Quick View
| Metric | Current Period | Previous-Year Period | YoY |
|---|---|---|---|
| Revenue | ¥528.08B | ¥479.69B | +10.1% |
| Operating Income | ¥15.88B | ¥18.70B | −15.1% |
| Profit Before Tax | ¥17.67B | ¥18.90B | −6.5% |
| Net Income | ¥10.07B | ¥13.14B | −23.4% |
| ROE | 1.9% | 2.5% | - |
Executive Summary
Despite higher revenue, profitability deteriorated, resulting in an increase in revenue but a decrease in profit, with declining cost absorption capacity becoming the focal issue. Revenue increased 10.1% YoY to ¥528.08B, growing across all regions, while Operating Income declined 15.1% YoY to ¥15.88B and Net Income attributable to owners of the parent continued to decline, falling 18.9% YoY to ¥8.76B. The primary causes of the decline in profit were a decrease in the gross profit margin to 9.8% from 10.4% in the previous year and SG&A expenses increasing at a faster pace than revenue.
Factors Affecting Performance
【Revenue】Revenue increased 10.1% YoY to ¥528.08B, with revenue growth in all regions: Japan, North and Central/South America, China, Asia, and Europe and Africa. By regional composition, Japan accounted for 41.3%, North and Central/South America 29.6%, Asia 14.0%, China 9.5%, and Europe and Africa 5.7%; North and Central/South America made the largest contribution to revenue growth, with an increase of ¥21.87B.
【Profit and Loss】Operating Income was ¥15.88B, down 15.1% YoY. The decline in the gross profit margin from 10.4% in the previous year to 9.8%, combined with SG&A expenses increasing 13.5% YoY, above the revenue growth rate, was the primary cause of margin pressure. Profit Before Tax remained at ¥17.67B, down 6.5% YoY; however, income taxes and other taxes increased to ¥7.60B, resulting in a high effective tax rate of approximately 43.0% and widening the decline in Net Income to 18.9%. Revenue increased, but profit decreased.
Segment Analysis
By region, Asia maintained its position as the largest profit-contributing region, with revenue of ¥73.75B (+10.9%), Operating Income of ¥9.13B (+0.7%), and a profit margin of 12.4%. Japan recorded revenue of ¥217.81B (+5.7%) and Operating Income of ¥2.92B, a significant improvement from ¥0.005B in the previous year, resulting in both revenue and profit growth. In contrast, despite revenue growth of +16.3% in North and Central/South America, Operating Income declined 43.9% to ¥2.59B; in China, revenue increased +8.9%, while Operating Income declined 50.4% to ¥2.06B, indicating that revenue growth did not translate into profit growth. Europe and Africa recorded revenue growth of +13.1% to ¥30.20B, but posted an Operating Loss of ¥0.77B, falling into the red from profit of ¥0.86B in the previous year. Profitability deteriorated in many regions that achieved revenue growth, suggesting challenges in passing through prices and absorbing costs.
Key Financial Metrics
【Profitability】The Operating Income margin was 3.0%, down from 3.9% in the previous year, while the Net Profit margin also contracted to 1.7% from 2.3% in the previous year. ROE remained at 1.9% on a quarterly basis. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥47.81B, approximately 5.5 times Net Income of ¥8.76B. Collection of trade receivables (+¥25.17B) and depreciation and amortization supported cash generation, indicating strong cash backing for earnings. 【Investment Efficiency】Capital expenditures were ¥17.85B, equivalent to 3.4% of revenue, while Free Cash Flow was ¥30.18B, substantially exceeding dividend payments of ¥7.68B. 【Financial Soundness】The Equity Ratio was 42.0%, with cash and deposits of ¥283.62B. Interest coverage remained high relative to bonds and borrowings of ¥179.21B.
Cash Flow Analysis
Operating Cash Flow increased 20.3% YoY to ¥47.81B. In addition to Profit Before Tax of ¥17.67B and depreciation and amortization of ¥13.78B, a ¥25.17B cash inflow from the decrease in trade receivables contributed to OCF. In contrast, an increase in inventories of ¥5.82B and a decrease in trade payables of ¥8.87B weighed on working capital. Investing Cash Flow was an outflow of ¥17.63B, of which capital expenditures accounted for ¥17.85B, reflecting continued investment in production facilities. Free Cash Flow after these items was ¥30.18B, securing sufficient internal funds to cover dividend payments of ¥7.68B and repayment of long-term borrowings of ¥10.00B recorded in Financing Cash Flow. Total Financing Cash Flow was an outflow of ¥27.42B; however, a positive contribution of ¥2.36B from foreign currency translation adjustments helped increase cash and cash equivalents by ¥5.11B from the beginning of the period to ¥283.62B at period-end.
Earnings Quality
Earnings for the quarter were strongly supported by OCF, with OCF reaching approximately 5.5 times Net Income, indicating high earnings quality. Nevertheless, the decline in the Operating Income margin suggests that increases in costs such as raw materials, labor, and logistics may not have been passed on through pricing, indicating that underlying recurring earnings power is weakening. Financial income of ¥1.82B exceeded financial expenses of ¥0.53B and lifted Profit Before Tax; however, the recognition of income taxes and other taxes of ¥7.60B resulted in a high effective tax rate of approximately 43.0%, widening the gap between Profit Before Tax and Net Income compared with the previous year. Comprehensive Income was ¥14.78B, exceeding Net Income of ¥10.07B, primarily due to a positive ¥6.55B foreign currency translation adjustment for foreign operations. Accordingly, this difference was attributable to exchange-rate factors separate from the earnings power of the core business.
Earnings Forecast and Guidance
The Q1 progress rate against the full-year forecast was 25.1% for revenue, against a forecast of ¥2100.00B, while the progress rate for Operating Income was 20.9%, against a forecast of ¥76.00B and full-year YoY growth of +40.9%. Net Income remained at approximately 19.0% of the full-year forecast, with all figures below the standard 25% progress rate. Achieving the full-year forecast will require raising the Operating Income margin to approximately 3.8% over the remaining three quarters, assuming improvement from the Q1 actual result of 3.0%. Although the earnings forecast was revised during the quarter, the dividend forecast was unchanged.
Shareholder Returns
Dividend payments during the quarter were ¥7.68B attributable to owners of the parent. Based on the full-year company forecast of annual dividends of ¥86.0 and forecast EPS of ¥257.57, the implied full-year forecast Payout Ratio is 33.4%. No share repurchases were conducted, and shareholder returns during the quarter consisted solely of dividends; therefore, shareholder returns are evaluated based on the Payout Ratio. Free Cash Flow of ¥30.18B covered dividend payments by approximately 3.9 times, and together with cash and deposits of ¥283.62B, provided a stable funding base for dividends.
Risk Factors
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Regional Profitability Deterioration Risk: Despite revenue growth of +16.3% in North and Central/South America, Operating Income declined 43.9%; in China, revenue increased +8.9%, while Operating Income declined 50.4%, indicating that revenue growth did not translate into profit growth. Europe and Africa also fell into an Operating Loss of ¥0.77B despite revenue growth.
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Profitability Decline Risk: The gross profit margin of 9.8% compared with 10.4% in the previous year and the Operating Income margin of 3.0% compared with 3.9% in the previous year are both low, resulting in high earnings sensitivity if increases in raw material, energy, and personnel costs cannot be passed through to customers.
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High Tax Burden Risk: The effective tax rate is high at approximately 43.0%. Compared with the decline in Profit Before Tax of 6.5%, the decline in Net Income expanded to 23.4% on a consolidated basis, indicating that the tax burden is constraining profit recovery.
Industry Benchmark (Reference; Compiled by the Company)
Industry Benchmark (manufacturing)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income Margin | 3.0% | 8.7% (4.2%–14.3%) | −5.7pt |
| Net Profit Margin | 1.9% | 7.1% (3.2%–10.6%) | −5.2pt |
Profitability is substantially below the industry median and is also below the lower bound of the IQR.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 10.1% | 6.2% (-1.1%–14.6%) | +3.9pt |
Revenue growth exceeds the industry median, but low profitability offsets the top-line advantage.
※Source: Compiled by the Company
Key Points from the Earnings Results
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Although revenue growth was achieved in all regions, the Operating Income margin declined by approximately 0.9pt YoY, indicating in the earnings data that improving profitability, rather than expanding revenue, is the key challenge.
-
Asia accounted for more than half of consolidated profit, with Operating Income of ¥9.13B and a profit margin of 12.4%, confirming that the earnings structure is concentrated in the Asian region.
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The progress rate against the full-year forecast was 25.1% for revenue versus 20.9% for Operating Income. The extent of profitability improvement toward the second half of the year will be a key factor in assessing achievement of the full-year plan.
Theoretical Share Price (Reference Value)
| Scenario | Theoretical Share Price |
|---|---|
| bear (bearish) | ¥2,760 |
| base (base case) | ¥2,837 |
| bull (bullish) | ¥2,910 |
| Calculation Assumption | Value |
|---|---|
| Book Value per Share (BPS) | ¥2,754 |
| Adjusted Forecast EPS | ¥284.1 |
| Cost of Equity r | 9.27% (10-year Japanese government bond 2.77% + equity risk premium 6.00% + size premium 0.50%) |
| Persistence Coefficient of Residual Income ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 33.4% |
| Forecast EPS Confidence Adjustment | ×1.103 (based on the historical guidance achievement rate of companies in the same industry) |
| Implied PBR / PER | 1.03x / 10.0x |
Sensitivity: ¥2,757–¥2,920 at Cost of Equity ±1%; ¥2,835–¥2,840 at ω ±0.1.
Notes:
- Net assets as of the end of the quarter are used; there is a timing difference relative to the full-year forecast.
(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest-rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)
This report is an earnings analysis document automatically generated by AI based on 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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AI Financial Analysis
Executive Summary
Toyota Boshoku’s FY2027 Q1 result was operationally weak despite double-digit revenue growth, with regional profit deterioration more than offsetting higher sales. Revenue increased 10.1% year on year to ¥528.1bn. Operating income declined 15.1% to ¥15.9bn, while profit attributable to owners fell 18.9% to ¥8.8bn. The operating margin compressed by 89bp year on year to 3.0% from 3.9%. Gross margin declined by 66bp to 9.8%, indicating that cost of sales grew faster than revenue. SG&A expenses rose 13.4%, faster than revenue, and the SG&A-to-revenue ratio increased by 20bp to 6.9%. The attributable net margin fell by 59bp to 1.7%, leaving earnings sensitivity high to relatively modest movements in material costs, volumes, customer pricing and plant utilization. Asia remained the earnings anchor, generating segment profit of ¥9.1bn, essentially flat year on year, on ¥73.8bn of revenue. Japan recovered from near break-even to ¥2.9bn of segment profit, but North and Central/South America profit fell 43.9% to ¥2.6bn despite sales growth of 16.3%. China segment profit declined 50.4% to ¥2.1bn, while Europe/Africa moved to a ¥0.8bn segment loss from a ¥0.9bn profit. Cash generation was strong, with operating cash flow of ¥47.8bn exceeding attributable net income by 5.46x and free cash flow reaching ¥30.2bn. This cash conversion was supported principally by a ¥25.2bn reduction in trade receivables, partly offset by a ¥5.8bn inventory build and an ¥8.9bn reduction in payables. The full-year forecast implies a substantial earnings recovery, but Q1 progress is only 20.9% for operating income and 19.0% for attributable profit, below the standard 25% first-quarter run rate. The key forward implication is that margin recovery, particularly in the Americas, China and Europe/Africa, is required for delivery of the full-year plan. The elevated tax burden also constrains conversion of pre-tax profit into shareholder earnings. Balance-sheet liquidity, net cash relative to interest-bearing borrowings, and free-cash-flow generation provide resilience while the company pursues this recovery.
Profitability Analysis
Annualized DuPont ROE is 6.6%, comprising a 1.7% net profit margin, 1.802x asset turnover and 2.21x financial leverage. The principal constraint is the low net margin rather than asset utilization: revenue generation against the asset base is solid for a component manufacturer, whereas profit retained from each yen of sales is thin. Financial leverage supports the reported annualized ROE but does not lift it above the 8% level generally associated with an adequate return profile. The operating margin declined to 3.0% from 3.9%, reflecting a 66bp gross-margin decline and a 20bp rise in the SG&A ratio. Revenue growth of 10.1% therefore did not translate into operating leverage; SG&A grew 13.4%, faster than sales. This is a material concern because it indicates negative incremental margin in the quarter. The low gross margin alert is relevant to an automotive interior and component supplier because the business structurally has high material, labor and customer pass-through exposure; however, 9.8% gross margin leaves limited room to absorb execution disruption. The low operating-efficiency alert is also material: a 3.0% EBIT margin is below the 5% benchmark and fell year on year despite higher revenue. Segment dispersion is substantial, with Asia producing a 12.4% segment margin, Japan 1.3%, North and Central/South America 1.7%, China 4.1%, and Europe/Africa negative 2.5%. Asia is consequently the core business by operating-income contribution, while losses in Europe/Africa and profit compression in the Americas are the principal drags. Finance income of ¥18.2bn exceeded finance costs of ¥5.3bn, producing an interest burden of 1.113x, so financing costs are not currently the cause of low profitability. Equity-method income of ¥5.0bn was modest relative to operating income and does not materially alter the operating earnings assessment. The tax burden alert is significant: attributable profit represented only 49.6% of profit before tax under the supplied five-factor DuPont metric, while the consolidated effective tax rate was 43.0%. This high tax burden reduced the conversion of ¥17.7bn of pre-tax profit into ¥8.8bn of attributable earnings and amplifies the effect of weak operating margins on ROE.
Growth Assessment
Top-line growth was broad-based across all reported regions: Japan revenue rose 5.7% to ¥217.8bn, North and Central/South America rose 16.3% to ¥156.1bn, China rose 8.9% to ¥50.3bn, Asia rose 10.9% to ¥73.8bn, and Europe/Africa rose 13.1% to ¥30.2bn. However, the earnings quality of this growth was weak because consolidated operating income declined 15.1%. Asia was the only major earnings contributor to maintain a broadly stable profit level, with segment profit edging up 0.7% to ¥9.1bn. Japan’s return to ¥2.9bn of segment profit is constructive, but its 1.3% margin remains modest. The Americas, China, and Europe/Africa all recorded lower segment earnings despite revenue expansion, indicating that volume and/or sales growth has not been sufficient to offset cost and execution pressures. The full-year forecast calls for revenue of ¥2,100bn, operating income of ¥76.0bn, and attributable net income of ¥46.0bn. Q1 revenue represents 25.1% of the annual sales forecast, broadly in line with the standard 25% first-quarter progress rate. Q1 operating-income progress is 20.9%, 4.1 percentage points below the standard rate, while attributable-profit progress is 19.0%, 6.0 percentage points below standard. On the forecast’s implied full-year operating margin of 3.6%, the company needs margin expansion from Q1’s 3.0% level through the remainder of the year. The forecast therefore embeds an operational recovery rather than merely continued sales growth. Delivery will depend on restoring profitability in underperforming overseas regions and limiting further gross-margin dilution.
Financial Health
Liquidity is sound. The current ratio is 1.72x, calculated from current assets of ¥712.3bn and current liabilities of ¥414.2bn, and is comfortably above 1.0x. Cash and cash equivalents were ¥283.6bn, exceeding total bonds and borrowings of ¥179.2bn, consisting of ¥24.2bn current and ¥155.0bn non-current borrowings. Short-term maturity risk is limited because cash alone substantially exceeds current borrowings. Total-liabilities-to-equity was 1.21x, below the 2.0x aggressive-leverage warning threshold. Equity was broadly stable at ¥529.8bn, and the equity ratio improved to 42.0% from 41.0% at the prior-year quarter-end. Net defined-benefit liabilities of ¥52.7bn are a meaningful long-term obligation, equal to around 10.0% of total equity, and should remain part of the capital-structure assessment. At the Q1 balance-sheet date, trade receivables declined ¥227.1bn from the March 2026 fiscal year-end, while inventory increased ¥69.9bn and trade payables declined ¥100.2bn. The receivables reduction improved near-term liquidity, but the inventory build and lower supplier financing partly offset this benefit. Goodwill was only ¥4.9bn, or 0.9% of equity and 0.4% of assets, so balance-sheet dependence on acquisition values and goodwill impairment risk are low. Intangible assets were also modest at 1.5% of assets. No material refinancing stress is evident from the disclosed debt, cash and maturity composition.
Notable B/S Changes
Trade receivables: -¥227.1bn versus March 2026 fiscal year-end (-7.6%) — principal driver of strong Q1 operating cash flow and improved liquidity. Inventories: +¥69.9bn versus March 2026 fiscal year-end (+7.4%) — working-capital investment that requires monitoring against production and demand trends. Trade payables: -¥100.2bn versus March 2026 fiscal year-end (-4.5%) — reduction in supplier financing absorbed cash but does not indicate stretched payment terms. Current bonds and borrowings: -¥101.2bn versus March 2026 fiscal year-end (-29.5%) — substantially reduces short-term debt obligations and maturity-mismatch risk. Property, plant and equipment: +¥42.3bn versus March 2026 fiscal year-end (+1.2%) — consistent with continued manufacturing capital investment. Non-controlling interests: -¥60.4bn versus March 2026 fiscal year-end (-13.8%) — reflects ownership-interest transactions and distributions, reducing the non-controlling equity base.
Cash Flow Quality
Cash-flow quality was strong in FY2027 Q1. Operating cash flow was ¥47.8bn, equal to 5.46x attributable net income of ¥8.8bn, well above the 0.8x level that would indicate a potential earnings-quality concern. Free cash flow was positive at ¥30.2bn after capital expenditures of ¥17.8bn. The negative 3.3% accruals ratio also supports cash-based earnings quality rather than aggressive accrual recognition. The principal source of operating cash conversion was a ¥25.2bn reduction in trade receivables. This was partly offset by a ¥5.8bn inventory increase and an ¥8.9bn decline in trade payables, both of which consumed cash. The inventory build requires monitoring in a manufacturing business because it can reflect production ahead of demand or supply-chain stocking, although Q1 operating cash flow remained robust. Reduced payables indicate the company did not preserve cash by extending supplier terms; this is constructive from a working-capital-quality perspective but may be a recurring cash requirement. Capital expenditures increased 27.4% year on year to ¥17.8bn, yet operating cash flow still funded the investment program and shareholder dividends. Financing cash flow of negative ¥27.4bn included ¥10.0bn of long-term debt repayment, ¥7.7bn of parent dividends and ¥5.2bn of lease payments. Cash increased by ¥5.1bn during the quarter to ¥283.6bn, assisted by ¥2.4bn of favorable FX translation. Overall, Q1 cash generation provides a strong buffer, but the extent to which receivables releases can recur will determine the sustainability of the unusually high OCF-to-net-income ratio.
Dividend Sustainability
Dividend capacity appears sustainable on the available cash-flow and forecast data. Cash dividends paid to parent shareholders were ¥7.7bn in Q1, compared with free cash flow of ¥30.2bn, implying approximately 3.9x free-cash-flow coverage. The company paid a further ¥1.9bn of dividends to non-controlling interests, and total dividends distributed were ¥11.4bn. There were no treasury-share purchases in the quarter, so dividend assessment is not complicated by buyback-related capital returns. The full-year forecast dividend is ¥86 per share against forecast EPS of ¥257.57, implying a forecast dividend payout ratio of 33.4%. This is below the 60% sustainability benchmark and leaves headroom for capital investment, debt repayment and cyclical volatility. Q1 attributable EPS was ¥49.03, below the quarterly equivalent of the full-year EPS forecast, reinforcing that dividend sustainability is more dependent on the expected second-half earnings recovery than on the Q1 run rate alone. Nonetheless, the strong Q1 free cash flow, substantial cash balance, and low net-debt position support the planned distribution. The central consideration is preservation of operating-margin recovery, since sustained sub-3% net profitability would weaken internally generated capital over time.
Risk Assessment
Business risks include High priority — Automotive production, model-cycle and customer-volume risk: the company’s component manufacturing exposure makes earnings sensitive to vehicle output and program mix across its major regional customer bases., High priority — Overseas execution and regional profitability risk: North and Central/South America segment profit fell 43.9%, China profit fell 50.4%, and Europe/Africa became loss-making despite higher sales., High priority — Cost pass-through and input-cost risk: the 66bp decline in gross margin to 9.8% demonstrates sensitivity to materials, labor, logistics, energy and customer pricing negotiations., Medium priority — Foreign-exchange translation risk: overseas operations generated ¥6.6bn of positive translation OCI in Q1, showing that reported equity and comprehensive income remain exposed to currency movements., Medium priority — Manufacturing inventory risk: inventories increased ¥7.0bn from the March fiscal year-end while operating profitability weakened, requiring monitoring of production discipline, customer schedules and potential obsolescence..
Financial risks include Medium priority — Tax-conversion risk: the 49.6% DuPont tax burden and 43.0% consolidated effective tax rate materially reduce conversion of pre-tax income into earnings attributable to owners., Low priority — Margin-supported return risk: annualized ROE of 6.6% is below the 8% benchmark, with leverage rather than strong margins contributing to the return., Low priority — Pension obligation risk: net defined-benefit liabilities of ¥52.7bn represent a meaningful long-term funding and discount-rate sensitivity., Low priority — Working-capital normalization risk: Q1 operating cash flow benefited from a ¥25.2bn receivables reduction that may not recur at the same scale..
Key concerns include The low operating-efficiency alert is justified: EBIT margin of 3.0% is below the 5% concern threshold and declined 89bp year on year. In automotive components, low margins are not unusual, but this level provides limited capacity to absorb demand, pricing or cost shocks and makes the earnings-recovery thesis execution-dependent., The low gross-margin alert is justified: gross margin of 9.8% is below the stated 20% cross-industry benchmark and decreased 66bp year on year. The company’s manufacturing model naturally carries high cost of sales, but the direction of change signals insufficient recovery of input and operating costs through pricing or mix., The high-tax-burden alert is justified: the supplied DuPont tax burden is 0.496 and the consolidated effective tax rate is 43.0%. This directly depresses shareholder earnings and means an operational recovery must be larger to produce the forecast improvement in attributable profit., Forecast execution is a near-term issue: Q1 operating profit and attributable profit are running below a standard 25% first-quarter pace relative to the full-year targets..
Investment Implications
Key takeaways include Revenue growth is broad-based, but current profitability is deteriorating; the central analytical issue is conversion of sales growth into gross and operating-margin recovery., Asia is the core earnings business, generating ¥9.1bn of segment profit and a 12.4% margin, whereas the Americas, China and Europe/Africa require operational improvement., Strong operating cash flow of ¥47.8bn and free cash flow of ¥30.2bn provide meaningful financial flexibility despite weak accounting earnings., Liquidity is solid, with a 1.72x current ratio and cash of ¥283.6bn exceeding bonds and borrowings of ¥179.2bn., The full-year plan requires a marked acceleration in earnings conversion after Q1, with operating income and attributable profit progress below the standard first-quarter pace..
Metrics to watch include Consolidated gross margin and operating margin, particularly the ability to recover from Q1 levels of 9.8% and 3.0%, respectively., Segment profit trends in North and Central/South America, China, and Europe/Africa., Inventory growth, receivables movements and whether operating cash flow remains strong after the Q1 receivables release., Effective tax rate and attributable-profit conversion from pre-tax income., Progress against the ¥76.0bn operating-income and ¥46.0bn attributable-profit full-year forecasts., Capital-expenditure requirements relative to operating cash flow and free cash flow..
Regarding relative positioning, Toyota Boshoku combines a sound liquidity position, modest acquisition-related balance-sheet risk and strong near-term cash conversion with sub-benchmark profitability. Relative positioning is therefore likely to be determined less by balance-sheet capacity and more by evidence that overseas operations can restore margin and that higher revenue can again generate positive operating leverage.