Tenryu Saw Mfg.Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.75B
• Operating Income: ¥927M
• Net Income: ¥842M
• Earnings per Unit (EPU): ¥93.36

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: FY2026 Q2 was a solid quarter on headline profit with a notable lift in ordinary and net income, albeit with modest operating momentum and low capital efficiency. Revenue rose 2.8% YoY to 67.52, while operating income increased 1.2% YoY to 9.27, implying slight operating margin pressure. Ordinary income surged 27.6% YoY to 12.39, buoyed by higher non-operating gains (dividend and interest income totaling 3.14). Net income climbed 23.8% YoY to 8.41, benefiting from the stronger ordinary line and a normal tax rate of 31.5%. Gross profit was 23.44, yielding a gross margin of 34.7% in the period. Operating margin stood at 13.7%; based on last year’s implied revenue/operating profit, this represents about 22 bps of margin compression. By contrast, net margin expanded materially from roughly 10.3% to 12.5%, a gain of about 211 bps YoY, reflecting the step-up in financial income. Ordinary income margin improved from about 14.8% to 18.4%, an expansion of roughly 357 bps YoY. The contribution of non-operating income is meaningful: 3.14 equals about 34% of operating profit and ~4.7% of revenue, underlining reliance on financial assets. Total comprehensive income was 2.09, far below net income of 8.41, suggesting sizable negative OCI—likely valuation losses on investment securities—which tempers the quality of reported bottom line. The balance sheet is extremely conservative with equity of 359.42 (equity ratio ~91%) and cash/deposits of 101.48, and very low liabilities (33.81). Liquidity is exceptional (current ratio ~14.9x; quick ratio ~12.8x), and leverage is minimal (D/E 0.09x), but capital efficiency remains weak. ROE was 2.3% and ROIC 2.5%—both low, driven primarily by very low asset turnover (0.172). With OCF unreported, earnings-to-cash conversion cannot be assessed, a key limitation. The calculated payout ratio is 108.7%, implying potential over-distribution relative to earnings if accurate, though liquidity provides near-term cushion. Looking forward, earnings sensitivity to financial income (dividends/interest) and valuation swings in investment securities is high; sustaining profit growth will likely require operating growth and improved asset turnover rather than financial gains alone.

Profitability Analysis

ROE (2.3%) decomposes as: Net Profit Margin 12.5% × Asset Turnover 0.172 × Financial Leverage 1.09x. The weakest link is asset turnover at 0.172, reflecting a large asset base (notably cash and investment securities of ~197.5 combined) relative to revenue. Net margin improved materially YoY (roughly +211 bps) on stronger non-operating income (dividend income 1.70 and interest income 0.61). Operating margin at 13.7% saw slight compression (~22 bps YoY), as operating income rose slower than revenue. The improvement in ordinary income margin (+~357 bps YoY) is largely financial-income driven rather than core operating leverage. Sustainability: the margin uplift from dividends/interest is less controllable and may fluctuate; absent operating efficiency gains, ROE likely remains low. Watch for SG&A versus revenue: SG&A was 14.16; without a YoY comparator we cannot confirm cost discipline, but slower operating profit growth than revenue hints at mild deleveraging. Capital efficiency is the structural constraint—ROIC at 2.5% is below the 5% warning threshold—so portfolio productivity and working capital turns need attention.

Growth Assessment

Top-line growth was modest at +2.8% YoY (67.52). Operating profit growth (+1.2%) lagged revenue, indicating limited operating leverage in the period. Ordinary income growth (+27.6%) outpaced operations due to higher non-operating income (dividends and interest totaled 3.14). Net income grew +23.8% YoY to 8.41 with a normal tax rate. Profit quality is mixed: core margin slightly compressed, while the bottom line leaned on financial income. Total comprehensive income of 2.09 vs net income of 8.41 signals negative OCI, likely from investment securities valuation declines, which could persist if markets remain soft. Revenue sustainability appears steady but not high-growth; cyclical exposure likely tied to industrial cutting tools/saw blades end-markets and capex cycles. The non-operating income base (dividends 1.70, interest 0.61) is partly recurring but market-dependent; not a reliable growth engine. Outlook hinges on improving core operations (pricing/mix, cost control) and enhancing asset productivity. Absent acceleration in operating earnings, sustaining double-digit profit growth will be difficult.

Financial Health

Liquidity is extremely strong: current ratio ~1489.9% and quick ratio ~1277.2% (no warning; >>1.5x/1.0x benchmarks). Solvency is robust with D/E 0.09x and an equity ratio of ~91.4% (equity 359.42 / assets 393.23). Cash and deposits are 101.48 against current liabilities of 13.27, indicating no maturity mismatch risk; payables are modest at 2.13. Interest expense is effectively zero (0.00), and reported interest coverage of 5830x is inflated due to minimal interest burden but still indicates no debt service stress. Noncurrent liabilities (20.53) are manageable relative to asset base. Off-balance sheet obligations are not disclosed; none can be assessed from the provided data. No warnings on Current Ratio <1.0 or D/E >2.0.

Cash Flow Quality

Operating cash flow is unreported, so OCF/Net Income cannot be calculated; we cannot validate earnings-to-cash conversion. Free cash flow and capex are unreported; dividend and buyback cash outflows are also unreported. Given the large cash balance (101.48) and low liabilities, near-term liquidity for operations and dividends is ample. However, absent OCF data, sustainability of distributions or reinvestment cannot be confirmed. Working capital composition suggests low payables and moderate inventories (28.23), but turnover metrics are not available; no explicit signs of working capital manipulation can be identified from the limited data.

Dividend Sustainability

The calculated payout ratio is 108.7%, implying distributions exceed earnings if the figure is accurate; however, DPS is unreported, so the underlying basis is unclear. With OCF and FCF unreported, coverage cannot be validated. The balance sheet can fund dividends near term (cash 101.48 and minimal debt), but paying above 100% of earnings is not sustainable over the medium term unless operating cash flow is structurally higher than accounting profit or distributions are adjusted. Given ROIC of 2.5% and low asset turnover, reinvestment returns appear modest; capital allocation should balance dividends with initiatives to lift core returns.

Risk Assessment

Business Risks:

• End-market cyclicality in industrial cutting tools/saw blades affecting volume and pricing.
• Raw material price volatility (e.g., specialty steels) potentially pressuring gross margin.
• Export/FX exposure if international sales are material (not disclosed).
• Customer capex cycles in manufacturing/woodworking impacting demand.

Financial Risks:

• High reliance on financial income (dividends 1.70, interest 0.61) to drive ordinary profit growth.
• Valuation risk on investment securities (96.06) evidenced by large negative OCI (total comprehensive income 2.09 vs net income 8.41).
• Low capital efficiency (ROIC 2.5%, asset turnover 0.172) limiting earnings growth on a large asset base.
• Potential dividend over-distribution risk (payout 108.7% if accurate) without confirmed OCF support.

Key Concerns:

• Sustainability of profit growth given modest operating momentum and heavy non-operating contribution.
• Volatility of total comprehensive income due to market movements in securities portfolio.
• Inability to assess cash generation due to unreported cash flow statement.

Investment Implications

Key Takeaways:

• Headline profitability improved at the ordinary/net level, driven by financial income rather than core operations.
• Operating margin saw slight compression despite revenue growth, suggesting limited operating leverage this quarter.
• Balance sheet strength is a clear positive (equity ratio ~91%, substantial cash).
• Capital efficiency is weak (ROE 2.3%, ROIC 2.5%) due to low asset turnover.
• Comprehensive income volatility highlights equity securities exposure and marks-to-market risk.
• Dividend affordability cannot be verified; calculated payout above 100% suggests caution unless supported by OCF.

Metrics to Watch:

• Operating cash flow and free cash flow once disclosed.
• Operating margin trajectory versus SG&A growth.
• Inventory and receivable turnover to improve asset efficiency.
• Dividend and interest income trends; composition of investment securities.
• ROIC and asset turnover progress.
• OCI movements linked to investment securities valuations.

Relative Positioning: Versus domestic industrial tool peers, Tenryu Seiko exhibits a very conservative balance sheet and superior liquidity but lags on capital efficiency, with current period profit momentum supported more by financial income than operating strength.

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