TAKAMATSU MACHINERY (6155) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 of the fiscal year ending March 2026, the results showed signs of a recovery in profitability, with the loss narrowing despite lower revenue. Revenue was ¥90.0B (-9.7% YoY), Operating Income was ¥-2.3B (¥-3.0B in the previous year, +21.2%), Ordinary Income was ¥-2.5B (¥-2.7B in the previous year, +5.6%), and Net Income was ¥-2.7B (¥-7.7B in the previous year, +64.8%). The significant improvement in Net Income was largely attributable to a decrease in income taxes and other taxes from ¥5.0B recorded in the previous year to ¥0.5B. Although the gross margin improved, this was offset by an increase in the SG&A ratio, resulting in limited improvement on an Operating Income basis.

Factors Affecting Earnings

【Revenue】Revenue was ¥90.0B, down 9.7% YoY. The core Machine Tools Business led the decline, with revenue of ¥79.5B (down 10.5% YoY, accounting for 88.2% of consolidated revenue), while the IT-Related Manufacturing Equipment Business recorded ¥9.3B (-13.5%) and the Automotive Parts Processing Business recorded ¥1.3B (-2.2%), with both businesses also posting lower revenue. In the Machine Tools Business, domestic revenue decreased from ¥5.3B to ¥5.0B, North American revenue from ¥1.3B to ¥0.8B (-34.7%), and European revenue from ¥0.5B to ¥0.2B (-52.5%), while Asian revenue increased from ¥16.3B to ¥18.4B (+13.0%), highlighting divergent trends across regions.

【Profit and Loss】The gross margin improved by approximately 2.3pt to 25.4% from 23.0% in the previous year, reflecting progress in cost improvements. However, the SG&A ratio rose by approximately 2.0pt to 28.0% from 26.0% in the previous year. As the decline in SG&A expenses (-2.9%) was modest relative to the decline in revenue (-9.7%), absorption of fixed costs became a challenge. Consequently, the improvement in the Operating Income margin was limited to approximately 0.4pt, from -3.0% to -2.6%. The Ordinary Loss was ¥2.5B, with a foreign exchange loss of ¥0.9B being the primary factor in non-operating expenses. Net Loss improved substantially owing to the reduction in income taxes and other taxes from ¥5.0B in the previous year to ¥0.5B; however, a gain on the sale of fixed assets of ¥0.3B also contributed, and this should be evaluated separately from improvements in the core business. Overall, the company experienced lower revenue and lower earnings at the Operating Income and Ordinary Income levels, while Net Loss narrowed. The improvement in earnings therefore remains heavily dependent on a temporary reduction in the tax burden.

Segment Analysis

The Machine Tools Business recorded revenue of ¥79.5B (88.2% of total revenue) and an Operating Loss of ¥2.96B. Although the loss narrowed from ¥3.38B in the previous year, the business remained in the red. The consolidated earnings outlook depends heavily on this business. The IT-Related Manufacturing Equipment Business recorded revenue of ¥9.3B and Operating Income of ¥0.5B (profit margin of 5.4%), an increase from ¥0.34B in the previous year. The Automotive Parts Processing Business recorded revenue of ¥1.3B and Operating Income of ¥0.11B (profit margin of 8.4%), securing the highest profit margin among the three businesses. The combined Operating Income of the two profitable businesses was only ¥0.61B, insufficient to offset the loss in the Machine Tools Business.

Key Financial Indicators

【Profitability】The Operating Income margin was -2.6% (-3.0% in the previous year), while the Net Income margin was -3.0%. The benefit of the improved gross margin of 25.4% (up from 23.0% in the previous year) was offset by the increase in the SG&A ratio to 28.0% (up from 26.0% in the previous year). 【Cash Quality】Annualized ROE was -2.3%, while ROIC was also negative at a similar level. The primary factor depressing returns on capital efficiency was the loss-making Net Income margin. 【Investment Efficiency】Total asset turnover was 0.583x and the EBIT margin was -2.6%, indicating that the earnings structure itself, rather than asset efficiency, is the principal issue. 【Financial Soundness】The Equity Ratio was 76.8% (up from 74.3% in the previous year), and the Current Ratio was 385.3%. Against interest-bearing debt of ¥12.7B, the Debt/Capital ratio was 7.4%, indicating a conservative capital structure. Meanwhile, the short-term debt ratio was 54.3%, showing a somewhat short-term-biased debt structure.

Cash Flow Analysis

As the cash flow statement has not been disclosed, funding trends are assessed based on changes in the balance sheet. Cash and deposits increased to ¥55.9B from ¥53.6B in the previous year, indicating that on-hand liquidity has been maintained despite the recognition of losses. Accounts receivable decreased by ¥7.7B, from ¥22.9B to ¥15.2B, while total receivables including electronically recorded monetary claims also decreased by ¥6.5B, indicating progress in the collection of working capital. On the other hand, work in process amounted to ¥14.4B, accounting for 44.3% of total inventory. Inventory days outstanding (annualized) were 133 days, and the cash conversion cycle was 145 days, both lengthy, indicating that the high level of inventory and work in process is weighing on working capital efficiency. Property, plant and equipment decreased from ¥66.9B to ¥62.7B, consistent with the recognition of a ¥0.3B gain on the sale of fixed assets. Overall, the improvement in funding efficiency from the reduction in trade receivables is being offset by the high level of inventory and work in process.

Quality of Earnings

The improvement in Net Loss to ¥2.7B was primarily attributable to the decrease in income taxes and other taxes from ¥5.0B recorded in the previous year to ¥0.5B. This resulted in an unusual structure in which the effective tax rate was negative 21.7% against a Loss Before Tax of ¥2.2B. In addition, a ¥0.3B gain on the sale of fixed assets was recorded as extraordinary income. Accordingly, the improvement in Net Income (+¥5.0B) was substantially greater than the improvement in Operating Income (+¥0.6B YoY), largely due to these temporary and non-recurring factors. Among non-operating items, a foreign exchange loss of ¥0.9B was recorded as an expense, representing a significant impact relative to the ¥2.3B Operating Loss and constituting a highly volatile item. Comprehensive Income was ¥-3.6B, below Net Loss of ¥-2.7B, due to a ¥-0.9B adjustment related to retirement benefits and a ¥-0.3B foreign currency translation adjustment. Therefore, the improvement in earnings for the current period was driven more by a reduction in the tax burden and temporary gains than by structural improvements in the core business, and earnings quality is assessed as limited.

Earnings Forecast and Guidance

Against the full-year company forecast, the Revenue progress rate was 71.9% (cumulative ¥90.0B / forecast ¥125.2B), slightly below the standard 75% level. Meanwhile, progress toward the Operating Loss was 48.5% (cumulative ¥2.3B / forecast ¥4.8B), and progress toward the Net Loss was 44.8% (cumulative ¥2.7B / forecast ¥6.0B), with losses remaining below plan. In Q4, the key focus will be the recognition of ¥35.1B in revenue and achievement within the permitted levels of an Operating Loss of ¥2.5B and a Net Loss of ¥3.3B. The combination of delayed revenue progress and earnings progress ahead of plan means that the degree of SG&A absorption in Q4 will determine the full-year outcome.

Shareholder Returns

The Q2 dividend was ¥5.00 per share, and the full-year forecast dividend is ¥10.00 per year. Given the cumulative Net Loss of ¥2.7B, the Payout Ratio is negative on a calculated basis, with no support from current-period earnings. As the full-year forecast also anticipates a Net Loss of ¥6.0B, the estimated annual total dividend of approximately ¥1.1B will be paid not from earnings but from retained earnings of ¥108.4B and cash and deposits of ¥55.9B. No disclosure regarding share repurchases has been made.

Risk Factors

1. Profitability risk in the core business: The Machine Tools Business accounts for 88.2% of consolidated revenue but recorded an Operating Loss of ¥2.96B. Demand trends and capacity utilization in this business will significantly affect consolidated earnings. Overseas demand appears weak, with North American revenue down 34.7% YoY and European revenue down 52.5%.

2. Working capital stagnation risk: Inventory days outstanding (annualized) of 133 days, an annualized CCC of 145 days, and a work-in-process ratio of 44.3% all exceed generally cautious levels. These metrics warrant monitoring from the perspectives of lengthening production and acceptance processes and inventory valuation.

3. Profitability and interest burden coverage risk: The Interest Coverage Ratio was negative 26.0x, indicating that interest payments cannot be covered by Operating Income as long as operating losses continue. Although interest expense itself was small at ¥0.09B, attention should be paid to changes in the funding environment if losses persist, particularly in conjunction with the short-term debt ratio of 54.3%.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company's profitability is substantially below the industry median, placing it toward the lower end of the industry as it has not achieved profitability.

Growth and Capital Efficiency

The company's Revenue growth rate is also substantially below the industry median. While peer companies are generally experiencing revenue growth, the company is in a phase of declining revenue.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The gross margin improved by approximately 2.3pt YoY to 25.4%, but the SG&A ratio rose by approximately 2.0pt, limiting the improvement in the Operating Income margin to approximately 0.4pt. The degree of fixed-cost absorption during a recovery in revenue will be the key focus going forward.

2. The loss in the core Machine Tools Business, which accounts for 88.2% of consolidated revenue, determines consolidated profitability and cannot be fully offset by the profitable IT-Related Manufacturing Equipment Business and Automotive Parts Processing Business, whose combined Operating Income was ¥0.61B.

3. While financial soundness is high, with an Equity Ratio of 76.8% and a Current Ratio of 385.3%, inventory days outstanding of 133 days, a CCC of 145 days, and a work-in-process ratio of 44.3% represent structural challenges from the perspective of working capital efficiency.

Theoretical Share Price (Reference Value)

Sensitivity: ¥911–¥962 at ±1% in the Cost of Equity, and ¥921–¥946 at ±0.1 in ω.

Notes:

• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the end of the quarter are used (there is a time discrepancy 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 disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and 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 disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

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