FUKUVI CHEMICAL INDUSTRY CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥19.51B
• Operating Income: ¥719M
• Net Income: ¥623M
• EPS: ¥30.45

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: Solid earnings quality with margin expansion despite flat sales, but capital efficiency remains weak and payout looks stretched. Revenue was 195.14, down 0.5% YoY, while operating income rose 13.3% YoY to 7.19 and ordinary income increased 25.5% to 8.79. Net income climbed 27.6% YoY to 6.02, translating to EPS of 30.45 JPY on 19.76 million average shares. Gross margin printed at 30.3% (gross profit 59.17), and the operating margin expanded to 3.7%. Based on prior-period math, operating margin increased by roughly 45 bps (from about 3.24% to 3.69%) as cost discipline and non-operating support offset revenue softness. SG&A remained heavy at 26.6% of sales (51.97), but improved operating leverage allowed profit growth. Non-operating income was sizable at 1.85 (including 1.05 of dividend income), lifting ordinary income and highlighting some reliance on financial income. Cash generation was robust: operating cash flow of 9.78 exceeded net income by 1.62x, indicating high earnings quality and favorable working capital dynamics. Comprehensive income (11.76) materially exceeded net income (6.02), likely reflecting valuation gains on investment securities, boosting equity but non-cash in nature. The balance sheet is very strong with total assets of 535.27, equity of 381.20, and calculated equity ratio of ~71%, alongside a large net cash position (cash 136.74 vs loans 1.09). Liquidity is ample (current ratio 271.9%, quick ratio 244.0%) and interest coverage is exceptional at 102.7x. However, ROE is a low 1.6% and ROIC is 2.1% (below the 5% warning line), signaling capital efficiency challenges given a sizable asset base and modest margins. The payout ratio is high at 89.4%, which may constrain reinvestment if profits do not improve further. Forward-looking, stabilization of demand, continued cost control, and mix upgrades are key to sustain margin gains and improve ROIC; reliance on non-operating income should be monitored. With implied free cash flow likely positive given capex of 4.86, the company appears able to fund operations and capex, but dividend sustainability hinges on maintaining current cash conversion and profitability.

Profitability Analysis

ROE decomposition (DuPont): ROE 1.6% = Net profit margin 3.1% × Asset turnover 0.365 × Financial leverage 1.40x. The largest YoY change driver appears to be net margin expansion, as operating income grew 13.3% on a 0.5% sales decline, implying improved operating margin and a tailwind from non-operating income. Operating margin rose approximately 45 bps to 3.69%, driven by better gross margin mix/cost control and restrained SG&A growth relative to profits. Asset turnover at 0.365 indicates a heavy asset base relative to revenue, which caps ROE even when margins improve. Financial leverage is low at 1.40x, limiting ROE uplift but enhancing balance sheet safety. Non-operating income of 1.85 (notably 1.05 in dividend income) contributed meaningfully to ordinary profit (ordinary income margin 4.5%), implying part of the profitability improvement is financial-income driven rather than purely operational. Sustainability: Operating margin gains look more durable if cost actions and mix hold, but the boost from dividends and other non-operating items may fluctuate with market conditions and investee performance. Watch for any sign that SG&A growth outpaces revenue; the ratio stands at 26.6% of sales, which is high for a modest-margin manufacturer and could pressure future margins if sales do not recover.

Growth Assessment

Top-line growth was slightly negative (-0.5% YoY to 195.14), but profit growth was strong with operating income +13.3% and net income +27.6%, indicating favorable mix and cost dynamics. Gross profit of 59.17 and EBITDA of 13.77 (7.1% margin) show modest operating leverage from a low base. Ordinary income benefited from 1.85 in non-operating income, including 1.05 in dividends, which may not be consistently repeatable. Revenue sustainability near term depends on end-market demand (construction/interiors/plastics) and pricing power to offset input cost volatility. Profit quality improved as OCF outpaced net income (1.62x), supporting the earnings uplift with cash. Outlook hinges on maintaining gross margin, controlling SG&A, and limiting dependency on non-operating income to drive ordinary profit. If sales stabilize and the company holds its cost gains, operating margin could remain around the mid-3% range or gradually improve; however, without faster asset turnover or higher margins, structural ROE uplift will be limited. Comprehensive income strength (11.76) suggests market gains on securities, but this does not directly support core earnings sustainability.

Financial Health

Liquidity is very strong: current ratio 271.9% and quick ratio 244.0%, far above warning thresholds; no warning on current ratio < 1.0. Solvency is conservative with a reported D/E of 0.40x and calculated equity ratio of ~71% (381.20 equity / 535.27 assets). Interest-bearing debt is minimal (short-term loans 0.34, long-term loans 0.75), supporting an exceptional interest coverage ratio of 102.71x. Net cash position is sizable at roughly 135.7 (cash 136.74 minus total loans 1.09), minimizing refinancing risk. Maturity mismatch risk is low: current assets 345.58 comfortably cover current liabilities 127.12, and cash alone covers near-term obligations. No off-balance sheet obligations are reported in the provided data; absence of disclosure means such items, if any, cannot be assessed here. There are no flags for D/E > 2.0.

Cash Flow Quality

OCF of 9.78 exceeds net income of 6.02 (OCF/NI = 1.62x), indicating high earnings quality with favorable working capital contribution. Investing CF is unreported, but disclosed capital expenditures were 4.86; implied FCF (OCF - capex) is approximately 4.92 if capex represents the principal investing outflow, suggesting positive internal funding capacity. Financing CF was -7.83, reflecting cash returned to shareholders and/or debt movements; share repurchases were modest at -0.01, while dividends paid were unreported. With strong net cash and positive implied FCF, cash generation appears adequate to support operations and modest capex. No signs of working capital manipulation are evident from the limited data; receivables (77.51) and inventories (35.45) look manageable relative to sales and current assets, and OCF strength corroborates cash conversion.

Dividend Sustainability

Reported payout ratio is high at 89.4%, above the <60% benchmark for comfort. While cash generation is solid (OCF/NI 1.62x) and implied FCF is positive (~4.92 using capex as proxy), sustaining a near-90% payout could constrain reinvestment and deleveraging benefits to drive ROIC improvement. Dividends paid are unreported, limiting precise FCF coverage analysis; however, the large net cash buffer mitigates near-term risk. Policy sustainability will depend on maintaining current profitability and cash conversion, or rebalancing payout toward growth investments to address low ROIC (2.1%). Monitor any shift in dividend policy in light of capital efficiency targets.

Risk Assessment

Business Risks:

• End-market softness in construction/interiors could pressure volumes (revenue -0.5% YoY).
• Raw material price volatility (e.g., PVC/PP/resins) can compress gross margins.
• Dependence on non-operating income (1.85, including 1.05 dividends) to lift ordinary profit introduces variability.
• High SG&A intensity (26.6% of sales) limits operating margin headroom.
• Low ROIC at 2.1% indicates inefficient capital deployment relative to returns.

Financial Risks:

• High payout ratio (89.4%) risks crowding out growth capex if profits weaken.
• Valuation fluctuations in investment securities (69.38) affect comprehensive income and equity.
• Potential receivables and inventory risks in a slowing demand environment, though current metrics appear manageable.

Key Concerns:

• Structurally low ROE (1.6%) and asset turnover (0.365) constrain shareholder value creation.
• Earnings reliance on dividend/financial income could reverse with market downturns.
• Sustaining margin gains with flat/declining sales may be challenging without mix upgrades or cost restructuring.

Investment Implications

Key Takeaways:

• Margin expansion (+~45 bps YoY operating margin) and strong cash conversion underpin quality of earnings.
• Balance sheet strength (net cash ~135.7, equity ratio ~71%) provides resilience.
• Capital efficiency is weak (ROIC 2.1%, ROE 1.6%) and requires improvement via asset turnover and/or margin uplift.
• High payout ratio (89.4%) may be difficult to sustain if non-operating income normalizes.
• Comprehensive income outperformance suggests market tailwinds to securities; core operations should be the focus for durable growth.

Metrics to Watch:

• Gross and operating margin trajectory vs resin input costs.
• SG&A growth vs revenue growth (operating leverage).
• OCF/NI ratio and implied FCF after capex.
• Asset turnover improvement (inventory and receivables turnover).
• Non-operating income mix, especially dividend income from securities.
• ROIC progression relative to a 5–8% target range.

Relative Positioning: Within Japanese mid-cap materials/building-products peers, the company stands out for a very strong net cash balance and robust cash conversion but lags on capital efficiency (low ROIC/ROE) and maintains thin operating margins; sustainability of payouts appears weaker than peers with lower payout ratios.

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