TOCALO (3433) FY2027 Q1 Earnings Report

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Executive Summary

The first quarter of the fiscal year ending March 2027 saw higher revenue but lower earnings, as margin deterioration caused by rising costs offset the benefits of top-line growth. Revenue increased by double digits to ¥16.66B (+9.9% YoY), while Operating Income declined slightly to ¥3.81B (-0.5%) and Ordinary Income to ¥4.02B (-0.7%). Net Income attributable to owners of the parent was ¥2.62B (+1.4% YoY), representing earnings growth in line with revenue growth excluding the effects of the tax burden and profit attributable to non-controlling interests. The primary factors were strong revenue and earnings growth in the core Thermal Spraying Processing (Non-Consolidated) Business, offset by revenue and earnings declines at overseas subsidiaries and increased company-wide costs.

Factors Affecting Performance

【Revenue】Revenue was ¥16.66B, up +9.9% YoY. The core Thermal Spraying Processing (Non-Consolidated) Business led company-wide growth, increasing to ¥12.29B (+13.9%), while domestic subsidiaries at ¥0.79B (+7.9%) and Other Businesses at ¥0.66B (+7.5%) also maintained revenue growth. In contrast, overseas subsidiaries declined to ¥2.91B (-3.2%), and the weakness of overseas operations, which account for 17.5% of total revenue, became a constraint on consolidated growth.

【Profit and Loss】Cost of sales increased to ¥10.45B (+14.9%), outpacing revenue growth, and the gross margin declined by 280bp to 37.2% from 40.0% in the same period last year. SG&A expenses were ¥2.39B (+7.6%); although the SG&A ratio improved slightly to 14.3%, the increase in the cost ratio could not be absorbed, resulting in Operating Income of ¥3.81B (-0.5%). Ordinary Income was also largely unchanged at ¥4.02B (-0.7%), while non-operating income and expenses recorded a net gain of ¥0.20B, including a foreign exchange gain of ¥0.11B. By segment, segment profit in the Thermal Spraying Processing (Non-Consolidated) Business rose sharply to ¥3.43B (+31.1%), whereas overseas subsidiaries saw a substantial decline to ¥0.94B (-29.7%). Consolidation adjustments also deteriorated to -¥0.58B from -¥0.11B in the previous year, with increases in company-wide expenses and R&D costs weighing on earnings. Net Income attributable to owners of the parent increased to ¥2.62B (+1.4%), resulting in higher revenue but lower earnings on a consolidated basis.

Segment Analysis

The reportable segments comprise Thermal Spraying Processing (Non-Consolidated), Domestic Subsidiaries, Overseas Subsidiaries, and Other. The Thermal Spraying Processing (Non-Consolidated) Business was the only segment to achieve substantial earnings growth, with revenue of ¥12.29B (+13.9%), segment profit of ¥3.43B (+31.1%), and a profit margin of 27.9%; its scale corresponds to more than 85% of consolidated Ordinary Income of ¥4.02B. Overseas subsidiaries recorded revenue of ¥2.91B (-3.2%) and segment profit of ¥0.94B (-29.7%), with a profit margin of 32.4%. Although the profit margin itself remained high, it declined substantially from the previous year, apparently reflecting changes in project mix and local costs. Domestic subsidiaries recorded higher revenue but lower earnings, with revenue of ¥0.79B (+7.9%), segment profit of ¥0.11B (-3.4%), and a profit margin of 14.2%. Other Businesses secured earnings growth on a small scale, with revenue of ¥0.66B (+7.5%) and segment profit of ¥0.11B (+31.0%). Adjustments for company-wide expenses and other items expanded to -¥0.58B from -¥0.11B in the previous year, partially offsetting the earnings contributions from each segment.

Key Financial Indicators

【Profitability】The Operating Income margin was 22.9%, down 240bp from 25.3% in the same period last year, while the gross margin also declined by 280bp to 37.2% from 40.0%. Annualized ROE was 15.4% based on disclosed indicators, and capital efficiency remained at a favorable level due to the combination of a high net profit margin and low leverage.【Cash Flow Quality】Accounts receivable increased to ¥18.08B from ¥16.86B in the previous year, while work in process expanded to ¥3.49B from ¥3.10B, indicating an increase in working capital associated with revenue growth.【Investment Efficiency】Property, plant and equipment increased to ¥46.18B from ¥43.69B, suggesting that funds raised through long-term borrowings are being allocated to investment.【Financial Soundness】Although the Equity Ratio declined to 76.0% from approximately 81.4% in the previous year, it remains high, and current assets of ¥44.69B substantially exceed current liabilities of ¥12.30B. Long-term borrowings increased by 70.1% to ¥8.92B from ¥5.25B in the previous year, indicating that long-term debt has become the central component of interest-bearing liabilities.

Cash Flow Analysis

As the disclosure does not include detailed data from the cash flow statement, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥15.51B from ¥14.74B in the previous year, indicating that cash generation through business activities has been maintained. Meanwhile, long-term borrowings increased by ¥3.68B to ¥8.92B from ¥5.25B, and property, plant and equipment expanded to ¥46.18B from ¥43.69B. These developments suggest that investment activities utilizing external funding may be progressing. Increases in working capital items such as accounts receivable of ¥18.08B and work in process of ¥3.49B suggest temporary cash tied up in connection with revenue growth. The speed of future cash conversion will therefore require monitoring from the perspective of capital efficiency.

Earnings Quality

Profit for the quarter was only minimally affected by one-time factors, with special losses limited to ¥0.003B. Of non-operating income of ¥0.24B, a foreign exchange gain of ¥0.11B was a major component. As this factor depends on market conditions, it should be evaluated separately from recurring operating income. The gap between Profit Before Tax of ¥4.02B and Net Income attributable to owners of the parent of ¥2.62B was attributable to corporate income taxes of ¥1.22B and profit attributable to non-controlling interests of ¥0.18B; the effective tax rate was approximately 30%, with no particular anomalies. Comprehensive income was ¥3.12B, exceeding Net Income of ¥2.80B due to the addition of ¥0.31B in foreign currency translation adjustments. This difference represents an accounting fluctuation associated with the valuation of overseas subsidiaries’ assets and should be understood as a factor separate from the underlying earnings power of the business. Increases in accounts receivable and work in process expanded accruals—the uncollected and unconverted-to-cash portion—relative to profit reported on the income statement. Delays in cash conversion should therefore also be considered when evaluating earnings quality.

Earnings Forecast and Guidance

The full-year company forecasts are revenue of ¥68.50B (+17.1% YoY), Operating Income of ¥16.70B (+18.4%), and Ordinary Income of ¥16.70B (+13.3%). Q1 progress rates were 24.3% for revenue, 22.8% for Operating Income, and 24.1% for Ordinary Income, all slightly below the simple 25% benchmark. In particular, the progress rate for Operating Income was lower than that for revenue, making improvement in profitability from the second half onward more important than revenue growth for achieving the full-year plan. During the quarter, the company revised its earnings and dividend forecasts, reflecting a reassessment of its full-year outlook.

Shareholder Returns

The full-year forecast dividend per share is ¥92.0, revised from ¥37 in the previous year, which represents an interim-period actual figure different from the combined interim and year-end dividend. The Payout Ratio against forecast EPS of ¥182.6 is 50.4%, remaining below 60%; assuming the full-year plan, there are no significant concerns regarding dividend sustainability. Substantial retained earnings and cash balances—retained earnings of ¥61.03B and cash and deposits of ¥15.51B—provide support for the dividend funding capacity. The dividend forecast was revised during the quarter, confirming that the dividend plan was reviewed together with changes in the full-year earnings outlook.

Risk Factors

1. Deterioration in the profitability of overseas operations: Revenue at overseas subsidiaries declined to ¥2.91B (-3.2% YoY), while segment profit deteriorated substantially to ¥0.94B (-29.7%). If the revenue and earnings declines in overseas operations, which account for 17.5% of consolidated revenue, continue, they will constrain improvement in the consolidated profit margin.

2. Margin deterioration due to rising costs: Cost of sales increased to ¥10.45B (+14.9% YoY), exceeding the 9.9% revenue growth rate, and the gross margin declined by 280bp. If increases in materials, labor, and other costs cannot be passed through to prices, margin deterioration may continue.

3. Expansion of working capital: Accounts receivable increased to ¥18.08B from ¥16.86B in the previous year, while work in process increased to ¥3.49B from ¥3.10B. The expansion of working capital associated with revenue growth requires monitoring from the perspectives of capital efficiency and cash conversion speed.

Industry Benchmark (For Reference; Based on Company Research)

Industry Benchmark (manufacturing)

Profitability and Return

Both the Operating Income margin and the net profit margin substantially exceed the industry median, placing the company in the high-profitability group within the manufacturing sector.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median but does not reach the upper range of 14.6%, placing the company in the upper-middle range in terms of growth.

※Source: Company research

Key Takeaways from the Results

1. The core Thermal Spraying Processing (Non-Consolidated) Business posted strong earnings growth, with segment profit up +31.1% YoY. Its position as a core earnings source accounting for more than 80% of consolidated Ordinary Income has become even clearer.

2. On a consolidated basis, the company recorded higher revenue but lower earnings. The revenue and earnings declines at overseas subsidiaries and the deterioration in company-wide adjustments (-¥0.58B versus -¥0.11B in the previous year) offset the earnings contribution from the core business. This is a key point when evaluating full-year performance.

3. Q1 progress toward the full-year plan was 22.8% for Operating Income, below the 24.3% progress rate for revenue. Recovery in the gross margin from the second half onward will be a key factor to monitor for achievement of the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,426–¥1,508 at Cost of Equity ±1%; ¥1,460–¥1,474 at ω±0.1.

Notes:

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

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast 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 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 a professional as necessary.

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