TEIKOKU ELECTRIC MFG. CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.64B
• Operating Income: ¥2.39B
• Net Income: ¥2.50B
• EPS: ¥141.43

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

FY2026 Q2 was a mixed quarter: core profit softened while bottom-line surged on non-recurring gains. Revenue declined 5.2% YoY to 136.37, with operating income down 11.7% YoY to 23.94. Gross profit of 59.48 implies a solid gross margin of 43.6%, but operating leverage turned negative as SG&A absorbed more of the top line. Operating margin was 17.6% this quarter versus an estimated 18.9% a year ago, a compression of roughly 131 bps. Ordinary income fell 7.7% YoY to 25.39, underscoring weaker underlying profitability. Profit before tax, however, jumped to 35.42, indicating sizable extraordinary gains under JGAAP (approximately +10), which lifted net income to 23.49, up 65.0% YoY. Consequently, the net margin expanded sharply to 17.2% from an estimated 9.9% last year, an expansion of roughly 730 bps that is unlikely to be recurring. The effective tax rate was 29.3%, consistent with normalization post extraordinary gains. Comprehensive income of 10.05 was notably below net income (23.49), implying large negative OCI (likely securities valuation and/or FX), tempering the headline improvement. Liquidity remains exceptional with a current ratio of 416.5% and cash/deposits of 142.54, and solvency is conservative with a reported D/E of 0.26x and interest coverage at 778x. DuPont-derived ROE stands at 7.1% (Net Margin 17.2% × Asset Turnover 0.325 × Financial Leverage 1.26x), but the elevated net margin is supported by one-off items rather than core operations. ROIC is reported at 8.9%, modestly above the 7–8% benchmark, but sustainability hinges on core order trends and cost pass-through. With operating profit down and net profit up, earnings quality is mixed and dependent on non-operating/extraordinary effects. Cash flow data are unreported, preventing confirmation that earnings converted to cash; this is a key near-term diligence item. Looking forward, maintaining profitability will require stabilizing volumes and protecting price/mix in a softer demand environment while avoiding reliance on one-time gains.

Profitability Analysis

ROE decomposition: 7.1% = 17.2% Net Profit Margin × 0.325 Asset Turnover × 1.26x Financial Leverage. The component that changed most is the net margin, which expanded on the back of extraordinary gains that boosted PBT despite softer operating income. Business reasoning: operating income declined due to negative operating leverage (revenue -5.2% YoY vs OI -11.7% YoY), but extraordinary income (~+10) elevated PBT and NI, driving net margin higher. Sustainability: low—extraordinary gains are, by definition, nonrecurring; core margin pressure (operating margin compressed ~131 bps YoY) suggests underlying profitability is weaker absent one-offs. Asset turnover likely edged down as revenue fell while the asset base (419.15 total assets) remained sizable; leverage is low and stable, providing little contribution to ROE changes. Concerning trends: operating deleverage is evident; SG&A as a percentage of sales is 26.1%, but YoY SG&A growth cannot be verified due to missing prior-period detail. Watch for continued margin pressure if demand softness persists or if cost inflation cannot be passed through.

Growth Assessment

Top-line contracted 5.2% YoY to 136.37, signaling softer demand or timing slippage in shipments/projects. Operating income fell 11.7% YoY to 23.94, indicating negative operating leverage. Net income rose 65.0% YoY to 23.49, driven by extraordinary gains rather than recurring operations. Gross margin is healthy at 43.6%, suggesting product/price discipline, but operating margin compressed to 17.6% as SG&A absorption increased. Ordinary income declined 7.7%, reinforcing the view of weaker core profit momentum. ROIC at 8.9% is above the typical 7–8% target range, but sustaining this without extraordinary items will require stabilizing revenue and protecting operating margin. Non-operating income (1.53) and minimal interest expense (0.03) show limited recurring financial tailwinds. Outlook hinges on end-market capex cycles (chemical plants/industrial flow equipment), project timing, and cost pass-through; absent a volume rebound, operating margin recovery may be gradual. Data limitations (no order backlog, no OCF) constrain visibility on revenue sustainability and near-term execution risk.

Financial Health

Liquidity is very strong: current ratio 416.5% (well above the >150% benchmark), and quick ratio matches due to unreported inventories. Working capital stands at 248.65, supported by cash and deposits of 142.54 and receivables of 89.87. Solvency is conservative: total liabilities of 87.12 vs total equity of 332.03 implies low leverage (reported D/E 0.26x). Interest coverage is extremely robust at 778.5x, reflecting minimal interest burden (0.03) and healthy operating earnings. There is no warning on Current Ratio (<1.0) or D/E (>2.0). Maturity mismatch risk appears low: current assets (327.23) far exceed current liabilities (78.57). Interest-bearing debt is unreported, so exact debt mix cannot be confirmed; however, overall liabilities are modest. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

OCF and FCF are unreported, so OCF/Net Income cannot be assessed; this is a key limitation. Earnings quality flags: (1) large gap between operating income (-11.7% YoY) and net income (+65.0% YoY) due to extraordinary gains inflating PBT/NI; (2) comprehensive income (10.05) far below net income (23.49), indicating negative OCI that offsets reported earnings. Without OCF, we cannot confirm cash conversion or working capital dynamics; receivables are sizeable at 89.87, and inventories are unreported, limiting visibility into potential working capital build. FCF coverage of capex and dividends is not calculable. Given ample cash (142.54) and low leverage, near-term liquidity risk is low, but sustainability of cash generation must be validated when cash flows are disclosed.

Dividend Sustainability

The calculated payout ratio is 79.0%, above the <60% benchmark for comfort, suggesting limited cushion if earnings normalize lower without extraordinary gains. DPS and total dividends paid are unreported; FCF coverage is not calculable due to missing OCF/capex. Balance sheet strength (cash 142.54, low leverage) provides capacity to maintain dividends in the short term even if core earnings soften. However, reliance on nonrecurring gains this quarter and negative OCI imply that a high payout could pressure retained earnings if repeated. Policy outlook cannot be confirmed from the data; watch for guidance on full-year DPS and any link to consolidated payout or DOE targets.

Risk Assessment

Business Risks:

• Demand softness evidenced by 5.2% YoY revenue decline
• Operating margin compression (~131 bps YoY) indicating negative operating leverage
• Potential project timing and order volatility in industrial/plant markets
• Raw material and component cost inflation risk affecting gross margin
• FX volatility impacting export competitiveness and OCI

Financial Risks:

• Earnings reliance on extraordinary gains in the quarter (nonrecurring)
• Large negative OCI reducing comprehensive income vs net income
• Limited visibility on cash generation due to unreported OCF/FCF
• Receivables concentration risk (AR 89.87) if end-markets weaken

Key Concerns:

• Gap between operating performance (down) and net profit (up) implies low earnings quality
• High calculated payout ratio (79%) could be stretched if core profits soften
• Missing disclosures (OCF, capex, inventories, dividend details) obscure true cash and capital needs

Investment Implications

Key Takeaways:

• Core profitability weakened despite resilient gross margin; operating margin compressed ~131 bps YoY
• Net income strength (+65% YoY) is driven by extraordinary gains and is unlikely to recur
• Balance sheet is fortress-like (current ratio 416%, D/E 0.26x, cash 142.54), reducing financial risk
• ROE at 7.1% and ROIC at 8.9% are adequate but could slip without margin recovery
• Comprehensive income weakness and absent cash flow data warrant caution on earnings quality

Metrics to Watch:

• Order backlog and book-to-bill for visibility on revenue recovery
• Operating cash flow and working capital movements (AR, inventories) when disclosed
• Extraordinary items and OCI drivers (securities valuation, FX)
• Gross-to-operating margin bridge (SG&A control, price/mix vs volume)
• Dividend guidance vs cash generation and capex plans

Relative Positioning: Within Japan industrial components/flow equipment peers, the company exhibits superior balance sheet strength and solid gross margin, but trails on near-term operating momentum; headline profitability is inflated by one-offs, leaving underlying earnings quality and cash conversion as the key differentiators to close the gap with peers emphasizing steady core profit growth.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis