TSURUYA (5386) FY2026 Q3 Earnings Report

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Executive Summary

Although cumulative results for Q3 showed declines in revenue and operating income, net income increased due to a gain on the sale of fixed assets; however, attention should be paid to the quality of this increase. Revenue was ¥4.94B (¥5.29B in the same period last year, YoY -6.5%), Operating Income was ¥0.16B (¥0.24B in the same period last year, YoY -34.7%), and Ordinary Income was ¥0.28B (¥0.48B in the same period last year, YoY -41.2%). Net Income increased to ¥0.36B (¥0.32B in the same period last year, YoY +11.0%), but the gain on the sale of fixed assets of ¥0.23B was the primary contributing factor, producing a result that contrasts with the deterioration in core business profitability.

Factors Affecting Performance

【Revenue】Revenue was ¥4.94B, down 6.5% year on year. The gross profit margin was 26.5%, down approximately 1.4pt from 27.9% in the same period last year, indicating a relative increase in the cost burden.

【Profit and Loss】Selling, general and administrative expenses were ¥1.15B, down 6.6% year on year, representing a reduction roughly in line with the decline in revenue; however, this was insufficient to offset the deterioration in gross profit, and the operating margin narrowed to 3.2% (4.6% in the same period last year). Ordinary Income remained at ¥0.28B even after factoring in non-operating income of ¥0.18B (including rental income of ¥0.08B and subsidy income of ¥0.04B), representing a year-on-year decline of 41.2%. Net Income increased to ¥0.36B (YoY +11.0%), including a gain on the sale of fixed assets of ¥0.23B, but excluding this temporary factor, core earnings power declined from the previous year. Overall, the company recorded declines in both revenue and profit, while the increase in net income is viewed as an apparent improvement resulting from a temporary factor.

Key Financial Metrics

【Profitability】The operating margin was 3.2%, down from 4.6% in the same period last year, while the net profit margin improved to 7.3% (6.1% in the previous year); however, excluding the ¥0.23B gain on the sale of fixed assets (equivalent to approximately 65% of Net Income), this cannot be considered a substantive improvement. Annualized ROE was 3.9% and annualized ROIC was 1.4%, both remaining at low levels relative to the cost of capital.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥0.22B, down 58.1% from ¥0.53B in the previous year, and the OCF/Net Income ratio was 0.61x, indicating weak cash conversion. Against the backdrop of accounts receivable of ¥1.20B and finished goods inventories of ¥0.91B, annualized DSO was 67 days, annualized DIO was 68 days, and annualized CCC was 132 days, indicating a high degree of working capital tied up.【Investment Efficiency】Total asset turnover was low at approximately 0.43x, while the asset efficiency of tangible fixed assets of ¥9.32B, including land of ¥8.13B, constrained capital efficiency.【Financial Soundness】The Equity Ratio was 79.0%, the current ratio was 188.3%, and the D/E ratio was 0.27x, maintaining a conservative financial foundation. Interest-bearing debt of ¥0.90B consisted entirely of short-term borrowings, but was covered 2.76x by cash and deposits of ¥2.48B.

Cash Flow Analysis

Operating Cash Flow was ¥0.22B, down 58.1% from ¥0.53B in the same period last year. The OCF ratio to Net Income of ¥0.36B remained at 0.61x, indicating weak cash conversion. Investing Cash Flow was an inflow of ¥0.62B, primarily due to proceeds of ¥1.32B from the sale of fixed assets, although this was offset by capital expenditures of ¥0.30B and a net increase in time deposits of ¥0.41B. Financing Cash Flow was an outflow of ¥0.62B due to the repayment of ¥0.40B in short-term borrowings, share repurchases of ¥0.07B, and dividend payments, among other items. Free cash flow was ¥0.84B, but this was heavily dependent on temporary investment recovery from the sale of fixed assets; substantive cash surplus after deducting capital expenditures from OCF remained at approximately ¥0.19B. Cash and deposits increased 33.5% year on year to ¥2.48B, but restoring sustainable operating cash generation remains a challenge going forward.

Quality of Earnings

The ¥0.36B increase in Net Income for the current period was heavily dependent on the temporary factor of a ¥0.23B gain on the sale of fixed assets. Excluding this temporary gain, core earnings power is judged to have declined from the previous year. Non-operating income of ¥0.18B included rental income of ¥0.08B, subsidy income of ¥0.04B, and dividend income of ¥0.02B, resulting in a composition with a relatively high dependence on income outside the core business. Although the accrual ratio was low and accounting accruals themselves were not excessive, the OCF/Net Income ratio was low at 0.61x, indicating that the speed of cash conversion from reported earnings was gradual. Declining turnover efficiency for accounts receivable and inventories is tying up working capital, and the divergence from cash flow warrants attention from a quality-of-earnings perspective.

Earnings Forecast and Guidance

Against the full-year plan, the Revenue progress rate was 73.8% (plan: ¥6.70B), broadly in line with the standard 75% level, while the Operating Income progress rate was only 58.9% (plan: ¥0.27B), below standard progress. Operating Income of ¥0.11B is required in Q4, meaning that approximately 41% of cumulative Operating Income of ¥0.16B must be recorded in a single quarter. The company expects full-year Operating Income to increase 45.4% year on year, premised on improvements in the cost ratio and a recovery in sales volume. The Ordinary Income progress rate was 74.2%, roughly in line with the standard level, while the Net Income progress rate was 83.7%, above the standard level. This was driven by the cumulative gain on the sale of fixed assets of ¥0.23B, making it difficult to evaluate the result solely on the basis of improvements in the core business.

Shareholder Returns

The Q2 dividend was ¥4.00 per share, and the full-year forecast dividend is ¥10.50. The Payout Ratio (dividends only) against current-period Net Income of ¥0.36B is approximately 18.4%, based on the company’s forecast EPS of ¥57.16 and the full-year forecast dividend. Share repurchases of ¥0.07B were conducted, and the Total Return Ratio, combining dividends and share repurchases, was approximately 28.6% as a reference figure. While the low debt ratio and cash and deposits of ¥2.48B support the continuation of dividends, the OCF/Net Income ratio remaining at 0.61x means that the capacity for dividend increases will depend on the extent of improvement in core business profits and working capital going forward.

Risk Factors

1. Weakness in OCF: The OCF/Net Income ratio was 0.61x, and OCF declined 58.1% year on year. If improvements in accounts receivable collection and inventory turnover do not progress, there is a risk that insufficient cash generation relative to reported earnings will persist.

2. Demand and Cost Volatility Risk: Revenue declined 6.5% year on year, and the gross profit margin also fell by 1.4pt. If demand for roofing materials remains weak and increases in raw material and fuel costs cannot be passed through to prices, the operating margin of 3.2% may come under further pressure.

3. Dependence on Temporary Gains: Approximately 65% of Net Income of ¥0.36B was attributable to the ¥0.23B gain on the sale of fixed assets, and recurring earnings power excluding this temporary factor declined from the previous year.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The operating margin was substantially below the industry median, while the net profit margin exceeded the median due to the impact of the temporary gain on the sale of fixed assets.

Growth and Capital Efficiency

The Revenue growth rate was substantially below the industry median, positioning the company relatively weakly within the industry in terms of top-line performance.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The core business recorded declines in revenue and profit, and the operating margin fell to 3.2%. The primary factors were the decline in the gross profit margin and the increased cost burden, with a significant gap also remaining versus the industry median of 8.6%.

2. Net Income increased 11.0% year on year, but the increase was primarily attributable to the temporary boost from the ¥0.23B gain on the sale of fixed assets. From the perspective of recurring earnings power, attention should be paid to the continued deterioration in the profitability of the core business.

3. Figures such as the OCF/Net Income ratio of 0.61x and annualized CCC of 132 days indicate challenges in cash conversion and working capital efficiency. Achieving the full-year Operating Income plan will require a clear reversal in core business profitability in Q4.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,258–¥1,331 at a cost of equity of ±1%, and ¥1,282–¥1,301 at ω of ±0.1.

Notes:

• Normalized EPS calculated from Ordinary Income and other figures is used to exclude the impact of temporary gains and losses (the company’s forecast EPS is ¥57.2).
• 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 time discrepancy relative to the full-year forecast).
• As 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 solely from 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 discretion and responsibility, after consulting a professional as necessary.

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