Quick View
| Metric | Current Period | Same Period Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥40.0B | ¥42.7B | −6.2% |
| Operating Income | ¥2.5B | ¥3.6B | −30.5% |
| Ordinary Income | ¥4.3B | ¥5.8B | −24.5% |
| Net Income | ¥2.9B | ¥3.9B | −27.1% |
| ROE | 2.0% | 2.8% | - |
Executive Summary
The cumulative results for FY2026 Q3 recorded declines in both revenue and earnings. The most important point is that profitability deterioration is progressing at a faster pace than the decline in revenue. Revenue was ¥40.0B (前年比-6.2%), Operating Income was ¥2.5B (same period previous year -30.5%), Ordinary Income was ¥4.3B (same period previous year -24.5%), and Net Income was ¥2.9B (same period previous year -27.1%). The decline in fixed-cost absorption in response to lower revenue and the negative impact of operating leverage were the primary causes of margin deterioration.
Factors Affecting Performance
【Revenue】Revenue was ¥40.0B, down 6.2% year on year. Demand fluctuations related to semiconductor manufacturing equipment are believed to have had an impact, and the progress of projects and timing of acceptance inspections may have affected revenue.
【Profit and Loss】Operating Income was ¥2.5B (前年比-30.5%), and the Operating Income margin deteriorated to 6.3% from the previous year. The decline in Operating Income (-30.5%) substantially exceeded the revenue decline (-6.2%), indicating that reduced fixed-cost absorption pressured profitability. Ordinary Income was ¥4.3B, representing an increase of ¥1.8B over Operating Income, primarily due to ¥2.1B in non-operating income, including interest income (¥0.7B), dividend income (¥0.4B), and foreign exchange gains (¥0.6B). Net Income was ¥2.9B, with an effective tax rate of approximately 34.5% applied to pre-tax income of ¥4.4B. In conclusion, the current quarter recorded declines in both revenue and earnings.
Key Financial Indicators
【Profitability】The Operating Income margin was 6.3% and the Net Income margin was 7.2%, with the Operating Income margin showing a declining trend from the previous year. Non-operating income made a significant contribution to Ordinary Income, and the Company’s earnings power from its core business alone remains at the level indicated by the Operating Income margin.【Cash Flow Quality】The Company held accounts receivable of ¥14.6B and total inventory of ¥23.7B, including work-in-process inventory of ¥15.9B, or approximately 67% of total inventory. On an annualized basis, DSO was calculated at 100 days, DIO at 269 days, and CCC at 343 days. The high proportion of work-in-process inventory is believed to reflect the progress of individually ordered projects and long-lead-time projects.【Investment Efficiency】ROE was 2.0% and ROIC was 2.1%, with a total asset turnover ratio of 0.251x being the primary factor constraining capital efficiency. Investment securities of ¥37.9B and cash and deposits of ¥40.2B against total assets of ¥159.4B indicate a high proportion of non-operating assets, contributing to the low turnover ratio.【Financial Soundness】The Equity Ratio was 89.8% and the current ratio was 1038.6% (current assets of ¥93.9B/current liabilities of ¥9.0B), indicating a strong financial foundation. The debt-to-equity ratio remained at just 0.11x, and financial leverage was low.
Cash Flow Analysis
Because cash flow statement figures were not included in the provided data, fund movements are analyzed based on changes in the balance sheet. Cash and deposits were ¥40.2B, down from ¥43.5B in the previous year, while investment securities increased from ¥37.9B to ¥38.5B (year on year). Accounts receivable were ¥14.6B, down from ¥17.8B in the previous year, while work-in-process inventory was ¥15.9B, down from ¥18.4B, indicating an overall reduction in inventory. However, work-in-process inventory continued to account for approximately 67% of total inventory of ¥23.7B, indicating that the structure in which funds remain tied up in the middle of the manufacturing process continues.
Earnings Quality
Ordinary Income of ¥4.3B for the current quarter resulted from adding non-operating income of ¥2.1B to Operating Income of ¥2.5B and deducting non-operating expenses of ¥0.3B. Of non-operating income, interest income of ¥0.7B and dividend income of ¥0.4B are relatively recurring sources of income generated from investment assets, whereas foreign exchange gains of ¥0.6B may fluctuate depending on market conditions, requiring attention to the sustainability of Ordinary Income. Extraordinary income was small at ¥0.03B, indicating that Net Income is not dependent on temporary gains from asset sales. Overall, non-operating income made a substantial contribution to Ordinary Income, and the fact that Ordinary Income cannot be explained solely by the core business’s earning power (Operating Income margin of 6.3%) is a key consideration in evaluating earnings quality.
Earnings Forecast and Guidance
The cumulative Q3 progress rates against the full-year forecast were 72.8% for Revenue, 90.7% for Operating Income, 87.0% for Ordinary Income, and 59.8% for Net Income. While the progress rates for Operating Income and Ordinary Income exceeded the standard progress rate of 75%, Net Income progress was below this level. Operating Income had already reached ¥2.5B on a cumulative basis, representing most of the full-year forecast of ¥2.8B. This suggests potential upside relative to the full-year forecast, while Net Income progress may have been constrained by the tax burden and the timing of quarterly recognition.
Shareholder Returns
The Q2 dividend was ¥0, and the full-year dividend forecast is ¥100 per share. Using the annual dividend forecast of ¥100 against forecast EPS of ¥90.27, the forecast Payout Ratio is approximately 110.8%, indicating a plan to pay dividends exceeding forecast Net Income. Since information on the amount of share repurchases was not included in the provided data, the 110.8% presented here is a Payout Ratio based solely on dividends and is not the Total Return Ratio. While cash and deposits of ¥40.2B and an Equity Ratio of 89.8% support part of the funding base for dividends, attention should be paid to the fact that the planned Payout Ratio exceeds 100%, together with the progress of earnings.
Risk Factors
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Working capital retention risk: Work-in-process inventory of ¥15.9B accounts for approximately 67% of total inventory of ¥23.7B, while annualized DIO has reached 269 days and CCC has reached 343 days. Even considering the business characteristics of individually ordered and long-lead-time projects, funds may remain tied up due to delays in acceptance inspections or specification changes.
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Low capital efficiency: ROE was 2.0% and ROIC was 2.1%. Investment securities of ¥37.9B and cash and deposits of ¥40.2B against total assets of ¥159.4B indicate a high proportion of non-operating assets, while the total asset turnover ratio of 0.251x constrains capital efficiency.
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Dependence on non-operating income: Non-operating income of ¥2.1B made a significant contribution to Ordinary Income of ¥4.3B. Of this amount, foreign exchange gains of ¥0.6B may fluctuate with market conditions. If foreign exchange trends reverse, the level of profit at the Ordinary Income stage may be affected.
Industry Benchmark (Reference; Compiled by the Company)
Industry Benchmark (manufacturing)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income Margin | 6.3% | 8.6% (4.3%–12.7%) | −2.2pt |
| Net Income Margin | 7.2% | 6.4% (2.8%–10.3%) | +0.7pt |
The Operating Income margin is below the industry median, while the Net Income margin exceeds the median due to the contribution of non-operating income.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (Year on Year) | −6.2% | 3.3% (-2.1%–8.9%) | −9.5pt |
The Revenue growth rate is substantially below the industry median, positioning the Company as having weak growth momentum within the industry.
※Source: Compiled by the Company
Key Points from the Financial Results
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The financial foundation is strong, with an Equity Ratio of 89.8% and a current ratio of 1038.6%; however, low capital efficiency, as indicated by an Operating Income margin of 6.3%, ROE of 2.0%, and ROIC of 2.1%, remains a structural issue. The high proportion of investment securities and cash relative to total assets is one factor reducing the turnover ratio.
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Work-in-process inventory accounts for approximately 67% of total inventory, and annualized CCC has reached 343 days, indicating that funds remain tied up in the manufacturing process for an extended period. Trends in work-in-process inventory balances and DIO will be key points to monitor in assessing future capital efficiency.
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The progress rates for Operating Income and Ordinary Income against the full-year forecast (90.7%, 87.0%) exceed standard levels, while Net Income progress (59.8%) remains below them. In addition, the full-year forecast Payout Ratio is approximately 110.8%, making the relationship between earnings progress and the funding base for dividends an important point to monitor going forward.
This report is a financial results analysis document automatically generated by AI based on XBRL financial results summary data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly available financial results data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.
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AI Financial Analysis
Executive Summary
FY2026 Q3 performance was weak at the operating level, although substantial non-operating income preserved a 7.2% net margin. Revenue declined 6.2% year on year to ¥4.002bn. Operating income fell 30.5% to ¥254m, materially underperforming the revenue trend. Ordinary income declined 24.5% to ¥435m. Net income attributable to owners declined 27.1% to ¥287m, or ¥53.36 per share. Gross profit decreased 7.7% to ¥1.594bn. The gross margin compressed by approximately 70bp year on year to 39.8% from 40.5%. The operating margin compressed by approximately 230bp to 6.3% from 8.6%. The net margin compressed by approximately 200bp to 7.2% from 9.2%. SG&A expense declined only 1.5% to ¥1.340bn, slower than the revenue contraction, raising the SG&A-to-sales ratio by about 160bp to 33.5%. R&D spending was ¥234m, equal to 5.8% of revenue, maintaining a meaningful technology investment level despite the downturn. Non-operating income of ¥215m represented 5.4% of sales and was a significant earnings support, led by ¥66m of interest income, ¥62m of FX gains, and ¥40m of dividend income. Consequently, ordinary income exceeded operating income by ¥181m, indicating that reported bottom-line profitability was materially supported by financial and currency-related income rather than core operations. The ¥3m gain on sale of fixed assets was immaterial relative to net income. Comprehensive income rose to ¥812m from ¥259m, driven principally by positive valuation differences on securities of ¥476m and foreign currency translation gains of ¥48m. The balance sheet remains exceptionally conservative, with equity of ¥14.308bn representing 89.8% of total assets and interest-bearing debt of only ¥227m. However, capital efficiency is low, with reported ROE of 2.7% and ROIC of 2.1%. The working-capital cycle is the principal operating concern, as annualized DSO of 100 days, DIO of 269 days, and CCC of 343 days indicate long cash absorption through production and collection. Full-year operating-income progress is ahead of the annual plan, while net-income progress trails the plan, making the final-quarter mix of operating profitability and financial income important.
Profitability Analysis
The reported DuPont ROE of 2.7% is decomposed into a 7.2% net profit margin, 0.335x annualized asset turnover, and 1.11x financial leverage. The low ROE is principally explained by weak annualized asset turnover and minimal leverage rather than an excessive debt burden. Financial leverage is structurally low because the company funds operations predominantly with equity; this protects solvency but limits equity returns when operating earnings are soft. Net margin remains above the operating margin because net financial income materially supplements operating profit. The principal year-on-year deterioration was operating-margin compression: gross margin declined about 70bp, while the operating margin fell about 230bp as SG&A was insufficiently flexible relative to lower sales. Revenue declined 6.2%, whereas SG&A decreased only 1.5%, indicating negative operating leverage. Directors' compensation increased to ¥129m from ¥113m, while R&D expense decreased to ¥234m from ¥266m; the reduction in R&D was less than the decline in operating income but R&D still equaled 92% of Q3 operating income. Annualized ROA is approximately 2.4%, based on annualized Q3 net income and average total assets, also indicating low returns on a large asset base. Interest coverage was very strong at 63.5x, and the 1.724 interest-burden factor reflects net interest and other non-operating income exceeding interest expense rather than debt-financing risk. The effective tax rate was 34.5%, producing a tax-burden factor of 0.655. The current profitability level appears sensitive to recovery in equipment demand, production throughput, and the persistence of FX and investment-income contributions.
Growth Assessment
The top-line decline to ¥4.002bn and the steeper 30.5% operating-income decline point to a cyclical or volume-related pressure on factory utilization and fixed-cost absorption. Gross profit fell by ¥133m year on year, while SG&A declined by only ¥21m, explaining most of the ¥111m operating-income reduction. Inventory composition remains heavily weighted toward work in process at 67.4% of total inventory, with WIP of ¥1.595bn; this is consistent with a long production cycle or production bottleneck rather than a finished-goods-led inventory build. Raw-material inventory decreased by ¥169m year on year to ¥617m and WIP decreased by ¥245m, but finished goods increased by ¥25m to ¥156m. R&D intensity of 5.8% is within a constructive range for an electronics-oriented manufacturing business and supports technology retention, although R&D spending declined 12.0% year on year. The full-year sales forecast is ¥5.500bn, implying Q3 cumulative progress of 72.8%, modestly below the standard 75% Q3 pace. The operating-income forecast is ¥280m, and Q3 cumulative progress is 90.7%, 15.7 percentage points ahead of the standard pace. Ordinary-income progress is 87.0%, 12.0 percentage points ahead of the standard pace. Net-income progress is 59.8% against the ¥480m forecast, 15.2 percentage points below the standard pace. Achieving the forecast requires approximately ¥1.498bn of Q4 revenue, ¥26m of operating income, ¥65m of ordinary income, and ¥193m of net income. This implies that the annual operating forecast incorporates a subdued Q4 operating result, while the annual net-income target requires a stronger Q4 conversion from pre-tax profit to net income than achieved cumulatively. The outlook therefore depends on maintaining profitability in the final quarter, avoiding further working-capital elongation, and generating sufficient non-operating and/or tax effects to reach the net-income plan.
Financial Health
Liquidity is very strong, with a current ratio and quick ratio of 1,038.6%, current assets of ¥9.389bn, and current liabilities of ¥904m. Working capital was ¥8.485bn, providing a substantial buffer against near-term obligations. Cash and deposits were ¥4.017bn, while short-term investment securities were ¥1.248bn. Investment securities totaled ¥3.785bn, equal to 23.8% of total assets, making market-value movements and investee returns relevant to both equity and earnings volatility. Total liabilities were only ¥1.628bn, equivalent to 10.2% of total assets. Debt-to-equity was a conservative 0.11x, debt-to-capital was 1.6%, and long-term loans were ¥227m. The current portion of long-term loans was only ¥44m, so there is no material maturity mismatch between short-term debt and current assets. Accounts payable increased 217.6% year on year to ¥235m from ¥74m. This increase improves near-term supplier financing but should be monitored alongside the elevated inventory and receivable cycle to determine whether it reflects normal procurement timing or slower cash conversion. Contract liabilities increased to ¥176m from ¥161m, providing limited customer-funded working-capital support. Deferred tax liabilities increased to ¥386m from ¥129m, consistent with the increase in unrealized gains within securities-related equity valuation adjustments. Asset-retirement obligations of ¥10m are immaterial at about 0.6% of total liabilities. Intangible assets represented only 3.2% of total assets, limiting amortization and acquisition-accounting risk.
Notable B/S Changes
Accounts payable: +¥161m (+217.6%) to ¥235m - increased supplier financing partly offsets the long cash conversion cycle, but payment timing should be monitored. Investment securities: +¥386m (+11.4%) to ¥3.785bn - securities represent 23.8% of total assets, increasing exposure to market valuation movements and investment-income variability. Deferred tax liabilities: +¥257m (+199.2%) to ¥386m - consistent with higher unrealized securities valuation gains and links part of equity growth to market-price movements rather than retained operating earnings. Work in process: -¥245m (-13.3%) to ¥1.595bn - inventory remains concentrated in WIP despite the reduction, with a 67.4% WIP share and elevated annualized inventory days.
Cash Flow Quality
Annualized operating working-capital efficiency is weak: DSO is 100 days, DIO is 269 days, and the cash conversion cycle is 343 days. These measures exceed the respective warning thresholds and indicate that cash is tied up for an extended period in receivables and production inventory. The high DSO elevates collection-timing risk and makes customer credit discipline an important earnings-quality variable. The 269-day DIO is particularly high for a manufacturing business and exposes the company to order deferrals, specification changes, and inventory-obsolescence risk. WIP represents 67.4% of inventory, well above the 40% warning threshold, suggesting a significant proportion of inventory remains incomplete and subject to production scheduling, component availability, and customer-acceptance risk. The rise in trade payables to ¥235m partially offsets cash tied up in receivables and inventory, but it is not sufficient to neutralize the structurally long conversion cycle. Cash and deposits of ¥4.017bn provide a substantial liquidity cushion against this operating cash-cycle risk. Reported net income also includes ¥168m of identified interest, dividend, and FX income, equivalent to 58.5% of net income, which reduces the proportion of profit derived from core operations. FX gains of ¥62m equaled 24.4% of operating income, exceeding the 20% alert threshold and increasing earnings sensitivity to exchange-rate movements. The ¥3m fixed-asset sale gain was only about 1.0% of net income and does not materially affect earnings quality.
Dividend Sustainability
The full-year dividend forecast is ¥100 per share, compared with forecast EPS of ¥90.27, implying a dividend payout ratio of approximately 110.8%. The planned dividend therefore exceeds forecast annual earnings per share and would be funded partly by balance-sheet resources or prior retained earnings rather than current-year earnings alone. Retained earnings of ¥7.500bn, cash and deposits of ¥4.017bn, and low interest-bearing debt provide significant financial capacity to support the proposed distribution. On the current 5,388,303 average shares, a ¥100 annual dividend corresponds to roughly ¥539m, exceeding the ¥480m full-year net-income forecast by approximately ¥59m. The absence of an interim Q2 dividend indicates that the expected shareholder distribution is likely concentrated in the year-end payment. Sustainability will depend less on leverage capacity and more on restoration of recurring operating profit and improvement in cash tied up in receivables and WIP. The proposed payout is aggressive relative to forecast earnings, particularly while ROIC is 2.1% and operating income is declining. No share-buyback amount is identified; accordingly, the dividend payout ratio is the appropriate shareholder-return measure.
Risk Assessment
Business risks include Demand and operating-leverage risk: revenue declined 6.2% while operating income declined 30.5%, demonstrating high sensitivity of profit to sales volume and utilization., Production and inventory risk: annualized DIO of 269 days and a 67.4% WIP share indicate a prolonged manufacturing cycle, increasing exposure to delays, specification changes, and obsolescence., Customer collection risk: annualized DSO of 100 days is above the 60-day warning level and may delay cash realization from reported revenue., FX risk: FX gains of ¥62m equaled 24.4% of operating income; a reversal in exchange rates could materially reduce ordinary profit., Technology and product-cycle risk: maintaining competitiveness requires continued R&D investment, while Q3 R&D expense declined 12.0% year on year..
Financial risks include Capital-efficiency risk: ROIC of 2.1% and ROE of 2.7% are below conventional return benchmarks despite a large equity base., Investment-portfolio valuation risk: investment securities of ¥3.785bn equal 23.8% of total assets, and securities valuation gains were a major contributor to comprehensive income., Dividend-coverage risk: the forecast ¥100 DPS implies a 110.8% payout ratio against forecast EPS., Working-capital funding risk: the 343-day annualized cash conversion cycle could absorb liquidity if production or collections deteriorate further..
Key concerns include The operating margin has fallen to 6.3%, below the 8% level generally associated with strong manufacturing profitability., Reported net income is supported by non-operating income, with identified interest, dividend, and FX income totaling ¥168m versus ¥254m of operating income., The large WIP balance requires monitoring for throughput, delivery acceptance, and potential valuation pressure., Accounts payable increased 217.6% year on year; the interaction between supplier-payment timing and the elevated working-capital cycle warrants attention., The conservative balance sheet materially mitigates liquidity and refinancing risk..
Investment Implications
Key takeaways include Core profitability weakened materially, with revenue down 6.2%, operating income down 30.5%, and operating margin down about 230bp year on year., Non-operating income, particularly interest, dividends, and FX gains, remains important to ordinary and net profit., The company has very strong liquidity and minimal leverage, but this balance-sheet strength is not translating into adequate returns, as ROIC is 2.1% and ROE is 2.7%., Working-capital efficiency is the central operating issue, with annualized DSO of 100 days, DIO of 269 days, and CCC of 343 days., The full-year operating-income target appears achievable based on 90.7% Q3 cumulative progress, while the net-income target requires stronger final-quarter conversion., The ¥100 full-year DPS forecast is above forecast EPS and represents an aggressive use of capital unless recurring earnings improve..
Metrics to watch include Quarterly revenue recovery and operating-margin trajectory, WIP balance, WIP share of inventory, and annualized inventory days, Receivable days and collection performance, FX gains or losses relative to operating income, Contribution of interest and dividend income to ordinary income, Progress toward the ¥480m full-year net-income forecast, Dividend payout ratio relative to recurring earnings, ROIC improvement from the current 2.1% level, Valuation changes in the ¥3.785bn investment-securities portfolio.
Regarding relative positioning, Tesecc is positioned as a conservatively financed manufacturer with exceptional liquidity, low debt, and meaningful R&D investment, but its current operating profile is weaker than high-quality manufacturing benchmarks because of a 6.3% operating margin, low returns on capital, and an unusually long annualized cash conversion cycle. Its financial resilience is stronger than that of highly leveraged peers, whereas operating efficiency and cash-cycle discipline require improvement.