TOKAI CARBON CO.,LTD. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥237.34B
• Operating Income: ¥21.30B
• Net Income: ¥8.44B
• EPS: ¥76.61

Income Statement

Balance Sheet

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: Solid margin-led earnings beat despite top-line contraction, with notable improvement at the operating and net levels. Revenue declined 8.2% YoY to 2,373.36, but operating income rose 40.0% YoY to 213.01, lifting the operating margin to 9.0%. Gross profit reached 611.07, implying a gross margin of 25.7% against cost discipline and likely favorable input cost trends. SG&A was 458.96, but operating income exceeded gross profit minus SG&A by roughly 60.9, indicating material other operating income contributions within JGAAP classifications. Ordinary income was 210.61 (+30.8% YoY), while profit before tax came in at 161.51, suggesting around 49 in net extraordinary losses during the period. Net income surged 192.9% YoY to 163.54, and total comprehensive income was 86.20, highlighting large negative OCI that reduced equity accretion versus net profit. EPS (basic) was 76.61 yen, and BVPS was 1,507 yen, placing ROE at 5.1% per DuPont (net margin 6.9%, asset turnover 0.377x, leverage 1.96x). Operating margin expanded by an estimated 309 bps YoY (from ~5.9% to ~9.0%), and net margin expanded by about 473 bps (from ~2.2% to ~6.9%). Interest coverage is strong at 16.35x, aided by higher operating profit and modest interest expense (13.03). Liquidity remains healthy with a current ratio of 182% and quick ratio of 161%, and cash (771.64) comfortably exceeds short-term loans (81.39). The effective tax rate was elevated at 47.8%, which, together with extraordinary losses, partly tempered the flow-through from ordinary income to profit before tax; however, net profit still improved markedly. ROIC at 3.5% trails the 7–8% benchmark, signaling capital efficiency remains below target despite near-term profit recovery. Non-operating income of 34.10 (notably interest income 10.79 and dividends 6.41) provided a 20.9% non-operating income ratio, supportive but not the primary driver of earnings. Absence of cash flow disclosure limits assessment of earnings quality (OCF vs NI), though the large gap between net income and total comprehensive income warrants monitoring of OCI volatility (e.g., FX or securities valuation effects). Forward-looking, the margin recovery appears linked to improved pricing/mix and cost normalization, but sustaining ROE/ROIC improvement will require continued operating discipline, better asset turnover, and more normalized tax/extraordinary line items.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.1% = Net Profit Margin (6.9%) × Asset Turnover (0.377x) × Financial Leverage (1.96x). The largest YoY change appears in profitability: operating income rose 40% despite an 8.2% revenue decline, expanding the operating margin by ~309 bps and net margin by ~473 bps. Business drivers likely include cost of goods sold normalization (energy/raw material relief), improved pricing/mix in core carbon/graphite products, and meaningful other operating income. Asset turnover at 0.377x is modest and likely weighed by a sizable asset base (intangibles 593.60, goodwill 326.49) and working capital needs (AR 662.30, inventory 296.77). Leverage at 1.96x is moderate and not the main ROE lever. Sustainability: margin gains are partly cyclical—subject to steel production trends and raw material/energy prices—yet cost actions and mix upgrades could sustain a portion. Watch for reversion if electrode ASPs soften or input costs re-inflate. A potential concern is SG&A scale relative to sales and reliance on other operating income; while SG&A YoY detail is unavailable, revenue fell while OI rose, implying positive operating leverage this quarter; persistence will depend on volume/price and cost discipline.

Growth Assessment

Top-line declined 8.2% YoY, indicating demand softness or pricing normalization, but profit growth was driven by margin recovery: OI +40.0% and NI +192.9%. Operating margin improved to ~9.0%, and net margin to 6.9%, reflecting better cost pass-through and other operating contributions. Non-operating income (34.10) added support, while extraordinary losses (~49) and a high tax rate (47.8%) partially offset gains. With ROIC at 3.5%, growth quality is still below management value-creation thresholds; profit expansion ahead needs either further mix/pricing upgrades, capacity utilization gains, or asset base optimization. Outlook hinges on steel sector dynamics (electrode demand), needle coke and energy cost trajectories, and FX. Absent cash flow data, sustainability of earnings cannot be fully validated; monitoring OCF conversion and inventory cycles is essential.

Financial Health

Liquidity is solid: current ratio 182.4% and quick ratio 160.5% comfortably exceed benchmarks; no warning triggers. Cash and deposits (771.64) exceed short-term loans (81.39), mitigating near-term refinancing risk. Working capital is ample at 1,119.47. Solvency appears acceptable: reported D/E of 0.96x is within conservative range (<1.5x benchmark), and interest coverage is strong at 16.35x. Long-term loans (658.43) dominate debt, implying manageable near-term maturities; overall, maturity mismatch risk is low given strong current assets vs current liabilities (2,478.32 vs 1,358.85). No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF, FCF, and detailed working capital flows are unreported; OCF/NI and FCF coverage cannot be calculated. As such, earnings quality cannot be confirmed via cash conversion tests. The sizeable gap between net income (163.54) and total comprehensive income (86.20) indicates material negative OCI, which reduces retained earnings accretion and could reflect FX translation or valuation changes; this is not a cash metric but is relevant to equity quality. With capex and dividends unreported, FCF sufficiency for shareholder returns cannot be assessed. No signs of working capital manipulation can be inferred without cash flow statements; balance sheet shows moderate receivables (662.30) and inventories (296.77) versus payables (200.79), consistent with the business model.

Dividend Sustainability

Calculated payout ratio is 41.3%, within a generally sustainable range (<60%). However, FCF coverage is unassessable due to missing OCF and capex data. Liquidity is strong and leverage moderate, which supports dividend capacity near term. The large negative OCI this period dampens comprehensive income, but does not directly constrain cash dividends. Sustainability will depend on maintaining improved operating margins and achieving adequate cash conversion; watch for capex needs and potential normalization of the effective tax rate.

Risk Assessment

Business Risks:

• Demand cyclicality tied to global steel production affecting graphite electrode volumes and pricing.
• Raw material (needle coke) and energy cost volatility impacting gross margins.
• Pricing normalization risk after recent margin recovery.
• Potential impairment risk given sizable goodwill (326.49) and intangibles (593.60).
• Operational execution risk in maintaining SG&A discipline and sustaining other operating income.

Financial Risks:

• Elevated effective tax rate (47.8%) reducing net profitability; potential jurisdictional/tax-base volatility.
• Extraordinary loss impact (~49) creating earnings volatility below ordinary income.
• ROIC at 3.5% (<5% warning) indicating subpar capital efficiency versus benchmarks.
• OCI volatility materially reducing total comprehensive income versus NI.

Key Concerns:

• Capital efficiency below target despite profit rebound (ROE 5.1%, ROIC 3.5%).
• Limited visibility on cash conversion and FCF due to unreported cash flow statements.
• Sensitivity to commodity/energy prices and FX movements.

Investment Implications

Key Takeaways:

• Margin-led earnings improvement despite revenue decline; operating margin ~9.0% (+309 bps YoY).
• Net margin expansion to 6.9% drove ROE to 5.1%, but still below typical cost of equity.
• Liquidity robust; short-term obligations well covered by cash and current assets.
• Capital efficiency remains weak (ROIC 3.5%); further improvements in asset turnover or margin needed.
• Earnings quality assessment constrained by missing OCF/FCF; large negative OCI requires monitoring.

Metrics to Watch:

• Operating cash flow and free cash flow conversion versus net income.
• Graphite electrode ASPs/volume trends and needle coke/energy cost indices.
• Inventory levels and write-downs; receivables collection trends.
• Effective tax rate normalization and extraordinary items trajectory.
• ROIC progression and utilization of intangibles/goodwill-bearing assets.
• OCI drivers (FX, securities valuation) and impact on equity.

Relative Positioning: Within advanced materials/carbon products peers, the company shows improving operating profitability and solid liquidity, but lags on capital efficiency (ROIC) and exhibits higher earnings volatility below the ordinary line and in OCI; sustained margin discipline and better cash conversion are needed to close the gap.

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