TEIKOKU CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Although the Company secured higher revenue in the quarter, profit declined substantially due to rising costs and the reversal of one-time gains recorded in the previous year. Revenue increased modestly to ¥6.36B (+2.1% YoY), while Operating Income declined to ¥0.83B (-27.8%), Ordinary Income to ¥0.93B (-22.3%), and Net Income to ¥0.65B (-36.1%, on a consolidated basis), with the decline widening at each level. The gross profit margin fell 4.4pt to 41.7% from 46.1% in the previous year, while SG&A expenses increased at a faster pace than revenue, which was the primary factor behind the decline in Operating Income. In addition, special gains, including gains on the sale of investment securities, totaling ¥0.41B on a net basis, recorded in the same period of the previous year did not recur in the current period, further widening the decline in Profit Before Tax and Net Income.

Factors Affecting Earnings

【Revenue】Revenue was ¥6.36B, representing a modest 2.1% YoY increase. The Company operates a single segment, the Pump Business, and does not disclose the breakdown of changes by segment. Work in process increased 20.3% YoY, while accounts payable increased 21.9%, indicating that production activity itself has become more active, although acceptance inspections and revenue recognition may be concentrated in the second half of the fiscal year. Progress against the full-year revenue forecast of ¥31.01B was 20.5%, below the 25% benchmark for even quarterly progress.

【Profit and Loss】Operating Income was ¥0.83B (-27.8% YoY). The gross profit margin declined 4.4pt to 41.7% from 46.1% in the previous year, while SG&A expenses increased to ¥1.82B (¥1.71B in the previous year, +6.0%), exceeding the 2.1% growth in revenue. Consequently, the Operating Income margin contracted 5.5pt to 13.1% from 18.6% in the previous year. Ordinary Income was ¥0.93B (-22.3%), with non-operating income and expenses making a modest positive contribution, mainly due to dividends received and foreign exchange gains. Profit Before Tax was ¥0.93B, approximately the same level as Ordinary Income; however, in the previous year, the Company recorded net special gains of ¥0.41B, including a ¥0.31B gain on the sale of investment securities, resulting in Profit Before Tax of ¥1.60B exceeding Ordinary Income of ¥1.197B. No such special gains or losses were recorded in the current period, resulting in consolidated Net Income of ¥0.65B (-36.1%). Higher revenue but lower profit.

Key Financial Indicators

【Profitability】The Operating Income margin was 13.1% (18.6% in the previous year), the Net Income margin was 10.3% (16.4% in the previous year, based on consolidated Net Income), and ROE was 2.0%; all declined from the previous year. 【Cash Flow Quality】Comprehensive Income was ¥1.08B, exceeding Net Income of ¥0.65B by ¥0.43B, primarily due to foreign currency translation adjustments of +¥0.37B. Cash and deposits were ¥11.11B, down from ¥11.72B in the previous year, while inventories, comprising products, work in process, and raw materials, increased 12.2% YoY to ¥9.39B. 【Investment Efficiency】Total assets were ¥40.39B, nearly flat with a 0.5% YoY increase, while property, plant and equipment increased gradually to ¥8.26B from ¥7.95B in the previous year. 【Financial Soundness】The Equity Ratio was 79.5%, a modest decline from 80.2% in the previous year but still at a high level. Current assets of ¥30.51B compared with current liabilities of ¥7.14B resulted in a substantial Current Ratio of 427.4%. Interest expense was ¥0.007B and interest income was ¥0.028B, indicating that the burden of interest-bearing debt was minimal.

Cash Flow Analysis

Cash and deposits were ¥11.11B, down ¥0.61B from ¥11.72B in the same period of the previous year. Inventories, comprising products, work in process, and raw materials, were ¥9.39B, up 12.2% YoY, with the accumulation of production serving as a source of working capital absorption. Meanwhile, accounts receivable were ¥8.40B, down 8.1% from ¥9.14B in the previous year, indicating that collections progressed more than in the previous year. Accounts payable were ¥2.15B, up 22.0% from ¥1.76B in the previous year, suggesting greater scope for utilizing trade payables. Overall, the increase in inventories was the primary cause of funds being tied up, while movements in accounts receivable and accounts payable supported cash efficiency.

Quality of Earnings

No special gains or losses were recorded in the current period, and Ordinary Income of ¥0.93B was approximately equal to Profit Before Tax of ¥0.93B, indicating that most profit comprised recurring earnings. In contrast, the same period of the previous year included net special gains of ¥0.41B, including a ¥0.31B gain on the sale of investment securities and a ¥0.10B gain on the sale of fixed assets. As a result, Profit Before Tax of ¥1.60B exceeded Ordinary Income of ¥1.197B. Due to the reversal of these one-time gains in the current period, Profit Before Tax declined 42.0% YoY, a larger decrease than the 22.3% decline in Ordinary Income. The difference between Ordinary Income of ¥0.93B and consolidated Net Income of ¥0.65B was primarily attributable to the deduction of income taxes and other taxes of ¥0.28B (an effective tax rate of approximately 29.8%) and profit attributable to non-controlling interests of ¥0.05B; no unusual structural factors were identified. Comprehensive Income was ¥1.08B, exceeding Net Income, with the substantial contribution of +¥0.37B in foreign currency translation adjustments indicating that yen-based valuation gains and losses lifted Comprehensive Income in the current period.

Earnings Forecast and Guidance

Against the full-year earnings forecasts of revenue of ¥31.01B, Operating Income of ¥5.02B, Ordinary Income of ¥5.23B, and Net Income attributable to owners of the parent of ¥3.75B, progress in the current quarter was 20.5% for revenue, 16.6% for Operating Income, 17.8% for Ordinary Income, and 16.1% for Net Income (on an attributable-to-owners-of-the-parent basis, actual result of ¥0.603B). All were below the 25% benchmark for even quarterly progress. Neither the earnings forecast nor the dividend forecast has been revised, and the Company’s plan may assume progress weighted toward the second half of the fiscal year. Recovery in the gross profit margin and margin improvement will be key to achieving the plan from the second half onward.

Shareholder Returns

The full-year dividend forecast remains unchanged at ¥132 per share. Based on the Company’s forecast EPS of ¥244.53, calculated on the basis of profit attributable to owners of the parent, the Payout Ratio is approximately 54.0%. With an Equity Ratio of 79.5% and a Current Ratio of 427.4%, the Company has a strong financial foundation, providing relatively strong support for its dividend funding capacity. The actual dividend in the same period of the previous year was ¥55 per share; however, as the breakdown between the interim and year-end dividends is not clear from the materials, the assessment is limited to the full-year forecast basis.

Risk Factors

1. Risk of uneven project progress and acceptance timing: Progress toward the full-year plan was 20.5% for revenue and 16.6% for Operating Income, both below the 25% benchmark for even quarterly progress. Concentration of acceptance inspections in the second half is therefore a prerequisite for achieving the plan.

2. Risk of working capital becoming tied up: Inventories, comprising products, work in process, and raw materials, were ¥9.39B, up 12.2% YoY. Additional inventory accumulation may affect capital efficiency.

3. Risk of continued margin pressure: The gross profit margin declined 4.4pt to 41.7% from 46.1% in the previous year, while SG&A expenses increased 6.0% YoY, faster than the 2.1% growth in revenue. Developments in the cost and expense structure will be subject to monitoring.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceeded the industry median, indicating that profitability was relatively high within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate was below the industry median, indicating a relatively slower pace of revenue growth within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Despite higher revenue, the Operating Income margin declined 5.5pt from 18.6% in the previous year to 13.1%, indicating structural margin compression due to deterioration in the gross profit margin and an increase in SG&A expenses.

2. Special gains, including gains on the sale of investment securities, totaling ¥0.41B on a net basis in the same period of the previous year, did not recur in the current period. This reversal amplified the 36.1% YoY decline in Net Income.

3. Progress toward the full-year plan was below the 25% benchmark for the major indicators, indicating a plan weighted toward the second half. The recovery trend in the gross profit margin will be a factor determining whether the full-year plan can be achieved.

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: ¥2,195–¥2,320 at ±1% for the Cost of Equity, and ¥2,252–¥2,261 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• As 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 available earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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