TOYO TANSO CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

Although the decline in revenue was limited, the key point in these results is that Operating Income fell sharply, beginning with a deterioration in the gross profit margin. Revenue was ¥223.7B (-2.7% YoY), Operating Income was ¥17.8B (-53.7%), Ordinary Income was ¥22.3B (-41.2%), and Net Income was ¥16.8B (-37.4%). Due to higher costs and the rigidity of fixed expenses, the gross profit margin declined to 27.3% (equivalent to 33.6% in the previous year), while non-operating income, including foreign exchange gains and equity-method investment gains, partially mitigated the decline at the operating level.

Factors Affecting Performance

【Revenue】Revenue of ¥223.7B represented a 2.7% YoY decline. By segment, Japan was the largest at ¥150.1B (67.1% of total, YoY -7.0%), followed by Asia at ¥59.9B (-6.6%), Europe at ¥25.9B (-1.6%), and the United States at ¥21.3B (-1.1%). Although the decline rates in the three overseas regions other than Japan were relatively modest, all regions experienced revenue declines, indicating headwinds in terms of both volume and pricing across geographies.

【Profit and Loss】Operating Income declined sharply to ¥17.8B (-53.7%), and the operating margin narrowed to 7.9% (equivalent to 16.7% in the previous year). Cost of sales increased YoY to ¥162.6B despite the decline in revenue, causing the gross profit margin to deteriorate to 27.3%. SG&A expenses of ¥43.4B were nearly flat, resulting in lower fixed-cost absorption. Ordinary Income of ¥22.3B (-41.2%) reflects the fact that ¥5.0B in non-operating income, including a foreign exchange gain of ¥1.5B and equity-method investment gains of ¥1.8B, partially offset the decline in Operating Income. Net Income of ¥16.8B (-37.4%) was only minimally affected by extraordinary gains and losses (gain of ¥0.6B and loss of ¥0.4B), and was equivalent to Profit Before Tax of ¥22.5B less corporate income taxes and other taxes of ¥5.7B. In conclusion, the company experienced declines in both revenue and earnings.

Segment Analysis

Segment profit was led by Japan at ¥2.02B (13.5% profit margin, YoY -27.8%), while the other regions remained at low levels: Europe at ¥0.05B (1.8% profit margin), Asia at ¥0.09B (1.5%), and the United States at ¥0.02B (1.1%). While Japan was the only region to maintain a double-digit profit margin, all three overseas regions declined to the 1% range, further increasing the company’s domestic dependence in terms of profitability. If profitability improvements in the overseas businesses do not progress, concentration risk in the regional portfolio will become a structural issue.

Key Financial Indicators

【Profitability】The Operating Income margin of 7.9% and Net Income margin of 7.5% both declined significantly from the previous year, primarily due to the deterioration in the gross profit margin to 27.3%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥79.7B, approximately 4.7 times Net Income of ¥16.8B, indicating strong cash generation relative to earnings and suggesting good earnings quality. Free Cash Flow was ¥31.0B, with capital expenditures of ¥45.2B adequately covered by OCF. 【Investment Efficiency】ROE was low at 1.7%, affected by the decline in Net Income and sluggish asset turnover. 【Financial Soundness】With an Equity Ratio of 81.6% and cash and deposits of ¥156.6B, the company’s liquidity and capital structure are highly stable, and short-term funding risk is limited.

Cash Flow Analysis

OCF was ¥79.7B, a significant increase from ¥28.1B in the previous year, driven by a ¥26.6B increase in advances received and a ¥7.3B decrease in accounts receivable. Investing Cash Flow was -¥48.7B, including capital expenditures of ¥45.2B, approximately 1.9 times depreciation and amortization of ¥24.1B, indicating active investment in capacity expansion and replacement. Financing Cash Flow was -¥34.6B, primarily due to dividend payments of ¥30.4B. As a result, Free Cash Flow was ¥31.0B, securing cash generation above the level required for investment and dividends. Financial flexibility has therefore been maintained despite the decline in earnings.

Earnings Quality

Ordinary Income of ¥22.3B was boosted by ¥5.0B in non-operating income, including a foreign exchange gain of ¥1.5B, equity-method investment gains of ¥1.8B, and dividend income of ¥0.4B, in addition to Operating Income of ¥17.8B. Non-operating expenses were limited, with interest expenses of ¥0.5B. Extraordinary gains and losses consisted of a gain of ¥0.6B and a loss of ¥0.4B, resulting in a net amount of less than ¥0.2B; thus, the impact of temporary factors was limited. Comprehensive Income of ¥31.2B exceeded Net Income of ¥16.8B, with the difference primarily attributable to ¥12.2B in foreign currency translation adjustments, as the valuation of overseas assets increased net assets amid the yen’s depreciation. From an accrual perspective, earnings are well supported by cash, as OCF significantly exceeded Net Income. However, attention should be paid to the fact that non-operating income is compensating for the decline in earnings at the operating level.

Earnings Forecast and Guidance

The full-year forecast is Revenue of ¥490.0B (YoY +6.1%), Operating Income of ¥62.0B (-8.3%), and Ordinary Income of ¥60.0B (-25.8%). Progress against the first-half results is 45.7% for Revenue, 28.7% for Operating Income, and 37.2% for Ordinary Income. Progress for Operating Income and Ordinary Income is below the simple half-year benchmark of 50%, indicating that the forecast assumes a substantial earnings recovery in the second half. Both the earnings forecast and dividend forecast remain unchanged, and management is maintaining its recovery scenario for the second half at this time.

Shareholder Returns

There was no interim dividend, while the forecast year-end dividend is ¥145 (the forecast annual dividend is also ¥145), representing the same dividend structure as the previous year, when the interim dividend was ¥0. Based on the full-year forecast EPS of ¥238.41, the Payout Ratio is approximately 60.8%. First-half Free Cash Flow of ¥31.0B is at approximately the same level as the forecast total annual dividend (approximately ¥30.4B, calculated as ¥145 × the average number of shares outstanding during the period of 20,972 thousand shares), indicating that dividends are currently supported by cash flow.

Risk Factors

1. Concentration risk from domestic dependence: The Japan segment accounts for 67.1% of revenue and the majority of segment profit, making the company highly sensitive to domestic demand trends. Profit margins in all three overseas regions have declined to the 1% range, leaving challenges from the perspective of geographic diversification.

2. Risk of continued gross margin deterioration: The gross profit margin has declined to 27.3%, while SG&A expenses at 19.4% have remained nearly flat. If cost and product-mix improvements do not progress, the Operating Income margin may come under further pressure.

3. Risk of delayed full-year progress: Progress rates for Operating Income and Ordinary Income are 28.7% and 37.2%, respectively, below the 50% benchmark for a half-year period. If earnings improvement is not realized in the second half, the gap from the full-year forecast may widen.

Industry Benchmark (For Reference; Based on Our Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Operating Income margin is below the industry median, while the Net Income margin exceeds the median; the contribution of non-operating income supports the company’s relative position in terms of Net Income.

Growth and Capital Efficiency

The Revenue growth rate is significantly below the industry median, indicating relative underperformance compared with other companies in the industry that are experiencing revenue growth.

※Source: Based on our analysis

Key Takeaways from the Results

1. Although the Operating Income margin narrowed significantly from the previous year, OCF remained high at approximately 4.7 times Net Income, confirming that cash-generating capacity has not deteriorated even during a period of declining earnings.

2. Capital expenditures reached approximately 1.9 times depreciation and amortization, indicating continued investment in capacity expansion and replacement. How the increase in investment scale will be reflected in production and profitability from the second half onward will be an area to monitor.

3. First-half progress toward the full-year Operating Income forecast was low at 28.7%, indicating a plan weighted toward the second half. Together with the high level of domestic dependence, this creates a structure in which the pace of earnings recovery in the second half will determine full-year results.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥4,037–¥4,265 at ±1% for the cost of equity, and ¥4,132–¥4,159 at ±0.1 for ω.

Notes:

• Because 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 from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee a future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by our company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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