TSURUMI MANUFACTURING (6351) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for Q3 maintained a trend of higher revenue and operating income, but Net Income attributable to owners of the parent declined due to the recognition of an impairment loss and a lower net profit margin. Revenue was ¥53.31B (+13.6% YoY), Operating Income was ¥7.37B (+11.8%), and Ordinary Income was ¥9.38B (+18.3%), all showing solid performance. However, Net Income was ¥6.18B (-14.4%), while Net Income attributable to owners of the parent was limited to ¥5.97B (-15.2% YoY). Revenue growth was driven by the expansion of overseas businesses in North America, Asia, and Europe, while the increase in Ordinary Income was significantly supported by non-operating income, including foreign exchange gains. The decline in Net Income was primarily attributable to the recognition of an impairment loss of ¥0.40B and the reversal of special gains recognized in the same period of the previous year, including gains on step acquisitions.

Factors Affecting Earnings

【Revenue】Revenue increased 13.6% YoY to ¥53.31B. By segment, Japan recorded ¥28.81B (54.1% of total, +2.6% YoY), North America ¥11.16B (20.9%, +20.1%), Asia ¥6.32B (11.9%, +19.3%), and Europe ¥4.26B (8.0%, a substantial increase from ¥1.59B in the previous year). The increase in Europe was primarily due to the expansion of the consolidation scope following the acquisition of ZENIT INTERNATIONAL S.P.A. as a subsidiary, and should be distinguished from organic growth in existing businesses. Double-digit revenue growth in North America and Asia drove overall growth.

【Profitability】Operating Income increased 11.8% YoY to ¥7.37B, while the Operating Income margin of 13.8% declined slightly from the same period of the previous year. Segment profit was ¥5.89B in Japan (20.4% profit margin), ¥1.16B in North America (10.4%), and ¥1.40B in Asia (22.1%), while Europe recorded a segment loss of ¥0.33B, making profitability improvement following consolidation a key challenge. Ordinary Income increased 18.3% YoY to ¥9.38B, exceeding Operating Income by ¥2.01B, with non-operating income of ¥2.16B, including foreign exchange gains of ¥1.02B, serving as a major contributing factor. An impairment loss of ¥0.40B was recognized as an extraordinary loss, resulting in Profit Before Tax of ¥8.98B and Net Income attributable to owners of the parent of ¥5.97B (-15.2% YoY). Overall, the Company achieved higher revenue and profit at the operating and ordinary income levels, but final profit declined due to temporary factors.

Segment Analysis

The Japan segment recorded Revenue of ¥28.81B (+2.6% YoY) and Operating Income of ¥5.89B (+18.4%), maintaining a profit margin of 20.4%, above the consolidated level and making it the largest profit-contributing region. North America recorded Revenue of ¥11.16B (+20.1%) and Operating Income of ¥1.16B (+12.7%), with a profit margin of 10.4%; profit growth was somewhat slower than revenue growth. Asia recorded Revenue of ¥6.32B (+19.3%) but Operating Income of ¥1.40B (-3.3%), indicating a decline in profit and sluggish conversion of revenue growth into earnings. Europe expanded to Revenue of ¥4.26B but recorded a segment loss of ¥0.33B. Together with the recognition of goodwill of ¥3.08B associated with the acquisition of ZENIT INTERNATIONAL S.P.A. as a subsidiary, profitability improvement following integration will be a key focus going forward.

Key Financial Metrics

【Profitability】The Operating Income margin of 13.8% and the Net Profit margin attributable to owners of the parent of 11.2% both declined from approximately 14.1% and 14.9%, respectively, in the same period of the previous year, highlighting the compression at the final profit level despite growth in Ordinary Income.【Cash Flow Quality】Annualized Days Sales Outstanding (DSO) of 109 days, Days Inventory Outstanding (DIO) of 199 days, and the Cash Conversion Cycle (CCC) of 249 days are all relatively long for a manufacturer, confirming the commitment of working capital during a period of revenue growth.【Investment Efficiency】ROE was 6.0%. Despite the high Net Profit margin, the relatively low total asset turnover indicates a structure in which asset efficiency constrains capital efficiency.【Financial Soundness】With an Equity Ratio of 77.0%, Cash and deposits of ¥32.98B, and interest-bearing debt of ¥14.53B, interest coverage is high, indicating a conservative and robust financial base.

Cash Flow Analysis

As the figures for each section of the cash flow statement are not included in the disclosed information, fund movements are analyzed based on trends in the balance sheet. Cash and deposits increased to ¥32.98B from ¥31.15B at the end of the previous fiscal year, while retained earnings also expanded to ¥78.07B (an increase from the ¥78.07B level at the end of the previous fiscal year), indicating continued accumulation of internally generated funds through business activities. On the other hand, the Company holds significant working capital items, including accounts receivable of ¥21.18B and inventories of ¥23.88B, and has a long annualized DSO of 109 days, DIO of 199 days, and CCC of 249 days. As accounts receivable and inventories expand alongside revenue growth, the extent to which these items can be reduced will determine cash generation capacity, leaving substantial room for improvement in capital efficiency.

Quality of Earnings

Ordinary Income of ¥9.38B exceeded Operating Income of ¥7.37B by ¥2.01B. The primary factor behind this difference was non-operating income of ¥2.16B, comprising foreign exchange gains of ¥1.02B, dividends received of ¥0.40B, and interest received of ¥0.38B. Foreign exchange gains were equivalent to 13.8% of Operating Income, indicating that the increase in Ordinary Income partly depended on foreign exchange conditions, a non-recurring and highly volatile factor. An impairment loss of ¥0.40B was recognized as an extraordinary loss, representing a temporary downward factor equivalent to approximately 6.7% of Net Income attributable to owners of the parent. Comprehensive Income was ¥9.33B, substantially exceeding Net Income of ¥6.18B, with foreign currency translation adjustments of ¥1.79B and valuation differences on available-for-sale securities of ¥1.50B strengthening net assets. However, these are valuation-based fluctuations that do not pass through the income statement and must be distinguished from recurring earnings power.

Earnings Forecast and Guidance

Progress against the full-year Company forecast was 72.0% for Revenue (forecast: ¥74.00B), 67.0% for Operating Income (forecast: ¥11.00B), and 83.0% for Ordinary Income (forecast: ¥11.30B). Against forecast EPS of ¥162.61, actual EPS was ¥124.18 (equivalent to a progress rate of 76.4%). While Ordinary Income progress exceeded the standard pace of approximately 75% after nine months, Operating Income progress was below that level, indicating a high degree of dependence on non-operating income at the Ordinary Income level. Operating Income of ¥3.63B will be required in Q4, equivalent to an approximately 17.6% profit margin, making improvement from the existing Operating Income margin of 13.8% the key to achieving the plan.

Shareholder Returns

The Q2 dividend was ¥26.00 per share. Based on average shares outstanding during the period of 48,105 thousand shares, total dividends were approximately ¥1.25B, and the Payout Ratio against Net Income attributable to owners of the parent of ¥5.97B was approximately 22.1%. Ample retained earnings of ¥78.07B and Cash and deposits of ¥32.98B provide support for dividend sustainability. The Company holds 2,860 thousand treasury shares, but the amount of share repurchases executed during the period was not disclosed; accordingly, the Payout Ratio is evaluated based solely on dividends.

Risk Factors

1. Prolonged working capital cycle: Annualized DSO of 109 days, DIO of 199 days, and CCC of 249 days all exceed typical manufacturing industry levels. If accounts receivable of ¥21.18B and inventories of ¥23.88B continue to increase, the business will have a structure in which revenue growth is less likely to translate into cash generation.

2. Profitability of the Europe segment: The segment recorded a loss of ¥0.33B against Revenue of ¥4.26B. Goodwill of ¥3.08B was recognized in connection with the acquisition of ZENIT INTERNATIONAL S.P.A. as a subsidiary. If profitability in the European business does not improve, the recoverability of goodwill could become an issue.

3. Foreign exchange sensitivity and temporary losses: Foreign exchange gains of ¥1.02B contributed to the increase in Ordinary Income, and this contribution must be distinguished from underlying performance based on Operating Income of ¥7.37B. In addition, the impairment loss of ¥0.40B was a one-time factor and is confirmed as a driver of fluctuations in Net Income attributable to owners of the parent.

Industry Benchmark (Reference; Compiled by the Company)

Key Points from the Earnings Results

1. Revenue, Operating Income, and Ordinary Income continued to increase, and the Operating Income margin of 13.8% and Net Profit margin of 11.2% were above the industry median. However, Net Income attributable to owners of the parent declined 15.2% YoY, confirming that the impairment loss and the reversal of special gains affected final profit.

2. ROE was 6.0%, and the low total asset turnover relative to the high profit margin constrained capital efficiency. The length of the working capital cycle—annualized DSO of 109 days, DIO of 199 days, and CCC of 249 days—can be observed as a background factor behind this asset efficiency.

3. Although the Europe segment expanded its revenue due to the expansion of the consolidation scope, it recorded a loss. The variability in regional profitability is therefore an observation point that requires continued monitoring for its impact on the consolidated profit margin.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,987–¥2,103 at ±1% for the Cost of Equity, and ¥2,040–¥2,046 at ±0.1 for ω.

Notes:

• As forecast ROE is below the Cost of Equity, the theoretical value will be below Book Value Per Share.
• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

（Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, nor does it 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 summary data. It does not recommend investment in any specific security. The industry benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q3 performance was operationally solid, with double-digit sales and operating-profit growth, although attributable profit declined because the prior-year comparison included a large acquisition-related gain and the current period recorded impairment. Revenue rose 13.6% YoY to ¥53.32bn. Operating income increased 11.8% to ¥7.37bn. Ordinary income grew faster, up 18.3% to ¥9.38bn, aided by ¥1.02bn of foreign-exchange gains, ¥0.40bn of dividend income, and ¥0.38bn of interest income. Gross profit increased 13.8% to ¥20.51bn. The gross margin was broadly stable at 38.5%, improving by roughly 4bp YoY. The operating margin declined by approximately 23bp to 13.8%, as SG&A expense increased 14.9%, marginally faster than revenue growth. Attributable profit fell 15.2% to ¥5.97bn, while the prior period benefited from a ¥1.72bn gain on step acquisition. The current period instead included a ¥0.40bn impairment loss, equivalent to 6.7% of attributable profit. Consequently, the 11.2% net margin remains high in absolute terms but is lower than the approximately 15.0% recorded in the prior period. North America was the largest contributor to reported regional growth, with revenue increasing 20.1% to ¥11.16bn and segment profit rising 12.7% to ¥1.16bn. Japan remained the core business by segment profit contribution, generating ¥5.89bn of segment profit, up 18.4%, on revenue of ¥28.81bn. Europe generated ¥4.26bn of revenue but posted a ¥0.33bn segment loss following the consolidation of ZENIT INTERNATIONAL S.P.A.; the year-on-year comparison is affected by the prior-year inclusion of only the third-quarter profit-and-loss contribution. The balance sheet is highly liquid, with a 416.9% current ratio, ¥32.98bn of cash, and debt representing only 12.4% of capital. However, manufacturing working-capital intensity is a material operational issue: annualized DSO was 109 days, annualized DIO was 199 days, and the annualized cash conversion cycle was 249 days. The full-year plan requires fourth-quarter revenue of ¥20.69bn and operating income of ¥3.63bn, implying a 17.5% operating margin versus 13.8% year-to-date. The operational growth trajectory, particularly in Japan and North America, supports the full-year plan, but delivery against it depends on margin recovery in Q4, disciplined inventory conversion, and a turnaround in Europe.

Profitability Analysis

The reported annualized DuPont ROE is 7.8%, decomposed into an 11.2% net profit margin, 0.533x annualized asset turnover, and 1.30x financial leverage. The company therefore generates returns primarily through a strong margin profile rather than aggressive leverage; leverage is conservative and is not a material driver of shareholder returns. Net margin is above the 10% high-profitability benchmark, while annualized ROE is at the lower end of the stated benchmark because asset turnover is modest for a manufacturing business with substantial working capital and fixed assets. Gross margin was essentially stable at 38.5% versus 38.4% a year earlier, indicating that pricing and production cost absorption broadly kept pace with the sales expansion. The principal profitability change was below gross profit: SG&A rose 14.9% YoY to ¥13.13bn, exceeding the 13.6% revenue growth rate and causing operating-margin compression to 13.8% from 14.1%. Despite this modest operating deleverage, operating income still grew 11.8% because gross profit expanded by ¥2.48bn. Non-operating income of ¥2.16bn equaled 4.1% of revenue and materially enhanced ordinary income; foreign-exchange gains accounted for ¥1.02bn, or 13.8% of operating income, while interest and dividend income totaled ¥0.79bn. Interest coverage was exceptionally strong at 73.0x, consistent with low financing burden. The 1.219x interest burden reflects net non-operating income exceeding financing cost rather than debt-financed earnings. The tax burden was 0.665, corresponding to a 31.2% effective tax rate. The ¥0.40bn impairment and absence of the prior-year ¥1.72bn step-acquisition gain explain the divergence between improved operating and ordinary income and the decline in attributable profit. Under JGAAP, the ¥3.08bn goodwill balance is subject to amortization and impairment testing; however, goodwill is only 3.0% of equity, limiting the balance-sheet sensitivity of this accounting treatment.

Growth Assessment

Revenue growth was broad-based outside Japan. Japan revenue rose 2.6% YoY to ¥28.81bn, maintaining its position as the largest external-sales base and core business by ¥5.89bn of segment profit. North America revenue increased 20.1% to ¥11.16bn and segment profit rose 12.7% to ¥1.16bn, although its segment margin eased to 10.4% from 11.1%. Asia revenue increased 19.3% to ¥6.32bn, but segment profit declined 3.3% to ¥1.40bn and margin fell to 22.1% from 27.3%, indicating a less favorable profit mix or cost absorption despite strong top-line growth. The Other segment, which includes China and other local operations, grew revenue 4.5% to ¥2.76bn and increased segment profit 16.6% to ¥0.85bn. Europe reported revenue of ¥4.26bn and a ¥0.33bn segment loss; this follows consolidation of ZENIT INTERNATIONAL S.P.A. and remains the key regional execution issue. Europe’s reported increase from ¥1.59bn in the prior-year comparative period is not directly comparable because the earlier period included profit and loss only from the third quarter after acquisition. Company-wide segment profit before eliminations and corporate costs rose 8.0% to ¥8.97bn, while corporate costs increased to ¥1.26bn from ¥1.01bn. Inventory adjustment charges improved to ¥0.35bn from ¥0.70bn, partly mitigating higher corporate expenses. FY2026 guidance calls for revenue of ¥74.00bn, operating income of ¥11.00bn, ordinary income of ¥11.30bn, and attributable profit of ¥7.80bn. Q3 cumulative progress is 72.0% for revenue, 67.0% for operating income, 83.0% for ordinary income, and 76.6% for attributable profit, versus a standard 75% seasonal run rate. None of these deviations exceeds 10 percentage points. The implied Q4 operating margin of 17.5% is materially above the year-to-date margin, while the plan implies substantially lower ordinary-income contribution in Q4 than in the first nine months. This makes operating-margin execution, FX normalization, and European integration central to the earnings outlook.

Financial Health

Financial health is strong. Current assets of ¥81.27bn exceeded current liabilities of ¥19.49bn by ¥61.78bn, producing a 416.9% current ratio and a 294.4% quick ratio. Cash and deposits of ¥32.98bn alone were 1.69x current liabilities. Total liabilities represented only 23.0% of total assets, and total equity was ¥102.76bn, equivalent to a 75.9% capital adequacy ratio. Interest-bearing debt was ¥14.53bn, with a conservative debt-to-equity ratio of 0.30x and debt-to-capital ratio of 12.4%. Long-term loans were ¥8.06bn and short-term loans were ¥6.47bn; including the ¥0.44bn current portion of long-term loans, near-term loan maturities are well covered by cash. The 44.5% short-term debt ratio triggers a refinancing-risk alert because a meaningful portion of borrowings matures within one year. In context, this is mitigated by cash equal to 5.10x short-term loans, very strong interest coverage, and substantial liquid working capital; it does not currently indicate a liquidity shortfall. Receivables fell 19.8% YoY to ¥21.18bn, while inventories rose 17.6% to ¥23.88bn and trade payables declined 16.7% to ¥7.07bn. This mix increases the amount of internally funded operating capital despite the company’s ample liquidity. Investment securities increased 19.7% YoY to ¥15.16bn and represent 11.4% of assets, creating some exposure of equity and comprehensive income to market-value fluctuations. Treasury stock decreased in absolute amount by ¥2.03bn, from negative ¥4.42bn to negative ¥2.40bn, a 45.8% movement that increased reported equity; the ongoing effect on per-share capital allocation should be monitored. Goodwill of ¥3.08bn and intangible assets of ¥5.83bn account for only 2.3% and 4.4% of assets, respectively, keeping acquisition-related asset concentration low.

Notable B/S Changes

Treasury stock: +¥2.03bn movement from negative ¥4.42bn to negative ¥2.40bn (+45.8%) - reduction in treasury-stock balance increased reported equity; monitor the continuing capital-allocation and per-share implications. Inventories: +¥3.58bn (+17.6%) to ¥23.88bn - growth exceeded revenue growth and is consistent with the elevated 199-day annualized inventory cycle; inventory conversion is a key execution issue. Accounts receivable: -¥5.24bn (-19.8%) to ¥21.18bn - balance reduction is favorable, although annualized DSO remains elevated at 109 days. Accounts payable: -¥1.41bn (-16.7%) to ¥7.07bn - lower supplier financing contributes to a longer cash conversion cycle. Investment securities: +¥2.49bn (+19.7%) to ¥15.16bn - portfolio now represents 11.4% of assets, increasing valuation and OCI sensitivity.

Cash Flow Quality

Annualized working-capital metrics indicate a long operating cash cycle. Annualized receivable days of 109 exceed both the 60-day quality-alert threshold and the 45-day manufacturing efficiency benchmark. The root cause visible in the balance sheet is the sizeable ¥21.18bn receivables balance relative to annualized revenue; this may reflect the collection profile of project, distributor, or overseas business, but it lengthens the period before booked sales convert into cash. The impact is higher funding needs and greater sensitivity to customer payment timing, even though the receivables balance declined 19.8% YoY. Annualized inventory days of 199 exceed both the 90-day and 60-day alert thresholds. Inventories increased 17.6% YoY to ¥23.88bn, outpacing the 13.6% sales increase, which is the principal balance-sheet signal of working-capital absorption. High inventory can be consistent with long lead times, overseas supply-chain positioning, or planned sales growth in industrial pumps and related equipment, but it also raises risks of slow-moving stock, margin pressure from discounting, and inventory valuation charges if demand weakens. Annualized payable days are approximately 59 days, within the 30-60 day manufacturing benchmark, indicating that supplier credit remains normal. The resulting annualized cash conversion cycle of 249 days materially exceeds the 120-day alert threshold and is driven by both elevated receivable and inventory days. This is a significant operational concern because sustained growth requires more capital tied up in the operating cycle and can constrain cash available for reinvestment and shareholder distributions. The increase in inventories alongside declining payables adds to this pressure. Conversely, cash of ¥32.98bn and conservative leverage provide a substantial balance-sheet buffer while management works to normalize working capital.

Dividend Sustainability

The disclosed interim dividend is ¥26.00 per share. The calculated dividend-only payout ratio is 22.1%, which is well below the 60% sustainability benchmark and leaves substantial earnings retention capacity. Attributable profit was ¥5.97bn in the first nine months, while the full-year attributable-profit forecast is ¥7.80bn and forecast EPS is ¥162.61. The low disclosed payout ratio, ¥78.07bn of retained earnings, and net cash position after deducting ¥14.53bn of interest-bearing debt from ¥32.98bn of cash support balance-sheet capacity for dividends. Treasury stock declined by ¥2.03bn YoY, so per-share capital actions should be assessed separately from the dividend-only payout ratio; any combination of dividends and repurchases should be evaluated using a total return ratio rather than payout ratio. Sustainability is nevertheless linked to improvement in the 249-day annualized cash conversion cycle, because inventories and receivables absorb meaningful operating capital. The existing dividend burden appears modest relative to reported profitability and financial resources.

Risk Assessment

Business risks include Working-capital execution is the highest operational risk: annualized DSO of 109 days, annualized DIO of 199 days, and an annualized 249-day cash conversion cycle can delay cash realization and increase sensitivity to demand or collections., Europe is a material integration and profitability risk. The newly consolidated European operation generated a ¥0.33bn segment loss on ¥4.26bn of revenue, and its turnaround is important for realizing acquisition value., Asia delivered 19.3% revenue growth but segment profit fell 3.3%, with margin declining by about 525bp to 22.1%; this requires monitoring for pricing, mix, and cost pressures., FX gains of ¥1.02bn represented 13.8% of operating income. Currency movements are a meaningful source of ordinary-income volatility for an internationally active manufacturer., Industrial manufacturing demand is exposed to customer capital-expenditure cycles, construction and infrastructure activity, distributor inventory adjustments, raw-material and energy costs, supply-chain disruption, and product quality or warranty events..

Financial risks include The 44.5% short-term debt ratio exceeds the 40% refinancing-risk alert threshold. Liquidity coverage is ample, but maturities require routine funding management., Investment securities of ¥15.16bn, or 11.4% of assets, contribute to valuation and comprehensive-income sensitivity., The current-period ¥0.40bn impairment demonstrates that acquired and operating assets remain subject to value-recognition risk, although goodwill concentration is low at 3.0% of equity..

Key concerns include High inventory days are flagged under both the 90-day and 60-day alert thresholds; the ¥23.88bn inventory balance grew faster than sales and is the most important balance-sheet efficiency metric to monitor., High receivable days exceed the 60-day quality-alert threshold and may delay conversion of reported revenue into liquidity., The long cash conversion cycle exceeds the 120-day alert threshold and can limit free cash generation during expansion., Q4 guidance execution requires a 17.5% operating margin, above the 13.8% year-to-date level., Ordinary income benefited from FX, interest, and dividend income, so operating income is the cleaner measure of recurring earnings momentum..

Investment Implications

Key takeaways include Revenue and operating income grew 13.6% and 11.8% YoY, respectively, with a still-strong 13.8% operating margin., Japan is the core profit engine, while North America is the principal reported growth contributor., Attributable-profit decline is largely explained by comparison with the prior-year ¥1.72bn step-acquisition gain and the current ¥0.40bn impairment, rather than deterioration in operating profit., The capital structure is conservative, with 0.30x debt-to-equity, 12.4% debt-to-capital, and ¥32.98bn of cash., Working-capital intensity and loss-making Europe are the principal factors that could temper the quality of earnings growth..

Metrics to watch include Europe segment revenue, segment margin, and progress toward profitability, Japan and North America segment margins, Inventory growth and annualized inventory days, Receivable collections and annualized DSO, Annualized cash conversion cycle and supplier-credit terms, Q4 operating margin versus the 17.5% implied by full-year guidance, Foreign-exchange gains or losses and the recurring share of ordinary income, Goodwill balance and future impairment charges.

Regarding relative positioning, The company combines above-benchmark profitability, a high gross margin, very strong liquidity, and low leverage. Its annualized 7.8% ROE is constrained by moderate asset turnover and working-capital intensity rather than financial leverage. Relative to a typical manufacturer, balance-sheet risk appears low, while conversion of inventory and receivables and the integration of the European acquisition are the key determinants of earnings quality.