Tenryu Saw Mfg. (5945) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period, revenue increased, but core business profit remained flat, resulting in a structure in which growth in final profit depended on non-operating income. Revenue was ¥100.4B (up +2.6% YoY), while operating income was ¥13.6B (unchanged at ±0.0%). The gross profit margin declined slightly to 34.7% (34.9% in the previous year), and the operating margin fell to 13.5% (13.9%). Meanwhile, as a result of increased non-operating income, including dividends received and foreign exchange gains, ordinary income rose to ¥18.3B (up +9.2%), and net income increased to ¥12.3B (up +6.5%).

Factors Affecting Performance

【Revenue】Revenue was ¥100.4B, representing a +2.6% increase YoY. By region, Japan at ¥64.0B (+5.4%) and China at ¥12.5B (+12.2%) drove growth, while Asia at ¥6.9B (-6.2%), the Americas at ¥11.8B (-9.8%), and Europe at ¥5.2B (-5.6%) reported declines, resulting in divergent regional performance.

【Profit and Loss】Gross profit was ¥34.8B (gross profit margin of 34.7%, compared with 34.9% in the previous year), representing a slight decline. SG&A expenses were ¥21.2B, increasing +2.9%, which exceeded the revenue growth rate (+2.6%). As a result, operating income was ¥13.6B, nearly unchanged from the same period of the previous year, and the operating margin declined to 13.5% from 13.9%. Meanwhile, non-operating income expanded to ¥4.8B (¥3.2B in the previous year), with dividends received of ¥2.3B, foreign exchange gains of ¥1.1B, and interest received of ¥0.9B contributing to ordinary income of ¥18.3B (+9.2%) and net income of ¥12.3B (+6.5%). Extraordinary losses of ¥0.3B (including losses on disposal of fixed assets) had a limited impact on net income. In summary, the core business showed a tendency toward higher revenue but lower profit, as reflected in the decline in the operating margin; however, the expansion of non-operating income resulted in higher revenue and profit at the final-profit level.

Segment Analysis

Of the total segment profit of ¥13.2B, China accounted for more than half at ¥7.4B, representing a substantial +68.9% increase YoY. External revenue in China was ¥12.5B, up +12.2%, making China the leading contributor in terms of both profitability and growth. In contrast, segment profit in Japan was ¥4.5B, down -19.8%; Asia was ¥0.4B, down -79.6%; and the Americas was ¥0.7B, down -59.1%, all representing substantial declines. Europe reported a ¥0.2B profit, up +31.2%, although its scale remains small. The concentration of profit in China and deteriorating profitability in Japan, Asia, and the Americas are key features of the regional portfolio.

Key Financial Indicators

【Profitability】The operating margin was 13.5% (13.9% in the previous year), and the net profit margin was 12.3% (11.8%), while the gross profit margin declined slightly to 34.7%. 【Cash Quality】As operating cash flow data has not been disclosed, an examination of the difference of ¥5.99B between ordinary income and net income (corporate income taxes and other taxes of ¥5.7B and extraordinary losses of ¥0.3B) indicates that the impact of one-time factors was limited. 【Investment Efficiency】Annualized ROE of 4.4% and annualized ROIC of 4.6% were both below general benchmarks of 8% and 5%, respectively. The asset composition, which includes substantial cash and deposits of ¥101.9B and investment securities of ¥107.6B against total assets of ¥407.8B, is suppressing asset turnover. 【Financial Soundness】With an equity ratio of 91.3%, total liabilities of ¥35.5B, and net assets of ¥372.3B, the Company has an extremely conservative financial structure, with a debt-to-equity ratio of approximately 0.1x.

Cash Flow Analysis

As this report does not include figures from the statement of cash flows, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥101.9B, an increase of ¥4.4B from ¥97.5B in the same period of the previous year, while investment securities were ¥107.6B, an increase of ¥15.4B from ¥92.3B. The combined ratio of cash and investment securities to total assets reached approximately 51.4%, indicating a substantial allocation of funds to financial assets rather than business investment. Property, plant and equipment was ¥90.3B, down ¥4.6B from ¥94.9B in the same period of the previous year, suggesting that the scale of capital investment was limited. Overall, funds have accumulated as retained earnings, contributing to greater stability in the financial base.

Quality of Earnings

Ordinary income of ¥18.3B exceeded operating income of ¥13.6B by ¥4.7B, with the difference primarily attributable to non-operating income of ¥4.8B (dividends received of ¥2.3B, foreign exchange gains of ¥1.1B, and interest received of ¥0.9B). Non-operating income was equivalent to 4.7% of revenue and made a significant contribution to profit growth from the ordinary-income level onward; however, these items are subject to market conditions and foreign exchange rates. The difference between ordinary income and net income was ¥6.0B, primarily arising from corporate income taxes and other taxes of ¥5.7B and extraordinary losses of ¥0.3B (including losses on disposal of fixed assets). The extraordinary items themselves were small relative to net income of ¥12.3B and did not materially distort current-period profit. Overall, the increase in final profit depended not on expansion of core business earnings, but on the contribution from non-operating income and expenses, centered on financial income and foreign exchange gains. Accordingly, the quality of earnings includes an area requiring confirmation of sustainability.

Earnings Forecast and Guidance

Progress against the full-year company forecasts (revenue of ¥138.0B, operating income of ¥18.3B, ordinary income of ¥20.3B, and net income of ¥14.2B) was 72.7% for revenue, 74.3% for operating income, 90.2% for ordinary income, and 86.8% for net income. While revenue and operating income were slightly below the standard progress rate of 75%, ordinary income and net income were substantially above it, with the increase in non-operating income serving as a driver of progress. To achieve the full-year forecasts, revenue of ¥37.6B and operating income of ¥4.7B will be required in Q4, making the accumulation of core business earnings the key focus. The Company’s full-year plan itself assumes operating income of +0.2% and ordinary income of -3.3%, representing a conservative premise that does not incorporate margin improvement despite revenue growth.

Shareholder Returns

The Q2 dividend was ¥0, while the full-year company dividend forecast is ¥79 per share. The forecast payout ratio against forecast full-year EPS of ¥156.31 is approximately 50.5%, within the generally recognized sustainability benchmark of 60% or less. The strong financial base, including cash and deposits of ¥101.9B and an equity ratio of 91.3%, supports the Company’s dividend-paying capacity. Treasury shares increased from ¥23.0B in the same period of the previous year to ¥26.0B, suggesting progress in share repurchases; however, this report does not include disclosures necessary to calculate the scale of repurchases during the current period or the total return ratio.

Risk Factors

1. Working Capital and Inventory Risk: Inventories were ¥29.7B, an increase of +3.1% YoY. Based on inventory turnover days and the level of the CCC, fluctuations in demand could result in risks of inventory write-downs and funds becoming tied up.

2. Regional Profitability Disparity Risk: While China recorded higher revenue and profit (profit +68.9%), Japan (-19.8%), Asia (-79.6%), and the Americas (-59.1%) experienced substantial profit declines. The structure in which profit is concentrated in China indicates vulnerability to changes in demand and the competitive environment in other regions.

3. Dependence on Non-Operating Income Risk: Growth in ordinary income and net income depends substantially on the expansion of ¥4.8B in non-operating income, including dividends received, foreign exchange gains, and interest received. Sustainability may therefore be affected by market conditions and foreign exchange fluctuations.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability substantially exceeds the industry median, with both its operating margin and net profit margin ranking at a high level within the industry.

Growth and Capital Efficiency

The revenue growth rate was slightly below the industry median, with the pace of revenue growth remaining around the middle of the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Operating income was flat YoY and the operating margin also declined, indicating from the financial results that the substance of profit growth depended on the expansion of non-operating income, including dividends received and foreign exchange gains, from the ordinary-income level onward.

2. By segment, China’s contribution to profit expanded, while profit in Japan, Asia, and the Americas declined substantially, indicating regional profitability disparities as a structural feature.

3. ROE of 4.4% and ROIC of 4.6% correspond to a conservative financial structure with an equity ratio of 91.3%. The financial results confirm the level of asset efficiency relative to the substantial balances of cash and investment securities.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,356–¥3,543 at ±1% for the cost of equity, and ¥3,426–¥3,462 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value will be 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).
• 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 / This is a mechanically calculated value based solely on publicly available data and is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)

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This report is an automatically generated earnings analysis document produced 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 available earnings data. Investment decisions should be made at your own responsibility, and after consulting a professional as necessary.

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