Quick View
| Metric | Current Period | Same Period Last Year | YoY |
|---|---|---|---|
| Revenue | ¥15.26B | ¥14.42B | +5.8% |
| Operating Income | ¥0.62B | ¥0.75B | −17.1% |
| Ordinary Income | ¥0.85B | ¥0.86B | −1.4% |
| Net Income | ¥0.61B | ¥0.67B | −9.8% |
| ROE | 1.5% | 1.6% | - |
Executive Summary
The quarter posted higher revenue but lower earnings, with cost increases offsetting top-line growth as the most important point. Revenue increased to ¥15.26B (+5.8% YoY), while Operating Income declined significantly to ¥0.62B (-17.1%), Ordinary Income was ¥0.85B (-1.4%), and Net Income was ¥0.61B (-9.8%). The primary cause of the earnings decline was the approximately 1.2pt decrease in the gross margin to 21.9% from the previous year, which could not be absorbed by the improvement in the SG&A ratio (17.8%, an improvement of approximately 0.1pt).
Factors Affecting Performance
【Revenue】Revenue increased 5.8% YoY to ¥15.26B. By segment, the core Steel Wire and Cable-Related Business was the largest contributor at ¥7.63B (50.0% composition ratio, +6.1%). Industrial Machinery (¥1.27B, +33.0%), Steel Code Related (¥1.31B, +14.0%), and RealEstate (¥2.01B, +10.5%) also posted revenue growth, while DevelopmentProductsRelated (¥3.35B, -6.3%) recorded a decline.
【Profit and Loss】Operating Income was ¥0.62B (-17.1%), primarily due to the deterioration in the gross margin (21.9%, down approximately 1.2pt YoY). By segment, losses from Steel Code Related (Operating Loss of ¥0.21B) and DevelopmentProductsRelated (Operating Loss of ¥0.19B) weighed on company-wide earnings and could not be offset by increased earnings from RealEstate (¥0.18B, +91.7%) and Industrial Machinery (¥0.11B, +293.1%). Ordinary Income was ¥0.85B (-1.4%), with non-operating income from dividend income of ¥0.13B and equity-method gains of ¥0.15B offsetting part of the decline in Operating Income. An impairment loss of ¥0.04B was recorded as an extraordinary loss, but its impact was limited. Net Income was ¥0.61B (-9.8%). In conclusion, the quarter saw higher revenue but lower earnings.
Segment Analysis
The company exhibited a fragmented structure, with 3 of its 5 segments posting higher earnings and 2 segments recording losses. The Steel Wire and Cable-Related Business remained the core pillar of company-wide earnings, with revenue of ¥7.63B (50.0% composition ratio) and Operating Income of ¥0.72B (margin of 9.5%, +4.3%). RealEstate (revenue of ¥2.01B, income of ¥0.18B, margin of 9.2%, +91.7%) and Industrial Machinery (revenue of ¥1.27B, income of ¥0.11B, margin of 8.9%, +293.1%) increased both revenue and earnings, raising their contribution. In contrast, Steel Code Related (revenue of ¥1.31B, Operating Loss of ¥0.21B, margin of -16.0%) saw its loss widen despite higher revenue, while DevelopmentProductsRelated (revenue of ¥3.35B, Operating Loss of ¥0.19B, margin of -5.7%) declined in revenue and swung from a profit in the previous year to a loss. The combined losses of these two divisions reached approximately ¥0.40B, significantly determining the level of company-wide Operating Income of ¥0.62B.
Key Financial Indicators
【Profitability】The Operating Margin was 4.1%, deteriorating by approximately 1.1pt from 5.2% in the previous year, while the gross margin also declined to 21.9% (down approximately 1.2pt YoY). The Net Profit Margin remained approximately 4.0%, but ROE remained low at 1.5%.【Cash Quality】The divergence between Ordinary Income and Net Income was attributable to the tax burden (income taxes and other taxes of ¥0.20B, with an effective tax burden ratio of approximately 25%), and earnings quality viewed from Ordinary Income was generally within a reasonable range.【Investment Efficiency】Total asset turnover was low, while working capital remained elevated, with accounts receivable of ¥11.65B and inventories of ¥7.35B, indicating room for improvement in capital efficiency.【Financial Soundness】The Equity Ratio was 46.3%, largely unchanged from the previous year (46.2%), indicating a stable financial foundation. Cash and deposits were ¥7.48B, and long-term borrowings were ¥9.05B, with no significant change in the capital structure.
Cash Flow Analysis
Although detailed disclosure of the cash flow statement was not provided, cash trends can be inferred from changes in the balance sheet. Cash and deposits increased to ¥7.48B from ¥7.07B in the previous year, while accounts receivable and notes receivable declined YoY (¥11.65B versus ¥13.48B in the previous year), and inventories increased to ¥7.35B (¥6.84B in the previous year). The accumulation of inventories indicates that funds are tied up in inventory and may put pressure on cash generation from operating activities. Short-term borrowings declined to ¥12.71B (¥13.53B in the previous year), while long-term borrowings also declined to ¥9.05B (¥9.25B in the previous year), indicating a gradual overall reduction in interest-bearing debt. Consequently, the company appears to be reducing debt while maintaining its cash position; however, inventory accumulation will be an important point to monitor when evaluating cash quality going forward.
Earnings Quality
Ordinary Income exceeded Operating Income (¥0.85B versus ¥0.62B, a difference of ¥0.23B) because dividend income of ¥0.13B and equity-method gains of ¥0.15B exceeded interest expense of ¥0.10B. Non-operating income was equivalent to approximately 2.5% of revenue and was not excessive in terms of dependence. The only extraordinary loss was an impairment loss of ¥0.04B, representing approximately 6% of Net Income of ¥0.61B, and its impact was limited; therefore, temporary factors did not materially distort overall performance. On the other hand, underlying profitability at the operating level weakened due to the decline in the gross margin. The fact that the earnings structure relies to some extent on support from non-operating income and equity-method gains should be noted when assessing the quality of core earnings.
Earnings Forecasts and Guidance
The Q1 progress rates against the Full-Year plan were 22.8% for revenue (¥67.00B plan), 14.4% for Operating Income (¥4.30B plan), and 19.3% for Ordinary Income (¥4.40B plan). Revenue progress was broadly close to the simple progress benchmark of 25%, while Operating Income progress was approximately 10.6pt below that benchmark, making substantial margin improvement toward the second half a prerequisite for achieving the Full-Year plan. The Full-Year forecasts for Operating Income and Ordinary Income are both below the previous year (-11.3% and -14.3%, respectively), indicating that the company itself has formulated a plan assuming lower profitability. There were no revisions to the earnings forecast or dividend forecast.
Shareholder Returns
The Full-Year dividend forecast is ¥70.00 per share, implying a Payout Ratio of approximately 36.3% based on the Full-Year EPS forecast of ¥192.76. The previous year's dividend was ¥25 per share; however, this represented a mid-year or partial-period dividend, and no simple comparison with the Full-Year dividend of ¥70 should be made. No data on share repurchases was disclosed at this time, and shareholder returns are centered on dividends. Interest coverage and the Equity Ratio (46.3%) remain at sound levels, supporting the sustainability of dividends on an earnings basis. However, the low progress rate for Operating Income should be monitored to assess the ability to achieve Full-Year earnings while maintaining cash generation.
Risk Factors
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Segment earnings fragmentation: The combined losses of Steel Code Related (Operating Loss of ¥0.21B, margin of -16.0%) and DevelopmentProductsRelated (Operating Loss of ¥0.19B, margin of -5.7%) reached approximately ¥0.40B, significantly determining company-wide Operating Income of ¥0.62B.
-
Working capital tied up: Inventories increased to ¥7.35B (from ¥6.84B in the previous year), and the accumulation of inventory could constrain funds and affect cash generation.
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Back-loaded Full-Year progress: The Full-Year progress rate for Operating Income was 14.4%, significantly below the simple progress benchmark of 25%, making substantial earnings improvement toward the second half a prerequisite for achieving the plan.
Industry Benchmark (For Reference; Compiled by the Company)
Industry Benchmark (manufacturing)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 4.1% | 8.7% (4.2%–14.2%) | −4.6pt |
| Net Profit Margin | 4.0% | 7.0% (3.2%–10.6%) | −3.1pt |
The company's profitability is below the industry median and is positioned near the lower bound of the IQR.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 5.8% | 6.2% (-1.1%–14.6%) | −0.5pt |
The revenue growth rate is broadly close to the industry median and is positioned around the middle of the IQR.
※Source: Compiled by the company
Key Points from the Earnings Results
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The quarter saw higher revenue but lower earnings, with the approximately 1.2pt decline in the gross margin being the primary cause of the earnings decline. The slight improvement in the SG&A ratio was insufficient to offset this decline, making trends in the cost structure and pricing a key focus going forward.
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By segment, Steel Code Related and DevelopmentProductsRelated recorded losses, offsetting the earnings contributions from the core Steel Wire and Cable-Related Business, RealEstate, and Industrial Machinery. The extent to which this earnings fragmentation is resolved will be a decisive factor for Full-Year performance.
-
The progress rate for Full-Year Operating Income was 14.4%, below the simple progress benchmark, indicating a plan weighted toward the second half. The recovery in progress from Q2 onward will be a key point for assessing the feasibility of achieving the Full-Year plan.
Theoretical Share Price (Reference Value)
| Scenario | Theoretical Share Price |
|---|---|
| bear | ¥2,500 |
| base | ¥2,561 |
| bull | ¥2,606 |
| Calculation Assumption | Value |
|---|---|
| Book Value per Share (BPS) | ¥2,696 |
| Adjusted Forecast EPS | ¥215.2 |
| Cost of Equity r | 9.77% (10-year Japanese government bond 2.77% + equity risk premium 6.00% + size premium 1.00%) |
| Residual Income Persistence Factor ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 36.3% |
| Forecast EPS Confidence Adjustment | ×1.117 (based on the industry's historical guidance achievement rate) |
| implied PBR / PER | 0.95x / 11.9x |
Sensitivity: ¥2,491–¥2,635 at Cost of Equity ±1%; ¥2,557–¥2,564 at ω±0.1.
Notes:
- Since 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.
(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 disclosed data and does not constitute a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)
This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings release 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 with professionals as necessary.
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AI Financial Analysis
Executive Summary
FY2027 Q1 performance was mixed: revenue grew, but operating profitability weakened materially and the full-year operating-profit plan is back-end loaded. Revenue increased 5.8% YoY to ¥15.26bn. Operating income declined 17.1% to ¥0.62bn despite the higher sales base. Ordinary income was comparatively resilient, declining only 1.4% to ¥0.851bn, supported by a ¥0.384bn non-operating income contribution. Net income fell 9.8% to ¥0.607bn, or ¥39.42 per share. The gross margin narrowed to 21.9% from 23.1% a year earlier, a contraction of approximately 120bp. The operating margin compressed to 4.1% from 5.2%, a decline of approximately 110bp. SG&A expenses rose 5.4% YoY to ¥2.717bn, broadly tracking sales growth, so the margin deterioration was principally at the gross-profit level rather than caused by disproportionate overhead expansion. The steel wire and rope-related business remained the core earnings contributor, generating segment profit of ¥0.723bn. However, losses widened in the steel cord and development products businesses, offsetting gains in industrial machinery and energy/real-estate operations. Non-operating income included ¥0.131bn of dividend income and ¥0.153bn of equity-method earnings, which supported ordinary income relative to operating income. A ¥0.037bn impairment loss was recorded, equivalent to roughly 6% of quarterly net income and not large enough to dominate earnings quality. Total comprehensive income rose sharply to ¥1.081bn, above net income, reflecting positive valuation, foreign-currency translation and equity-method OCI movements. The balance sheet remains adequately liquid, with a 138.6% current ratio and a 114.1% quick ratio. Nevertheless, the funding profile is weighted toward short-term borrowings, which increases refinancing sensitivity. Manufacturing working-capital efficiency is the principal operational concern, with annualized DSO of 70 days, annualized inventory days of 136 days, and an annualized cash-conversion cycle of 151 days. Management's full-year forecast implies a meaningful recovery after Q1, particularly in operating income. Q1 sales progress is broadly close to the seasonal benchmark, whereas operating-profit progress is below it, making gross-margin recovery and loss reduction in underperforming segments key requirements for plan delivery.
Profitability Analysis
Annualized ROE was 5.8%, decomposed into a 4.0% net profit margin, 0.680x annualized asset turnover, and 2.16x financial leverage. The low 4.0% margin is the principal constraint on shareholder returns; leverage supports ROE but does not compensate for sub-5% operating profitability. The annualized asset-turnover component indicates reasonable revenue generation from the asset base for a capital-intensive manufacturer, while the company’s sizable land and production-asset base naturally limits turnover relative with asset-light businesses. Financial leverage of 2.16x is moderate rather than excessive, with D/E of 1.16x and debt/capital of 34.4%. The largest YoY earnings change was at operating income, which fell ¥0.128bn even as revenue rose ¥0.842bn. Gross profit increased only ¥0.010bn, versus the ¥0.138bn rise in SG&A, producing the operating-income decline. Gross-margin compression of approximately 120bp suggests that product mix, input-cost absorption, pricing, or production efficiency did not keep pace with sales growth. The steel wire and rope-related segment was the core business, contributing ¥0.723bn of segment profit, or more than consolidated operating income because losses in other segments offset it. Its revenue increased 6.2% to ¥7.539bn and segment profit increased 4.3% to ¥0.723bn, although its segment margin eased to 9.5% from 9.6%. Steel cord revenue rose 12.3% to ¥1.250bn, but its segment loss widened to ¥0.210bn from ¥0.077bn. Development products revenue declined 6.3% to ¥3.355bn and swung to a ¥0.192bn segment loss from a ¥0.005bn profit. Industrial machinery revenue increased 33.4% to ¥1.239bn and segment profit rose to ¥0.114bn from ¥0.029bn, lifting its margin to 9.2%. Energy and real estate revenue increased 10.6% to ¥1.875bn and segment profit increased 91.7% to ¥0.184bn, with margin improving to 9.8% from 5.7%. The earnings mix therefore became more dependent on the core steel wire and rope operation and on improved industrial machinery and energy/real-estate profitability. The 4.1% EBIT margin is below the 5% efficiency threshold and remains the central profitability quality flag. Interest coverage of 6.20x is adequate, and the 1.311 interest-burden ratio reflects non-operating income exceeding net interest cost rather than a stress condition. The 25.2% effective tax rate and 0.747 tax burden were normal, so taxation was not the source of the net-income decline.
Growth Assessment
Top-line growth was positive but uneven across businesses. Consolidated Q1 revenue growth of 5.8% was led by industrial machinery, steel cord, energy and real estate, and the core steel wire and rope business. The decline in development-products revenue and its shift into loss limited the quality of consolidated growth. Steel wire and rope-related sales growth was more modest at 6.2%, but this segment remains central because of its recurring profit contribution. Industrial machinery delivered the strongest revenue growth rate at 33.4% and a substantially improved profit contribution, which is constructive if order execution and margins can be maintained. Energy and real estate also showed strong earnings leverage, with segment profit nearly doubling. Conversely, the steel cord and development-products losses require improvement before consolidated revenue growth can translate into operating-profit growth. The annual full-year forecast calls for revenue of ¥67.0bn, up 4.5% YoY, operating income of ¥4.3bn, down 11.3%, ordinary income of ¥4.4bn, down 14.3%, and net income of ¥3.0bn. Q1 revenue progress is 22.8% of the full-year forecast, only 2.2 percentage points below the standard 25% Q1 run rate. Q1 operating-income progress is 14.4%, 10.6 percentage points below the standard pace and therefore indicates a pronounced second-half weighting. Ordinary-income progress is 19.3%, also below the standard pace, while net-income progress is 20.2%. Achieving the forecast requires quarterly operating income to accelerate materially from the Q1 level, particularly through recovery in gross margin and reduced losses in steel cord and development products. The stated absence of a forecast revision indicates management is maintaining this recovery assumption. Positive comprehensive-income movements provide some support to book value, but they do not substitute for a sustained improvement in operating earnings.
Financial Health
Liquidity is adequate on reported balance-sheet measures. Current assets of ¥41.571bn exceeded current liabilities of ¥29.994bn, producing working capital of ¥11.577bn and a 138.6% current ratio. The 114.1% quick ratio indicates that liquid current assets excluding inventories also cover current liabilities. Total interest-bearing debt was ¥21.753bn, comprising ¥12.705bn of short-term loans and ¥9.048bn of long-term loans. Short-term borrowings represent 58.4% of debt, creating a meaningful refinancing-risk flag because a large share of funding must be rolled over within a year. Cash and deposits of ¥7.475bn cover 0.59x short-term debt, so the company depends on operating liquidity and external credit access rather than cash alone for near-term debt management. This maturity profile is not a current-asset mismatch in aggregate, given the current ratio above 1.0, but the composition of current assets includes working capital with a long annualized cash-conversion cycle. D/E of 1.16x is moderate and remains below the 2.0x aggressive-leverage warning level. Debt/capital of 34.4% is within the sub-40% investment-grade benchmark. Interest coverage of 6.20x provides a reasonable current debt-service cushion. Total equity increased ¥0.382bn YoY to ¥41.573bn, and the equity ratio was stable at 46.3%. Interest-bearing debt declined ¥1.232bn YoY, with short-term loans down ¥0.826bn and long-term loans down ¥0.206bn, which is favorable for leverage. Investment securities of ¥9.542bn represent 10.6% of total assets and are a meaningful component of the asset base. Asset retirement obligations totaled ¥0.651bn, equal to approximately 1.4% of total liabilities, indicating a limited reported environmental-obligation burden.
Notable B/S Changes
Total assets: +¥6.70bn YoY (+0.8%) to ¥89.741bn, reflecting a modest expansion of the operating and investment asset base. Inventories: +¥5.03bn YoY (+7.4%) to ¥7.345bn, increasing capital tied up in production and finished-goods stock and consistent with the high annualized inventory-days alert. Provision for bonuses: +¥5.03bn YoY (+43.7%) to ¥1.653bn, increasing current liabilities and reflecting a higher accrued employee-compensation obligation. Interest-bearing debt: -¥1.23bn YoY (-5.4%) to ¥21.753bn, a favorable deleveraging movement, although short-term loans remain the majority of debt. Total equity: +¥0.38bn YoY (+0.9%) to ¥41.573bn, supported by positive comprehensive income and maintaining the equity ratio at 46.3%.
Cash Flow Quality
Dividend Sustainability
The full-year dividend forecast is ¥70.00 per share. Against forecast EPS of ¥192.76, the implied dividend payout ratio is approximately 36.3%. This is below the 60% sustainability benchmark and leaves a meaningful earnings retention buffer. The forecast payout level is also supported by retained earnings of ¥23.346bn and total equity of ¥41.573bn. Sustained dividend capacity will depend primarily on delivery of the ¥3.0bn full-year net-income forecast and continued management of working-capital intensity and debt refinancing.
Risk Assessment
Business risks include Steel wire and rope-related operations are the core business and remain profitable, but its segment margin eased to 9.5%; weaker construction, infrastructure, industrial-demand, export, or pricing conditions would have an outsized effect on consolidated earnings., Steel cord recorded a ¥0.210bn segment loss despite 12.3% revenue growth, indicating that higher volume is not currently translating into profitable growth., Development products shifted from a ¥0.005bn profit to a ¥0.192bn loss as revenue declined 6.3%, creating execution and product-mix risk., The steel and non-ferrous manufacturing environment is exposed to raw-material, energy-cost and freight volatility; Q1 gross-margin compression demonstrates the sensitivity of profits to cost absorption and pricing., Annualized inventory days of 136 are high for a steel-related manufacturer and raise risks of weak demand forecasting, slow-moving stock, valuation pressure, and additional margin erosion if destocking is required..
Financial risks include Short-term debt represents 58.4% of interest-bearing debt, above the 40% alert threshold. This elevates refinancing risk, especially if credit conditions tighten or operating liquidity weakens., Cash covers only 0.59x short-term loans. Although overall current liquidity is adequate, debt rollovers remain reliant on banking relationships and conversion of working capital., Annualized DSO of 70 days exceeds the 60-day warning threshold, increasing collection risk and tying up liquidity., The annualized cash-conversion cycle of 151 days exceeds the 120-day warning threshold, increasing funding needs and sensitivity to inventory or receivable deterioration., Annualized ROIC of 3.3% is below the 5% threshold, indicating that returns on the capital base are currently modest relative to the funding and operating risks carried..
Key concerns include The EBIT margin of 4.1% is below the 5% efficiency threshold, and operating income declined 17.1% despite revenue growth., Full-year operating-income progress is only 14.4% in Q1, 10.6 percentage points below the standard 25% seasonal benchmark; forecast delivery requires a material margin and earnings acceleration., The combined effect of high receivable days, high inventory days and a long cash-conversion cycle can constrain liquidity even with a current ratio above 1.0., The ¥0.037bn impairment loss was limited in absolute terms but highlights the need to monitor asset profitability within underperforming operations..
Investment Implications
Key takeaways include Revenue momentum is positive, but Q1 demonstrated weak conversion of sales growth into gross profit and operating income., Steel wire and rope-related operations remain the main earnings anchor, while industrial machinery and energy/real estate provided meaningful incremental profit., Losses in steel cord and development products are the principal operating drag and a key determinant of any earnings recovery., The balance sheet is reasonably capitalized, but the high short-term debt mix and long working-capital cycle increase the importance of liquidity discipline., The implied 36.3% forecast dividend payout ratio is moderate relative to forecast earnings..
Metrics to watch include Consolidated gross margin and EBIT margin, with particular attention to recovery above the current 4.1% EBIT margin, Steel cord and development-products segment losses and evidence of pricing, mix, or cost-structure improvement, Progress against full-year operating-income guidance, currently 14.4% at Q1, Annualized DSO of 70 days, inventory days of 136 days, and cash-conversion cycle of 151 days, Short-term debt ratio of 58.4%, cash-to-short-term-debt coverage of 0.59x, and interest coverage of 6.20x, Annualized ROIC of 3.3% and annualized ROE of 5.8%.
Regarding relative positioning, Tokyo Rope is positioned as a capital-intensive steel-related manufacturer with an adequate equity base and diversified segment portfolio, but current returns and operating margins are below preferred profitability thresholds. Relative performance will be determined less by top-line expansion than by restoration of gross-margin discipline, turnaround of loss-making segments, and reduction in working-capital intensity.