TSUKISHIMA HOLDINGS CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The Company reported higher revenue, operating income, and ordinary income in Q1, resulting in higher revenue and earnings, while net income declined year on year due to the smaller scale of extraordinary gains. It should be noted that the underlying earnings growth is highly dependent on temporary factors. Revenue was ¥271.8B (+9.5% year on year), operating income was ¥4.8B (+188.8%), and ordinary income was ¥8.8B (+28.5%). Meanwhile, net income (net income attributable to the period) was ¥20.8B (¥24.2B in the previous year, -14.3%), declining mainly due to the reversal of gains on the sale of investment securities recorded in the previous year. The operating margin improved to 1.8% from 0.7% in the previous year, reflecting a recovery in the profitability of the Industrial Business and an increase in the company-wide gross margin (21.3%, +1.4pt); however, the Water Environment Business continued to post a small operating loss. The Company also recorded extraordinary income of ¥23.1B, including ¥22.2B in gains on the sale of investment securities, which boosted profit before tax (¥31.8B).

Factors Affecting Performance

【Revenue】Revenue was ¥271.8B, representing a year-on-year increase of +9.5%. By segment, the Industrial Business led growth with revenue of ¥101.9B (37.5% of total revenue, +14.6% year on year), while the Water Environment Business maintained revenue growth at ¥170.7B (62.8% of total revenue, +8.7%). The Other segment declined to ¥11.8B (-23.0%). By region, Japan accounted for the majority of revenue at ¥244.9B (90.1% of total revenue, +8.6%), while overseas markets recorded higher growth, with Asia at ¥19.0B (+14.9%) and other regions at ¥7.9B (+30.7%).

【Profit and Loss】Gross profit was ¥57.9B, and the gross margin improved to 21.3% from 19.9% in the previous year, an improvement of +1.4pt, supported by the recovery in the profitability of the Industrial Business. Meanwhile, SG&A expenses were ¥53.1B, up +11.3% year on year and exceeding revenue growth of +9.5%; the increase in fixed costs partially offset operating leverage. As a result, operating income was ¥4.8B (+188.8%), and the operating margin was 1.8% (0.7% in the previous year). Ordinary income was ¥8.8B (+28.5%), supported by non-operating income including dividend income of ¥2.7B, interest income of ¥0.8B, and foreign exchange gains of ¥0.5B. Profit before tax expanded to ¥31.8B, but this was attributable to the recognition of extraordinary income of ¥23.1B, including ¥22.2B in gains on the sale of investment securities, representing a temporary boost well above the level of ordinary income. Net income (net income attributable to the period) was ¥20.8B (-14.3%), while net income attributable to owners of the parent was ¥20.7B (-16.0%); both declined due to the reduction from the comparable gain on the sale of investment securities recorded in the previous year (¥30.5B in the previous year). In conclusion, revenue, operating income, and ordinary income increased, while net income declined due to the smaller scale of extraordinary income.

Segment Analysis

The Industrial Business generated revenue of ¥101.9B (+14.6% year on year), operating income of ¥6.0B (+285.4%), and a profit margin of 5.9%, making it the main driver of company-wide earnings. The Water Environment Business generated revenue of ¥170.7B (+8.7%) and accounted for 62.8% of company-wide revenue, making it the largest segment; however, its operating loss narrowed only to -¥0.2B (-¥1.6B in the previous year), and its margin remained slightly negative at -0.1%. The Other segment (real estate leasing, printing and bookbinding, etc.) reported revenue of ¥11.8B (-23.0%) and operating loss of -¥1.0B (operating income of +¥1.8B in the previous year), turning from a profit to a loss and weighing on company-wide operating income of ¥4.8B. The profitability gap between the Industrial Business (5.9% margin) and the Water Environment Business (-0.1% margin) reached 6.0pt, making profitability improvement in the Water Environment Business a key challenge for raising the company-wide margin.

Key Financial Indicators

【Profitability】The operating margin improved to 1.8% from 0.7% in the previous year, an improvement of +1.1pt. However, the net profit margin (based on net income attributable to the period) declined to 7.6% from 9.8%, a decrease of -2.1pt, reflecting the smaller scale of extraordinary income. ROE was 1.8%, remaining at a level determined by the product of the net profit margin, total asset turnover (0.148x), and financial leverage (approximately 1.6x). 【Cash Quality】Total comprehensive income was only ¥0.15B, significantly below net income of ¥20.8B. The primary factor was a substantial negative change of -¥18.9B in valuation differences on securities, apparently reflecting the realization (recycling) of valuation differences associated with the sale of held securities. 【Investment Efficiency】Total asset turnover was 0.148x (quarterly basis), while total assets declined to ¥1836.0B from ¥2030.2B in the previous year, a contraction of -9.6%, mainly due to the reduction in accounts receivable (¥500.0B, -37.4%). 【Financial Soundness】The equity ratio rose to 62.1% from 57.9% in the previous year, an increase of +4.2pt. Against interest-bearing debt (short-term ¥0.5B, long-term ¥95.6B, and bonds ¥50.0B), the Company held cash and deposits of ¥286.2B and short-term securities of ¥264.0B, maintaining a net cash position and a sound financial foundation.

Cash Flow Analysis

As explicit figures from the statement of cash flows have not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥286.2B, down -4.7% from ¥300.5B in the previous year, while short-term securities increased to ¥264.0B, up +161.0% year on year (+¥163.0B), indicating that the Company has been building its liquidity cushion through the investment of surplus funds. In terms of working capital, accounts receivable and notes receivable were significantly reduced to ¥500.0B (¥798.3B in the previous year, -37.4%), while contract liabilities (advances received) increased to ¥155.5B (¥97.6B in the previous year, +59.2%). The progress of project billings and the accumulation of advances received appear to have contributed to cash generation. Meanwhile, accounts payable and notes payable declined substantially to ¥84.2B (¥182.1B in the previous year, -53.8%), with payments of trade liabilities having a cash outflow effect. Work in process increased to ¥38.3B (¥31.9B in the previous year, +20.0%), making the timing of project acceptance and delivery an issue to monitor in terms of future cash conversion.

Quality of Earnings

Of the ¥31.8B in profit before tax for the quarter, ordinary income, which indicates recurring earnings power, was only ¥8.8B. The majority of the remainder was attributable to the temporary factor of extraordinary income of ¥23.1B, including ¥22.2B in gains on the sale of investment securities. Non-operating income of ¥4.7B comprised dividend income of ¥2.7B, foreign exchange gains of ¥0.5B, interest income of ¥0.8B, and other items, with the majority consisting of items bearing a non-recurring nature that supplemented operating income of ¥4.8B. From an accrual perspective, total comprehensive income was only ¥0.15B compared with net income of ¥20.8B, while valuation differences on securities deteriorated significantly to -¥18.9B. The recycling of valuation differences associated with the realization of gains on the sale of held securities may have reduced comprehensive income. In addition, contract liabilities (advances received) increased to ¥155.5B (+59.2%), while work in process accumulated to ¥38.3B (+20.0%); the balance between advances received and uncompleted construction work recognized ahead of revenue may affect the timing of future revenue recognition. Overall, the quality of net income attributable to the period is highly dependent on extraordinary income, and operating income and ordinary income should be emphasized when evaluating recurring earning power.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year earnings forecasts were 17.9% for revenue (¥271.8B/¥1520.0B), 4.4% for operating income (¥4.8B/¥110.0B), and 7.5% for ordinary income (¥8.8B/¥117.0B), all below the 25% benchmark for even quarterly progress. The full-year plan anticipates growth in revenue of +2.0%, operating income of +11.8%, and ordinary income of +6.5%, suggesting that the low progress rates as of Q1 reflect an earnings plan weighted toward the second half. During the quarter, there were no revisions to either the earnings forecast or the dividend forecast, and management maintained its current plan.

Shareholder Returns

The full-year dividend forecast is ¥88 per share. For the interim dividend for the fiscal year ending March 2026, the Company paid ¥42, comprising an ordinary dividend of ¥40 and a commemorative dividend of ¥2 for the 120th anniversary of its founding; on a simple calculation, this implies an expected year-end dividend of ¥46. The payout ratio against full-year forecast EPS of ¥214.87 is approximately 41.0% (¥88/¥214.87), which is not an exceptionally high level. Supported by an equity ratio of 62.1% and substantial liquidity consisting of cash and deposits of ¥286.2B plus short-term securities of ¥264.0B, the burden of securing funds for dividends appears limited. No disclosure regarding share buybacks has been identified.

Risk Factors

1. Project progress and acceptance timing risk: Work in process increased to ¥38.3B, up +20.0% year on year. If project acceptance or delivery is delayed from plan, the timing of revenue, profit, and cash conversion could be affected.

2. Weak profitability in the Water Environment Business: The segment’s operating margin is -0.1%, compared with 5.9% for the Industrial Business, representing a gap of 6.0pt. If profitability improvement in the largest segment, which accounts for 62.8% of company-wide revenue, is delayed, it may continue to weigh on the company-wide margin.

3. Dependence of net income on temporary factors: Extraordinary income of ¥23.1B, including gains on the sale of investment securities of ¥22.2B, accounted for 72.6% of profit before tax of ¥31.8B. Total comprehensive income was ¥0.15B, significantly below net income of ¥20.8B, indicating earnings volatility reflecting fluctuations in valuation differences on securities.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Growth and Capital Efficiency

Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The gross margin improved by +1.4pt to 21.3% (19.9% in the previous year), and the recovery in the profitability of the Industrial Business drove company-wide earnings. However, the increase in SG&A expenses (+11.3%) exceeded revenue growth (+9.5%), limiting the impact of operating leverage.

2. The primary factor boosting net income was the ¥22.2B gain on the sale of investment securities, resulting in a significant divergence from ordinary income of ¥8.8B. Progress against the full-year plan was also below the benchmark for even quarterly progress, at 17.9% for revenue, 4.4% for operating income, and 7.5% for ordinary income; progress on projects in the second half is therefore a prerequisite for achieving the plan.

3. By segment, there is a profitability gap of 6.0pt between the Industrial Business (5.9% margin) and the Water Environment Business (-0.1% margin), while contract liabilities (advances received) increased to ¥155.5B (+59.2%). The accumulation of advances received indicates potential for future revenue recognition, while achieving profitability in the Water Environment Business is the structural key to improving the company-wide margin.

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 period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,665–¥2,819 at ±1% for the cost of equity, and ¥2,736–¥2,744 at ±0.1 for ω.

Notes:

• Because 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 timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI based on 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, and you should consult a professional adviser as necessary.

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