| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥833.9B | ¥889.7B | -6.3% |
| Operating Income / Operating Profit | ¥44.0B | ¥66.5B | -33.8% |
| Ordinary Income | ¥47.4B | ¥62.8B | -24.6% |
| Net Income / Net Profit | ¥30.1B | ¥54.4B | -44.6% |
| ROE | 5.0% | 9.3% | - |
For the fiscal year ended March 2026, revenue was ¥833.9B (YoY -¥55.8B -6.3%), Operating Income was ¥44.0B (YoY -¥22.5B -33.8%), Ordinary Income was ¥47.4B (YoY -¥15.4B -24.6%), and Net Income attributable to owners of the parent was ¥28.5B (YoY -¥14.1B -33.1%), resulting in year-over-year declines in both sales and profit. The core Titanium segment decelerated sharply with sales -16.5% and Operating Income -39.2% due to market softness and demand adjustments, and SG&A increased by ¥11.6B (+11.4% YoY), compressing the operating margin by 220bp to 5.3% (prior year 7.5%). Meanwhile, the Catalyst segment supported earnings with Sales +11.6% and Operating Income +17.7%, maintaining a margin of 23.9%. At the ordinary income level, foreign exchange gains of ¥6.9B and equity-method gains of ¥0.6B contributed, but interest expense rose to ¥4.8B (prior year ¥3.3B) and special losses of ¥7.9B (including ¥4.2B impairment of fixed assets) were recorded, leading to a substantial YoY decline in net income of 44.6%.
[Revenue] Revenue declined to ¥833.9B (YoY -6.3%). By segment, Titanium was ¥562.9B (-16.5%), with external customers accounting for ¥544.3B, representing 65.3% of consolidated sales. The slowdown in titanium demand for aircraft and chemical plants and a deterioration in price mix were primary drivers, and total sales including intersegment transfers fell ¥111.0B versus the 67th period. By contrast, Chemicals rose sharply to ¥170.5B (+33.9%), supported by increased demand for ultrafine nickel and high-purity titanium oxide. Catalyst was steady at ¥119.2B (+11.6%), with solid customer demand for catalysts for propylene polymerization. Gross margin improved to 18.9% (prior year 16.8%, +210bp), but Cost of Sales of ¥676.5B only decreased by ¥48.8B YoY, limiting the benefit of fixed-cost absorption on gross profit improvement.
[Profitability] Operating Income was ¥44.0B (-33.8%). While gross profit was ¥157.3B (prior year ¥168.2B) decreasing, SG&A increased by ¥11.6B to ¥113.3B (prior year ¥101.7B), raising the SG&A ratio by 220bp to 13.6% (prior year 11.4%). This was driven by higher costs related to new business creation, R&D, and increased administrative costs. By segment, adjustments (headquarters costs, etc.) deteriorated to -¥29.8B from -¥19.2B, a ¥10.6B adverse swing. Operating margin fell to 5.3% (prior year 7.5%), with adverse price/volume/mix and reduced fixed-cost absorption pressuring profits. At the ordinary income level, non-operating income of ¥8.7B (foreign exchange gains ¥6.9B, equity-method gains ¥0.6B, etc.) contributed, offset by non-operating expenses of ¥5.3B (interest expense ¥4.8B, etc.), producing Ordinary Income of ¥47.4B (-24.6%). After recording special losses of ¥7.9B (impairment of fixed assets ¥4.2B, loss on sale of fixed assets ¥2.5B, etc.) and special gains of ¥0.9B, pre-tax income was ¥40.4B (-33.7%). Deducting income taxes of ¥12.0B (effective tax rate 29.6%) resulted in Net Income of ¥28.5B (-33.1%). In summary, the company experienced both lower sales and lower profits, with headwinds in the Titanium market and higher SG&A weighing on profitability.
Titanium recorded Sales of ¥562.9B (external ¥544.3B, -16.5%) and Operating Income of ¥43.8B (-39.2%), with a segment margin declining to 7.8% (down 2.9pt from prior year 10.7%). Reduced demand and price declines for sponge titanium, titanium ingots, etc., and weakened fixed-cost absorption pressured margins. Catalyst posted Sales of ¥119.2B (+11.6%) and Operating Income of ¥28.4B (+17.7%), maintaining a high segment margin of 23.9% (up 1.3pt from 22.6% prior year). Demand for catalysts for propylene polymerization remains firm with favorable pricing and utilization. Chemicals achieved Sales of ¥170.5B (+33.9%) and Operating Income of ¥1.6B (+114.7%), with a low segment margin of 0.9% but improved from 0.7% prior year; higher sales of ultrafine nickel and high-purity titanium oxide contributed, though profitability remains low. Adjustments were -¥29.8B (prior year -¥19.2B), driven by increased spending on new business creation, R&D, and administrative costs.
[Profitability] Operating margin 5.3% (down 2.2pt from prior year 7.5%), Net Profit margin 3.4% (down 1.5pt from prior year 4.9%) indicating deteriorated profitability. ROE deteriorated to 5.0% (prior year 7.4%); DuPont decomposition aligns with Net Profit margin 3.4% × Total Asset Turnover 0.643× × Financial Leverage 2.16×. Gross margin improved to 18.9% (prior year 16.8% +2.1pt), but SG&A ratio rose to 13.6% (prior year 11.4% +2.2pt), worsening operating leverage. EBIT is ¥44.0B and EBITDA is estimated at ¥105.4B (EBIT + Depreciation ¥61.4B), implying an EBITDA margin of 12.6%. [Cash Quality] Operating Cash Flow (OCF) is ¥110.5B, 3.88× the Net Income of ¥28.5B, indicating high quality; OCF/EBITDA is 1.05×, showing good cash conversion. The accrual ratio (Net Income - OCF)/Total Assets = -6.3% is low, suggesting solid cash backing of profits. [Investment Efficiency] ROIC is estimated at 2.7% (NOPAT / Invested Capital; NOPAT = EBIT × (1 - effective tax rate 29.6%) = ¥31.0B; Invested Capital = Interest-bearing Debt ¥564.8B + Equity ¥601.3B = ¥1,166.1B), below the cost of capital, indicating a challenge in monetizing invested capital. Total Asset Turnover declined to 0.643× (prior year 0.713×), with Construction in Progress at ¥175.2B (29.2% of PPE) eroding turnover. [Financial Soundness] Equity Ratio 46.4% (prior year 46.8%) is broadly stable; D/E ratio 0.94× (Interest-bearing Debt ¥564.8B / Equity ¥601.3B) places leverage at a neutral level. Current Ratio 140% (prior year 159%), Quick Ratio 96% (prior year 103%) indicate acceptable short-term liquidity though quick assets slightly below 100%. Debt/EBITDA is elevated at 5.36×, making the company sensitive to interest rate increases; Interest Coverage (EBIT / Interest Expense) is 9.2×, presently adequate but with limited cushion.
OCF was ¥110.5B (YoY -42.7%) but remains high quality at 3.88× Net Income. Pre-tax profit before tax adjustments was ¥40.4B; adding depreciation ¥61.4B and inventory reduction ¥29.6B (cash generation from inventory cuts) contributed, while increases in trade receivables -¥9.8B, decreases in trade payables -¥4.2B, and tax payments -¥13.0B led from a subtotal of ¥127.7B to ¥110.5B. Inventory reduction was a major cash source, reflecting production adjustment in response to demand weakness. Investing Cash Flow was -¥141.2B, led by capital expenditures of -¥150.1B (2.45× depreciation), partially offset by proceeds from sale of tangible fixed assets ¥3.3B, sale of subsidiary shares ¥6.0B, and subsidies received ¥0.9B. Large investments pushed Construction in Progress to ¥175.2B, resulting in Free Cash Flow of -¥30.7B. Financing Cash Flow was +¥21.0B, with net increase in short-term borrowings +¥51.0B and proceeds from long-term borrowings +¥40.0B exceeding long-term debt repayments -¥56.5B and dividend payments -¥13.5B. Ending cash was ¥36.5B (YoY -¥9.5B), and cash / short-term debt ratio is low at 0.10×, leaving a thin cash cushion against concentrated maturities of short-term borrowings ¥376.7B. Working capital efficiency metrics are DSO 69 days, DIO 237 days, DPO 19 days, resulting in CCC of 287 days, indicating prolonged cycle and markedly low efficiency versus peers.
Ordinary Income ¥47.4B comprises Operating Income ¥44.0B plus net non-operating gains of ¥3.4B, with non-operating income ¥8.7B (foreign exchange gains ¥6.9B, equity-method gains ¥0.6B, etc.) contributing a modest 1.0% of sales. Foreign exchange gains include temporary effects from yen depreciation and carry reversal risk in the following period. Non-operating expenses of ¥5.3B are centered on interest expense ¥4.8B, reflecting higher borrowings and changing interest environment. Net special items were -¥7.0B (special losses ¥7.9B - special gains ¥0.9B), mainly impairment loss of fixed assets ¥4.2B and loss on sale of fixed assets ¥2.5B, which temporarily reduced Net Income by 24%. Comprehensive Income was ¥31.2B (Net Income ¥28.5B + Other Comprehensive Income ¥2.7B), with OCI composed of Foreign Currency Translation Adjustments ¥0.2B, Deferred Hedge Gains/Losses -¥0.3B, and Remeasurements of Retirement Benefits ¥2.8B, showing limited divergence from Net Income. With an accrual ratio of -6.3%, OCF/Net Income 3.88×, and OCF/EBITDA 1.05×, profit quality is assessed as high. Accounting policy change (inventory valuation method changed to moving average method, applied retrospectively) had prior-year segment profit impacts of Titanium +¥2.8B, Catalyst +¥0.5B, and Chemicals +¥4.4B, and effects on the current period have been incorporated.
Annual dividend is ¥18 (interim ¥9, year-end ¥9), with a payout ratio of 30.1% (annual dividend total ¥12.8B / consolidated Net Income ¥28.5B × 71.2 million shares), a sustainable level. DOE (dividend on equity) is 2.2%, not excessive relative to capital capacity. However, Free Cash Flow for the period was negative at -¥30.7B, with FCF coverage -2.4×, meaning dividends are funded by OCF and external financing. Given high leverage (Interest-bearing Debt / EBITDA 5.36×) and concentrated short-term borrowings ¥376.7B, maintaining dividends while investing for growth requires improvements in working capital efficiency (shortening CCC) and securing long-term funding. The company is scheduled to be delisted following a share swap with JX Metals on June 1, 2026, so next-period dividend guidance has not been disclosed. There were no share buybacks in the period; shareholder returns are concentrated on dividends.
Dependence on Titanium market and price volatility: The Titanium segment accounts for 65% of sales, so cyclical swings in market prices and demand directly impact performance. This period saw Sales -16.5% and Operating Income -39.2%, and high business concentration amplifies margin volatility. Recovery of demand for aircraft and chemical plants and raw material (e.g., sponge titanium) prices will materially influence future earnings.
High leverage and concentration of short-term debt: Debt/EBITDA 5.36× is high, making the company sensitive to interest rate hikes. Short-term borrowings ¥376.7B (66.7% of debt) versus cash ¥36.5B and cash/short-term debt ratio 0.10× is thin. There is refinancing risk if funding cannot be secured; securing long-term funding and committed lines is urgent. Interest coverage 9.2× is currently adequate, but declining EBIT could make interest payments burdensome.
Poor working capital efficiency and prolonged CCC: CCC 287 days (DSO 69 + DIO 237 - DPO 19) is substantially longer than peers, and DIO of 237 days suggests inventory / valuation risks. Construction in Progress ¥175.2B (29.2% of PPE) and delays in ramping large investments may expand inventories and working capital further, pressuring OCF and FCF. Shortening CCC (target below 150 days) and normalizing inventory are key to improving capital efficiency.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 5.3% | 7.8% (4.6%–12.3%) | -2.5pt |
| Net Profit Margin | 3.6% | 5.2% (2.3%–8.2%) | -1.6pt |
Both operating margin and net profit margin are below industry medians, placing the company in the lower profitability tier within manufacturing.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -6.3% | 3.7% (-0.4%–9.3%) | -10.0pt |
Revenue growth is 10.0pt below the industry median, with headwinds in the Titanium market significantly impairing growth.
※ Source: Company compilation
Titanium market recovery and commissioning of new facilities as performance inflection points: Recovery in demand and price improvement for the core Titanium business are essential for margin recovery, and timing and ramp-up progress of Construction in Progress ¥175.2B will be a litmus test for recovering invested capital. Although Catalyst represents 14% of sales, its high margin of 23.9% means portfolio expansion could drive consolidated margin improvement.
Progress on working capital efficiency and leverage management: Shortening CCC (inventory reductions, DSO improvement) and converting short-term borrowings to long-term funding / refinancing will determine cash generation and financial flexibility. Reducing Debt/EBITDA from 5.36× to below 4.0× and improving ROIC from 2.7% to above 5% are benchmarks for normalizing capital efficiency. Watch interest rate environment and FX volatility (FX gains ¥6.9B carry reversal risk), as energy and raw material price fluctuations directly affect gross margins.
This report is an AI-generated earnings analysis document based on XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by our firm from public financial statements. Investment decisions are your own responsibility; consult a professional advisor as necessary.