Tokai Senko K.K. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.63B
• Operating Income: ¥62M
• Net Income: ¥76M
• EPS: ¥8.80

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

Verdict: A soft quarter on operations with margin compression, partly cushioned by non-operating income, while cash flow and liquidity remained solid. Revenue was 66.33 (−0.9% YoY), with operating income of 0.62 (−38.1% YoY) and ordinary income of 0.91 (−18.4% YoY). Net income rose to 0.27 (+37.1% YoY), aided by non-operating gains and despite a high effective tax rate of 46.6%. Gross margin printed at 13.4%, while operating margin fell to 0.9% and ordinary margin to 1.4%. We estimate operating margin compressed by roughly 56 bps YoY (from ~1.5% to ~0.9%), with ordinary margin down ~30 bps. In contrast, net margin expanded by ~11 bps to ~0.41% as non-operating income (0.75) offset weak operations. Non-operating income (dividends 0.48, interest 0.19) was sizable versus operating income (0.62), underscoring dependence on financial income to support profits. Cash generation was strong relative to earnings, with operating cash flow of 2.08 (OCF/NI ≈ 7.7x) and estimated positive FCF of ~0.43 after capex of 1.65. The balance sheet is conservative: current ratio 216%, quick ratio 208%, and D/E 0.68x, with cash and deposits of 29.97 exceeding short-term loans of 7.40. ROIC at 0.4% and ROE at 0.3% highlight weak capital efficiency, below typical cost of capital. Interest coverage is healthy at 6.22x despite low margins, reflecting modest interest burden and positive EBITDA. The effective tax rate of 46.6% dampened bottom line and could indicate limited tax shields or valuation allowance effects. Working capital appears ample (working capital 34.00), reducing near-term refinancing risk. Forward-looking, the key question is whether operational profitability can recover without reliance on non-operating items, through pricing, mix, and cost control. Sustained positive OCF provides a buffer for capex and potential dividends, but earnings visibility remains modest given thin operating margins. With capex manageable and liquidity strong, downside risk from balance sheet stress is limited; however, improving ROIC and operating margin is essential for value creation. Non-operating income sustainability (dividend/interest streams) will be a swing factor for ordinary and net income in the coming quarters.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin × Asset Turnover × Financial Leverage = 0.4% × 0.464 × 1.68 ≈ 0.3%. The biggest drag is the very low net profit margin (≈0.4%), driven by a thin operating margin (~0.9%) and a high effective tax rate (46.6%), partly offset by non-operating income. Asset turnover at 0.464 suggests slow capital cycling, likely reflecting sizable investment securities (30.95) and cash (29.97) relative to sales. Financial leverage of 1.68x is moderate, providing limited amplification of returns. Business drivers: revenue marginally declined (−0.9% YoY) while SG&A (8.23) stayed heavy relative to gross profit (8.86), compressing operating profit; non-operating income (0.75) provided a material cushion via dividends and interest. Sustainability: reliance on non-operating items is less controllable than core margins; absent better pricing/passing through input costs and utilization improvements, the margin recovery may be limited. Flags: SG&A elasticity appears weak as operating income fell 38% on a <1% sales decline, implying low operating leverage and limited cost flexibility.

Growth Assessment

Top line contracted slightly (−0.9% YoY to 66.33), indicating tepid demand or pricing pressure in core dyeing/textile processing. Operating income declined 38.1% YoY to 0.62, evidencing unfavorable mix or cost pass-through challenges. Ordinary income fell 18.4% to 0.91, cushioned by dividend and interest income (total 0.67). Net income rose 37.1% to 0.27, helped by non-operating items despite the high tax rate. Margin trends: estimated operating margin compressed ~56 bps YoY to ~0.9%, ordinary margin down ~30 bps, while net margin improved ~11 bps to ~0.41%. Revenue sustainability depends on stabilization of apparel/textile demand and ability to maintain unit prices. Profit quality is mixed: core operating profitability is weak, but cash conversion is strong. Near-term outlook hinges on maintaining non-operating income streams and improving operational efficiency; absent that, earnings remain vulnerable to small volume or cost shocks.

Financial Health

Liquidity is strong: current ratio 215.7% and quick ratio 208.1%, with cash and deposits (29.97) comfortably exceeding short-term loans (7.40). Solvency is conservative: D/E 0.68x, long-term loans 14.65 versus total equity 85.19. Interest coverage is solid at 6.22x, indicating manageable interest burden. No warning on current ratio (<1.0) or D/E (>2.0). Maturity mismatch risk appears low given positive working capital (34.00) and cash headroom over current borrowings; however, the portion of noncurrent liabilities (28.54) suggests ongoing refinancing needs over time, manageable under current liquidity. Off-balance sheet obligations are not disclosed in the provided data.

Cash Flow Quality

OCF/Net income is 7.71x, signaling high earnings quality for this period and potential working capital release or strong collections. With capex of 1.65 and OCF of 2.08, estimated FCF is positive at ~0.43, supporting internal funding of investments. Given thin operating margins, sustaining OCF will require continued discipline in receivables and inventory; detailed working capital movements are not disclosed, limiting further attribution. No signs of aggressive cash flow management are evident from the limited data, but monitoring days sales outstanding and inventory turns is advised. Dividend and financing outflows totaled −0.94 in financing CF (details unreported), which appear covered by OCF.

Dividend Sustainability

Dividend details (DPS, total paid) are unreported; a calculated payout ratio of 334.7% indicates potential unsustainability if based on recent earnings, but the underlying dividend amount is not provided, so interpret cautiously. Positive FCF (~0.43) suggests capacity to fund modest dividends and capex, but sustained distributions at levels implied by a >300% payout would not be supported by earnings. With ROE at 0.3% and ROIC at 0.4%, returning excess cash may be weighed against reinvestment opportunities that could lift profitability. Policy outlook is unclear due to missing disclosures; watch for guidance in the year-end results.

Risk Assessment

Business Risks:

• Demand softness in apparel/textile end-markets leading to low capacity utilization
• Input cost volatility (dyes, chemicals, energy) and limited pass-through ability compressing margins
• Customer concentration and pricing pressure typical in textile processing
• Operational leverage risk: small revenue movements causing outsized operating profit swings

Financial Risks:

• Low capital efficiency (ROIC 0.4%, ROE 0.3%) below cost of capital
• Earnings reliance on non-operating income (non-operating income 0.75 vs operating income 0.62)
• High effective tax rate (46.6%) reducing net profitability
• Moderate leverage with ongoing refinancing needs (total loans 22.05) despite strong liquidity

Key Concerns:

• Operating margin compression (~56 bps YoY) and thin margin base (~0.9%)
• Sustainability of dividend/interest income that supports ordinary profit
• Potential for further SG&A rigidity if demand remains soft
• Data gaps (no detailed SG&A breakdown, investing CF, dividend payments) limit full assessment

Investment Implications

Key Takeaways:

• Core operations weak; non-operating income propped up earnings
• Cash flow and liquidity are strengths, providing a cushion
• Capital efficiency is poor; ROIC needs improvement for value creation
• Interest coverage is adequate; balance sheet risk is contained

Metrics to Watch:

• Operating margin recovery and gross margin trajectory
• Non-operating income (dividends/interest) sustainability and concentration
• Working capital efficiency (AR, inventory turns) and OCF consistency
• Capex discipline vs. scale of OCF to maintain positive FCF
• Tax rate normalization drivers
• ROIC progression toward >5% over the medium term

Relative Positioning: Within domestic textile processing peers, the company exhibits stronger liquidity and conservative leverage but weaker profitability and capital efficiency, with higher dependence on non-operating income to sustain ordinary and net earnings.

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