Sumitomo Chemical Q1 FY2027: Core Op Profit Up 125%, Swings to Net Profit

Sumitomo Chemical posted first-quarter revenue of ¥578.2 billion (+9.9% YoY), core operating profit of ¥623 billion (+125.2%), and operating profit of ¥610 billion (+139.8%). Net profit attributable to owners of the parent came to ¥408 billion, reversing a ¥4.5 billion loss a year earlier. The swing largely reflected a ¥32.7 billion improvement in core operating profit at Essential & Green Materials, along with a jump in equity-method income from -¥9.8 billion to ¥12.2 billion. A weaker yen (average ¥159.57/USD vs ¥144.59) supported export margins, but naphtha prices soared to ¥118,500 per kiloliter from ¥66,300. ROE reached 3.9%.

All five reportable segments contributed to the recovery, though performance varied.

Agro & Life Solutions saw sales rise 12.5% to ¥109.0 billion, with core operating profit surging 334% to ¥9.6 billion. Strong domestic pesticide sales, a weaker yen, and improved trading conditions for methionine feed additive boosted results.

ICT & Mobility Solutions posted a 8.2% gain in sales to ¥148.6 billion, but core operating profit fell 29.3% to ¥13.0 billion, largely due to the absence of a one-off gain from the structural reform of large LCD polarizer film operations. Semiconductor process materials grew on demand for high-purity chemicals and photoresists, though higher fixed costs squeezed margins.

Advanced Medical Solutions increased sales 14.9% to ¥10.4 billion, yet its core operating loss widened to ¥1.9 billion (vs a ¥1.0 billion loss a year ago) on a product mix shift and delays in CDMO contract timing for advanced small-molecule drugs.

Essential & Green Materials was the largest driver of the recovery. Sales edged up 2.9% to ¥170.2 billion, but core operating profit swung to ¥27.2 billion from a ¥5.5 billion loss, a ¥32.7 billion improvement. This was underpinned by stronger trading conditions at equity-method affiliate Petro Rabigh and inventory valuation gains as synthetic resin markets recovered.

Sumitomo Pharma grew sales 20.2% to ¥129.0 billion, with extended traction for prostate cancer drug Orgovyx and overactive bladder treatment Gemtesa in the U.S. However, core operating profit declined 10.5% to ¥18.8 billion, weighed by accelerated clinical trials in oncology and higher R&D spending in central nervous system disorders.

Other businesses recorded sales of ¥11.0 billion (+10.3%), with core operating profit surging 247% to ¥3.1 billion.

Total assets increased by ¥208.5 billion from end-March 2026 to ¥3,613.5 billion, as trade receivables and inventories expanded on higher raw material prices. Total liabilities rose ¥32.7 billion to ¥2,201.1 billion, while interest-bearing debt fell ¥19.3 billion to ¥1,132.2 billion.

Equity attributable to owners of the parent grew ¥175.8 billion to ¥1,412.4 billion, boosted by a public offering at subsidiary Sumitomo Pharma. The parent equity ratio improved 0.9 percentage points to 30.5%, and the D/E ratio strengthened to 0.80x.

Cash flows saw operating activities generating ¥5.0 billion, investing activities consuming ¥49.2 billion, and financing activities bringing in ¥55.6 billion (including ¥96.9 billion from the Sumitomo Pharma capital increase). Ending cash and equivalents stood at ¥223.2 billion.

The company plans an annual dividend of ¥16 per share (interim ¥8, year-end ¥8), a ¥2.5 increase from the prior year's ¥13.5. No share buyback was mentioned.

Earnings risks flagged in the report include:

• Uncertainties in domestic and global economic conditions
• Sharp shifts in product demand
• Intensifying competition and selling-price erosion
• Further rises in raw material costs (naphtha prices were 79% higher year-on-year)
• Foreign exchange fluctuations (a stronger yen would hurt export margins)

Additional business-specific risks involve rising R&D expenditure at Sumitomo Pharma and contract delays at Advanced Medical. The improvement at Essential & Green Materials hinges on market conditions and inventory valuation gains, raising questions about sustainability. Meeting full-year guidance will depend on whether the favorable trading conditions persist into the second half.

First-half (April-September 2026) forecasts were disclosed for the first time: revenue ¥1,170.0 billion (+6.8% YoY), core operating profit ¥125.0 billion (+15.0%), operating profit ¥122.0 billion (+17.7%), and net profit ¥70.0 billion (+76.3%). Essential & Green Materials is expected to deliver a core operating profit of ¥42.0 billion, a sharp turnaround from a ¥18.6 billion loss a year earlier.

Full-year guidance remains unchanged from the May 2026 announcement: revenue ¥2,360.0 billion, core operating profit ¥215.0 billion, operating profit ¥177.0 billion, and net profit ¥70.0 billion. However, management noted the figures are under review and will be updated at the second-quarter announcement. The assumptions include a yen rate of ¥157.00 and naphtha at ¥104,000 per kiloliter, somewhat more conservative than Q1 actuals.