TOKYO ROPE MFG.CO.,LTD FY2027 Q1 Earnings Report

Quick View

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

1. 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.

2. 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.

3. 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

The company's profitability is below the industry median and is positioned near the lower bound of the IQR.

Growth and Capital Efficiency

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

1. 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.

2. 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.

3. 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)

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.

---End of Report---