CHORI CO.,LTD. FY2026 FY Earnings Report

Financial Highlights

• Net Sales: ¥299.29B
• Operating Income: ¥13.06B
• Net Income: ¥11.25B
• EPS: ¥487.36

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

FY2026 results were resilient with solid cash generation and ROE holding in the low-teens despite revenue softness and margin compression. Revenue declined 3.9% YoY to 2,992.9, while operating income fell 9.9% to 130.6, and ordinary income decreased 12.4% to 141.9. Net income attributable to owners rose 3.0% to 120.1, aided by a lighter tax burden and modest non-operating gains. Gross profit was 411.2 with a gross margin of 13.7%, down modestly on product mix and lower volume. Operating margin compressed by about 30 bps YoY to 4.4%, reflecting SG&A growth outpacing gross profit. DuPont shows ROE of 11.7% driven by 4.0% net margin, 1.95x asset turnover, and 1.50x leverage, indicating efficiency-led returns rather than leverage. Cash conversion remained healthy: operating CF of 115.4 equated to 0.96x net income, and free cash flow reached 97.2 after restrained capex of 5.5. The balance sheet strengthened further with equity up to 1,024.4 and cash and deposits up 29.5% YoY to 295.4; interest-bearing debt fell to 4.69, leaving net cash and negligible financial risk. Non-operating income of 16.38, including 5.26 interest and 3.58 dividends, supplemented earnings, while extraordinary items were small and broadly offset. Segment-wise, both Textile and Chemical saw low single-digit revenue declines, and segment profits softened, while Machinery remained small. EBITDA was 148.0 (149.97 pre-goodwill amortization), with OCF/EBITDA at 0.78x, slightly below best-in-class conversion due to working capital dynamics but still solid. Dividend payouts increased to 147 yen DPS (31% payout) and were covered 2.6x by free cash flow, supporting ongoing distributions. Guidance targets revenue of 3,200 and operating income of 145, implying mid-single digit top-line recovery and ~+11% operating profit growth from the FY26 base, while net income guidance is conservative at 105. The company maintains a conservative capital structure and high liquidity, positioning it well to navigate demand normalization and input cost variability. Strategic implications are continued focus on disciplined working capital, selective investment (particularly in software/intangibles), and maintaining a robust dividend policy. Overall, quality of earnings is high, cash discipline is evident, and balance sheet strength underpins flexibility, though structural margins remain thin for a trading-led model.

Profitability Analysis

ROE decomposition (DuPont 3-factor): 11.7% = Net Profit Margin (4.0%) × Asset Turnover (1.951x) × Financial Leverage (1.50x). The largest driver YoY was margin pressure at the operating level: operating margin declined ~30 bps to 4.4% as SG&A (280.7) increased relative to gross profit (411.2), compressing operating leverage. Business-wise, lower volumes in both Textile (-4.6% sales) and Chemical (-3.3% sales) and a competitive pricing environment weighed on gross spread, while fixed costs in selling and administrative functions limited absorption. The change is cyclical/operational rather than structural, and appears partly offset by tight expense control and better non-operating income, suggesting partial reversibility if volumes normalize. Asset turnover at 1.95x remains the core strength, reflecting fast-moving trading operations and disciplined inventory levels. Leverage stayed conservative at 1.50x, with minimal debt contribution to ROE. Concerning trend to watch: SG&A growth relative to gross profit and the persistence of sub-5% EBIT margin indicate limited operating leverage; maintaining cost discipline is crucial if top-line softness persists.

Growth Assessment

Top-line declined 3.9% to 2,992.9 as both Textile and Chemical softened, with Machinery remaining negligible in scale. Operating income decreased 9.9% to 130.6, and ordinary income fell 12.4% to 141.9 on lower non-operating contributions versus the prior year. Net income attributable to owners increased 3.0% to 120.1 supported by a lower effective tax rate (15.1%) and stable non-operating gains. EBITDA was 148.0 (149.97 pre-GW amort.) with EBITDA margin at 4.9%. Revenue mix remained concentrated in Chemical (50.9%) and Textile (48.6%). Outlook-wise, management’s FY forecast implies revenue recovery to 3,200 and operating income of 145 (+11% vs FY26 actual), indicating expectations for volume stabilization and incremental margin recovery; net income guidance (105) is conservative, embedding potential cost or non-operating normalization. Execution will hinge on working capital efficiency, price-cost pass-through in Chemical, and steady apparel/textile demand.

Financial Health

Liquidity is very strong: current ratio 270% and quick ratio 234%, with working capital of 799.5. Cash and deposits of 295.4 comfortably exceed short-term loans of 4.69 (Cash/Short-term debt 63x), eliminating near-term refinancing risk. Solvency metrics are conservative: Debt/EBITDA 0.03x, Interest coverage 143x, and Debt/Capital 0.5%. Total equity rose to 1,024.4, supported by retained earnings (842.8). Maturity mismatch risk is minimal given low debt and substantial liquid assets relative to current liabilities (469.8). No off-balance sheet obligations were noted in the provided data.

Notable B/S Changes

Goodwill: -1.95 (-80.2%) - Accelerated amortization and/or portfolio pruning; reduces future amortization drag, lowers impairment risk. Short-term Loans: -0.92 (-66.1%) - Deleveraging with stronger cash position; further lowers financial risk. Cash & Deposits: +6.73 (+29.5%) - OCF-driven cash build enhances liquidity and optionality. Retained Earnings: +8.21 (+10.8%) - Profit accumulation net of dividends, supporting equity growth and capital adequacy.

Cash Flow Quality

OCF was 115.4, equal to 0.96x net income, indicating high earnings quality by benchmark. Free cash flow of 97.2 comfortably funded dividends and modest capex. Cash conversion (OCF/EBITDA) at 0.78x is below excellent territory (>0.9) but acceptable, reflecting receivables and payables movements typical for trading businesses; DSO at 86 days suggests scope to tighten collections. Working capital changes were mixed: receivables decreased YoY and inventories were stable to slightly lower, while payables decreased, dampening OCF. No signs of aggressive working capital manipulation are evident. With capex at 5.5 and depreciation at 17.5, investment outlays were light, reinforcing FCF but raising medium-term renewal risk if sustained.

Dividend Sustainability

DPS totaled 147 yen (72 + 75), equating to an estimated payout ratio of 31.0% and FCF coverage of 2.61x, both well within sustainable ranges. Cash dividends paid were 3.52 versus free cash flow of 9.72, leaving ample headroom. The balance sheet’s net cash and robust liquidity further underpin dividend capacity. Forward policy appears conservative: the next-period DPS guidance of 85 yen is below FY26 actual, consistent with cautious earnings guidance and a disciplined payout approach centered on stability over the cycle.

Risk Assessment

Business risks include End-market demand softness in apparel/textiles and industrial chemical applications, pressuring volumes and gross spread, Pricing/passthrough risk for chemical inputs amid raw material and freight cost fluctuations, Customer credit risk reflected in elevated receivable days (DSO 86), FX volatility impacting import/export margins and non-operating items.

Financial risks include Thin operating margin (EBIT 4.4%) leaves limited buffer against shocks, Underinvestment signal (CapEx/Depreciation 0.32x) may defer maintenance and digital investments if prolonged, Receivable-heavy working capital increases cash flow sensitivity to collections.

Key concerns include LOW_OPERATING_EFFICIENCY: EBIT margin of 4.4% is below 5% benchmark, limiting operating leverage and resilience, HIGH_RECEIVABLE_DAYS: DSO 86 days elevates counterparty and liquidity timing risk; requires tight credit control, UNDERINVESTMENT: CapEx/Depreciation 0.32x suggests potential asset aging and future catch-up capex needs, LOW_GROSS_MARGIN: 13.7% gross margin is structurally thin for a trading-led model, amplifying earnings volatility.

Investment Implications

Key takeaways include ROE sustained at 11.7% on strong asset turnover and conservative leverage, Healthy cash generation (OCF/NI 0.96x; FCF 97.2) with ample dividend cover (2.6x), Operating and gross margins remain thin; SG&A discipline is pivotal amid soft volumes, Balance sheet strength (net cash, current ratio 270%) provides flexibility for selective investments, Guidance implies top-line recovery and +11% operating profit growth, but conservative net income outlook.

Metrics to watch include EBIT margin trajectory toward or above 5%, DSO improvement and receivables quality, CapEx/Depreciation normalization toward ≥0.7x and progress in software/intangibles ROI, Gross profit per unit in Chemical and Textile (price-cost pass-through), OCF/EBITDA cash conversion trending toward ≥0.9x.

Regarding relative positioning, Compared with peers in trading-focused textiles/chemicals, the company exhibits superior balance sheet conservatism and cash discipline but operates with structurally thin margins and higher receivable intensity; returns are driven more by turnover efficiency than by operating margin or leverage.