Idemitsu Kosan Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.81T
• Operating Income: ¥25.84B
• Net Income: ¥98.68B
• EPS: ¥29.46

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

Idemitsu Kosan (TSE:5019) reported FY2026 Q2 consolidated results under JGAAP showing a sharp profit contraction amid lower revenue and margin compression. Revenue declined 15.5% YoY to ¥3,805.7bn, reflecting a softer price environment and/or volume normalization typical for refining and energy businesses. Gross profit was ¥345.9bn, implying a gross margin of 9.1%, while operating income fell 73.4% YoY to ¥25.8bn, taking operating margin down to 0.7%. Ordinary income was ¥35.3bn, indicating positive non-operating contributions (e.g., financial or equity-method gains) that partly offset weak operations. Net income was ¥36.1bn (EPS ¥29.46), down 63.7% YoY, yet above operating profit, suggesting support from non-operating and/or extraordinary items under JGAAP classification. DuPont metrics indicate a calculated ROE of 2.06% based on a 0.95% net margin, 0.841x asset turnover, and 2.59x financial leverage—well below typical cost of equity, reflecting cyclical headwinds. EBITDA was ¥73.1bn (1.9% margin), and interest coverage around 3.0x, indicating adequate but thinner debt service capacity in a downcycle. On liquidity, the current ratio is 126% and quick ratio 66%, signaling satisfactory near-term coverage but reliance on inventories (¥1,267.0bn). Balance sheet strength remains reasonable with total equity of ¥1,750.5bn; while the reported equity ratio is unlisted, a simple end-period proxy suggests ~38.7% (equity/assets). Operating cash flow was robust at ¥221.8bn, producing an OCF/Net income ratio of 6.15x, likely driven by working capital release consistent with falling crude prices and inventory normalization. Financing cash outflows totaled ¥288.0bn, pointing to net debt reduction and/or shareholder returns; investing cash flows were undisclosed this quarter (reported as 0). Dividend data for the period were not disclosed (DPS reported as 0.00 and payout 0.0% reflect missing items rather than actual zero). Overall, results show significant negative operating leverage to revenue, tempered by strong cash conversion and a still-solid equity base. Near-term performance hinges on refining/petrochemical spreads, inventory valuation effects, and cost control. Data limitations—especially around investing cash flows, cash balance, and dividend details—constrain full-cycle free cash flow and payout analysis.

Profitability Analysis

ROE_decomposition: ROE 2.06% = Net margin 0.95% × Asset turnover 0.841× × Financial leverage 2.59×. ROA (proxy) ≈ 0.80% (¥36.1bn / ¥4,525.9bn, end-period basis). The subdued ROE reflects compressed operating margin and modest asset productivity in a capital-intensive portfolio. margin_quality: Gross margin 9.1% translates to an operating margin of ~0.7% (¥25.8bn / ¥3,805.7bn), indicating heavy pressure from weaker crack/petchem spreads and/or inventory valuation effects. Ordinary margin (~0.93%) exceeds operating margin, evidencing non-operating gains (e.g., FX, equity-method). Net margin of 0.95% suggests extraordinary items may have supported bottom line under JGAAP. Effective tax rate appears distorted (reported 0.0%) relative to income tax expense of ¥32.1bn and ordinary income of ¥35.3bn, indicating classification impacts and one-offs. operating_leverage: Revenue fell 15.5% YoY while operating income contracted 73.4% YoY, signaling significant negative operating leverage typical of refining/chemicals in downcycles. Fixed-cost load and spread compression amplified the earnings decline relative to top line.

Growth Assessment

revenue_sustainability: The 15.5% YoY revenue decline to ¥3.81tn likely reflects lower product prices (crude-linked) and/or moderated volumes. Sustainability depends on refining margins, petrochemical spreads, and demand normalization; visibility remains limited given commodity cyclicality. profit_quality: Operating income of ¥25.8bn is low relative to gross profit (¥345.9bn), pointing to squeezed unit economics and limited cost pass-through. The uplift from non-operating/extraordinary items to ordinary/net income raises concerns about recurring profit quality in the near term. outlook: A recovery hinges on stabilization of crack spreads, normalization of inventory valuation effects, and continued cost discipline. Absent a margin rebound, earnings are likely to remain subdued; conversely, even modest spread improvement could yield outsized operating income given high operating leverage.

Financial Health

liquidity: Current ratio 126.3% and quick ratio 65.9% indicate adequate liquidity but dependence on a large inventory base (¥1,267.0bn). Working capital stands at ¥552.5bn. solvency: Debt-to-equity is 1.74x (company metric). End-period equity ratio proxy ≈ 38.7% (¥1,750.5bn / ¥4,525.9bn), suggesting a moderate leverage profile for the sector. Interest coverage ~3.0x is acceptable but could tighten if spreads weaken further. capital_structure: Total liabilities of ¥3,037.9bn vs equity of ¥1,750.5bn imply assets funded ~61% by liabilities and ~39% by equity. Financing CF outflow of ¥288.0bn suggests deleveraging and/or distributions, though details are undisclosed this quarter.

Cash Flow Quality

earnings_quality: OCF/Net income of 6.15x (¥221.8bn / ¥36.1bn) indicates strong cash conversion, likely from working capital release (notably inventories) amid price normalization. This mitigates weak accounting profitability. FCF_analysis: Investing CF is undisclosed (recorded as 0); thus, true free cash flow cannot be determined. EBITDA of ¥73.1bn and solid OCF imply underlying cash generation, but capex intensity for refining/energy is typically high; absent capex data, FCF sustainability cannot be assessed. working_capital: Large inventories (¥1,267.0bn) and a quick ratio of 66% underline sensitivity to commodity prices. The strong OCF suggests net working capital inflows this period; sustainability depends on future price/volume dynamics.

Dividend Sustainability

payout_ratio_assessment: Reported DPS 0.00 and payout 0.0% reflect non-disclosure for the period rather than an actual zero. With net income of ¥36.1bn and unknown capex, a normalized payout ratio cannot be determined. FCF_coverage: FCF coverage is reported as 0.00x due to missing investing cash flows. Without capex data, we cannot evaluate dividend coverage by FCF. policy_outlook: Given cyclicality and leverage, management is likely to balance distributions with balance sheet resilience and transition investments; however, no explicit guidance is inferable from the disclosed data.

Risk Assessment

Business Risks:

• Refining margin (crack spread) and petrochemical spread volatility impacting operating margins
• Inventory valuation gains/losses under JGAAP amid crude price swings
• Demand elasticity and product mix shifts (transport fuels, chemicals)
• Energy transition pressures requiring significant transition capex and potential asset impairments
• Regulatory and environmental compliance costs in Japan and abroad
• Geopolitical supply risks and FX fluctuations affecting feedstock and product pricing

Financial Risks:

• Moderate leverage (D/E 1.74x) with interest coverage around 3.0x during a weak margin environment
• Large inventory position driving working capital volatility and cash flow cyclicality
• Potential refinancing risk if credit conditions tighten
• Earnings reliance on non-operating/extraordinary items in this quarter
• Tax and accounting classification effects that may distort effective tax rate and net income

Key Concerns:

• Severe negative operating leverage (OP down 73.4% on revenue down 15.5%)
• Low operating margin (0.7%) and thin EBITDA margin (1.9%)
• Incomplete cash flow disclosure (investing CF and cash balance not reported) limiting FCF visibility

Investment Implications

Key Takeaways:

• ROE compressed to 2.06% driven by a 0.95% net margin and 0.841x asset turnover despite 2.59x leverage
• Operating margin at ~0.7% highlights significant spread pressure and fixed-cost absorption
• OCF strong at ¥221.8bn with 6.15x cash conversion versus net income, aided by working capital release
• Liquidity is adequate (current ratio 126%, quick ratio 66%) but inventory-dependent
• Balance sheet appears resilient with an implied equity ratio of ~39%; D/E at 1.74x is manageable if margins stabilize
• Non-operating/extraordinary contributions buoyed ordinary and net income relative to operating income
• Incomplete disclosure on investing CF and dividends constrains assessment of FCF and payout durability

Metrics to Watch:

• Refining crack spreads and petrochemical margins
• Inventory levels and valuation effects (LIFO/FIFO/JGAAP methods and write-downs)
• Operating margin recovery trajectory and unit costs
• OCF sustainability and working capital movements
• Net debt, interest expense, and interest coverage
• Capex and transition investment commitments (once investing CF is disclosed)
• Extraordinary/non-operating items impacting ordinary and net income

Relative Positioning: Within the Japanese refining and energy cohort, the company exhibits typical cyclicality with currently depressed operating margins, offset by solid cash conversion and a reasonably capitalized balance sheet; near-term relative performance will depend on spread recovery and inventory effects.

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