KUMIAI CHEMICAL INDUSTRY CO.,LTD. FY2026 Q2 Earnings Report

Quick View

Executive Summary

Revenue and profit increased, driven by higher sales in the agrochemical and agriculture-related businesses and improved profitability in the chemical products business. However, the substantial increases in ordinary income and net income were primarily attributable to the reversal of non-operating factors, namely foreign exchange gains and equity-method investment income, indicating that the quality of earnings growth includes temporary factors. Revenue was ¥1,029.2B (+7.0% YoY), operating income was ¥104.6B (+10.8%), ordinary income was ¥137.6B (+66.0%), and net income was ¥84.2B (+31.6%). The operating margin improved to 10.2% from 9.8% in the same period of the previous year. Operating leverage was achieved as SG&A expenses grew by +4.4%, below the revenue growth rate, while the chlorination business in the chemical products segment recorded restructuring expenses, including an impairment loss of ¥5.1B.

Factors Affecting Performance

【Revenue】Revenue increased by +7.0% YoY to ¥1,029.2B. The core agrochemical and agriculture-related businesses increased revenue to ¥836.5B (81.3% of total revenue, +6.6% YoY), while chemical products increased to ¥145.5B (14.1%, +16.2% YoY), with both segments contributing to the increase. Meanwhile, the Other segment declined to ¥68.0B (6.6%, -7.7% YoY).

【Profitability】Operating income increased by +10.8% YoY to ¥104.6B, outpacing revenue growth, and the operating margin improved to 10.2% from 9.8% in the previous year. Ordinary income increased substantially more than operating income, rising by +66.0% to ¥137.6B. This was primarily because the foreign exchange loss of ¥26.2B recorded in the same period of the previous year reversed to a foreign exchange gain of ¥10.3B in the current period, while equity-method investment income of ¥23.2B also contributed. These factors should be distinguished from growth in the core business. Extraordinary losses of ¥17.0B included the impairment loss of ¥5.1B and restructuring expenses of ¥9.1B in the chemical products business, representing temporary factors. Net income increased by +31.6% to ¥84.2B, resulting in overall revenue and profit growth.

Segment Analysis

The agrochemical and agriculture-related businesses generated revenue of ¥836.5B (+6.6% YoY), segment profit of ¥98.9B (+8.7%), and a segment margin of 11.8% (11.6% in the previous year), making them the core business driving performance. The chemical products business generated revenue of ¥145.5B (+16.2%), segment profit of ¥11.4B (+38.2%), and a segment margin of 7.8% (6.6% in the previous year). In addition to revenue and profit growth, its margin improved; however, the chlorination business recorded an impairment loss of ¥5.1B and restructuring expenses of ¥9.1B due to deteriorating business conditions, indicating a structural risk of profitability deterioration beneath the revenue growth. The Other segment experienced a revenue decline to ¥68.0B (-7.7% YoY), but segment profit increased to ¥5.8B (+8.6%), with the segment margin reaching 12.2%.

Key Financial Metrics

【Profitability】The operating margin improved to 10.2% from 9.8% in the same period of the previous year, while the gross margin edged up to 21.7% from 21.6%. The net margin expanded to 8.2% from 6.7% in the same period of the previous year, reflecting contributions not only from operating performance but also from increased non-operating income.【Cash Flow Quality】Accounts receivable amounted to ¥585.3B, up +50.2% YoY and substantially exceeding the revenue growth rate. Inventories also remained high at ¥491.5B, indicating that working capital is becoming increasingly tied up in conjunction with revenue growth.【Investment Efficiency】ROE was 10.5% (some analyses indicate 10.9% on an annualized basis), indicating that profitability improvements are progressing faster than improvements in asset efficiency. Total assets were ¥2,590.7B and net assets were ¥1,604.9B, maintaining a high equity ratio of 61.9%.【Financial Soundness】Short-term borrowings increased by +18.9% YoY to ¥437.4B, while long-term borrowings declined by -31.5% to ¥98.1B, indicating a shift toward shorter borrowing maturities. Cash and deposits increased by +26.3% to ¥277.7B, but reliance on short-term liabilities remains high.

Cash Flow Analysis

Direct data from the cash flow statement is not included in the disclosed information; however, funding trends can be inferred from changes in the balance sheet. Cash and deposits increased by +26.3% to ¥277.7B from ¥221.8B in the same period of the previous year, improving liquidity on hand. On the other hand, accounts receivable remained high at ¥585.3B (+50.2% YoY), and inventories stood at ¥491.5B, indicating that working capital is continuing to build in line with revenue growth. In terms of borrowings, short-term borrowings increased to ¥437.4B, while long-term borrowings declined to ¥98.1B, indicating a shift toward shorter-term financing. Overall, improvements in profit from operating activities may be offset by working capital being tied up during cash conversion, making it necessary to monitor funding efficiency.

Quality of Earnings

Operating income of ¥104.6B (+10.8% YoY) represents core-business profit growth exceeding revenue growth, indicating good earnings quality. Meanwhile, ordinary income of ¥137.6B exceeded operating income by 31.5%, with the difference attributable to non-operating factors, namely equity-method investment income of ¥23.2B and foreign exchange gains of ¥10.3B. In the same period of the previous year, a foreign exchange loss of ¥26.2B weighed on ordinary income. Accordingly, the +66.0% increase in ordinary income in the current period contains a substantial temporary effect from the reversal of foreign exchange factors. Extraordinary losses of ¥17.0B included an impairment loss of ¥5.1B and restructuring expenses of ¥9.1B in the chemical products business. These should be distinguished as non-recurring expenses, and business restructuring costs have already been reflected in net income. Extraordinary gains were limited to ¥2.5B, resulting in a limited offsetting effect. Based on the above, the improvement in operating income indicates sustainable earnings growth, while the increases in ordinary income and net income are highly dependent on foreign exchange and equity-method factors. Attention should therefore be paid to fluctuations in non-operating factors when assessing sustainability from the next fiscal year onward.

Earnings Forecast and Guidance

Progress rates against the full-year forecasts were 63.5% for revenue, 145.3% for operating income, 126.3% for ordinary income, and 136.7% for net income. Each metric from operating income onward is progressing at a pace exceeding the full-year forecast as of the first half. The Company has not revised its earnings forecasts, and its full-year operating income forecast of ¥72.0B (-31.9% YoY) is a conservative level below the Q2 cumulative result of ¥104.6B. This may reflect the seasonality of demand in the agrochemical business, fluctuations in foreign exchange and equity-method investment income during the second half, and the impact of restructuring in the chemical products business. Whether the strong first-half progress will continue into the second half should be viewed cautiously, considering the possibility that the reversal of non-operating factors was temporary.

Shareholder Returns

The Q2 dividend was ¥10.00 per share, implying a payout ratio of approximately 15.2%. The full-year dividend forecast is ¥24.00 per share, implying a forecast payout ratio of approximately 45.2% against the full-year net income forecast of ¥64.0B. First-half net income is already progressing at a pace exceeding the full-year forecast, providing earnings support for the dividend forecast. No data on share buybacks has been disclosed, so the assessment is based solely on the payout ratio.

Risk Factors

1. Restructuring Risk in the Chemical Products Business: An impairment loss of ¥5.1B and restructuring expenses of ¥9.1B were recorded due to deteriorating business conditions in the chlorination business. Although the chemical products segment as a whole delivered revenue and profit growth, with a segment margin of 7.8%, the possibility of additional losses remains until stabilization of profitability following the restructuring can be confirmed.

2. Dependence on Non-Operating Factors: The increase in ordinary income (+66.0%) is heavily dependent on foreign exchange gains of ¥10.3B and equity-method investment income of ¥23.2B. As the Company recorded a foreign exchange loss of ¥26.2B in the same period of the previous year, ordinary income is structurally susceptible to substantial volatility from foreign exchange fluctuations.

3. Expansion of Working Capital: Accounts receivable increased to ¥585.3B, up +50.2% YoY and substantially exceeding the revenue growth rate (+7.0%), while inventories also remained high at ¥491.5B. At the same time, short-term borrowings increased to ¥437.4B (+18.9% YoY), resulting in a shift toward a shorter-term debt structure. Monitoring is necessary from both the perspectives of funds being tied up and dependence on refinancing.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company's operating margin and net margin both exceed the industry median, indicating that profitability is relatively high within the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median, and the pace of revenue growth remains at a mid-range level within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The operating margin improved to 10.2%, confirming operating leverage as SG&A expense growth was kept below the revenue growth rate. However, the substantial increases in ordinary income and net income are highly dependent on non-operating factors, namely foreign exchange gains and equity-method investment income. It is therefore important to distinguish these factors from operating income when evaluating the quality of earnings growth.

2. The chemical products business recorded impairment and restructuring expenses related to the chlorination business. Although the segment as a whole delivered revenue and profit growth and an improved margin, whether profitability will stabilize and become firmly established after the restructuring remains an area requiring continued observation in future earnings results.

3. Accounts receivable increased at a pace substantially exceeding revenue growth, while dependence on short-term borrowings also increased. The expansion of working capital during a period of revenue growth and the shift toward a shorter-term financing structure are key points to monitor when evaluating cash flow quality.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥1,108–¥1,171 at cost of equity ±1%; ¥1,132–¥1,143 at ω±0.1.

Notes:

• Because net income progress against the full-year forecast (137%) exceeds the standard level (50%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of forecast tend to outperform their forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated at a somewhat higher level.

(Calculation model: Residual income model (Ohlson-type model with an explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market stock price or a recommendation of any specific investment action, nor does it predict or guarantee the future stock price.)

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, and you should consult a professional as necessary.

---End of Report---