TOHOKU CHEMICAL (7446) FY2026 Q1 Earnings Report

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Executive Summary

The key takeaway for the quarter is that earnings increased despite lower revenue, driven by improving profitability without revenue growth. Revenue remained at ¥8.88B (down -0.8% YoY), while Operating Income increased substantially to ¥0.24B (+109.4%), Ordinary Income to ¥0.27B (+92.2%), and Net Income to ¥0.20B (+116.5%). The gross margin improved from 8.8% to 10.2%, while SG&A expenses were held at approximately the previous-year level, allowing the Company to absorb the slight revenue decline and significantly increase profit.

Factors Affecting Results

【Revenue】Revenue was ¥8.88B, down 0.8% YoY, with no expansion in either volume or unit prices. Although segment-level breakdown data is unavailable, progress toward the full-year forecast of ¥35.0B was 25.4%, a standard level.

【Profit and Loss】Cost of sales decreased to ¥7.98B, down 2.3% YoY, outpacing the decline in revenue, and the gross margin improved by approximately 1.4pt from 8.8% to 10.2%. SG&A expenses were also controlled at ¥0.67B, down 1.2% YoY. Operating Income increased 109.4% to ¥0.24B from ¥0.11B in the previous year, and the Operating Income margin improved from 1.3% to 2.7%. Ordinary Income reached ¥0.27B, exceeding Operating Income due to ¥0.03B in non-operating income, including ¥0.02B in dividend income. Extraordinary losses were limited to ¥0.00B in losses on disposal of fixed assets, and Net Income of ¥0.20B was primarily attributable to improved profitability in the core business. In conclusion, the Company achieved higher profit on lower revenue, with cost management and an improved product mix driving the increase in earnings.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 2.7% (1.3% in the same period of the previous year), while the Net Income margin improved to 2.2% (1.0% in the same period of the previous year); however, both remained below 5%. The gross margin was 10.2% (8.8% in the same period of the previous year), and the improvement in the low-margin structure enhanced operating leverage.【Cash Quality】The difference between Ordinary Income and Net Income was attributable to the tax burden. The impact of non-operating income and extraordinary gains and losses was limited, indicating that earnings were derived primarily from the core business.【Investment Efficiency】Annualized ROE was 9.7%, reflecting a structure in which the low Net Income margin is offset by asset turnover and leverage. Accounts receivable were ¥10.01B, accounting for 48.8% of total assets and constraining asset efficiency.【Financial Soundness】The Equity Ratio was 39.8%, and cash and deposits of ¥2.58B substantially exceeded interest-bearing debt, including ¥0.37B in short-term borrowings, indicating strong financial capacity. Meanwhile, current liabilities accounted for most liabilities, and accounts payable of ¥10.04B and accounts receivable of ¥10.01B were broadly comparable in scale, making working capital management important.

Cash Flow Analysis

As disclosed figures from the cash flow statement are not included in the data provided, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased by ¥1.66B from ¥0.92B in the same period of the previous year to ¥2.58B, representing an increase of 179.1%. During the same period, accounts payable increased by ¥0.20B from ¥0.80B to ¥1.04B, while accounts receivable remained at approximately the same level, at ¥1.00B versus ¥1.01B. The increase in cash exceeded the increase in accounts payable, suggesting that the increase in funds cannot be explained solely by an accumulation of trade payables. Investment securities increased to ¥2.15B from ¥2.00B in the previous year, suggesting that a certain level of cash was also used for investing activities. Long-term borrowings declined to ¥0.01B, and no significant financing through financing activities was observed.

Earnings Quality

The increase in earnings during the quarter was driven by core business factors—namely, an improved gross margin and controlled SG&A expenses—rather than dependence on non-operating income or extraordinary gains and losses, and earnings quality can therefore be assessed as relatively high. Dividend income accounted for ¥0.02B of the ¥0.03B in non-operating income, representing approximately 0.3% of revenue and making only a limited contribution to Ordinary Income. Extraordinary losses consisted solely of ¥0.00B in losses on disposal of fixed assets, with no indication that temporary factors materially affected Net Income. On the other hand, accounts receivable accounted for 48.8% of total assets and remained high despite declining revenue, suggesting a timing gap between earnings recognition and cash conversion. From an accrual perspective, working capital trends therefore require close monitoring. Comprehensive income of ¥0.29B exceeded Net Income of ¥0.20B, with a ¥0.09B increase in valuation difference on securities contributing to the difference. However, this increase resulted from market price fluctuations and should be distinguished from intrinsic earnings generated by business activities.

Earnings Forecast and Guidance

Progress toward the full-year Company forecasts was 25.4% for Revenue, 45.5% for Operating Income, 43.1% for Ordinary Income, and 45.6% for Net Income attributable to owners of the parent. On the profit front, the Company made a strong start, significantly exceeding the standard quarterly progress rate of 25%. Meanwhile, the full-year forecasts themselves are based on conservative assumptions, with Operating Income forecast to increase only +2.3% YoY and Ordinary Income +4.2% YoY. The Company does not appear to assume that the Q1 improvement in gross margin and control of SG&A expenses will continue at the same level throughout the full year. Accordingly, the high Q1 progress rate may presuppose a slowdown in the pace of growth in subsequent quarters, making trends in the gross margin and SG&A expenses from Q2 onward key to achieving the full-year plan.

Shareholder Returns

The full-year dividend forecast is ¥105.00 per share, and the forecast Payout Ratio based on the full-year EPS forecast of ¥477.27 is approximately 22.0%. Cash and deposits of ¥2.58B and retained earnings of ¥5.49B provide substantial resources for dividends, while limited interest-bearing debt indicates strong balance-sheet capacity for shareholder returns. However, as Operating Cash Flow has not been disclosed, the sustainability of dividends through the conversion of earnings into cash should be assessed together with trends in accounts receivable collections. No data on share repurchases has been disclosed, and no assessment has been made in terms of the Total Return Ratio.

Risk Factors

1. Low-Margin Structure Risk: Although the gross margin of 10.2% and Operating Income margin of 2.7% have improved, they remain low. The Company’s structure makes earnings vulnerable to increases in procurement prices and delays in passing such increases on to selling prices.

2. Accounts Receivable Collection Risk: Accounts receivable were ¥10.01B, accounting for 48.8% of total assets, and remained high despite the YoY decline in revenue. Longer collection periods or changes in the credit standing of business partners could affect both working capital and earnings.

3. Working Capital Mismatch Risk: Accounts payable of ¥10.04B and accounts receivable of ¥10.01B coexist at broadly comparable levels, while current liabilities account for most total liabilities. Any mismatch in the timing of payments and collections could affect short-term liquidity.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

The Company’s Net Income margin was 5.1pt below the industry median, placing its profitability at the lower end of the industry.

Growth and Capital Efficiency

The Company’s Revenue growth rate was 4.6pt below the industry median, indicating that its top-line expansion lagged the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The substantial increase in earnings despite lower revenue resulted from cost management through an improved gross margin (approximately 1.4pt) and controlled SG&A expenses. The 45.5% progress rate for full-year Operating Income significantly exceeded the standard progress rate. However, the Company’s full-year forecast assumes only a +2.3% YoY increase in earnings and does not assume that the Q1 improvement in profitability will continue throughout the year.

2. Compared with the industry, both the Net Income margin (Company 2.2% vs. industry median 7.4%) and Revenue growth rate (Company -0.8% vs. industry median 3.8%) lagged, indicating room for improvement in both profitability and growth.

3. Cash and deposits reached ¥2.58B, up 179.1% YoY and substantially exceeding interest-bearing debt of approximately ¥0.37B, while accounts receivable accounted for 48.8% of total assets. Although financial capacity is strong, working capital management—particularly trends in accounts receivable collections—requires ongoing monitoring.

Theoretical Share Price (Reference Value)

Sensitivity: ¥7,553–¥7,989 at cost of equity ±1%, and ¥7,728–¥7,792 at ω±0.1.

Notes:

• Because progress toward full-year forecast Net Income (46%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (as companies tracking ahead of plan tend to outperform 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 at the end of the quarter are used (there is a timing difference from the full-year forecast).

(Model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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 responsibility, after consulting professionals as necessary.

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