SANKYO KASEI CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.28B
• Operating Income: ¥230M
• Net Income: ¥133M
• EPS: ¥527.75

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

Sankyo Kasei Co., Ltd. (81380) delivered modest topline growth and a sharp rebound in profits in FY2026 Q2 (cumulative), with revenue up 3.2% YoY to ¥13.277bn and operating income up 62.9% YoY to ¥230m. The operating margin improved to approximately 1.7%, reflecting better cost discipline or operating leverage despite a thin gross margin of 8.8%. Ordinary income reached ¥293m, and net income surged 256.3% YoY to ¥475m; the scale of the net profit increase relative to ordinary income suggests the presence of non-recurring (extraordinary) gains. EBITDA was ¥283.5m with a low margin of 2.1%, consistent with an asset-light, distributor-like business model in chemicals where margins are structurally thin. DuPont analysis indicates ROE of 5.36%, driven by a 3.58% net margin, 0.889x asset turnover, and 1.68x financial leverage—an acceptable return level but boosted by likely one-off items. Liquidity appears healthy with a current ratio of 169% and a quick ratio of 154%, supported by ¥4.50bn of working capital. The balance sheet is conservative, with liabilities/equity at 0.84x; using reported totals, we estimate an equity ratio around 59% despite the equity ratio metric being shown as 0.0% (an unreported placeholder). Cash conversion is a weak point this period: operating cash flow was negative ¥575m versus positive net income of ¥475m, yielding an OCF/NI ratio of -1.21, likely reflecting a build-up in receivables and/or inventories. Interest expense is negligible (¥40k) and interest coverage is exceptionally high (about 5,750x), underscoring low financial risk from debt. Effective tax expense was ¥80.3m, but the reported effective tax rate of 0.0% is clearly a data limitation; net income exceeding ordinary income implies tax effects and extraordinary gains are materially influencing bottom line optics. Investing cash flow and cash/equivalents are shown as 0, indicating non-disclosure rather than true zeros, which limits free cash flow analysis. Dividend per share and share data are also unreported, preventing validation of payout practices or per-share trends. Overall, the period shows operational improvement and strong balance sheet resilience, but earnings quality is diluted by negative operating cash flow and probable one-off gains. The sustainability of profit growth will depend on normalizing working capital, maintaining gross margin discipline, and the absence of reliance on extraordinary items. Data gaps (notably investing CF, cash balance, DPS, and share counts) constrain precision in some assessments, and these should be monitored in forthcoming filings.

Profitability Analysis

ROE decomposition (DuPont): Net margin 3.58% × Asset turnover 0.889 × Financial leverage 1.68 = ROE 5.36%, consistent with the reported figure. The net margin uplift versus the operating margin (≈1.7%) is explained by a combination of minimal interest expense and likely extraordinary gains lifting bottom line well above ordinary income. Gross margin at 8.8% remains thin, consistent with chemical trading/distribution; improvements in operating income (+62.9% YoY) against a modest 3.2% revenue increase indicate favorable operating leverage and/or SG&A control. EBITDA margin of 2.1% highlights limited operating buffer; cost discipline remains critical. Interest coverage at ~5,750x reflects negligible financial charges, meaning operating performance is the primary driver of earnings volatility. The margin mix points to low structural profitability with episodic boosts from non-operating or non-recurring items; hence, core profitability should be evaluated primarily at the operating level.

Growth Assessment

Revenue growth of 3.2% YoY suggests stable demand conditions but not a surge; given sector dynamics, growth likely stems from volume/mix more than broad price inflation. Operating income grew 62.9% YoY, indicating strong operating leverage from incremental revenue and/or SG&A optimization. Net income grew 256.3% YoY, which is unlikely to be fully repeatable given the gap between ordinary and net income, implying extraordinary gains. Sustainability hinges on maintaining gross margin and controlling SG&A, while preventing working capital drag from eroding cash returns. Given the negative OCF, cash-backed growth is a concern; revenue expansion accompanied by rising receivables/inventories could pressure future cash flows. Near-term outlook: modest top-line growth with focus on margin protection; bottom-line growth should normalize toward operating trends absent one-off gains.

Financial Health

Liquidity is sound with a current ratio of 169.4% and quick ratio of 153.5%, and working capital of ¥4.496bn, indicating ample short-term coverage. Solvency appears strong: total liabilities of ¥7.466bn vs. equity of ¥8.87bn yield a debt-to-equity (broad) of 0.84x. Based on totals, the equity ratio (equity/assets) is approximately 59.4% (the reported 0.0% is an unreported placeholder). Interest burden is de minimis (¥40k), limiting refinancing risk. The capital structure is conservative, supporting resilience against earnings volatility; however, cash balances are undisclosed, which tempers the assessment of immediate liquidity buffers.

Cash Flow Quality

Earnings quality is mixed: positive accounting profits but negative operating cash flow of -¥575m, resulting in an OCF/NI ratio of -1.21. This likely reflects working capital consumption (receivables/inventories build) typical in growth or seasonal periods, but it weakens cash conversion. EBITDA of ¥283.5m versus OCF of -¥575m underscores the magnitude of working capital outflows and/or timing effects. Free cash flow cannot be reliably calculated because investing cash flow is undisclosed (reported as 0), and cash/equivalents are not provided. The gap between ordinary income and net income suggests non-cash or non-recurring items may be elevating net earnings; thus, core cash generation should be benchmarked to operating profit and normalized working capital in subsequent quarters. Monitoring the trajectory of OCF relative to NI and changes in inventories/receivables will be crucial.

Dividend Sustainability

Dividend per share and payout ratio are shown as 0.00, which indicates non-disclosure rather than true zeros; hence, payout cannot be assessed from the provided data. Financing cash outflow of -¥72.7m may reflect debt repayment or other financing activities rather than dividends; without DPS and share count, we cannot attribute this to distributions. Given negative operating cash flow in the period, free cash flow coverage of any potential dividend would be weak in H1, but this may normalize if working capital unwinds. With a solid equity base and low interest burden, the company has capacity for distributions over a cycle, but policy and actual payouts remain unclear from the data. Outlook: assume a conservative stance until DPS and policy guidance are disclosed; prioritize cash conversion improvements for sustainable distributions.

Risk Assessment

Business Risks:

• Thin structural margins in chemical trading/distribution, leaving limited cushion for shocks
• Commodity and chemical price volatility impacting gross margins
• Potential customer concentration and bargaining power pressures
• Working capital intensity (receivables/inventories) causing cash flow volatility
• Supply chain and logistics disruptions affecting fulfillment and costs
• Regulatory and environmental compliance risks in chemical handling

Financial Risks:

• Negative operating cash flow despite reported profits, indicating weak cash conversion
• Earnings reliance on non-recurring items (net income materially above ordinary income)
• Data gaps on cash balances and investing cash flows limit liquidity visibility
• FX exposure if imports/exports are material, affecting margins and working capital
• Potential credit risk from receivables in a cyclical end-market

Key Concerns:

• Sustainability of profit growth given likely extraordinary gains
• Normalization of working capital to restore positive OCF
• Maintenance of gross margin amid input price changes
• Clarity on dividend policy and actual payouts
• Verification of cash position and capex needs once investing CF is disclosed

Investment Implications

Key Takeaways:

• Operational improvement with strong YoY growth in operating income despite modest sales growth
• Bottom line boosted beyond core operations, likely by extraordinary gains
• Healthy liquidity and conservative leverage provide balance sheet support
• Cash conversion is currently weak; OCF substantially lags NI
• Data limitations (DPS, cash, investing CF, share count) constrain full valuation and payout analysis

Metrics to Watch:

• OCF/Net income and sequential OCF recovery
• Changes in receivables and inventories; DSO/DIO trends
• Gross and operating margins (pricing vs. cost pass-through)
• Gap between ordinary income and net income (signs of one-offs)
• Equity ratio and cash balance once disclosed
• Capex and investing CF to gauge future FCF
• Any guidance on dividend policy and payout intentions

Relative Positioning: Within Japan’s chemical trading/distribution peer set, profitability metrics remain thin but typical; leverage is conservative and interest burden negligible, positioning the company defensively. However, current-period cash conversion underperforms best-in-class peers, and reported net profit appears less repeatable due to likely extraordinary gains.

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