SOMAR CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥15.32B
• Operating Income: ¥1.29B
• Net Income: ¥1.20B
• EPS: ¥444.07

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

Somar Co., Ltd. (TSE: 8152) reported FY2026 Q2 consolidated results under JGAAP showing modest top-line growth but notable pressure on profitability and cash conversion. Revenue rose 1.0% year on year to ¥15.323 billion, while operating income declined 5.5% to ¥1.295 billion, indicating negative operating leverage in the period. Ordinary income was ¥1.262 billion and net income fell 28.4% to ¥860 million, implying a sharp compression in bottom-line profitability despite relatively stable operating results. Net profit margin stood at 5.61%, while gross margin was 21.9%, suggesting that margin pressure likely stemmed more from operating costs (e.g., SG&A) and taxes than from direct cost of goods alone. The DuPont analysis indicates an ROE of 4.20% driven by a net margin of 5.61%, asset turnover of 0.473x, and financial leverage of 1.58x. With total assets of ¥32.372 billion and equity of ¥20.479 billion, implied equity ratio is approximately 63% (even though the reported “Equity Ratio” field is 0.0%, which we treat as undisclosed rather than zero). Liquidity appears strong with a current ratio of 254.9% and a quick ratio of 202.6%, supported by sizeable working capital of ¥13.813 billion. The company maintains conservative financial risk, with total liabilities of ¥10.799 billion (debt-to-equity of 0.53x) and a very high interest coverage ratio of 121.5x, reflecting low interest burden (¥10.7 million). Cash flow conversion was weak: operating cash flow was only ¥54 million versus net income of ¥860 million (OCF/NI ~0.06x), likely due to a working capital build. Investing cash flow and cash/equivalents were not disclosed in the dataset, limiting visibility into capex and liquidity buffers. EBITDA was ¥1.510 billion, implying an EBITDA margin of 9.9%, which, alongside the operating margin of ~8.5%, reflects a relatively asset-light, specialty profile but with recent cost headwinds. The gap between the relatively mild decline in operating income and the sharp drop in net income points to higher tax expense in the period; based on reported income tax of ¥443 million, an implied effective tax rate in the mid-30% range is plausible. Dividends are shown as zero with a payout ratio of 0%, which we interpret as not disclosed or not yet determined for the full year rather than a confirmed suspension. Overall, Somar enters the second half with robust balance sheet strength but must improve cash conversion and stabilize operating leverage to defend ROE. Inventory stood at ¥4.664 billion, and managing inventory and receivables will be critical to normalizing OCF. Given the specialty chemicals end-markets in which Somar operates, pricing discipline and product mix optimization will be important to offset input cost variability. We acknowledge several data limitations (e.g., undisclosed investing cash flows, cash balance, equity ratio metric, share data), and our assessment focuses on the available non-zero items.

Profitability Analysis

ROE of 4.20% decomposes into 5.61% net margin × 0.473x asset turnover × 1.58x leverage, indicating that the primary constraints on ROE are modest asset turnover and compressed net margin rather than excessive leverage. Operating margin is approximately 8.46% (¥1,295m / ¥15,323m), and EBITDA margin is 9.9%, implying D&A intensity of roughly 1.4% of sales. Gross margin of 21.9% suggests a reasonable value-add for a specialty chemicals/formulations business, but the decline in operating income despite revenue growth points to negative operating leverage (likely higher SG&A or reduced operating efficiency). Ordinary income (¥1,262m) is slightly below operating income, indicating minor net non-operating expense. The drop in net income (-28.4% YoY) versus operating income (-5.5% YoY) implies a heavier tax burden and/or absence of prior-year non-operating gains. Interest expense is minimal (¥10.7m) and interest coverage is very strong at 121.5x, so financing costs are not a driver of margin compression. Overall margin quality is mixed: gross margin is solid, but the translation to net income weakened due to operating leverage and taxes.

Growth Assessment

Revenue grew 1.0% YoY to ¥15.323bn, signaling stable but subdued end-market demand. The marginal top-line increase paired with a 5.5% YoY decline in operating income highlights cost pressures and/or an unfavorable mix. Net income fell 28.4% YoY, indicating earnings quality deterioration at the bottom line in this half. Given the ordinary income closely tracking operating income, the YoY delta likely stems from taxes or non-operating normalization. Sustainability hinges on Somar’s ability to pass through input cost inflation and enhance product mix in specialty niches. The asset turnover of 0.473x (noting mid-year denominator effects) suggests room to boost utilization and inventory turns. Near-term outlook depends on working capital normalization; restoring OCF toward or above net income would materially improve growth quality. With limited disclosure on capex and no investing cash flow detail, growth capex visibility is low, constraining assessment of medium-term capacity expansion. Overall, revenue resilience is acceptable, but profit growth will require tighter cost control and improved pricing power.

Financial Health

Liquidity is strong: current ratio 254.9% and quick ratio 202.6% indicate ample near-term coverage of obligations. Working capital is ¥13.813bn, providing operational flexibility. Solvency is sound with total liabilities of ¥10.799bn versus equity of ¥20.479bn (debt-to-equity 0.53x), and implied equity ratio around 63%. Interest burden is very light (¥10.7m), and coverage is 121.5x, signaling conservative leverage. Total assets are ¥32.372bn, with current assets of ¥22.733bn, including inventories of ¥4.664bn. Cash and equivalents were undisclosed, so short-term liquidity buffers cannot be precisely assessed, but strong quick ratio suggests material liquid assets beyond inventory. No material solvency concerns are evident from available figures.

Cash Flow Quality

Operating cash flow was ¥54m versus net income of ¥860m, yielding an OCF/NI ratio of 0.06x, which is weak and points to working capital outflows (likely inventory and/or receivables build). Depreciation and amortization totaled ¥215m, consistent with an asset-light profile relative to sales. Free cash flow cannot be reliably assessed because investing cash flow and capex were not disclosed; the presented FCF figure of 0 should be treated as unavailable rather than zero. The large working capital base (¥13.8bn) is both a buffer and a source of cash volatility; improving inventory turns and receivables collection will be key to cash conversion. Given minimal interest expense, cash generation issues are operational rather than financial-structure related. Monitoring the reconciliation between earnings and cash (particularly changes in inventories and trade receivables/payables) is critical in the second half.

Dividend Sustainability

Dividends per share and payout ratio are shown as 0, which we interpret as not disclosed for the period rather than an explicit suspension. EPS is ¥444.07 for the half, and net income is ¥860m; however, with OCF at ¥54m and no capex data, free cash flow coverage cannot be determined. From a balance sheet perspective, low leverage and strong liquidity would support dividend capacity if management prioritizes distributions. That said, near-term sustainability hinges on restoring cash conversion; a persistently low OCF/NI ratio would constrain distribution flexibility. Policy outlook cannot be inferred from the given data; we would look to full-year guidance and historical payout practices to assess the likely range.

Risk Assessment

Business Risks:

• Negative operating leverage amid modest revenue growth, indicating sensitivity to SG&A and mix.
• Potential input cost inflation and pricing pressure in specialty chemicals end-markets.
• Working capital intensity (notably inventories) driving cash flow volatility.
• Customer demand softness or order timing that could cap revenue growth.
• Product mix shifts potentially diluting gross margin.

Financial Risks:

• Weak cash conversion (OCF/NI ~0.06x) raising short-term funding needs if sustained.
• Visibility gaps due to undisclosed investing cash flows and cash balances.
• Tax rate variability contributing to net income volatility.
• Concentration risks if a small number of customers or products drive sales (not disclosed here).

Key Concerns:

• Restore OCF toward alignment with net income by reducing working capital outflows.
• Stabilize operating margin through pricing and cost control to counter negative operating leverage.
• Clarify capex and investment plans to assess medium-term FCF and growth capacity.

Investment Implications

Key Takeaways:

• Top line grew 1.0% YoY to ¥15.3bn, but operating income fell 5.5%, signaling negative operating leverage.
• Net income declined 28.4% to ¥860m; implied higher tax burden compressed bottom-line profitability.
• ROE at 4.20% is constrained by modest asset turnover and margin compression rather than leverage.
• Balance sheet strength is solid: debt-to-equity 0.53x, implied equity ratio ~63%, and interest coverage 121.5x.
• Cash conversion is the weak spot: OCF/NI ~0.06x; working capital management is the key lever.
• Dividend capacity exists structurally, but near-term sustainability depends on FCF normalization.
• Limited disclosure on capex/cash restricts visibility into medium-term growth and FCF.

Metrics to Watch:

• OCF/Net income ratio and free cash flow (once capex is disclosed)
• Inventory days and receivables days (working capital turns)
• Gross margin and SG&A-to-sales ratio (operating leverage)
• Effective tax rate trajectory versus prior periods
• Order trends and pricing/mix in key specialty product lines
• Capex commitments and investing cash flows
• Net debt and liquidity buffers (cash balance disclosure)

Relative Positioning: Within Japanese specialty chemicals/formulations peers, Somar exhibits conservative leverage and strong liquidity but weaker near-term cash conversion and negative operating leverage in this half; margins are reasonable at the gross level, yet the translation to net income and ROE trails higher-quality peers with steadier working-capital turns.

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