TOSO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.14B
• Operating Income: ¥280M
• Net Income: ¥184M
• EPS: ¥20.13

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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 mixed quarter—solid topline growth and very strong cash conversion, but operating margin compressed and capital efficiency remains weak. Revenue grew 5.8% YoY to 111.44, with gross profit of 46.01 and a gross margin of 41.3%. Operating income declined 19.7% YoY to 2.80, implying operating margin of 2.5% and signaling cost pressure despite higher sales. Ordinary income dropped 88.1% YoY to 2.94, indicating a very large base effect from prior-year non-operating gains that did not recur. Net income fell 20.0% YoY to 1.78, and EPS (basic) printed at 20.13 yen. SG&A totaled 43.20, with rent expenses of 2.89 reported; the SG&A-to-sales ratio was a high 38.8%, squeezing operating leverage. Interest expense was modest at 0.16 and interest coverage remained strong at 17.38x, underscoring low financing risk. Cash generation was a bright spot: operating cash flow of 9.01 was 5.06x net income, indicating strong earnings quality and favorable working capital dynamics. With capex of 4.14, implied free cash flow appears positive, leaving capacity for shareholder returns and balance sheet resilience. The balance sheet is solid: current ratio 274%, quick ratio 246%, debt-to-equity 0.48x, and working capital of 102.12. However, capital efficiency is weak: ROE is 1.2% and ROIC is 1.4%, well below a typical cost of capital, highlighting the need for margin and asset utilization improvements. Effective tax rate was elevated at 37.3%, further dampening bottom-line conversion. Non-operating income (0.38) and expenses (0.24) netted to a small positive; dividend and investment gains were not fully disclosed, and many items are unreported, limiting full decomposition. The reported calculated payout ratio of 64.6% is slightly above a typical prudence line, but near-term coverage looks manageable given positive OCF and implied FCF. Forward-looking, management likely needs to prioritize SG&A discipline and price/mix strategies to protect margins while sustaining growth. Near-term outlook is cautiously stable given liquidity strength, but profitability recovery is required to improve ROE/ROIC and support a sustainable dividend policy.

Profitability Analysis

ROE (DuPont) = Net Profit Margin (1.6%) × Asset Turnover (0.509x) × Financial Leverage (1.48x) = ~1.2%. The biggest drag is the very low net margin, which compressed as operating income declined despite higher sales. Operating margin fell to ~2.5% from ~3.3% a year ago (rough estimate), a compression of about 80 bps, reflecting SG&A growth outpacing revenue and limited operating leverage. Gross margin at 41.3% is healthy for the business model, so the profit squeeze is primarily at the SG&A layer (rent and likely personnel/logistics costs). Ordinary income’s sharp YoY decline suggests last year benefited from one-off non-operating gains, not repeated this period. Sustainability: gross margin looks defensible; however, without SG&A containment or pricing/mix improvements, operating margin recovery may be gradual. Watch for any SG&A growth exceeding revenue growth in subsequent quarters and for normalization of the effective tax rate to support net margin.

Growth Assessment

Revenue growth of 5.8% YoY indicates resilient demand, likely supported by product breadth and pricing. Operating income fell 19.7% YoY, highlighting negative operating leverage from elevated SG&A. Net income down 20.0% YoY was exacerbated by a high effective tax rate. Ordinary income down 88.1% YoY implies a tough non-operating comparison (prior one-offs), not structural deterioration this quarter. EBITDA was 5.93 (5.3% margin), providing some buffer but still modest for reinvestment and dividends. Near-term growth sustainability depends on cost normalization, pass-through of input costs (e.g., materials, logistics), and potential product mix upgrades. Given positive OCF and implied FCF after capex, the company can continue selective growth investments without stressing the balance sheet. Outlook: expect stable-to-modest revenue growth, but margin recovery is the key swing factor; any improvement in SG&A intensity could lift operating margin and ROE.

Financial Health

Liquidity is strong: current ratio 274.3% and quick ratio 246.1% signal ample coverage of short-term obligations. No warning triggers: Current Ratio > 1.0 and D/E at 0.48x is conservative. Maturity profile: short-term loans of 18.50 are well-covered by cash and deposits of 42.31 and large current assets of 160.70; maturity mismatch risk appears low. Interest coverage of 17.38x suggests minimal refinancing stress. Total equity of 148.39 provides a robust capital base with retained earnings of 115.53. Off-balance sheet obligations are not disclosed (data unreported), so lease and guarantee exposures cannot be assessed.

Cash Flow Quality

OCF/Net Income is 5.06x, indicating high earnings quality and supportive working capital movements. With capex of 4.14 and OCF of 9.01, implied FCF is approximately +4.87, sufficient to fund ordinary dividends and modest buybacks, though dividends paid were unreported. No clear signs of working capital manipulation are evident from the limited balances disclosed; however, detailed AR/AP/inventory turnover trends are not provided. Financing CF was -0.83, including share repurchases of -0.18, indicating disciplined capital returns without over-leverage. Overall cash flow quality is strong this quarter.

Dividend Sustainability

The calculated payout ratio of 64.6% is slightly above the <60% benchmark for comfort but could be serviceable given positive implied FCF and robust liquidity. OCF covers net income by more than 5x and exceeds capex, suggesting near-term cash coverage for dividends. Absence of disclosed total dividends paid and DPS details limits precision. With D/E at 0.48x and ample cash, the balance sheet can buffer dividends in the short run, but longer-term sustainability requires margin and ROIC improvement to keep payout ratios from creeping higher as growth capital needs persist. Policy outlook: likely stable to cautiously maintained, contingent on operating margin recovery.

Risk Assessment

Business Risks:

• Operating margin pressure from SG&A inflation (e.g., rent 2.89 and likely wages/logistics).
• Input cost volatility (materials, especially metals) and price pass-through timing.
• Demand sensitivity to housing/renovation and non-residential interior cycles.
• Product mix risk if higher-margin lines underperform.
• Execution risk in cost control and productivity initiatives.

Financial Risks:

• Short-term debt (18.50) rollover risk if credit conditions tighten, albeit currently well-covered.
• High effective tax rate (37.3%) reducing net margin and cash available for shareholders.
• Low ROIC (1.4%) vs typical WACC, risking value dilution if growth investments do not lift returns.

Key Concerns:

• Capital efficiency remains weak: ROE 1.2% and ROIC 1.4% below benchmarks.
• Operating margin compressed by ~80 bps YoY despite revenue growth.
• Ordinary income fell 88% YoY, highlighting non-operating volatility and tough comps.
• Limited disclosure on dividends and investing cash flows reduces visibility.
• Sustained payout ratio above ~60% could strain if margins do not recover.

Investment Implications

Key Takeaways:

• Topline grew 5.8% YoY, but operating income declined 19.7% due to higher SG&A.
• Gross margin solid at 41.3%, suggesting the bottleneck is SG&A efficiency, not pricing alone.
• Cash generation strong: OCF 9.01 (5.06x NI) and implied positive FCF after capex.
• Balance sheet is liquid and conservatively levered (D/E 0.48x; current ratio 274%).
• Capital efficiency is the primary weakness (ROIC 1.4%, ROE 1.2%), requiring margin/asset turns improvement.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio trajectory.
• OCF/NI and working capital turns (AR, inventory, AP days).
• Pricing/mix actions and gross margin durability.
• Capex discipline and ROIC progression toward >5% medium term.
• Dividend policy disclosures (DPS, total dividends paid) and payout alignment with FCF.

Relative Positioning: Within Japanese building materials/interior fittings peers, the company exhibits stronger liquidity and conservative leverage but lags on profitability and capital efficiency; near-term performance hinges on SG&A control and restoring operating leverage.

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