TSUGAMI CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Driven by expanding demand centered on China and Japan, as well as control of costs and SG&A expenses, the Company posted quarterly results featuring higher revenue and earnings, accompanied by improved margins. Revenue was ¥430.1B (up +35.3% YoY), Operating Income was ¥134.7B (up +55.2%), Profit Before Tax was ¥136.6B (up +59.8%), and quarterly Net Income attributable to owners of the parent was ¥65.3B (up +55.0%). The Operating Margin improved by 4.0pt to 31.3%, from 27.3% in the same period of the previous year, with earnings growth exceeding revenue growth. Meanwhile, as the effective tax rate increased from 26.7% to 33.3%, Net Income growth (+55.0%) slowed somewhat relative to Profit Before Tax growth (+59.8%).

Factors Affecting Performance

【Revenue】Revenue of ¥430.1B (up +35.3% YoY) was driven by the expansion of the China segment, which accounts for 82.6% of external revenue (¥355.2B, up +38.4%). Japan (¥51.4B, up +14.9%) and India (¥16.0B, up +37.9%) also contributed to revenue growth, with higher revenue secured across all regions. Contract liabilities (advances received) accumulated to ¥86.3B (up +34.7% YoY), indicating that growth in orders and advance receipts is serving as a leading indicator for revenue.

【Profit and Loss】Operating Income was ¥134.7B (up +55.2% YoY). The gross margin improved to 38.7% from 36.9% in the previous year, an improvement of 1.75pt, while the SG&A ratio declined to 8.9% from 10.8%, a decrease of 1.95pt. Fixed-cost absorption associated with higher revenue and cost control enabled Operating Income to expand at a pace exceeding revenue growth. Net financial income was positive, with financial income of ¥2.5B exceeding financial expenses of ¥0.6B, improving from net financial expenses of ¥1.3B in the previous year and supporting Profit Before Tax growth (+59.8%). On the other hand, income taxes increased to ¥45.5B (effective tax rate of 33.3%, versus 26.7% in the previous year), causing Net Income growth (+55.0%) to slightly trail Profit Before Tax growth. Both Revenue and Operating Income achieved double-digit growth; overall, the Company delivered higher revenue and earnings.

Segment Analysis

Among the five segments by geographic location, China was the core contributor to consolidated performance, with external revenue of ¥355.2B (82.6% of total) and segment profit of ¥115.5B (up +50.1% YoY). Although Japan generated external revenue of ¥51.4B (12.0% of total), segment profit more than doubled from ¥5.5B to ¥13.2B, representing a significant improvement in profitability. India generated external revenue of ¥16.0B (up +37.9%), while segment profit was ¥0.8B, marking a return to profitability from a loss of ¥△0.5B in the previous year. Korea and Other remain small in scale, accounting for less than 2% in aggregate. The high degree of dependence on China means that demand trends in the region and fluctuations in the exchange rate (Chinese yuan/yen) have a significant impact on consolidated performance.

Key Financial Indicators

【Profitability】The Operating Margin improved by 4.0pt to 31.3% from 27.3% in the same period of the previous year. The gross margin of 38.7% (36.9% in the previous year) and Net Income margin attributable to owners of the parent of 15.2% (13.3% in the previous year) also both expanded. ROE was 7.8% (quarterly result, before annualization), indicating the level of quarterly profit relative to average equity. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥48.1B, representing only 0.74x Net Income attributable to owners of the parent, suggesting that cash generation is lagging somewhat behind earnings growth. 【Investment Efficiency】Capital expenditures were ¥2.3B, equivalent to 0.5% of Revenue, remaining small in scale and indicating a restrained investment stance based on operating conditions. Total assets increased to ¥1644.0B (¥1540.5B in the previous year), but from an asset-efficiency perspective, increases in working capital—trade receivables of ¥561.4B and inventories of ¥329.8B—are weighing on total asset turnover. 【Financial Soundness】The Equity Ratio rose a further 1pt to 53.0% from 52.0% in the same period of the previous year. With interest-bearing debt of ¥89.3B and cash and cash equivalents of ¥446.9B, the Company continues to maintain a net cash financial structure.

Cash Flow Analysis

Operating Cash Flow was ¥48.1B, down -15.3% YoY, as the increase in working capital weighed on cash generation relative to the subtotal before working capital changes of ¥68.5B. Specifically, the ¥38.0B increase in trade receivables and the ¥56.8B decrease in trade payables were the primary causes of the cash outflow, while the increase in inventories was contained at ¥4.2B. Meanwhile, the ¥19.9B increase in contract liabilities (advances received) partially offset the deterioration in working capital. Investing Cash Flow was -¥5.0B, mainly reflecting ¥2.3B in capital expenditures, while Financing Cash Flow was -¥29.3B, primarily due to dividend payments of ¥22.8B and share repurchases of ¥3.0B. Free Cash Flow (OCF + Investing Cash Flow) was ¥43.1B, exceeding the combined ¥25.8B in dividends and share repurchases, indicating that shareholder returns were funded within current-period cash generation. Cash and cash equivalents stood at ¥446.9B at period-end, including a positive ¥11.4B foreign exchange translation impact, continuing to increase from the end of the previous fiscal year.

Earnings Quality

Of Profit Before Tax of ¥136.6B, financial income of ¥2.5B and financial expenses of ¥0.6B, as well as other income of ¥6.6B and other expenses of ¥0.1B, were added to or deducted from Operating Income of ¥134.7B. No one-time items equivalent to extraordinary gains or losses were explicitly identified. The effective tax rate increased to 33.3% from 26.7% in the previous year, with the higher tax burden acting to suppress Net Income growth attributable to owners of the parent (+55.0%) relative to Profit Before Tax growth (+59.8%). Comprehensive income attributable to owners of the parent was ¥96.5B, ¥31.2B above quarterly Net Income of ¥65.3B. This divergence was attributable to foreign currency translation adjustments for foreign operations (+¥29.9B) and valuation gains (+¥10.7B) on financial assets measured at fair value through other comprehensive income. These items are linked to exchange rates and market prices and differ in nature from recurring business earnings. From an accrual perspective, OCF was only 0.74x Net Income, indicating that increases in working capital involving changes in trade receivables and trade payables created a divergence between accounting profit and cash flow.

Earnings Forecasts and Guidance

Progress in Q1 against the full-year Company forecasts—Revenue of ¥1450.0B, Operating Income of ¥365.0B, and Net Income attributable to owners of the parent of ¥170.0B—was 29.7% for Revenue, 36.9% for Operating Income, and 38.4% for Net Income, exceeding the simple average progress rate of 25%. While the full-year Operating Income forecast represents only modest growth of +1.1% YoY, the current-quarter result showed substantial growth of +55.2% YoY, creating a significant gap between the two. This gap suggests that the full-year plan may incorporate conservative assumptions for second-half demand and foreign exchange rates, or may reflect a profit structure weighted toward the first half. No revisions to the earnings forecast were made during the quarter.

Shareholder Returns

The full-year dividend forecast is ¥49 per share, implying a Payout Ratio of approximately 13.2% based on full-year forecast EPS of ¥370.28. Dividend payments during the quarter totaled ¥22.8B (payment of dividends determined in the previous fiscal period), while share repurchases totaled ¥3.0B. Combined shareholder returns of ¥25.8B remained within Free Cash Flow of ¥43.1B. No revision was made to the dividend forecast. Given the Company’s financial soundness—an Equity Ratio of 53.0% and cash of ¥446.9B—a Payout Ratio of approximately 13% is considered sustainable with ample headroom relative to cash and OCF.

Risk Factors

1. Regional concentration risk: The China segment accounts for 82.6% of external revenue, creating a structure in which changes in capital investment demand, foreign exchange rates (Chinese yuan/yen), and trade policies in the region have a significant impact on consolidated performance.

2. Cash conversion risk due to deterioration in working capital: As trade receivables increased by ¥38.0B and trade payables decreased by ¥56.8B, OCF remained at only 0.74x Net Income attributable to owners of the parent. Changes in credit and payment terms during a period of revenue growth are appearing as a time lag in cash generation.

3. Risk of a higher tax burden: The effective tax rate increased from 26.7% in the same period of the previous year to 33.3% in the current period, suppressing Net Income attributable to owners of the parent growth (+55.0%) relative to Profit Before Tax growth (+59.8%). Future trends in the tax burden may affect the earnings growth rate.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s Operating Margin and Net Income Margin are both substantially above the industry median.

Growth and Capital Efficiency

The Company’s Revenue Growth Rate is substantially above both the industry median and the upper bound of the IQR, positioning it as a high-growth company within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Structural improvement in profitability: The Operating Margin expanded by 4.0pt from 27.3% in the same period of the previous year to 31.3%. The improvement in profitability through both gross margin expansion (+1.75pt) and a lower SG&A ratio (-1.95pt) indicates that fixed-cost absorption associated with higher revenue is functioning effectively.

2. Progress ahead of the full-year plan: Progress rates for Operating Income and Net Income both reached the high 36% range, exceeding the simple average progress rate of 25%, while the full-year forecast calls for only +1.1% YoY growth in Operating Income. The gap between the plan and actual results provides useful information for assessing the assumptions regarding second-half demand and foreign exchange rates.

3. Working capital and cash flow quality: OCF remained at only 0.74x Net Income attributable to owners of the parent due to working capital factors, namely changes in trade receivables and trade payables. This indicates a timing mismatch between quantitative earnings growth and cash generation.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥2,542–¥2,701 at ±1% for the Cost of Equity, and ¥2,599–¥2,651 at ±0.1 for ω.

Notes:

• Because Net Income progress against the full-year forecast (38%) exceeds the standard benchmark (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of plan tend to outperform forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors, Net Income is substantially compressed relative to Operating Income (Net Income ÷ Operating Income 47%). This value reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model / Interest rate reference month: 2026-06 / This value does not predict or guarantee future share prices)

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This report is an earnings analysis document automatically generated 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, after consulting professionals as necessary.

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