TAZMO CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

This quarter saw a sharp shift from a trend of revenue growth to a substantial decline in both revenue and earnings, due to a slowdown in demand for semiconductor manufacturing equipment and delays in project progress. Revenue was ¥126.8B (¥167.9B in the same period last year, -24.4%), Operating Income was ¥1.2B (¥25.2B in the same period last year, -95.1%), Ordinary Income was ¥2.7B (¥23.8B in the same period last year, -88.6%), and Net Income attributable to owners of the parent was ¥0.4B (¥16.5B in the same period last year, -97.7%). The slowdown in orders for the core ProcessEquipment business, deterioration in the business mix caused by SurfaceTreatmentEquipment falling into the red, and the relative increase in SG&A expenses against the decline in revenue significantly pressured profit margins.

Factors Affecting Earnings

【Revenue】Revenue was ¥126.8B, down -24.4% year on year. By segment, ProcessEquipment generated ¥110.1B (84.5% of total, YoY -10.8%), SurfaceTreatmentEquipment generated ¥14.5B (11.1% of total, YoY -63.6%), and PrecisionMoldingDiesAndPlasticMoldings generated ¥5.7B (4.4% of total, YoY -13.5%). The sharp decline in SurfaceTreatmentEquipment substantially amplified the overall revenue decline.

【Profit and Loss】The gross profit margin declined from the previous year to 28.4%, while SG&A expenses increased to ¥34.8B (SG&A ratio of 27.4%), leaving Operating Income at only ¥1.2B (Operating Income margin of 1.0%). By segment, ProcessEquipment’s segment profit contracted to ¥2.2B (YoY -88.5%, profit margin of 2.0%), while SurfaceTreatmentEquipment fell into a loss of -¥0.9B. Ordinary Income of ¥2.7B was largely supported by ¥1.9B in non-operating income, including ¥0.9B in foreign exchange gains and ¥0.8B in interest income. Net Income of ¥0.4B was further compressed by the high effective tax rate of 85.8%. The company experienced declines in both revenue and earnings, with rigidity in the cost structure and losses in certain segments worsening overall profitability.

Segment Analysis

ProcessEquipment, although the core business, saw its profit margin contract significantly, with revenue of ¥110.1B (down -10.8% year on year) and Operating Income of ¥2.2B (down -88.5% year on year, profit margin of 2.0%). SurfaceTreatmentEquipment fell into the red, with revenue of ¥14.5B (down -63.6% year on year) and an Operating Loss of -¥0.9B (profitable in the previous year, down -117.4% year on year), as the sharp decline in demand directly affected earnings. PrecisionMoldingDiesAndPlasticMoldings generated revenue of ¥5.7B (down -13.5% year on year) and Operating Income of -¥0.0B, which was approximately break-even but deteriorated from the previous year. ProcessEquipment accounted for 84.5% of the revenue mix, and the high dependence on a single segment is amplifying the volatility of overall company performance.

Key Financial Indicators

【Profitability】The Operating Income margin of 1.0% and Net Income margin of 0.3% both declined substantially from the previous year (approximately 15.0% and 9.8%, respectively), while the gross profit margin also declined to 28.4%.【Cash Flow Quality】Operating Cash Flow (OCF) was -¥3.4B, below Net Income of ¥0.4B, primarily due to an increase in inventories, particularly work in process of ¥132.0B. Free Cash Flow was -¥6.3B, indicating weakening cash-generation capacity.【Investment Efficiency】ROE was 0.1% and the Equity Ratio was 55.5%. The decline in asset turnover, combined with deteriorating profit margins, significantly lowered ROE. Research and development expenses were ¥5.4B (4.3% of revenue), indicating that the level of investment was maintained.【Financial Soundness】The Equity Ratio was 55.5% and cash and deposits totaled ¥147.8B, ensuring liquidity. However, contract liabilities had accumulated to ¥62.2B (approximately 49% of revenue), making progress in project acceptance a key factor in cash collection.

Cash Flow Analysis

Operating Cash Flow (OCF) was -¥3.4B, indicating weak cash-generation capacity well below Net Income of ¥0.4B. The primary factors were an increase in inventories of -¥16.8B, mainly reflecting the accumulation of work in process, and corporate income taxes paid of -¥8.3B, partially offset by an increase in contract liabilities of +¥24.0B. Investing Cash Flow was -¥2.9B. Although capital expenditures of -¥13.3B were recorded, Investing Cash Flow appeared smaller due to the withdrawal of time deposits and other factors. Financing Cash Flow was ¥0.1B and was approximately neutral, as proceeds from and repayments of long-term borrowings were balanced. Free Cash Flow, calculated as the sum of Operating Cash Flow and Investing Cash Flow, was -¥6.3B, indicating that dividends and investments cannot be sufficiently covered by internal funds generated during the current period alone.

Quality of Earnings

Of Ordinary Income of ¥2.7B, ¥1.9B in non-operating income, including ¥0.9B in foreign exchange gains and ¥0.8B in interest income, provided support. The relative dependence of Operating Income of ¥1.2B on non-operating income was high, indicating some vulnerability in earnings quality. Non-operating expenses were ¥0.5B, including ¥0.4B in interest expenses. The gap between Ordinary Income and Net Income was primarily attributable to the tax burden, with the effective tax rate at an extremely high level of approximately 85.8%. This is considered to reflect the relatively greater impact of permanent differences and other factors under the low profit level, substantially compressing final Net Income to ¥0.4B. Comprehensive income was ¥3.3B, exceeding Net Income of ¥0.4B, primarily due to foreign currency translation adjustments of ¥2.9B. Accordingly, the improvement in comprehensive income does not indicate a fundamental recovery in the company’s earning power.

Earnings Forecast and Guidance

The full-year forecast calls for Revenue of ¥355.0B (up +0.2% year on year), Operating Income of ¥36.0B (down -24.5% year on year), and Ordinary Income of ¥35.0B (down -30.1% year on year). Progress for the current interim period was 36% for Revenue, 3% for Operating Income, and 8% for Ordinary Income, all substantially below the level typically expected for the first half of the year (a benchmark of 50%). The particularly low progress on profit indicates that achieving the plan depends on the progress of acceptance for large projects and improvement in the cost structure during the second half. Contract liabilities of ¥62.2B, equivalent to approximately 49% of revenue, suggest the existence of orders already received; however, the timing of project acceptance will be key to achieving the full-year plan. Neither the earnings forecast nor the dividend forecast was revised during this quarter.

Shareholder Returns

The company paid no dividend for the current interim period (interim dividend of ¥0), while the full-year dividend forecast is ¥34. Based on the company’s forecast EPS of ¥170.65 per share, the forecast Payout Ratio is approximately 19.9%, a relatively conservative level. Share repurchases were approximately zero on a cash flow basis, making dividends the primary form of shareholder returns. Free Cash Flow for the current interim period was -¥6.3B, meaning that dividends cannot be sufficiently covered by internal funds alone; however, cash and deposits of ¥147.8B provide support. The degree of recovery in earnings and cash flow during the second half will determine the feasibility of the full-year dividend forecast.

Risk Factors

1. Inventory stagnation risk: Work in process accounts for ¥132.0B of total inventories of ¥172.1B, equivalent to 35.5% of total assets. If delays in project acceptance continue, the risk of future valuation losses will increase in addition to deterioration in capital efficiency.

2. Deterioration in profitability and delays in earnings progress: Against the full-year Operating Income forecast of ¥36.0B, progress for the current interim period was only 3%, making concentrated project acceptance and recovery in fixed-cost absorption during the second half prerequisites for achieving the plan. SG&A expenses have increased year on year while Revenue has declined, reducing the company’s ability to absorb fixed costs.

3. Segment concentration risk: The company depends on ProcessEquipment for 84.5% of Revenue, while SurfaceTreatmentEquipment fell into an Operating Loss of -¥0.9B. This structure means that fluctuations in demand in a specific segment have a significant impact on overall company performance.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability is substantially below the industry median and does not reach the lower bound of the IQR (5.4%).

Growth and Capital Efficiency

The Revenue growth rate is substantially below the industry median, indicating a pronounced slowdown even among its peers.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Progress toward the full-year guidance during the first half was extremely low, at 3% for Operating Income and 8% for Ordinary Income. The financial results indicate that accelerating project acceptance is necessary to achieve the second-half-weighted plan.

2. The accumulation of inventories, primarily work in process, and the increase in contract liabilities (¥62.2B, approximately 49% of Revenue) are progressing simultaneously. The timing of conversion of orders already received into Revenue and cash flow will determine future business performance.

3. The effective tax rate was high at approximately 85.8%, widening the gap between Ordinary Income and Net Income. The company also has relatively high dependence on non-operating income, including foreign exchange gains and interest income, confirming a decline in recurring earning power within the earnings structure.

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 disclosed data; these are not forecasts of market prices or recommendations for any specific investment action, 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 responsibility, after consulting with professionals as necessary.

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