TAZMO CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

The cumulative results for Q2 of the fiscal year ending December 2026 reflected a significant deterioration in profitability due to a sharp slowdown in the core Surface Treatment Equipment Business. Revenue was ¥126.8B (-24.4% YoY), Operating Income was ¥1.2B (-95.1%), Ordinary Income was ¥2.7B (-88.6%), and Net Income was ¥0.4B (-97.7%). SG&A expenses increased 28.1% despite the decline in revenue, and the reversal of operating leverage was the primary cause of the deterioration in profit.

Factors Affecting Performance

【Revenue】Revenue of ¥126.8B decreased 24.4% YoY. By segment, the core Process Equipment Business (86.8% of revenue) generated ¥110.1B, down 10.8% YoY; the Surface Treatment Equipment Business generated ¥14.5B, down 63.6%; and the Precision Molds and Resin Molding Business generated ¥5.7B, down 13.5%. All businesses reported lower revenue. In particular, the sharp decline in the Surface Treatment Equipment Business significantly depressed company-wide revenue.

【Profit and Loss】In addition to the decline in revenue, SG&A expenses increased to ¥34.8B (+28.1% YoY), raising the SG&A expense-to-revenue ratio to 27.4% from 16.2% in the previous year. R&D expenses increased substantially to ¥5.4B, up 125.4% YoY, and the investment, which exceeded Current Period Operating Income of ¥1.2B, weighed on short-term profit. While the Operating Margin fell sharply to 1.0% from 15.0% in the previous year, Ordinary Income reached ¥2.7B, supported by non-operating income of ¥1.9B, including a foreign exchange gain of ¥0.9B. Net Income of ¥0.4B was substantially reduced from Profit Before Tax of ¥2.7B due to the high effective tax rate of 85.8%. The company reported lower revenue and lower profit, with the burden of fixed costs and R&D expenses being the primary causes of the contraction in profit.

Segment Analysis

The Process Equipment Business (86.8% of revenue) reported Revenue of ¥110.1B (-10.8% YoY) and Operating Income of ¥2.2B (-88.5% YoY), with its margin declining sharply to 2.0% from 15.7% in the previous year. Although it was the only segment to remain profitable, profitability has deteriorated, potentially due to lower utilization rates or an adverse project mix. The Surface Treatment Equipment Business reported Revenue of ¥14.5B (-63.6% YoY) and an Operating Loss of ¥0.9B, falling into the red from profit of ¥5.2B in the previous year and representing the largest factor behind the deterioration in consolidated earnings. The Precision Molds and Resin Molding Business reported Revenue of ¥5.7B (-13.5% YoY) and an Operating Loss of ¥0.02B, remaining approximately at breakeven. Profitability gaps among segments have widened, and recovery in the Surface Treatment Equipment Business will be key to the recovery of consolidated performance.

Key Financial Indicators

【Profitability】The Operating Margin of 1.0% and Net Profit Margin of 0.3% both declined substantially from the previous year (15.0% and 9.8%, respectively), while the gross margin also decreased to 28.4% from 31.2%.【Cash Flow Quality】Operating Cash Flow was negative ¥3.4B, showing a significant divergence from Net Income of ¥0.4B, primarily due to a ¥16.8B increase in inventories. Free Cash Flow was negative ¥6.3B, with capital expenditures of ¥13.3B reaching 2.5 times depreciation and amortization of ¥5.2B.【Investment Efficiency】Annualized ROE was 0.3%, while total asset turnover remained low. Inventories of ¥172.1B, equivalent to 35.5% of total assets, constrained capital efficiency.【Financial Soundness】The Equity Ratio was 55.5%, and the Current Ratio remained high, with current assets of ¥383.8B compared with current liabilities of ¥158.9B. Cash and deposits of ¥147.8B were also secured.

Cash Flow Analysis

Operating Cash Flow was negative ¥3.4B, a substantial deterioration from ¥43.9B in the same period of the previous year. While the subtotal of Operating Cash Flow before changes in working capital was positive ¥4.5B, the ¥16.8B increase in inventories and ¥8.3B payment of corporate income taxes placed pressure on cash flow, ultimately resulting in a deficit. Investing Cash Flow was negative ¥2.9B, including capital expenditures of ¥13.3B. Financing Cash Flow was ¥0.1B, essentially neutral. Free Cash Flow was negative ¥6.3B, indicating that capital expenditures were not funded internally. Contract liabilities (advances received) increased by ¥24.0B and provided a certain degree of support for liquidity; however, progress in converting inventories, particularly work in process, into cash will be key to future cash generation.

Earnings Quality

Of Ordinary Income of ¥2.7B, non-operating income of ¥1.9B—including a foreign exchange gain of ¥0.9B and interest income of ¥0.8B, among other items—was larger than Operating Income of ¥1.2B and supported Ordinary Income. Accordingly, the quality of Ordinary Income depends more on non-operating factors than on the earnings power of the core business. The foreign exchange gain of ¥0.9B was equivalent to 72.9% of Operating Income, and a reversal of this gain could increase the volatility of Ordinary Income. Corporate income taxes of ¥2.3B were recorded against Profit Before Tax of ¥2.7B, resulting in a high effective tax rate of 85.8% and significantly limiting the conversion into Net Income of ¥0.4B. Comprehensive Income of ¥3.3B exceeded Net Income of ¥0.4B, primarily due to foreign currency translation adjustments of ¥2.9B, and therefore did not reflect the profitability of the core business.

Earnings Forecast and Guidance

The full-year company forecast is Revenue of ¥355.0B (+0.2% YoY), Operating Income of ¥36.0B (-24.5%), and Ordinary Income of ¥35.0B (-30.1%). Progress against the first-half results was only 35.7%, 3.4%, and 7.7%, respectively. In particular, the Operating Income progress rate was substantially below the standard 50%, implying a plan that requires the Operating Margin to recover sharply to approximately 15% in the second half. The earnings forecast has not been revised, and the company is assuming a recovery in the Surface Treatment Equipment Business and progress in the acceptance of major projects during the second half.

Shareholder Returns

The Q2 dividend was ¥0 per share. The full-year dividend forecast is ¥34.0 per share, implying a forecast Payout Ratio of approximately 19.9% against forecast full-year EPS of ¥170.65. Share repurchases have essentially not been conducted, and the gap between the Payout Ratio and Total Return Ratio is limited. First-half Free Cash Flow was negative ¥6.3B, and annual dividend payments cannot be covered solely by cash generated during the interim period. Accordingly, the sustainability of dividends will depend on a recovery in profit and cash flow during the second half.

Risk Factors

1. Sharp slowdown in the Surface Treatment Equipment Business: Revenue was ¥14.5B (-63.6% YoY), and the segment posted an Operating Loss of ¥0.9B, turning loss-making from profit of ¥5.2B in the previous year. Continued project postponements or delays in acceptance could become the primary impediment to profit recovery in the second half.

2. Accumulation of work in process and deterioration in working capital efficiency: Of inventories of ¥172.1B, work in process amounted to ¥132.0B, representing 76.7%. Inventories increased by ¥16.8B, placing pressure on Operating Cash Flow. This suggests the possibility of delays in production progress and project acceptance.

3. Progress gap against the full-year plan: The Operating Income progress rate of 3.4% is substantially below the standard 50%, requiring significant improvement in profitability during the second half. The degree to which the full-year plan is achieved will depend on the recovery of the Surface Treatment Equipment Business.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company's profitability is substantially below the industry median, indicating an inferior position in terms of earnings power.

Growth and Capital Efficiency

While the industry average is on a growth trajectory, the company reported a substantial decline in revenue and is significantly behind in terms of growth.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The primary cause of the decline in revenue and profit was the sharp slowdown in the Surface Treatment Equipment Business. Quarterly revenue and profit trends in this business will be closely monitored as signals of recovery in consolidated performance.

2. The accumulation of inventories, particularly work in process, and the shift of Operating Cash Flow into negative territory indicate an extended project progress and acceptance cycle. The pace at which inventories are converted into sales will be an indicator of future cash flow improvement.

3. Although the full-year plan remains unchanged, the first-half Operating Income progress rate was low at 3.4%. Second-half results will be an important factor in assessing the feasibility of achieving the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,783–¥1,889 at Cost of Equity ±1%; ¥1,835–¥1,836 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly available data; these are not forecasts of market share prices or recommendations for specific investment actions, and do not predict or guarantee future share prices.)

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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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