KIMURA CHEMICAL PLANTS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.46B
• Operating Income: ¥1.14B
• Net Income: ¥1.01B
• EPS: ¥40.49

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

Kimura Chemical Plants Co., Ltd. (TSE: 6378) reported FY2026 Q2 consolidated results under JGAAP showing modest top-line growth but material margin compression and weak cash conversion. Revenue rose 0.9% year over year to ¥12.456 billion, while operating income fell 20.8% to ¥1.137 billion, indicating negative operating leverage in the first half. Gross profit of ¥2.792 billion implies a gross margin of 22.4%, but the operating margin declined to 9.1%, down roughly 250 bps versus the prior-year period by inference from the YoY delta. Ordinary income of ¥1.178 billion exceeded operating income slightly, reflecting minimal non-operating impacts, with interest expense of only ¥3 million and very strong interest coverage of about 379x. Net income decreased 20.4% YoY to ¥801 million, translating to EPS of ¥40.49. Using the provided income tax expense of ¥472 million, the implied effective tax rate approximates 40% (using ordinary income as a proxy for pre-tax), which is elevated for Japan and likely reflects discrete items, non-deductibles, or conservatism in interim tax accruals. Balance sheet strength appears solid: total assets were ¥33.194 billion and equity ¥19.368 billion, implying an equity ratio of about 58% on a calculated basis, despite the reported equity ratio field being unreported. Liquidity is ample with a current ratio of about 2.25x and working capital of ¥13.546 billion, providing a cushion for project execution. The DuPont decomposition yields a calculated ROE of 4.14%, driven by a 6.43% net margin, 0.375x asset turnover, and 1.71x financial leverage. Cash flow quality is a key concern: operating cash flow was negative ¥255 million in the half, equating to OCF/NI of -0.32, indicative of working capital absorption typical of project businesses or milestone timing. Investing cash flow and cash balances were not disclosed in the dataset, limiting free cash flow analysis, and the reported FCF figure is not available. Financing cash flow was an outflow of ¥816 million, likely reflecting debt repayment or other financing uses given that dividends are not disclosed for the period. Dividend information is insufficient; DPS and payout ratio fields show as zero (unreported), so policy and sustainability cannot be concluded from this dataset alone. Overall, the company maintains strong balance sheet flexibility and coverage, but faces pressure on operating margins and subpar first-half cash conversion, making order execution, mix, and working capital discipline the main near-term watchpoints. Data omissions (e.g., inventories, cash, share count) limit precision, so the analysis emphasizes disclosed non-zero items and calculated metrics.

Profitability Analysis

ROE decomposes to 4.14% via net profit margin 6.43% × asset turnover 0.375 × financial leverage 1.71, indicating that profitability (margin) contributes more than efficiency or leverage. Operating margin is 9.1% (¥1,137m/¥12,456m), down sharply YoY given revenue grew 0.9% while operating income fell 20.8%, implying negative operating leverage due to cost/mix pressures or SG&A step-up. Gross margin of 22.4% suggests reasonable value-add but also potential project mix variability; the drop from last year’s inferred operating margin (~11.6%) underscores margin compression at the SG&A and/or project execution level. EBITDA was ¥1,273m, yielding a 10.2% EBITDA margin; the narrow spread between EBITDA and EBIT margins indicates a relatively light D&A burden (¥136m), consistent with an asset-light engineering profile. Ordinary income exceeds operating income slightly, with negligible interest burden (interest expense ¥3m), implying financial structure is not a drag on profitability. The implied effective tax rate is ~40% (¥472m tax/¥1,178m ordinary income), which dampens net margin; normalization of tax rate could lift ROE. Asset turnover at 0.375x is modest, reflecting the project-based nature and sizable working capital. Overall profitability is positive but under pressure; sustaining gross margins and managing SG&A will be critical to re-expanding operating margin.

Growth Assessment

Top-line growth was modest at +0.9% YoY to ¥12.456bn, indicating stable demand but not a strong expansion in the period. The sharp -20.8% YoY decline in operating income signals that the revenue mix and cost dynamics were unfavorable, or that execution timing (milestones) reduced margin recognition in H1. Net income declined 20.4%, broadly in line with operating income, suggesting limited offset from non-operating items. With EBITDA down vs. last year by inference, operating momentum appears soft near term. Given the company’s likely project-driven revenue, backlog quality and milestone phasing will drive second-half recognition; without order/backlog disclosure, sustainability of growth cannot be firmly assessed. Profit quality is somewhat constrained by the high implied tax rate and weak cash conversion in H1; normalization of tax and smoother billing/collection cycles could improve reported profit flow-through. Near-term outlook hinges on execution of higher-margin projects, input cost pass-through, and SG&A containment; the small revenue growth base leaves limited room for error.

Financial Health

Liquidity is strong: current assets ¥24.394bn vs current liabilities ¥10.848bn yields a current ratio of ~2.25x; the quick ratio equals the current ratio due to inventories being unreported. Working capital totals ¥13.546bn, providing buffer for project work-in-progress. Solvency appears robust with total equity ¥19.368bn against total liabilities ¥14.776bn; the calculated equity ratio is ~58% (equity/assets), though the reported equity ratio field is unreported in the dataset. Debt-to-equity is shown as 0.76x using total liabilities, but interest expense is only ¥3m, implying limited interest-bearing debt or low effective borrowing costs. Interest coverage is extremely strong at ~379x (EBIT/interest), indicating minimal refinancing risk from current operations. Capital structure is conservative and supports ongoing project execution and potential working capital swings.

Cash Flow Quality

Earnings quality is mixed: NI is ¥801m, but operating cash flow is -¥255m, yielding OCF/NI of -0.32, which points to working capital absorption or milestone timing issues in H1. Such patterns are common in EPC/plant engineering models where receivables and contract assets build mid-execution; without disclosure of receivables, contract assets, or advances, the precise drivers cannot be pinpointed. Free cash flow cannot be assessed reliably as investing cash flow is not disclosed; the reported FCF field is not available. The low D&A (¥136m) and high interest coverage suggest earnings are not artificially boosted by financing effects, but cash conversion timing is the main concern. Financing cash outflow of -¥816m likely reflects debt repayment or other financing uses; dividends are not disclosed. Monitoring subsequent quarters for reversal of working capital outflows will be key to validating earnings quality.

Dividend Sustainability

Dividend data are not disclosed in this dataset (DPS and payout ratio fields show as unreported). Based on EPS of ¥40.49 and NI of ¥801m, the company could have capacity to pay dividends, but negative operating cash flow in H1 and lack of free cash flow data cloud coverage assessment. Financing cash outflow suggests capital was used for non-operational purposes (e.g., debt repayment), but without confirmed DPS we cannot infer policy changes. In the absence of disclosed DPS and FCF, payout sustainability cannot be evaluated; visibility should improve with year-end disclosures and cash flow normalization. Policy outlook is therefore indeterminate from the provided data.

Risk Assessment

Business Risks:

• Project mix and execution risk affecting gross and operating margins
• Timing risk on milestone recognition leading to volatile quarterly earnings and cash flow
• Input cost inflation and pass-through risk in fixed-price contracts
• Customer capex cycle exposure in chemicals and process industries
• Supply chain and subcontractor performance risk

Financial Risks:

• Negative operating cash flow in H1 indicating working capital absorption
• Potential tax rate volatility impacting net margin and ROE
• Limited disclosure on cash balances and interest-bearing debt structure
• Concentration risk if backlog is skewed to a few large projects

Key Concerns:

• Operating margin compression despite slight revenue growth
• Weak cash conversion (OCF/NI -0.32) in the period
• Elevated implied effective tax rate (~40%) dampening net income
• Data gaps (cash, inventories, DPS, share count) constrain precision of analysis

Investment Implications

Key Takeaways:

• Stable revenue but significant margin pressure results in negative operating leverage
• Balance sheet is strong with an estimated ~58% equity ratio and very high interest coverage
• Cash conversion is the primary near-term watchpoint given negative OCF
• ROE of 4.14% is constrained by modest asset turnover and high tax rate; margin recovery could lift ROE
• Dividend visibility is low due to lack of disclosure; financing outflow suggests capital allocation toward debt or other uses

Metrics to Watch:

• Order backlog and book-to-bill to assess revenue sustainability
• Gross and operating margin trends by project mix
• Working capital components (receivables/contract assets vs advances) and OCF trajectory
• Effective tax rate normalization and any one-off tax items
• Interest-bearing debt levels and cash balance disclosure at year-end

Relative Positioning: Within Japanese plant engineering/industrial equipment peers, the company shows stronger-than-average balance sheet conservatism and coverage, but weaker first-half cash conversion and compressed operating margins; execution on higher-margin backlog and working capital normalization will define its relative performance in the near term.

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