TOCALO Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Although revenue increased, operating income and ordinary income declined due to higher costs and increased corporate expenses; however, net income attributable to owners of the parent, after deducting profit attributable to non-controlling interests, increased. Revenue was ¥166.6B (+9.9% YoY), operating income was ¥38.1B (-0.5%), ordinary income was ¥40.2B (-0.7%), and net income attributable to owners of the parent was ¥26.2B (+1.4%). Although revenue growth was secured through the expansion of the core thermal spraying business (non-consolidated), gross margin declined to 37.2% (40.0% in the previous year), while foreign exchange gains and other non-operating items provided support, allowing bottom-line profit growth to be maintained.

Factors Affecting Results

【Revenue】Revenue was ¥166.6B, representing a 9.9% YoY increase. By segment, the core thermal spraying business (non-consolidated) led growth at ¥125.4B, accounting for 75.3% of total revenue and increasing 12.5% YoY. Domestic subsidiaries also grew to ¥9.2B (+7.9%). In contrast, overseas subsidiaries recorded ¥29.1B, a 3.2% YoY decline, resulting in divergent performance across regions.

【Profitability】Operating income was ¥38.1B (-0.5% YoY) and ordinary income was ¥40.2B (-0.7% YoY), with both declining. The increase in cost of sales exceeded revenue growth, causing gross margin to decline by 2.8pt to 37.2% (40.0% in the previous year). The SG&A ratio improved to 14.3% (14.6% in the previous year), indicating effective cost control; however, this was insufficient to offset the deterioration in gross margin, and the operating margin narrowed by 2.4pt to 22.9% (25.3% in the previous year). While total segment profit increased to ¥46.0B (¥41.6B in the previous year, +10.6%), unallocated corporate expenses (adjustments) expanded to △¥5.8B (△¥1.1B in the previous year), offsetting the increase in ordinary income. Extraordinary loss was a minor ¥0.01B, and the impact of temporary factors was limited. After deducting income taxes of ¥12.2B and profit attributable to non-controlling interests of ¥1.8B from pre-tax income of ¥40.2B, net income attributable to owners of the parent was ¥26.2B (+1.4%), securing growth at the final stage. In conclusion, the results represent higher revenue but lower profit, with a slight increase in net income attributable to owners of the parent.

Segment Analysis

On a segment-profit basis, the thermal spraying business (non-consolidated) improved to ¥34.3B (¥26.2B in the previous year, +31.1%), with its profit margin rising to 27.4% (23.5% in the previous year), making it the earnings pillar. In contrast, overseas subsidiaries posted ¥9.4B (¥13.4B in the previous year, -29.7%), a substantial decline, while their profit margin deteriorated by 12.2pt to 32.3% (44.5% in the previous year). In addition to lower revenue, a marked deterioration in profitability was evident. Domestic subsidiaries were nearly flat at ¥1.1B (¥1.2B in the previous year, -3.4%). Despite total segment profit increasing 10.6% YoY, unallocated corporate expenses (adjustments) expanded from △¥1.1B to △¥5.8B, limiting ordinary income to a slight decline. The increase in corporate expenses was mainly attributable to higher non-operating income and expenses, general and administrative expenses, and research and development expenses not attributable to business segments, representing a source of divergence between business-level earnings power and consolidated results.

Key Financial Metrics

【Profitability】The operating margin declined to 22.9% (25.3% in the previous year), while gross margin declined to 37.2% (40.0% in the previous year), indicating that higher costs and deteriorating profitability in the overseas business are weighing on earnings.【Cash Quality】Cash and deposits increased to ¥155.1B (¥147.4B in the previous year). However, accounts receivable of ¥180.8B (¥168.6B in the previous year, +7.2%), raw materials of ¥50.8B (+20.6%), and work in process of ¥34.9B (+12.7%) all increased faster than revenue (+9.9%), requiring monitoring from a cash-generation-quality perspective.【Investment Efficiency】ROE was 3.9% (based on quarterly results), reflecting net income attributable to owners of the parent of ¥26.2B relative to the level of equity.【Financial Soundness】Although the equity ratio declined by 4.9pt to 69.9% (74.8% in the previous year), it remained high, while the current ratio secured substantial liquidity at 363.3%. Long-term borrowings increased to ¥89.2B (¥52.5B in the previous year, +70.1%). The ratio of interest-bearing debt to capital (Debt/Capital) was 11.5%, and interest coverage was approximately 136x, indicating that resilience to interest burdens remains substantial.

Cash Flow Analysis

As no cash flow statement has been disclosed, funding trends are analyzed based on changes in the balance sheet. While cash and deposits increased to ¥155.1B (¥147.4B in the previous year), long-term borrowings expanded to ¥89.2B (¥52.5B in the previous year, +70.1%), suggesting that liquidity on hand was secured through external financing. Meanwhile, accounts receivable (¥180.8B, +7.2%), raw materials (¥50.8B, +20.6%), and work in process (¥34.9B, +12.7%) all increased faster than revenue (+9.9%), raising the possibility that the accumulation of working capital may constrain cash generation from operating activities. Property, plant and equipment increased to ¥461.8B (¥436.9B in the previous year), including land, which increased to ¥136.6B (¥122.3B in the previous year), indicating that capital investment is continuing. The simultaneous increase in borrowings and expansion of working capital should be noted as a change in the funding structure.

Earnings Quality

Of ordinary income of ¥40.2B, non-operating income of ¥2.4B was primarily composed of foreign exchange gains of ¥1.1B. After deducting non-operating expenses of ¥0.4B, including interest expense of ¥0.3B, net non-operating items contributed a positive ¥2.1B. Extraordinary loss was a minor ¥0.01B, consisting of loss on disposal and sale of property, plant and equipment, and the majority of profit was generated from recurring business activities. Comprehensive income was ¥31.2B, of which ¥28.9B was attributable to owners of the parent, creating a gap of approximately ¥2.7B versus net income attributable to owners of the parent of ¥26.2B for the same period. The primary cause of this difference was foreign currency translation adjustments of ¥3.1B, reflecting an increase in the translated net assets of overseas subsidiaries due to the weaker yen. The substantial 61.1% increase from comprehensive income of ¥19.4B in the previous year was likewise significantly affected by foreign exchange movements. Foreign exchange-related other comprehensive income has limited recurrence and differs in nature from the trend-based earnings power reflected in net income.

Earnings Forecasts and Guidance

Progress against the full-year earnings forecasts—revenue of ¥685.0B, operating income of ¥167.0B, ordinary income of ¥167.0B, and net income attributable to owners of the parent of ¥108.6B—was 24.3% for revenue, 22.9% for operating income, 24.1% for ordinary income, and 24.1% for net income in Q1. Compared with a simple one-quarter benchmark of 25%, operating income was slightly behind pace, while the other indicators were progressing at approximately standard levels. The full-year forecast anticipates revenue growth of +17.1%, operating income growth of +18.4%, and ordinary income growth of +13.3% versus the previous year, representing a plan that incorporates improved profitability from Q1’s higher revenue but lower profit to the full year. The Company disclosed that revisions to its earnings forecast and dividend forecast were made during Q1; whether further revisions are made during the fiscal year will be a key point for monitoring progress.

Shareholder Returns

The full-year dividend forecast is ¥92.00 per share, implying a payout ratio of approximately 50.4% based on projected full-year EPS of ¥182.60. The dividend forecast was revised during Q1. With cash and deposits of ¥155.1B and an equity ratio of 69.9%, the financial foundation remains sound. In addition, interest coverage of approximately 136x indicates substantial capacity to service interest, providing financial support for the stated dividend level.

Risk Factors

1. Deterioration in overseas subsidiary profitability: Overseas subsidiary revenue was ¥29.1B, a 3.2% YoY decline, while segment profit deteriorated substantially to ¥9.4B, down 29.7% YoY. The profit margin declined by 12.2pt to 32.3% (44.5% in the previous year). Fluctuations in local demand or foreign exchange effects may be weighing on profitability.

2. Increase in working capital: Accounts receivable of ¥180.8B (+7.2%), raw materials of ¥50.8B (+20.6%), and work in process of ¥34.9B (+12.7%) all increased faster than revenue (+9.9%). If working capital continues to expand, it may constrain cash generation from operating activities.

3. Margin compression from expanding corporate expenses: Unallocated corporate expenses (adjustments) expanded from △¥1.1B in the previous year to △¥5.8B in the current period, suppressing ordinary income growth despite the 10.6% increase in total segment profit. The recurrence and sustainability of this expense increase may affect future margin trends.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

The Company’s profitability substantially exceeds the industry median, with both its operating margin and net profit margin ranking in the upper tier of the industry.

Growth and Capital Efficiency

Revenue growth also exceeds the industry median but remains below the upper IQR limit of 14.6%, placing the Company in the upper-middle range within the industry.

※Source: Compiled by the Company

Key Points from the Results

1. Despite higher revenue, gross margin declined by 2.8pt to 37.2% (40.0% in the previous year), and operating margin narrowed to 22.9% (25.3% in the previous year). Whether higher costs and deteriorating profitability at overseas subsidiaries will continue is a key point in assessing the trend in profitability.

2. Although total segment profit increased 10.6% YoY, the expansion of unallocated corporate expenses (adjustments) (△¥1.1B → △¥5.8B) absorbed the increase in ordinary income, confirming the structure as a source of divergence between business-level earnings power and consolidated results.

3. Working capital items such as accounts receivable, raw materials, and work in process increased faster than revenue, making them key monitoring points in evaluating the quality of cash generation.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,426–¥1,508 for ±1% in the cost of equity, and ¥1,460–¥1,474 for ±0.1 in ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing mismatch with the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not predict or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings report 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 discretion and responsibility, with consultation with a professional as necessary.

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