Tokai Senko K.K. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.63B
• Operating Income: ¥62M
• Net Income: ¥94M
• 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

Tokai Senko (35770) reported FY2026 Q2 consolidated (JGAAP) results showing stable top-line but pressured profitability and resilient operating cash flow. Revenue was ¥6,633m, down 0.9% YoY, indicating flattish demand and/or limited pricing traction amid a soft textile value chain. Gross profit was ¥837m, implying a gross margin of 12.6%, which remains thin for a processing-heavy business and suggests limited pricing power against input cost fluctuations. Operating income fell 38.1% YoY to ¥62m (operating margin ~0.9%), highlighting material operating leverage—small revenue changes translate into outsized swings in profit. Ordinary income of ¥91m exceeded operating income, indicating non-operating contributions helped offset weak core earnings. Net income rose 37.1% YoY to ¥27m (net margin 0.41%), an improvement off a low base but still modest in absolute terms. DuPont analysis yields ROE of 0.32% = 0.41% net margin × 0.464 asset turnover × 1.68 financial leverage, evidencing very low shareholder returns in the period. EBITDA was ¥267m (4.0% margin), and interest coverage (operating income/interest expense) was 8.8x, indicating manageable interest burden despite slim margins. The balance sheet appears conservative: total assets ¥14,310m, equity ¥8,519m (assets/equity 1.68x), liabilities ¥6,304m (debt-to-equity 0.74x). Liquidity is solid with current assets ¥7,109m and current liabilities ¥3,703m, implying a current ratio of 192% and ample working capital of ¥3,406m. Operating cash flow was robust at ¥258m, or ~9.6x net income, suggesting strong cash conversion this half, supported by non-cash expenses (D&A ¥205m) and/or working capital release. Investing cash flow and cash balance were not disclosed (zeros indicate not reported), preventing a full free cash flow and liquidity buffer assessment. Reported equity ratio, DPS, payout ratio, cash and equivalents, and share data were not disclosed, limiting full capital policy and per-share analysis. The cost base (energy/chemicals) and volume/utilization remain key drivers; the steep drop in operating profit versus a slight revenue dip underscores ongoing margin fragility. Outlook hinges on demand normalization and pricing discipline to rebuild operating margin, while maintaining working capital efficiency to sustain cash generation. Overall, the company demonstrates balance-sheet prudence and decent liquidity, but profitability remains structurally thin and sensitive to small top-line changes, keeping ROE subdued.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 0.41% (Net income ¥27m / Revenue ¥6,633m)
• asset_turnover: 0.464x (Revenue ¥6,633m / Total assets ¥14,310m)
• financial_leverage: 1.68x (Total assets ¥14,310m / Equity ¥8,519m)
• calculated_ROE: 0.32% (matches reported 0.32%) margin_quality:
• gross_margin: 12.6% (Gross profit ¥837m / Revenue ¥6,633m)
• EBITDA_margin: 4.0% (EBITDA ¥267m / Revenue ¥6,633m)
• operating_margin: 0.9% (Operating income ¥62m / Revenue ¥6,633m)
• net_margin: 0.41% (Net income ¥27m / Revenue ¥6,633m)
• commentary: Margins are thin across the P&L; ordinary income > operating income suggests reliance on non-operating items to support bottom line. Sustained recovery requires improved price-cost spread and utilization. operating_leverage: High. A 0.9% YoY revenue decline resulted in a 38.1% YoY drop in operating income, indicating significant fixed-cost absorption effects. Tight cost control and volume recovery are critical to stabilize EBIT.

Growth Assessment

revenue_sustainability: Revenue of ¥6,633m declined 0.9% YoY, indicating relatively steady demand but no clear growth catalyst in the half. profit_quality: Net income increased 37.1% YoY to ¥27m despite weaker operating profit, aided by non-operating factors; quality of earnings is mixed given the reliance on non-core items and thin operating margin. outlook: Near-term growth depends on end-market recovery (apparel/textiles), pricing discipline to offset input costs, and maintaining utilization. Absent a volume or pricing catalyst, revenue likely tracks flat to modestly up while margin normalization drives profit variance.

Financial Health

liquidity:

• current_ratio: 192.0% (Current assets ¥7,109m / Current liabilities ¥3,703m)
• quick_ratio: 184.8% (Inventory only ¥267m; cash not disclosed)
• working_capital: ¥3,406m
• commentary: Liquidity appears comfortable; low reported inventories (¥267m) imply most current assets are receivables/other, though cash balance was not disclosed. solvency_capital_structure:
• total_assets: ¥14,310m
• total_liabilities: ¥6,304m
• equity: ¥8,519m
• debt_to_equity: 0.74x (Total liabilities/Equity)
• interest_coverage: 8.8x (Operating income ¥62m / Interest expense ¥7.0m)
• equity_ratio_note: Equity ratio not disclosed (reported 0.0% represents missing data). Overall leverage is moderate given assets/equity of 1.68x.

Cash Flow Quality

earnings_quality: OCF was ¥258m versus net income of ¥27m (OCF/NI 9.57x), supported by D&A of ¥205m and likely working capital effects, indicating strong cash conversion this period. FCF_analysis: Investing cash flow not disclosed (reported as 0), thus free cash flow cannot be reliably calculated; capex requirements are unknown for the half. working_capital: Inventories were ¥267m (3.8% of current assets), suggesting receivables and other current assets dominate. The low inventory balance may limit future release benefits; continued receivables collection discipline is key.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio were not disclosed (zeros indicate unreported). With EPS at ¥8.80 and thin profitability, sustainable payouts would need confirmation of normalized operating margin and known capex. FCF_coverage: Not assessable due to missing investing cash flow/capex; OCF was positive at ¥258m but coverage of dividends depends on capex and policy. policy_outlook: Given modest earnings and a focus on balance sheet prudence, management is likely to prioritize reinvestment and financial stability; clearer guidance is needed to gauge dividend trajectory.

Risk Assessment

Business Risks:

• End-market demand softness in apparel/textiles leading to volume volatility
• Input cost inflation (energy, dyes/chemicals) pressuring margins
• Customer concentration and pricing pressure from OEMs/brands
• Competitive intensity from domestic and overseas processors
• FX-driven import competitiveness impacting order flow
• Utilization sensitivity given fixed-cost base, amplifying operating leverage

Financial Risks:

• Very thin operating margin (~0.9%) leaving limited buffer for shocks
• Profit dependence on non-operating items to support bottom line
• Working capital swings potentially impacting OCF quarter-to-quarter
• Limited visibility on capex and cash reserves (cash, investing CF not disclosed)
• Tax and extraordinary item variability affecting net income under JGAAP classifications

Key Concerns:

• Sustained margin restoration needed to lift ROE above sub-1% levels
• Revenue stagnation risks without clear pricing or volume catalysts
• Information gaps (cash balance, capex, dividend policy) constrain full assessment of capital allocation

Investment Implications

Key Takeaways:

• Revenue essentially flat YoY (-0.9%) with high operating leverage causing a 38% decline in operating income
• Margins remain thin: gross 12.6%, EBITDA 4.0%, operating ~0.9%, net 0.41%
• ROE low at 0.32% driven by slim margins despite moderate leverage
• Liquidity strong (current ratio 192%) and leverage moderate (D/E 0.74x)
• OCF solid at ¥258m with strong OCF/NI, but FCF unclear due to undisclosed investing CF

Metrics to Watch:

• Revenue run-rate and order intake/utilization
• Price-cost spread (ASP vs. input cost indices for energy/chemicals)
• Operating margin trajectory and SG&A/COGS discipline
• Working capital turns (receivables collection, inventory levels) and OCF consistency
• Capex and investing cash flows to gauge FCF and maintenance needs
• Non-operating income components and sustainability

Relative Positioning: Within domestic textile processing peers, Tokai Senko exhibits conservative balance sheet metrics and adequate liquidity but lags on profitability and ROE due to structurally thin margins and high operating leverage; recovery hinges on utilization and pricing power improvements.

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
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