/materials supply chains
• Supply chain and procurement risks affecting cost of sales and delivery schedules
• Foreign exchange volatility (JPY) impacting both revenue translation and input costs

Financial Risks:

• Incomplete visibility on interest-bearing debt and interest expense (coverage uncalculable)
• Potential working capital volatility affecting cash conversion in down-cycles
• Tax rate variability (effective rate 33.7%) influencing net profitability
• Capital intensity and future capex needs that could temporarily dilute FCF

Key Concerns:

• Profit decline outpacing revenue contraction, evidencing negative operating leverage
• Data gaps in current liabilities and non-operating items limit full ratio diagnostics
• Apparent inconsistency between reported payout metrics and cash dividends paid

Investment Implications

Key Takeaways:

• High-margin profile preserved (GM 59.7%, EBITDA margin 40.3%) despite softer sales
• ROE at 13.0% supported mainly by strong profitability rather than leverage
• Negative operating leverage evident as OI fell 14.7% on a 3.7% sales decline
• Cash generation is robust (OCF/NI 1.47x; FCF 145.78), underpinning financial flexibility
• Balance sheet is strong (equity ratio 65%, cash 349.79) with modest leverage
• Capex below D&A suggests measured investment or timing; capacity for deployment exists
• Dividend cash outlays are well-covered by OCF and FCF, though reported payout ratio methodology needs clarification

Metrics to Watch:

• Order trends and backlog, especially into H2 seasonality
• Utilization rates and operating margin trajectory
• Price/mix and gross margin resilience
• OCF/NI and OCF/EBITDA as indicators of earnings quality
• Capex pipeline versus D&A (signal of growth investment)
• FX sensitivity and hedging impacts
• Working capital turns (receivables, inventory) as demand normalizes
• Clarification of DPS, payout ratio basis, and any share repurchases

Relative Positioning: Within Japanese advanced materials/components peers, Dexerials exhibits above-average margins and strong cash conversion, coupled with conservative leverage. Near-term performance is constrained by cyclical demand softness and negative operating leverage, but balance sheet strength provides resilience relative to more leveraged competitors.

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