TOYO DRILUBE CO.,LTD. FY2026 Q1 Earnings Report

Financial Highlights

• Net Sales: ¥1.32B
• Operating Income: ¥184M
• Net Income: ¥156M
• Earnings per Unit (EPU): ¥85.69

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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 mixed FY2026 Q1 with healthy top-line growth but margin compression driving double-digit declines in profits. Revenue rose 5.5% YoY to 13.23, indicating resilient demand. Operating income fell 10.4% YoY to 1.84, with ordinary income down 11.9% to 2.23 and net income down 26.6% to 1.13. Operating margin was 13.9% this quarter versus an estimated 16.4% a year ago, implying approximately 247 bps of compression. Net margin was 8.5% versus an estimated 12.3% a year ago, implying roughly 375 bps of compression. Ordinary income margin slipped to 16.9% from an estimated 20.2% (about 332 bps compression). Gross margin printed at 37.0% this quarter; lack of prior-period granularity limits gross margin trend analysis. Non-operating items were positive (income 0.66 vs expenses 0.19), cushioning the decline in operating profit and lifting ordinary income above operating income. The effective tax rate was elevated at 38.4%, amplifying the drop in net income. Balance sheet strength is a clear positive: current ratio 424.7%, quick ratio 421.1%, D/E 0.24x, and cash/deposits of 42.95 against current liabilities of 14.60. ROE for the quarter is 1.1% from DuPont (NPM 8.5% × asset turnover 0.103 × leverage 1.24x), and ROIC of 1.7% highlights subdued capital efficiency this quarter. Earnings quality assessment is constrained by unreported cash flows; OCF/NI and FCF are not available. Dividend sustainability flags caution with a calculated payout ratio of 115.1%, although quarterly seasonality and lack of cash flow data limit definitive conclusions. Forward-looking, the key swing factors are operating margin recovery, normalization of the effective tax rate, and stability of non-operating contributions. Given ample liquidity and low leverage, the company has financial flexibility to navigate near-term margin headwinds, but improving ROIC above 5% is a medium-term priority.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 8.5% × Asset Turnover 0.103 × Financial Leverage 1.24x = ROE 1.1%. Change drivers: The largest adverse driver is the contraction in profitability (margins), evidenced by operating margin declining ~247 bps YoY and net margin ~375 bps YoY, despite asset turnover being broadly stable (revenue growth of 5.5% vs total assets largely unchanged at 128.19). Business reason: Cost pressures and/or higher SG&A intensity (SG&A 2.84) relative to revenue likely compressed operating margin; an elevated tax rate (38.4%) further depressed net margin. Sustainability: Margin pressure may be partially cyclical if cost inflation or product mix is temporary; non-operating gains provided support this quarter but are inherently less stable than operating profit. Operating leverage: Revenue grew (+5.5%) while operating income fell (-10.4%), indicating negative operating leverage this quarter; SG&A growth appears to have outpaced gross profit growth, though detailed SG&A breakdown is unreported. Flags: Margin compression alongside a high tax rate, and dependence on non-operating income to bridge the earnings gap, are the main concerns for sustainability.

Growth Assessment

Top-line growth of 5.5% YoY to 13.23 suggests steady demand conditions. However, profit growth diverged negatively: operating income -10.4%, ordinary income -11.9%, and net income -26.6%, indicating that growth is not translating into earnings due to margin compression and tax effects. Gross profit of 4.90 (GPM 37.0%) supports that pricing/mix is not collapsing, but opex intensity squeezed operating margin to 13.9%. Non-operating income (0.66) partially offset operating weakness, lifting ordinary income to 2.23, but reliance on these items is not a robust growth driver. Outlook hinges on cost pass-through, product mix upgrades, and potential normalization of the effective tax rate. With a strong cash position, the company can invest in productivity and selective growth, but ROIC at 1.7% indicates returns on incremental capital need improvement to sustain profitable growth.

Financial Health

Liquidity: Very strong. Current ratio 424.7% and quick ratio 421.1% signal ample coverage of short-term obligations; cash and deposits of 42.95 comfortably exceed current liabilities of 14.60. Solvency: Conservative. D/E ratio 0.24x; interest-bearing debt comprised of short-term 1.28 and long-term 6.00 is modest relative to equity of 103.28. Interest coverage is robust at 160x. No warnings: Current ratio well above 1.0 and D/E far below 2.0. Maturity mismatch risk: Low—short-term loans (1.28) are small versus cash (42.95) and receivables (13.50). Off-balance sheet obligations: Not disclosed; no assessment possible from provided data.

Cash Flow Quality

OCF/Net Income is not calculable due to unreported cash flows; thus, earnings quality cannot be validated through cash conversion. Free cash flow and capex are unreported, limiting assessment of reinvestment demands and dividend coverage. Working capital signals appear stable on balance sheet snapshot (AR 13.50; inventories 0.52; AP 2.81), with no obvious signs of aggressive working capital release or buildup. Given significant cash on hand and low debt, near-term liquidity for operations is strong, but the sustainability of earnings absent OCF data remains unverified.

Dividend Sustainability

The calculated payout ratio of 115.1% is above the <60% benchmark and raises caution for sustainability if replicated for the full year. However, quarterly volatility and the absence of full-year guidance and cash flow data make this only a preliminary flag. With cash of 42.95 and minimal interest burden, short-term dividend capacity appears supported, but medium-term sustainability depends on improving operating cash flow and margins. FCF coverage cannot be assessed due to unreported OCF and capex. Policy outlook cannot be inferred from disclosures provided.

Risk Assessment

Business Risks:

• Margin compression risk from cost inflation and/or product mix shifts (operating margin down ~247 bps YoY).
• Demand elasticity and pricing power risk if pass-through is limited despite input cost changes.
• Execution risk in improving ROIC from 1.7% toward acceptable levels (>5%).
• Dependence on non-operating income to support ordinary income in a weak margin quarter.

Financial Risks:

• Elevated effective tax rate (38.4%) reduces net profitability and could persist.
• Dividend sustainability risk indicated by a calculated payout ratio of 115.1% absent FCF support.
• Limited visibility into cash flow generation due to unreported OCF/FCF.

Key Concerns:

• Earnings quality cannot be validated without OCF; potential divergence from NI is unknown.
• Low capital efficiency (ROIC 1.7%) highlights underutilization of the asset base.
• If non-operating gains normalize lower, ordinary income could track operating weakness more closely.

Investment Implications

Key Takeaways:

• Top-line growth (+5.5% YoY) did not translate into bottom-line growth due to margin compression and high taxes.
• Operating margin fell to 13.9% (approx. -247 bps YoY), and net margin to 8.5% (approx. -375 bps YoY).
• Balance sheet is a strong buffer: current ratio 425%, D/E 0.24x, cash 42.95.
• ROE is modest at 1.1% and ROIC at 1.7%, underscoring capital efficiency headwinds.
• Non-operating income provided meaningful support; sustainability of this support is uncertain.
• Dividend payout ratio appears high (115.1%), warranting caution pending cash flow disclosure.

Metrics to Watch:

• Operating margin trajectory and SG&A intensity versus revenue.
• Effective tax rate normalization.
• Disclosure of OCF and FCF; OCF/NI > 1.0 as a quality marker.
• ROIC improvement toward >5%.
• Non-operating income stability and composition.
• Order trends and pricing/mix to sustain revenue growth.

Relative Positioning: Financially conservative balance sheet with strong liquidity and low leverage positions the company defensively versus peers, but current profitability and capital efficiency are subpar this quarter, making margin recovery and ROIC improvement the key differentiators going forward.

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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