TOHOKU CHEMICAL Co.,LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥34.44B
• Operating Income: ¥518M
• Net Income: ¥411M
• EPS: ¥475.93

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

Verdict: A solid earnings beat on profit growth with thin margins, but cash conversion and sub-target ROIC temper the quality of results. Revenue rose 7.1% YoY to 344.42, while operating income jumped 46.7% to 5.18 and net income surged 80.6% to 4.28, evidencing strong operating leverage off a low base. Gross profit reached 32.86 (gross margin 9.5%), SG&A was 27.68 (SG&A ratio ~8.0%), and operating margin improved to 1.5%. Ordinary income climbed 45.9% to 5.95, with non-operating income of 0.85 (notably 0.58 in dividend income) supporting the headline. Operating margin expanded by roughly 40 bps YoY (from ~1.1% to ~1.5%), and net margin widened by about 50 bps (from ~0.7% to ~1.2%). Interest coverage is very strong at 122x, and leverage measured as total liabilities to equity sits at 1.30x, within conservative parameters for a distributor. However, operating cash flow of 1.49 trails net income materially (OCF/NI 0.35x), pointing to earnings quality and working capital conversion concerns. Free cash flow printed at 1.68, aided by modest investing inflows and light capex (0.20), but sustainability depends on normalizing receivables and payables. ROE is 5.3% via DuPont (NPM 1.2% × AT 1.87 × leverage 2.30x), and ROIC at 4.7% falls below a typical 7–8% corporate target. Liquidity is adequate with a current ratio of 135%, supported by sizeable receivables (100.76) versus payables (80.13), though reliance on working capital remains high. Non-operating income accounts for roughly 20% of ordinary earnings, which modestly elevates earnings variability. Effective tax rate is stable at 32.4%. The balance sheet is light on interest-bearing debt, and financing CF is negligible. Looking forward, sustained profit improvement will likely require continued pricing discipline and cost control to offset thin industry margins, alongside improved cash conversion. Key watch items are receivables collection, the durability of dividend income, and whether ROIC can rise above the 5% threshold.

Profitability Analysis

DuPont decomposition: ROE 5.3% = Net Profit Margin (1.2%) × Asset Turnover (1.87x) × Financial Leverage (2.30x). The biggest YoY delta appears in Net Profit Margin, which expanded roughly 50 bps (from ~0.7% to ~1.2%), outpacing the change in leverage and asset turnover. Operating margin lift (~40 bps YoY to 1.5%) drove much of the net margin improvement, aided by disciplined SG&A (8.0% of sales) and supported by non-operating income (dividends and interest). Asset turnover at 1.87x remains healthy for a chemicals distributor, consistent with a working-capital-intensive model. Leverage is moderate (total liabilities/equity 1.30x), and interest burden is de minimis (interest expense 0.04), which helps preserve earnings despite thin margins. The operating margin expansion likely stems from mix/pricing normalization and cost control; sustainability is plausible but exposed to commodity price and customer demand volatility, given the low absolute margin base. Non-operating income (0.85) contributed meaningfully to ordinary income (about 14% of revenue-side operating profit), so reliance here is a watch point. No evidence of SG&A growth outpacing revenue this period (revenue +7.1% YoY vs. operating profit +46.7% YoY), indicating positive operating leverage.

Growth Assessment

Top-line growth of 7.1% YoY to 344.42 is solid in a generally low-growth distribution niche. Operating profit grew 46.7% to 5.18, and net profit rose 80.6% to 4.28, implying strong operating leverage and improved mix. Gross margin at 9.5% is low but typical for distribution; the 40–50 bps step-up in operating and net margins suggests better pricing/discount management and possibly favorable product mix. Non-operating income (0.85), especially dividend income (0.58), provided an incremental lift; sustainability depends on investee payout policies and market conditions. EBITDA of 6.84 (2.0% margin) indicates incremental capacity to invest, though still modest in absolute terms. Outlook hinges on maintaining price discipline and rotating inventory with minimal discounting; watch for normalization of demand in key end-markets and the ability to pass through input price changes. With ROIC at 4.7% (<5% warning threshold), incremental growth needs to be capital-disciplined to avoid diluting returns. Near-term, growth quality will be defined by cash conversion improvement, as OCF lagged NI.

Financial Health

Liquidity is adequate: current ratio 135.4% (>1.0 but below a 150% comfort benchmark), and working capital of 33.54 supports operations. Quick ratio equals the current ratio on available disclosures; receivables (100.76) exceed payables (80.13), suggesting manageable near-term obligations. No explicit warning triggers: Current Ratio > 1.0 and total liabilities/equity 1.30x (<2.0). Interest-bearing debt appears small (short-term loans 3.12; long-term loans 0.11), and interest coverage is strong at 122x. Maturity mismatch risk is moderate: current liabilities (94.72) are well covered by current assets (128.26), though reliance on receivables collection timing is high. Off-balance sheet obligations are not disclosed (N/A), so guarantees/commitments cannot be assessed from provided data.

Cash Flow Quality

OCF of 1.49 is only 0.35x net income (4.28), flagging a quality issue tied to working capital swings or accruals. Free cash flow reported at 1.68 benefited from light capex (0.20) and positive investing CF (0.19), but the gap between earnings and cash is a concern if it persists. With EBITDA at 6.84, cash generation potential exists, but conversion is the bottleneck; focus on receivables turnover and payables discipline. No obvious signs of aggressive working capital management from the period-end balances, but the OCF shortfall suggests collection timing and/or inventory movements (not disclosed) weighed on cash. Dividend and capex commitments appear covered this year (FCF coverage 1.67x), yet headroom is sensitive to OCF normalization.

Dividend Sustainability

Calculated payout ratio is 23.6%, consistent with conservative distribution relative to earnings; the reported 0.4% payout appears to reflect XBRL mapping differences. FCF coverage at 1.67x suggests dividends are covered by cash this period despite weak OCF, aided by low capex. With ROE at 5.3% and ROIC at 4.7%, management may balance dividends with reinvestment to lift returns toward target levels. Sustainability hinges on improving OCF/NI toward or above 1.0x; absent that, dividend growth could be constrained. No explicit DPS disclosed; policy signals are not available, so we rely on calculated ratios.

Risk Assessment

Business Risks:

• Thin operating margin (1.5%) amplifies sensitivity to pricing and volume changes
• Chemical price and mix volatility affecting gross margin (9.5%)
• Dependence on timely receivables collection (AR 100.76) in a working-capital-heavy model
• Non-operating income reliance (0.85; dividends 0.58) adds variability to ordinary income
• Potential slowdown in key end-markets impacting demand

Financial Risks:

• Low cash conversion (OCF/NI 0.35x) indicating working capital pressure
• Moderate maturity concentration in current liabilities (94.72) vs dependence on AR
• ROIC at 4.7% below 5% warning threshold, risking value dilution if growth requires more capital
• Tax rate stability risk (effective rate 32.4%) if incentives or mix shift

Key Concerns:

• Earnings quality flagged by OCF lagging NI
• Sustainability of dividend income from investment securities
• Maintaining operating margin gains in a low-margin distribution business

Investment Implications

Key Takeaways:

• Profit growth outpaced revenue (OP +46.7%, NI +80.6% vs sales +7.1%), with 40–50 bps margin expansion
• Cash conversion is weak (OCF/NI 0.35x), a primary near-term watch point
• ROIC at 4.7% is sub-target; improving return on capital is essential for medium-term value creation
• Balance sheet conservative on interest-bearing debt with strong interest coverage
• Non-operating/dividend income meaningful to ordinary earnings; stability of this stream matters

Metrics to Watch:

• OCF/Net Income (target ≥1.0x)
• Receivables turnover and days sales outstanding
• Operating margin sustainability (≥1.5%) and SG&A ratio discipline
• ROIC trend toward ≥7–8%
• Composition and volatility of non-operating income (especially dividends)

Relative Positioning: Within Japanese chemical distributors, the company shows acceptable leverage and strong interest coverage but lags on cash conversion and ROIC; profitability momentum is improving, yet sustained rerating would likely require consistent OCF normalization and return uplift.

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
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