Shin-Etsu Polymer Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Although revenue and operating income increased in 2027 fiscal year Q1, net income declined year on year due to foreign exchange losses and a higher tax burden. Revenue was ¥305.9B (+9.3% YoY), while operating income was ¥41.5B (+8.6%), indicating steady performance in the core business. Meanwhile, ordinary income was ¥41.2B (+3.5%), and net income was limited to ¥24.1B (△22.3% YoY), resulting in a divergence between growth rates at the operating-income and bottom-line levels. The primary factors were the shift from a foreign exchange gain of ¥0.45B in the same period of the previous year to a foreign exchange loss of ¥1.6B in the current period, as well as an increase in the effective tax rate from 22.1% to 40.9%.

Factors Affecting Earnings

【Revenue】Revenue increased 9.3% YoY to ¥305.9B. By segment, Precision Molded Products accounted for the largest share of revenue at ¥153.1B (+6.9% YoY), representing 50.0% of total revenue, followed by Housing Environment and Lifestyle Materials at ¥62.3B (+11.4%), Electronic Devices at ¥64.2B (+0.5%), and Other at ¥26.3B (+57.2%). Strong growth in Housing Environment and Lifestyle Materials and Other drove overall revenue growth, while Electronic Devices remained nearly flat.

【Profit and Loss】Operating income was ¥41.5B (+8.6% YoY). Although the gross profit margin declined slightly to 31.0% from 31.3% in the same period of the previous year, the sales growth rate (+9.3%) exceeded the growth rate of SG&A expenses (+7.6%), enabling the Company to maintain an operating margin of 13.6%. Ordinary income was limited to ¥41.2B (+3.5% YoY), as the recognition of a ¥1.6B foreign exchange loss in non-operating expenses exerted downward pressure. Net income was ¥24.1B (△22.3% YoY), with the substantial increase in the effective tax rate to 40.9% from 22.1% in the same period of the previous year weighing on bottom-line earnings. Extraordinary income of ¥0.1B and extraordinary losses of ¥0.5B were minor, and their impact on profit before tax was limited. In conclusion, the current period saw higher revenue and operating and ordinary income, but lower net income; the primary cause was temporary pressure from foreign exchange and tax-related factors rather than deterioration in the profitability of the core business.

Segment Analysis

Precision Molded Products recorded revenue of ¥153.1B (+6.9% YoY) and operating income of ¥28.4B (△1.6% YoY), with its operating margin declining by approximately 1.6pt from 20.1% to 18.5%. Its contribution rate to total operating income was the highest at 68.4%, creating a structure in which the segment’s profitability trends significantly influence overall earnings. Housing Environment and Lifestyle Materials posted revenue of ¥62.3B (+11.4% YoY) and operating income of ¥8.4B (+69.9%), representing substantial profit growth; its operating margin improved by approximately 4.6pt from 8.8% to 13.5%. Electronic Devices recorded nearly flat revenue of ¥64.2B (+0.5% YoY), but operating income declined to ¥2.9B (△12.2%), and its operating margin decreased from 5.1% to 4.5%. Other businesses showed strong growth, with revenue of ¥26.3B (+57.2% YoY) and operating income of ¥1.8B (+61.6%). The improvement in the profitability of Housing Environment and Lifestyle Materials offset the profit declines in Precision Molded Products and Electronic Devices, supporting the increase in consolidated operating income.

Key Financial Indicators

【Profitability】The operating margin was 13.6%, representing only a modest decline of approximately 0.1pt year on year. The decline in the gross profit margin to 31.0% from 31.3% was largely absorbed through control of SG&A expenses, whose growth rate of +7.6% was below the +9.3% revenue growth rate. The net profit margin declined significantly to 7.9% from 11.1% in the same period of the previous year, due not to conditions at the operating level but to foreign exchange losses and the higher tax burden.【Cash Quality】Cash and deposits were ¥504.3B, accounting for 32.9% of total assets, indicating substantial support from funds generated by operating activities. Accounts receivable were ¥241.8B, and inventories were ¥123.8B; both remained broadly flat year on year.【Investment Efficiency】Annualized ROE was 7.4%, below the same period of the previous year due to the decline in net income. Total assets were ¥1,533.7B, and net assets were ¥1,306.0B, with the scale of assets and capital remaining broadly flat.【Financial Soundness】The equity ratio was extremely high at 85.2%, while current assets of ¥1,028.8B provided ample liquidity against current liabilities of ¥191.7B. Non-current liabilities were small at ¥36.0B, indicating a low degree of reliance on financial leverage.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is not available, an examination of balance sheet trends indicates that cash and deposits were ¥504.3B, an increase of ¥3.6B from ¥500.7B in the same period of the previous year, and remained broadly flat. Accounts receivable of ¥241.8B and inventories of ¥123.8B both showed slight declines or remained broadly flat year on year, with no significant deterioration in working capital observed. Accounts payable were ¥104.0B, slightly below ¥106.4B in the same period of the previous year. Net assets were ¥1,306.0B, an increase of ¥10.5B from ¥1,295.5B in the same period of the previous year, indicating continued accumulation of capital through retained earnings and foreign currency translation adjustments. The high equity ratio of 85.2% suggests low dependence on external financing and the continued operation of the business using internally generated funds.

Earnings Quality

The current period’s earnings structure showed a divergence between growth in recurring operating income (+8.6%) and a decline in net income (△22.3%), making it important to identify non-core factors when assessing earnings quality. In non-operating income and expenses, the Company recorded non-operating income of ¥1.5B against non-operating expenses of ¥1.7B. In particular, the foreign exchange loss of ¥1.6B reversed sharply from a foreign exchange gain of ¥0.45B in the same period of the previous year, directly contributing to the slowdown in ordinary income growth (+3.5%). Extraordinary income of ¥0.1B and extraordinary losses of ¥0.5B were small in scale, and their impact on profit before tax was limited. Meanwhile, income taxes were ¥16.7B, a substantial increase from ¥8.8B in the same period of the previous year, and the effective tax rate rose to 40.9% from 22.1%. This sharp increase in the tax burden was the primary cause of the decline in net income, while the quality of operating income itself is judged not to have deteriorated. Comprehensive income was ¥35.5B, exceeding net income of ¥24.1B, due mainly to other comprehensive income, including a foreign currency translation adjustment of ¥9.2B. This difference resulted from the foreign currency valuation of overseas assets and liabilities held by the Company; therefore, operating income and ordinary income trends should be prioritized over net income when assessing recurring earnings power.

Earnings Forecast and Guidance

The full-year Company forecasts are revenue of ¥1,200.0B (+4.2% YoY), operating income of ¥160.0B (+14.0%), and ordinary income of ¥160.0B (+14.2%). Q1 progress rates were 25.5% for revenue, 25.9% for operating income, and 25.8% for ordinary income, all exceeding the simple 25% progress benchmark and representing standard levels. Meanwhile, the net income progress rate was somewhat low at 23.0% (Q1 net income of ¥24.1B ÷ full-year forecast of ¥105.0B). Since the full-year forecast operating margin of 13.3% is slightly below the Q1 actual result of 13.6%, the forecast cannot be characterized as conservative from an operating perspective. A normalization of foreign exchange losses and the effective tax rate in the second half of the fiscal year will be key to achieving the full-year net income forecast.

Shareholder Returns

The full-year dividend forecast is ¥66.0 per share, implying a payout ratio of approximately 50.5% against forecast full-year EPS of ¥130.64. Q1 EPS was ¥30.05 (△22.3% from ¥38.65 in the same period of the previous year), and if the decline in net income continues, the payout ratio may rise. However, the financial foundation of cash and deposits of ¥504.3B and an equity ratio of 85.2% supports the stable payment of dividends. The revision to the dividend forecast during the quarter warrants attention as a potential change in the shareholder return policy.

Risk Factors

1. Declining profitability in the core segment: Precision Molded Products is the core business, accounting for 68.4% of total operating income; however, Q1 operating income declined △1.6% year on year, and its operating margin decreased by approximately 1.6pt from 20.1% to 18.5%. Any delay in the recovery of the segment’s profitability would directly affect overall earnings.

2. Increase in the effective tax rate: The effective tax rate rose substantially to 40.9% from 22.1% in the same period of the previous year, and income taxes increased to ¥16.7B from ¥8.8B. The structural risk that growth in operating income may not translate into growth in net income has become apparent.

3. Foreign exchange losses: The Company recorded a foreign exchange loss of ¥1.6B in the current period, representing a deterioration of ¥2.05B from the foreign exchange gain of ¥0.45B in the same period of the previous year. Foreign exchange fluctuations may cause volatility in earnings through their impact on ordinary income and net income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin exceed the industry median, indicating that profitability is relatively high within the industry.

Growth and Capital Efficiency

The revenue growth rate also exceeds the industry median, placing the pace of revenue growth in a favorable position within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Operating income increased +8.6% year on year, indicating steady profitability in the core business, while net income declined △22.3%. The divergence between the two was attributable to non-core factors, namely foreign exchange losses and the increase in the effective tax rate. Going forward, the normalization of foreign exchange impacts and the tax burden will determine the recovery of bottom-line earnings.

2. Precision Molded Products, the core segment, accounts for 68.4% of total operating income, but its operating margin declined by approximately 1.6pt in Q1. Meanwhile, the operating margin of Housing Environment and Lifestyle Materials improved by approximately 4.6pt, supporting overall profit growth by offsetting the decline in Precision Molded Products. The diversification benefits of the business portfolio are evident.

3. The financial foundation, including an equity ratio of 85.2% and cash and deposits of ¥504.3B, is conservative even within the industry. Progress against the full-year earnings forecasts was 25.9% for operating income and 23.0% for net income, indicating standard progress at the operating level and somewhat low progress at the net income level.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,531–¥1,618 at a cost of equity of ±1%, and ¥1,572–¥1,574 at ω of ±0.1.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary 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 with professionals as necessary.

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