TOMOE ENGINEERING CO.,LTD.(TOMOE KOGYO CO.,LTD.) (6309) FY2026 Q3

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Executive Summary

The cumulative results for Q3 of the fiscal year ending October 2026 resulted in higher revenue but lower profit, with growth in the core businesses offset by a decline in the Machinery Manufacturing and Sales Business. Revenue was ¥46.81B (+0.9% YoY), while Operating Income was ¥4.71B (-1.9% YoY). Ordinary Income was essentially flat at ¥4.84B (-0.3% YoY), while Net Income increased 4.9% to ¥3.52B, primarily reflecting the recognition of ¥0.35B in extraordinary income. Although the gross profit margin improved to 26.2%, the 5.5% increase in SG&A expenses exceeded revenue growth, causing the Operating Income margin to decline to 10.1% from 10.4% in the previous year.

Factors Affecting Earnings

【Revenue】Revenue was ¥46.81B (+0.9% YoY). Sales of Chemical Industrial Products increased 1.8% YoY to ¥34.84B and drove growth as the core business, accounting for 74.4% of the revenue mix, while the Machinery Manufacturing and Sales Business declined 1.8% to ¥11.96B.

【Profit and Loss】The gross profit margin improved to 26.2% (+approximately 42bp YoY), but SG&A expenses increased 5.5% to ¥7.54B, substantially exceeding the revenue growth rate. Operating Income declined 1.9% to ¥4.71B, and the Operating Income margin fell to 10.1% (-28bp YoY). Ordinary Income was essentially flat at ¥4.84B (-0.3% YoY). Net Income increased 4.9% to ¥3.52B, primarily due to the recognition of ¥0.35B in extraordinary income, including gains on the sale of investment securities, which offset the decline at the Ordinary Income level. In conclusion, revenue increased while profit declined.

Segment Analysis

The Chemical Industrial Products Sales Business secured higher revenue and profit, with Revenue of ¥34.84B (+1.8% YoY), Operating Income of ¥2.91B (+3.8% YoY), and a profit margin of 8.4%, accounting for 61.8% of total company profit. The Machinery Manufacturing and Sales Business posted lower revenue and profit, with Revenue of ¥11.96B (-1.8% YoY), Operating Income of ¥1.80B (-10.0% YoY), and a profit margin of 15.0%, down approximately 140bp from 16.4% in the previous year. Although the Machinery Manufacturing and Sales Business has a higher profit margin than the Chemical Industrial Products Sales Business, its slowdown has structurally constrained growth in consolidated Operating Income.

Key Financial Indicators

【Profitability】The Operating Income margin was 10.1%, while the Net Income margin was 7.5%, improving from 7.2% in the previous year. Although the gross profit margin of 26.2% improved by approximately 42bp YoY, the increase in the SG&A ratio to 16.1% from 15.4% in the previous year reduced the Operating Income margin by approximately 28bp.【Cash Quality】Cash and deposits declined by ¥3.796B YoY to ¥9.57B, while accounts receivable increased to ¥15.27B (+¥1.72B YoY) and electronically recorded monetary claims increased to ¥5.26B (+¥1.26B YoY), indicating a tendency toward working capital accumulation.【Investment Efficiency】Annualized ROE of 10.8% was achieved through a combination of a Net Income margin, total asset turnover of approximately 1.10x, and financial leverage of approximately 1.30x, reflecting a structure that does not depend on high leverage.【Financial Soundness】An Equity Ratio of 76.7% versus 75.8% in the previous year and a current ratio equivalent to 341.8% indicate an extremely conservative capital structure and short-term liquidity position.

Cash Flow Analysis

As a statement of cash flows has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits declined by ¥3.80B from ¥13.37B in the same period of the previous year to ¥9.57B, while accounts receivable and electronically recorded monetary claims increased by approximately ¥2.98B in total. The accumulation of funds in operating receivables appears to have been one factor behind the decline in cash. Treasury shares increased from ¥0.003B to ¥0.903B, suggesting that the allocation of a certain amount of funds to shareholder returns may also have contributed to the decline in cash balances. Property, plant and equipment increased, including a significant ¥0.58B increase in construction in progress, confirming the expansion of the capital investment pipeline. Net assets increased from ¥42.74B to ¥43.60B, with the accumulation of retained earnings supporting the capital base.

Quality of Earnings

At the Ordinary Income level, an improvement in non-operating income and expenses, including ¥0.06B in dividend income and ¥0.15B in total non-operating income, slightly offset the decline in Operating Income, resulting in Ordinary Income of ¥4.84B, essentially unchanged YoY. Meanwhile, the 4.9% YoY increase in Net Income to ¥3.52B was largely driven by a net ¥0.34B increase comprising ¥0.35B in extraordinary income, including ¥0.05B in gains on the sale of investment securities, and ¥0.01B in extraordinary losses. In conjunction with the fact that Operating Income declined, it should be noted that the quality of the profit increase did not result from an improvement in recurring earnings power. Comprehensive Income was ¥3.90B, slightly exceeding Net Income of ¥3.52B, with valuation gains on other securities, including ¥0.37B in valuation difference on securities, contributing to the result. However, the divergence from Net Income attributable to owners of the parent was limited.

Earnings Forecast and Guidance

The full-year company forecasts are Revenue of ¥62.90B (+6.0% YoY), Operating Income of ¥5.90B (+10.2% YoY), and Ordinary Income of ¥6.00B (+11.1% YoY). Progress rates against cumulative results were 74.4% for Revenue, 79.9% for Operating Income, and 80.1% for Net Income, all of which were around or above the standard Q3 progress rate of 75%. In particular, progress for Operating Income and Net Income exceeded the standard level; however, because the progress of Net Income includes the contribution of extraordinary income, trends in core operating profitability during Q4 will determine the quality of full-year achievement. There were no revisions to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The Q2 dividend was ¥36.00 per share, equivalent to ¥24.33 after taking the stock split into account. The full-year dividend forecast is ¥76.00, representing an increase of ¥15.67 from the ¥60.33 equivalent after taking the stock split into account. Based on the full-year Net Income forecast of ¥4.40B, the projected Payout Ratio is calculated at approximately 51.7%. This is a dividend-only Payout Ratio and should be assessed separately from the Total Return Ratio, which takes into account share repurchases (+¥0.90B YoY). Given retained earnings of ¥38.56B and an Equity Ratio of 76.7%, the current dividend level appears to be within a sustainable range.

Risk Factors

1. Concentration of revenue mix: The Chemical Industrial Products Sales Business accounts for 74.4% of Revenue and 61.8% of Operating Income, creating a structure in which demand, market conditions, and raw material price fluctuations in this business could have a significant impact on consolidated results.

2. Working capital efficiency: Accounts receivable increased to ¥15.27B (+12.7% YoY), while electronically recorded monetary claims increased to ¥5.26B (+31.4% YoY), potentially affecting capital efficiency if the collection period for operating receivables becomes prolonged. Cash and deposits declined by ¥3.796B over the same period.

3. Declining profitability of the Machinery Manufacturing and Sales Business: Revenue declined 1.8% YoY and Operating Income declined 10.0% YoY, while the Operating Income margin also fell by approximately 140bp. The recovery capacity of this relatively high-margin business will influence the trajectory of the overall company profit margin.

Industry Benchmark (Reference; Prepared by the Company)

Profitability and Returns

Profitability exceeds the industry median and is relatively favorable within the industry.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median, indicating relatively moderate top-line growth within the industry.

※Source: Prepared by the Company

Key Points from the Earnings Report

1. The Operating Income margin of 10.1% declined from the previous year because the 5.5% increase in SG&A expenses exceeded revenue growth of +0.9%; the trajectory of the cost structure will determine future profitability.

2. The increase in Net Income (+4.9%) was largely attributable to the recognition of extraordinary income. Together with the fact that Operating Income declined, the sustainability of the profit increase depends on a recovery in recurring business earnings.

3. The conservative financial base, consisting of an Equity Ratio of 76.7% and a current ratio equivalent to 341.8%, provides resilience against short-term funding pressures even if the upward trend in accounts receivable and electronically recorded monetary claims continues.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,481–¥1,565 at ±1% for the cost of equity, and ¥1,521–¥1,523 at ±0.1 for ω.

Notes:

• 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.

(Valuation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-08 / Mechanically calculated solely from publicly available data; this 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 report 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 discretion and responsibility, after consulting a professional advisor as necessary.

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