EIDAI KAKO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.59B
• Operating Income: ¥242M
• Net Income: ¥144M
• EPS: ¥111.89

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

Verdict: A solid recovery in profitability with material margin expansion, but cash flow quality deteriorated sharply in FY2026 Q2. Revenue rose 3.3% YoY to 45.90, while operating income surged 180.0% YoY to 2.42, demonstrating effective operating leverage. Gross profit reached 10.85 with a gross margin of 23.6%, indicating improved pricing/mix or input cost stabilization. Operating margin improved to 5.3% (2.42/45.90), up roughly 333 bps from an estimated ~1.9% a year ago. Ordinary income increased 303.2% YoY to 2.34, implying ordinary margin expansion of about 379 bps to 5.1%. Net income jumped 315.2% YoY to 1.44, translating to a net margin of 3.1%. Despite strong P&L results, operating cash flow was -2.07, diverging materially from net income (OCF/NI -1.44x), flagging earnings quality concerns likely tied to working capital. Liquidity is very strong (current ratio ~480%, quick ratio ~414%) with ample cash (17.21) and modest short-term loans (1.04). Leverage remains conservative (D/E 0.32x) and interest burden is minimal (interest expense 0.04; coverage 60x). Capital efficiency is subdued: ROE is 2.0% and ROIC is 2.4%, both below typical cost-of-capital thresholds. SG&A at 8.43 (18.4% of sales) appears contained relative to gross profit growth, aiding the operating margin recovery. Non-operating items netted a small expense (0.09 income vs 0.17 expense), indicating the profit inflection is mainly operational. Financing cash flow was -3.53, including share repurchases of -1.28, suggesting ongoing shareholder returns despite negative OCF. The effective tax rate was elevated at 38.6%, tempering net margin. Forward-looking, sustaining the margin gains will hinge on stabilizing working capital, defending gross margin against raw material volatility, and lifting ROIC above 5% to enhance value creation.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (3.1%) × Asset Turnover (0.491) × Financial Leverage (1.32x) = ROE 2.0%. The biggest driver of YoY improvement is the Net Profit Margin, backed by operating margin expanding from ~1.9% to ~5.3% (about +333 bps) and ordinary margin from ~1.3% to ~5.1% (about +379 bps). The margin uplift likely stems from better gross-to-SG&A spread (gross margin 23.6% with SG&A at 18.4% of sales) and disciplined SG&A growth relative to gross profit. Asset turnover at 0.491 remains modest, reflecting a balance sheet with significant cash and receivables relative to sales, which caps ROE despite profit recovery. Financial leverage is low at 1.32x, consistent with the company’s conservative capital structure and contributing minimally to ROE. Business rationale: improvements likely benefited from pricing initiatives, product mix enhancement, and/or easing input cost pressures; non-operating contributions were minor (net non-op loss). Sustainability: margin gains look operationally driven and thus partly sustainable, but they will be vulnerable to raw material price swings and demand elasticity. Watch for any re-acceleration of SG&A; for now, SG&A appears controlled, supporting positive operating leverage. A concern is the gap between accounting profits and cash generation; if working capital remains elevated, asset turnover and ROE may stagnate despite better margins.

Growth Assessment

Top-line growth of 3.3% YoY is modest but positive in a likely flat-to-slow market environment for chemical products. Operating income growth of 180.0% YoY highlights strong operating leverage as gross profit outpaced SG&A. Ordinary income growth of 303.2% YoY indicates minimal reliance on non-operating tailwinds; the recovery is primarily operational. Net income rose 315.2% YoY, but the effective tax rate of 38.6% dampened net margin upside. Revenue sustainability hinges on end-market demand (industrial and consumer applications), price discipline, and competitive dynamics; no one-off gains were disclosed. With EBITDA at 3.81 (8.3% margin), core earnings capacity improved. However, negative OCF suggests growth consumed cash, likely via higher receivables and/or inventory, which could constrain future growth investment if not normalized. Near-term outlook: defend gross margin against raw material volatility and normalize working capital to translate earnings into cash. Medium term: to improve value creation, ROIC (2.4%) needs to advance toward 5%+ through mix upgrade, pricing, and tighter capital deployment.

Financial Health

Liquidity is very strong: Current Ratio 479.7% and Quick Ratio 413.9% (well above benchmarks). No warning on Current Ratio (<1.0) or leverage (D/E 0.32x). Maturity mismatch risk appears low: current assets (53.76) far exceed current liabilities (11.21), with cash (17.21) comfortably above short-term loans (1.04) and accounts payable (2.65). Total liabilities are modest at 22.76 versus equity of 70.68, indicating solid solvency. Long-term loans are 6.51 against strong cash reserves, limiting refinancing risk. Interest coverage is robust at 60.06x, suggesting ample cushion against rate increases. No off-balance sheet obligations are reported in the provided data. Overall, the balance sheet provides substantial flexibility to manage working capital swings and fund moderate capex.

Cash Flow Quality

OCF/Net Income is -1.44x, below the 0.8 threshold and a clear quality red flag for the quarter. The divergence likely reflects working capital outflows (receivables at 18.74 and inventories at 7.38 versus relatively small payables at 2.65), consistent with growth-driven cash consumption. Estimated Free Cash Flow (OCF - Capex) is approximately -2.73, given OCF -2.07 and capex -0.66; this implies dividends and buybacks relied on cash on hand or incremental balance sheet capacity. Financing CF was -3.53, including share repurchases of -1.28, indicating continued shareholder returns despite negative operating cash generation. No explicit signs of aggressive working capital manipulation are evident from disclosures, but the scale of OCF underperformance versus NI warrants monitoring for collection timing and inventory builds. Sustainability: to improve cash flow quality, management needs to normalize receivables and inventory turnover, aligning cash conversion with earnings.

Dividend Sustainability

The calculated payout ratio is 60.8%, near the upper bound of the sustainable range (<60% benchmark), while total dividends paid were not disclosed. With estimated FCF at approximately -2.73 this period, cash coverage of shareholder returns appears weak in-quarter and reliant on balance sheet strength (cash 17.21, low debt). Share repurchases of -1.28 indicate an active capital return stance; sustainability of both dividends and buybacks will depend on restoring positive OCF and maintaining capex discipline. Given ROE of 2.0% and ROIC of 2.4%, enhancing capital efficiency is important to justify continued distributions. Policy outlook: without formal guidance, expect a cautious stance—maintain distributions but pace them with cash conversion improvements.

Risk Assessment

Business Risks:

• Raw material and energy price volatility that can compress gross margins
• Demand variability in end markets for chemical products affecting volume and pricing
• Customer concentration or OEM exposure (not disclosed) potentially impacting revenue stability
• Execution risk in inventory and receivables management impacting cash conversion

Financial Risks:

• Earnings quality risk: OCF/NI at -1.44x indicates weak cash realization
• Capital efficiency risk: ROIC at 2.4% is below 5% warning threshold
• Tax rate risk: elevated effective tax rate (38.6%) reduces net margin
• Shareholder return funding risk if negative FCF persists while buybacks continue

Key Concerns:

• Working capital build driving negative operating cash flow despite higher profits
• Sustainability of margin gains if input costs rebound
• Low asset turnover (0.491) and low leverage (1.32x) limiting ROE expansion

Investment Implications

Key Takeaways:

• Material margin recovery with operating margin up ~333 bps YoY to ~5.3%
• Strong balance sheet (CR ~480%, D/E 0.32x) provides resilience
• Cash flow quality is weak this quarter (OCF/NI -1.44x), requiring normalization
• Capital efficiency is subpar (ROE 2.0%, ROIC 2.4%), needing improvement for value creation
• Shareholder returns (buybacks -1.28) continued despite negative OCF

Metrics to Watch:

• OCF/NI ratio and cash conversion cycle (DSO, DIO, DPO)
• Gross margin trajectory versus raw material costs
• SG&A growth versus revenue growth to preserve operating leverage
• ROIC progression toward 5%+
• Receivables and inventory levels relative to sales

Relative Positioning: Within small-cap chemical peers, profitability momentum looks favorable, supported by strong liquidity and low leverage; however, weaker cash conversion and low ROIC place the company below best-in-class operators on capital efficiency.

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
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