TOYO TANSO (5310) FY2026 Q1 Earnings Report

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Executive Summary

2026 fiscal year Q1 results showed a significant decline in operating income, as the cost ratio increased by more than the decline in revenue, causing gross profit margin to deteriorate. Revenue was ¥105.8B (-7.8% YoY), operating income was ¥6.3B (-70.3%), ordinary income was ¥8.2B (-56.5%), and net income was ¥6.1B (-52.3%). Gross margin fell sharply to 26.2% from 38.2% in the same period of the previous year, and selling, general and administrative expense reductions (-5.2% YoY) were insufficient to offset the revenue decline and deterioration in gross margin. The decline in net income was smaller than that in operating income, supported by non-operating foreign exchange gains and extraordinary income.

Factors Affecting Performance

【Revenue】Revenue was ¥105.8B, a 7.8% YoY decline. By region, the core Japan segment was the largest contributor to the decline, with revenue of ¥55.1B (-12.2% YoY), while Asia also declined to ¥27.4B (-4.5%). Europe was nearly flat at ¥12.8B (-0.9%), and the United States secured revenue growth at ¥10.4B (+1.1%), but its scale was too small to offset the overall decline.

【Profit and Loss】Gross margin declined 1,205bp to 26.2% from 38.2% in the same period of the previous year. Operating income was ¥6.3B (-70.3%), and operating margin deteriorated to 6.0% from 18.6% in the previous year. Profit in the Japan segment decreased 51.2% to ¥7.8B from ¥16.0B in the previous year, while its profit margin declined to 14.2% from 25.5%. The United States and Europe remained low-profitability operations, with profit margins of 1.8% and 0.9%, respectively, while Asia swung to an operating loss of ¥0.1B. Intersegment adjustments also deteriorated from +¥3.7B in the previous year to -¥1.7B, weighing on consolidated profit. In non-operating items, foreign exchange gains of ¥0.6B and other items supported ordinary income of ¥8.2B. Extraordinary income was ¥0.6B, including a ¥0.4B gain on the sale of fixed assets; after deducting extraordinary losses of ¥0.3B, extraordinary profit totaled +¥0.3B. In conclusion, the company posted declines in both revenue and profit.

Segment Analysis

The core Japan segment recorded external revenue of ¥55.1B (-12.2% YoY) and segment profit of ¥7.8B (-51.2% YoY), with a profit margin of 14.2%, down from 25.5% in the previous year but still higher than those of other regions. The United States recorded revenue of ¥10.4B (+1.1% YoY) and profit of ¥0.2B (-75.6%), for a profit margin of 1.8%. Europe recorded revenue of ¥12.8B (-0.9% YoY) and profit of ¥0.1B (-72.7%), for a profit margin of 0.9%. Asia recorded revenue of ¥27.4B (-4.5% YoY) and swung to an operating loss of ¥0.1B from a profit of ¥0.4B in the previous year. While Japan’s earnings power accounts for the majority of company-wide profit, overseas operations remain low-profitability or loss-making, and the complementary effect of geographic diversification is limited.

Key Financial Metrics

【Profitability】The 6.0% operating margin declined significantly from 18.6% in the same period of the previous year, while the 5.8% net profit margin was also below the previous year’s 11.1%. Annualized ROE was 2.5%, and the equity ratio was 80.5%. 【Cash Quality】Trade receivables of ¥147.8B and inventories of ¥157.3B accounted for 12.4% and 13.2% of total assets, respectively, indicating a significant amount of funds tied up in working capital. 【Investment Efficiency】Property, plant and equipment totaled ¥494.2B, accounting for 41.5% of total assets. Under this capital-intensive business structure, the decline in profit margins directly affects capital efficiency. 【Financial Soundness】Current assets of ¥626.8B versus current liabilities of ¥178.8B indicate ample liquidity. Cash and deposits were ¥161.6B, while interest-bearing debt, including long-term borrowings of ¥34.9B, remained limited.

Cash Flow Analysis

Cash flow statement data have not been disclosed, but fund movements can be assessed from balance sheet trends. Cash and deposits increased to ¥161.6B from ¥152.6B in the previous year, while short-term borrowings increased 69.4% to ¥14.1B from ¥8.3B, suggesting rising working capital requirements. Trade receivables of ¥147.8B and inventories of ¥157.3B are large relative to revenue, indicating a structure in which funds are likely to remain tied up in receivables and inventories. Retained earnings declined to ¥693.6B from ¥717.9B in the previous year, suggesting that outflows to external parties, such as dividend payments, may have exceeded net income for the period. Overall, the company has ample liquidity on hand but a funding structure accompanied by pressure from increasing working capital requirements.

Quality of Earnings

Non-operating income was ¥2.2B, equivalent to only 2.0% of revenue, indicating no excessive dependence on ordinary income. However, foreign exchange gains of ¥0.6B were equivalent to 9.5% of operating income of ¥6.3B, representing a non-negligible factor affecting ordinary income. Interest income of ¥0.1B and equity-method gains of ¥0.9B also supported ordinary income of ¥8.2B. Net extraordinary profit, calculated as extraordinary income of ¥0.6B, including a ¥0.4B gain on the sale of fixed assets, less extraordinary losses of ¥0.3B, including a loss on the disposal of fixed assets, was +¥0.3B. This amounted to approximately 4.9% of net income of ¥6.1B and was not large enough to materially distort net income. The divergence between ordinary income and net income was primarily attributable to income taxes of ¥2.4B, resulting in an effective tax rate of approximately 28.2%, broadly within the normal range. Overall, the decline in the profitability of the core business was the primary cause of the deterioration in performance, while non-operating and extraordinary items provided only limited support.

Earnings Forecast and Guidance

The full-year company forecast remains unchanged at revenue of ¥490.0B (+6.1% YoY), operating income of ¥62.0B (-8.3%), and ordinary income of ¥60.0B (-25.8%). Q1 progress rates were 21.6% for revenue, 10.2% for operating income, and 13.7% for ordinary income. All were below the standard 25% progress rate, with the delays particularly significant for operating income and net income. Achieving the full-year plan requires securing average operating income of approximately ¥18.6B over the remaining three quarters, premised on a substantial improvement in profitability from the Q1 result of ¥6.3B.

Shareholder Returns

The full-year dividend forecast is ¥145 per share, and full-year forecast EPS is ¥238.41, implying a forecast payout ratio of approximately 60.8%. Net assets of ¥958.6B and cash and deposits of ¥161.6B provide a financial foundation supporting dividend stability. However, net income attributable to owners of the parent in Q1 was only 12.2% of the full-year plan, making a recovery in core business profitability a prerequisite for achieving the dividend plan.

Risk Factors

1. Declining profitability of the core business: Revenue in the Japan segment was ¥55.1B (-12.2% YoY), while segment profit declined 51.2% to ¥7.8B from ¥16.0B in the previous year. Delays in the recovery of demand and profitability in the core business, which generates the majority of company-wide profit, will determine overall performance.

2. Deteriorating profitability in the Asia business: The Asia segment recorded revenue of ¥27.4B (-4.5% YoY) and swung from a profit of ¥0.4B in the previous year to a loss of ¥0.1B. Sales to Asia, including China, account for more than 30% of total company revenue, and weakening regional demand could affect consolidated performance.

3. Funds tied up in working capital: Trade receivables of ¥147.8B and inventories of ¥157.3B represent high proportions of total assets, while short-term borrowings increased 69.4% YoY to ¥14.1B. Although cash and deposits of ¥161.6B secure near-term liquidity, working capital trends require ongoing monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

Both the operating margin and net profit margin are slightly below the industry median, placing profitability in the middle to slightly lower tier within the industry.

Growth and Capital Efficiency

The revenue growth rate was 13.4pt below the industry median, placing the company in the lower tier of the industry in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The primary cause of the profit decline was deterioration in gross margin rather than the decline in revenue itself, with operating margin falling to 6.0% from 18.6% in the previous year. Trends in the cost ratio will be key to the recovery of performance going forward.

2. While profitability in the core Japan segment declined, overseas operations did not provide a structure capable of offsetting the domestic decline, as illustrated by Asia swinging to an operating loss. This is an important structural observation.

3. An equity ratio of 80.5% and a balance sheet in which current assets substantially exceed current liabilities demonstrate resilience to performance volatility. However, Q1 profit progress against the full-year plan was only in the 10–14% range, making improved profitability from Q2 onward a prerequisite for achieving the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,977–¥4,201 at ±1% for the cost of equity, and ¥4,071–¥4,096 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference relative to 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 value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices)

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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 a professional as necessary.

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