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

Tohoku Chemical & Pharmaceutical Co., Ltd. (7446) delivered a solid FY2025 Q4 (full-year) performance under JGAAP on a consolidated basis, with clear operating leverage despite thin margins typical of distribution-centric models. Revenue grew 7.1% YoY to ¥34.44bn, while operating income rose 46.7% YoY to ¥0.52bn, indicating effective cost control and improved operating efficiency. Net income increased 80.6% YoY to ¥0.43bn, aided by stronger operating profit and modest non-operating tailwinds. Gross profit reached ¥3.14bn, implying a gross margin of 9.1%, consistent with a low-margin, high-volume business model. Operating margin improved to approximately 1.5%, and ordinary margin to 1.7%, reflecting both scale benefits and stable non-operating items. DuPont analysis shows ROE of 5.34%, driven by a 1.24% net margin, asset turnover of 1.87x, and financial leverage of 2.30x—ROE is modest but improving with operating leverage. Interest burden is minimal with an interest coverage ratio of ~187x, indicating very low financial expense risk. Liquidity appears adequate with a current ratio of 134% and working capital of ¥2.98bn, though inventory data were not disclosed. While the reported equity ratio is shown as 0.0% (undisclosed), the balance sheet suggests a healthy equity base; total equity of ¥8.02bn against total assets of ¥18.42bn implies an equity ratio around 43–44%. Cash flow quality is a watch point: operating cash flow (¥0.15bn) covered only 35% of net income, suggesting working capital absorption or timing effects. Free cash flow was positive at ¥0.17bn, supported by a net investing cash inflow, but sustainability hinges on normalizing cash conversion. Dividend data were not disclosed (DPS shown as 0.00), so payout policy visibility is low despite EPS of ¥475.93. Based on EPS and net income, implied average shares outstanding are roughly 0.90 million, though official share counts were not provided. Overall, the company shows steady topline growth, notable operating leverage, strong interest coverage, and a solid capital base, offset by thin margins and weaker cash conversion in the period. Near-term focus should be on stabilizing working capital and sustaining margin gains. Data gaps (equity ratio, cash balance, inventories, share count) limit precision but do not undermine the core improvement narrative. The outlook depends on maintaining revenue momentum, controlling SG&A, and improving OCF conversion.

Profitability Analysis

ROE_decomposition: DuPont shows Net Margin 1.24% × Asset Turnover 1.87× × Financial Leverage 2.30× = ROE 5.34%. This indicates ROE is primarily a function of efficient asset use and moderate leverage, with profitability (net margin) the main constraint. margin_quality: Gross margin is 9.1% (¥3.14bn GP on ¥34.44bn sales), operating margin ~1.5% (¥0.52bn OI), ordinary margin 1.7% (¥0.60bn), and net margin 1.24% (¥0.43bn). The step-up from operating to ordinary income (¥77m) suggests recurring non-operating gains or financial income, with low interest expense (¥2.77m). An estimated effective tax rate around 25% (tax of ¥141m over pretax ~¥569m) aligns with standard tax burdens, despite the reported 0.0% metric being undisclosed. operating_leverage: Revenue grew 7.1% YoY while operating income rose 46.7% YoY and net income 80.6% YoY, evidencing strong operating leverage. The fixed cost base appears well managed, with scale benefits translating into disproportionate profit growth even at low margins.

Growth Assessment

revenue_sustainability: Topline expanded 7.1% YoY to ¥34.44bn, consistent with resilient demand and/or pricing pass-through. Given the low-margin profile, volume stability and customer retention are key to sustaining growth. profit_quality: Profit expansion outpaced sales due to operating leverage. Non-operating contributions were positive but modest. The quality signal is somewhat tempered by weak cash conversion (OCF/NI 0.35), suggesting working capital consumption. outlook: If the company can maintain volume growth and preserve recent cost discipline, margins could stabilize slightly above prior levels. Improvement in working capital efficiency would be a key upside lever; conversely, any slowdown in sales or pricing pressure could quickly compress margins.

Financial Health

liquidity: Current assets ¥11.69bn vs. current liabilities ¥8.71bn imply a current ratio of 134% and working capital of ¥2.98bn. Quick ratio equals current ratio due to undisclosed inventories; true quick ratio may be lower once inventories are included. solvency: Total liabilities ¥9.73bn vs. equity ¥8.02bn results in a liabilities-to-equity ratio of ~1.21x. Based on assets and equity, the implied equity ratio is approximately 43–44%, indicating a reasonably solid capital base despite the equity ratio field being undisclosed. capital_structure: Financial leverage (Assets/Equity) is ~2.30x, consistent with DuPont. Interest expense is very low (¥2.77m), and interest coverage is ~187x, implying limited refinancing risk under current conditions.

Cash Flow Quality

earnings_quality: OCF of ¥0.15bn vs. net income of ¥0.43bn yields an OCF/NI ratio of 0.35, indicating low cash conversion in the period—likely due to working capital outflows (receivables, payables timing, and/or inventory), though line-item detail is not disclosed. FCF_analysis: Free cash flow is reported at ¥0.17bn, consistent with OCF + net investing CF (¥149m + ¥19m). The positive FCF was supported by a net inflow from investing, which may not be structural (e.g., asset sales or low capex). Sustained FCF depends on normalizing OCF. working_capital: Working capital stands at ¥2.98bn, supporting liquidity. However, the low OCF/NI suggests working capital absorbed cash during the year. Inventory, AR, and AP details were not provided, limiting diagnosis of drivers.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are shown as 0.00, which we treat as undisclosed. EPS is ¥475.93; absent an announced DPS, a payout assessment cannot be finalized. FCF_coverage: With FCF of ~¥0.17bn, there is theoretical capacity for distributions, but visibility is low given cash conversion volatility and lack of disclosed cash balance. policy_outlook: Dividend policy remains unclear due to missing DPS data. If management prioritizes balance sheet resilience and working capital normalization, retained earnings may be favored near term.

Risk Assessment

Business Risks:

• Thin operating margins (~1.5%) leave limited buffer against cost inflation or pricing pressure.
• Working capital intensity and volatility can depress cash conversion in growth phases.
• Customer concentration and contract pricing terms (typical in chemicals/pharma distribution) may constrain margin expansion.
• Regulatory and compliance risks related to chemical and pharmaceutical handling and distribution.
• Supply chain disruptions affecting product availability and delivery schedules.

Financial Risks:

• Low OCF/NI (0.35) indicates earnings not fully backed by cash in the period.
• Potential inventory and receivables build (not disclosed) could further strain cash flows.
• Exposure to credit risk from customers in the event of macro slowdown.
• Refinancing risk is currently low given high interest coverage, but could rise if rates increase and leverage grows.
• Data gaps on cash balance and inventories limit precise liquidity assessment.

Key Concerns:

• Weak cash conversion relative to earnings.
• Very thin gross and operating margins susceptible to shocks.
• Dependence on maintaining high asset turnover to support ROE.

Investment Implications

Key Takeaways:

• Topline growth of 7.1% YoY with disproportionate operating and net income growth signals effective operating leverage.
• ROE at 5.34% is primarily constrained by low net margin; asset turnover and moderate leverage are supportive.
• Liquidity appears adequate (current ratio 134%, working capital ¥2.98bn), with an implied equity ratio around 43–44%.
• Interest burden is negligible (coverage ~187x), reducing financial risk.
• Cash conversion is the main watch point (OCF/NI 0.35) and will determine FCF sustainability.
• Dividend visibility is low due to undisclosed DPS; EPS stands at ¥475.93.
• Non-operating income contributes modestly (~¥77m), enhancing ordinary profits.

Metrics to Watch:

• OCF/Net income and trends in working capital days (AR, AP, inventory) when disclosed.
• Gross and operating margin progression (pricing power vs. cost inflation).
• Asset turnover and sales growth sustainability.
• SG&A ratio and fixed-cost absorption.
• Capex vs. depreciation to assess maintenance vs. growth investment.
• Cash and equivalents balance and net cash/debt when disclosed.
• Dividend announcements or policy guidance.

Relative Positioning: The company exhibits typical distributor-like economics with low margins and high asset turnover, moderate leverage, and improving operating leverage. Relative strength lies in scale efficiency and minimal interest burden; relative weakness is cash conversion and margin thinness.

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