TOKYO AUTOMATIC MACHINERY WORKS (6360) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for Q3 represent a significant decline in revenue and earnings due to the反動減 following large-scale orders, with operating profitability deteriorating substantially. Revenue was ¥56.9B (¥100.4B in the same period last year, YoY -43.3%), Operating Income was ¥0.7B (¥13.2B last year, YoY -95.0%), Ordinary Income was ¥2.2B (¥14.5B, YoY -84.6%), and Net Income was ¥2.7B (¥10.0B, YoY -73.2%). As SG&A expenses remained elevated despite the sharp decline in revenue, the Operating Income margin fell to 1.2%. Ordinary Income and Net Income were supported by non-operating and temporary factors, including gains on the sale of investment securities of ¥1.5B and dividend income of ¥0.8B.

Factors Affecting Results

【Revenue】Revenue was ¥56.9B, down 43.3% YoY. By segment, PackageMachine generated ¥37.8B (66.4% of total) and ProductionMachine generated ¥19.1B (33.6%), with the primary factor believed to be the反動減 following large-scale projects recorded in the previous year.

【Profit and Loss】Operating Income declined significantly to ¥0.7B (YoY -95.0%), with the Operating Income margin falling to 1.2%. By segment, ProductionMachine maintained high profitability with an Operating Income margin of 25.3%, while PackageMachine deteriorated to 0.3%. The allocation burden of ¥4.7B in company-wide expenses also pressured earnings. Ordinary Income of ¥2.2B was boosted by non-operating income, including dividend income of ¥0.8B, while Net Income of ¥2.7B included a ¥1.5B gain on the sale of investment securities (equivalent to 40.5% of Profit Before Tax). In conclusion, the Company reported declines in both revenue and earnings, and part of reported Net Income depends on temporary factors.

Segment Analysis

PackageMachine recorded Revenue of ¥37.8B (66.4% composition ratio), Operating Income of ¥0.1B, and a profit margin of 0.3%, representing a significant deterioration in profitability. ProductionMachine recorded Revenue of ¥19.1B (33.6% composition ratio), Operating Income of ¥4.8B, and a profit margin of 25.3%, maintaining relatively high profitability and effectively supporting the Company’s overall earnings. Company-wide expenses (adjustments) were △¥4.7B, primarily consisting of personnel expenses and other costs related to administrative divisions, and were deducted uniformly from the profits of both segments.

Key Financial Indicators

【Profitability】With an Operating Income margin of 1.2% and a Net Income margin of 4.7%, the Company’s core earning power remains low. Since Profit Before Tax includes a ¥1.5B gain on the sale of investment securities, the reported Net Income margin is likely higher than the underlying strength of the core business.【Cash Quality】Cash and deposits were ¥52.5B, accounting for 32.0% of total assets, indicating ample liquidity. However, work in process of ¥18.1B accounted for 61.1% of inventories, suggesting that delays in production and acceptance progress may be tying up funds.【Investment Efficiency】ROE was 2.8%. Based on a DuPont decomposition into Net Income margin, total asset turnover (0.347x), and financial leverage (1.72x), the low profit margin and low asset turnover are the primary causes of the low ROE.【Financial Soundness】The capital structure is conservative, with an Equity Ratio of 58.1%, a current ratio of 224.0%, and long-term borrowings of ¥0.76B. There are also limited concerns regarding short-term payment capacity.

Cash Flow Analysis

Because actual Operating, Investing, and Financing Cash Flow data were not disclosed in these financial results, funding trends are assessed based on changes in the balance sheet. Cash and deposits increased from ¥36.8B in the same period last year to ¥52.5B, strengthening liquidity. Meanwhile, work in process increased from ¥16.0B to ¥18.1B, and investment securities increased from ¥28.9B to ¥31.7B, indicating continued investment of funds in projects under production and held assets, respectively. Accounts receivable and notes receivable declined substantially from ¥26.3B to ¥10.9B, and the collection of large-scale projects recorded in the previous year is considered one factor behind the increase in cash. Overall, funds are being managed through a balance between investment in inventories and work in process and the collection of receivables. Additional data is required to verify actual cash flow from operating activities.

Earnings Quality

The earnings structure for the current period is characterized by a significant divergence between profit generated by recurring business activities and profit generated by temporary and non-operating factors. While Operating Income remained at only ¥0.7B, Ordinary Income of ¥2.2B was boosted by non-operating income of ¥2.2B, including dividend income of ¥0.8B, representing approximately three times Operating Income. Furthermore, Profit Before Tax of ¥3.8B included a ¥1.5B gain on the sale of investment securities as extraordinary income. This gain represented 40.5% of Profit Before Tax and 56.5% of Net Income of ¥2.7B. Accordingly, reported Net Income exceeded the level supported by the core business’s recurring earnings power, and the sustainability of performance should be assessed based on the underlying earnings level excluding the gain on the sale of investment securities.

Earnings Forecast and Guidance

The cumulative Q3 progress rates against the Full-Year forecast were 56.9% for Revenue, 165.0% for Operating Income, 39.1% for Ordinary Income, and 53.8% for Net Income. Although Operating Income exceeded the forecast on a progress-rate basis, the cumulative amount was only ¥0.7B, meaning that Operating Income of ¥3.3B in Q4 alone will be required to achieve the Full-Year forecast of ¥4.0B. Achieving the Full-Year Revenue forecast of ¥100.0B will also require Revenue of ¥43.1B in Q4, suggesting that the plan may assume a business characteristic in which Revenue and earnings are concentrated toward the end of the fiscal year, as is typical. Progress rates for Ordinary Income and Net Income remain at approximately 5〜4割, making progress on projects in Q4 the key to achieving the plan.

Shareholder Returns

The dividend forecast is ¥100 per share, and the forecast Payout Ratio based on forecast EPS of ¥356.20 is approximately 28.1% (total dividends of approximately ¥1.4B ÷ Full-Year forecast Net Income of ¥5.0B). Whereas the actual dividend for the previous year was ¥240, the forecast dividend has been reduced substantially to reflect the significant decline in earnings. Since actual Operating Cash Flow was not disclosed, dividend sustainability based on cash flow has not been assessed. However, the substantial cash and deposits balance of ¥52.5B provides a certain level of support from the perspective of available funds for dividends.

Risk Factors

1. Order Intake and Project Progress Volatility Risk: Revenue declined 43.3% YoY and the Operating Income margin fell to 1.2%, indicating substantial performance volatility depending on the presence or absence of large-scale projects. With SG&A expenses remaining elevated at ¥15.0B (26.4% of Revenue), the fixed-cost burden is likely to place further pressure on earnings during periods of declining Revenue.

2. Work-in-Process and Inventory Accumulation Risk: Work in process of ¥18.1B accounted for 61.1% of total inventories, suggesting the risk of funds being tied up and delays in cost recovery due to delays in project acceptance or specification changes. Improving working capital efficiency will be key to the future recovery of earnings and cash flow.

3. Earnings Quality Risk: Ordinary Income and Net Income depend significantly on non-operating and temporary factors, such as dividend income of ¥0.8B and gains on the sale of investment securities of ¥1.5B. Investment securities of ¥31.7B accounted for 19.4% of total assets, and market fluctuations may affect future profit and loss and net assets.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the Company’s Operating Income margin and Net Income margin are below the industry median, placing its profitability at the lower end of the industry.

Growth and Capital Efficiency

The Company’s Revenue growth rate is substantially below the industry median, and the decline in Revenue during the current period is particularly pronounced within the industry.

※Source: Company research

Key Points from the Financial Results

1. The financial foundation is conservative and stable, with an Equity Ratio of 58.1% and a current ratio of 224.0%. However, core business profitability is low, with ROE of 2.8% and an Operating Income margin of 1.2%, indicating a gap between financial soundness and core business profitability.

2. Achieving the Full-Year Operating Income forecast of ¥4.0B will require Operating Income of ¥3.3B in Q4. Accordingly, the timing of Revenue recognition and trends in project profitability are important areas to monitor.

3. Net Income for the current period includes temporary factors such as gains on the sale of investment securities. It is useful to assess earnings sustainability based on the level of recurring earnings excluding these factors.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not constitute a recommendation to invest in any particular 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, after consulting professionals as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q3 performance was materially weaker year on year, with a sharp decline in sales and a collapse in operating profitability. Revenue fell 43.3% YoY to ¥5.692bn. Operating income declined 95.0% to ¥66m. Ordinary income fell 84.6% to ¥223m, while net income decreased 73.2% to ¥269m. The gross margin contracted by approximately 80bp YoY to 27.6%, from 28.4% in the prior-year period. The operating margin contracted by approximately 1,195bp to 1.2%, from 13.1%, demonstrating severe negative operating leverage as revenue declined while SG&A was broadly maintained at ¥1.505bn versus ¥1.534bn a year earlier. Net margin fell by approximately 530bp to 4.7% from 10.0%. Non-operating income of ¥224m exceeded operating income and included ¥79m of dividend income, reducing the extent to which ordinary profit represented core manufacturing earnings. Net income was also supported by a ¥152m gain on sales of investment securities, equal to 56.5% of reported net income. Consequently, the earnings result is substantially stronger at the net-income line than the ¥66m operating-profit outcome would imply. Balance-sheet liquidity remains robust, with cash and deposits of ¥5.248bn and a current ratio of 224.0%. However, inventories rose 89.4% YoY to ¥1.139bn while sales contracted sharply, making inventory conversion and production scheduling central near-term issues. The disclosed working-capital alerts indicate inventory days of 197 days under one calculation and 76 days under another, both above their relevant efficiency benchmarks. Management's full-year forecast implies a pronounced Q4 recovery, particularly in operating profit. Q3 cumulative progress is only 56.9% for revenue and 16.5% for operating income against a standard 75% progress rate. The principal investment implication is therefore whether the company can convert elevated work in process into shipments and restore operating-margin absorption in Q4.

Profitability Analysis

The supplied three-factor DuPont analysis reports ROE of 3.8%, comprising a 4.7% net profit margin, 0.463x asset turnover, and 1.72x financial leverage. The low ROE is principally attributable to weak profitability and low asset utilization rather than excessive leverage. EBIT margin was only 1.2%, triggering the low-operating-efficiency alert and sitting well below the 5% concern threshold. This reflects a 43.3% revenue decline against SG&A that fell only 1.9% YoY, producing substantial negative operating leverage. Gross margin declined more moderately, by about 80bp YoY, indicating that the major earnings deterioration occurred below gross profit rather than through a wholesale loss of unit economics. The operating-margin decline of about 1,195bp demonstrates that the existing cost base was not sufficiently absorbed by the lower sales volume. The capital-efficiency alert is also warranted: reported ROIC is 1.3%, below 5%, indicating that operating returns are currently inadequate relative to the capital deployed in manufacturing assets, cash, and securities. Financial leverage at 1.72x contributes modestly to ROE but cannot compensate for the weak operating return. Interest coverage of 6.05x remains above the 5x strong-credit benchmark, so financing cost is not the primary driver of the weak result. The five-factor analysis shows an interest burden of 5.696, distorted upward because profit before tax materially exceeded EBIT through non-operating and extraordinary gains; it should not be interpreted as evidence of exceptionally high operating profitability. The tax burden of 0.715 and effective tax rate of 28.4% appear broadly normal. Core profitability would be materially lower without dividend income and the securities-sale gain.

Growth Assessment

Revenue declined 43.3% YoY to ¥5.692bn, indicating a severe contraction in current-period shipment or project revenue. Operating income fell faster than sales, down 95.0%, which confirms adverse fixed-cost absorption. Gross profit fell 44.9% to ¥1.571bn, broadly tracking the revenue decline, whereas operating income fell much more sharply because SG&A remained at ¥1.505bn. The full-year sales forecast is ¥10.0bn, requiring ¥4.308bn of Q4 revenue, equivalent to 43.1% of the full-year target. The implied Q4 operating income requirement is ¥334m, versus ¥66m cumulatively through Q3. Ordinary income must reach ¥347m in Q4 to achieve the ¥570m full-year forecast, and net income must reach ¥231m to meet the ¥500m forecast. Revenue progress of 56.9% is 18.1 percentage points below the standard 75% Q3 pace. Operating-income progress of 16.5% is 58.5 percentage points below standard, while ordinary-income progress of 39.1% is 35.9 percentage points below standard. Net-income progress of 53.8% is also below standard by 21.2 percentage points, notwithstanding support from securities-sale gains. The forecast therefore embeds a substantial Q4 concentration in sales, operating-profit recovery, or both. Elevated work in process of ¥1.810bn suggests a potentially meaningful production and delivery pipeline, but it also represents execution risk if projects are delayed, costs rise, or customer acceptance is deferred. The manufacturing-specific high-WIP alert is material: WIP represents 61.1% under the disclosed inventory composition alert, above the 40% warning level, consistent with a production bottleneck or lengthy project cycle. Revenue sustainability will depend on timely conversion of WIP into finished goods and customer deliveries rather than reliance on investment-related gains.

Financial Health

Liquidity is strong, with current assets of ¥9.979bn against current liabilities of ¥4.455bn, producing a 224.0% current ratio. The quick ratio is also healthy at 198.5%, supported primarily by ¥5.248bn of cash and deposits. Working capital is ¥5.525bn, providing a sizable buffer against short-term obligations. Cash and deposits increased ¥1.564bn, or 42.4% YoY, to 32.0% of total assets. Accounts receivable decreased ¥1.534bn, or 58.4% YoY, to ¥1.093bn, which supported cash generation within the balance sheet but coincided with a substantial reduction in reported sales. Inventories increased ¥538m, or 89.4% YoY, to ¥1.139bn, increasing the amount of capital tied up in the operating cycle. The current portion of long-term loans is ¥116m, which is readily covered by cash and the working-capital surplus; there is no apparent short-term debt maturity mismatch. Long-term loans are ¥760m, and lease obligations total ¥179m across current and non-current portions. Reported debt-to-equity is 0.72x, below the 2.0x warning threshold, while debt-to-capital is a conservative 7.4%. Total equity increased to ¥9.522bn from ¥9.439bn, although retained earnings declined ¥76m YoY to ¥6.431bn and the increase in equity was supported by higher valuation differences on securities. Investment securities amount to ¥3.172bn, or 19.4% of total assets, making equity-market valuation movements relevant to capital stability. Deferred tax liabilities of ¥214m are present, and retirement-benefit provisions are ¥1.129bn. Advances received increased ¥790m YoY to ¥2.390bn, consistent with customer-funded project activity but also increasing the liability associated with order execution and delivery. There is no explicit current-ratio or D/E warning under the stated thresholds.

Notable B/S Changes

Inventories: +¥0.538bn (+89.4%) to ¥1.139bn — inventory increased sharply despite lower revenue, elevating conversion, obsolescence, and working-capital risk. Accounts receivable: -¥1.534bn (-58.4%) to ¥1.093bn — lower receivables supported cash, but the movement occurred alongside a 43.3% revenue decline. Cash and deposits: +¥1.564bn (+42.4%) to ¥5.248bn — materially strengthens liquidity and coverage of debt maturities. Advances received: +¥0.790bn (+49.4%) to ¥2.390bn — indicates customer-funded orders or projects, while increasing the execution obligation attached to future deliveries.

Cash Flow Quality

Dividend Sustainability

The full-year dividend forecast is ¥100 per share. Based on forecast EPS of ¥356.20, the implied dividend payout ratio is 28.1%, comfortably below the 60% sustainability benchmark. Using 1,403,578 average shares, the implied annual dividend cash commitment is approximately ¥140m. This is covered by the ¥500m full-year net-income forecast, implying a similar 28.1% earnings payout. The balance sheet provides further flexibility, with ¥5.248bn of cash and deposits. Dividend sustainability is therefore supported by the stated earnings forecast, low payout ratio, and liquid balance sheet. However, the forecast depends on a large Q4 operating recovery, so the durability of the dividend profile remains linked to successful conversion of the production pipeline and restoration of core earnings. The prior-year dividend per share was ¥240, making the FY2026 forecast ¥100 a substantial reduction of 58.3%.

Risk Assessment

Business risks include High priority — demand, shipment, and project-execution risk: revenue fell 43.3% YoY and meeting the annual forecast requires ¥4.308bn of Q4 sales., High priority — manufacturing production-cycle risk: disclosed WIP is ¥1.810bn and the high-WIP alert of 61.1% exceeds the 40% warning threshold, indicating capital tied up in unfinished production and potential bottlenecks., High priority — inventory-conversion risk: inventory increased 89.4% YoY despite lower sales; disclosed DIO alerts of 197 days and 76 days both exceed the applicable benchmarks., Medium priority — operating-leverage risk: the 1.2% EBIT margin and 95.0% decline in operating income show that earnings are highly sensitive to sales-volume shortfalls., Medium priority — manufacturing-sector input-cost and supply-chain risk: prolonged WIP and inventory cycles can expose margins to component, material, labor, and delivery-cost inflation before project completion..

Financial risks include Medium priority — cash-conversion-cycle risk: the disclosed CCC of 215 days is above the 120-day warning threshold, extending the period for which operating capital is committed., Medium priority — investment-portfolio valuation risk: investment securities total ¥3.172bn, or 19.4% of assets, and valuation differences on securities amount to ¥1.765bn within equity., Low-to-medium priority — earnings-composition risk: operating income was only ¥66m, while net income benefited from ¥152m of securities-sale gains and ¥79m of dividend income., Low priority — debt-service risk: interest coverage is 6.05x, debt/capital is 7.4%, and cash materially exceeds long-term loans and lease obligations..

Key concerns include LOW_OPERATING_EFFICIENCY: the 1.2% EBIT margin is below 5%, reflecting severe under-absorption of SG&A after the sales decline; recovery requires materially better volume and/or cost absorption., CAPITAL_EFFICIENCY: reported ROIC of 1.3% is below 5%, indicating low returns on the capital base; improvement depends on restoring operating earnings rather than adding leverage., HIGH_INVENTORY_DAYS: the disclosed 197-day DIO is well above the 90-day warning level, increasing carrying-cost, obsolescence, and cash-lockup risk., LONG_CCC: the disclosed 215-day cash conversion cycle exceeds 120 days, heightening working-capital funding and execution sensitivity., HIGH_WIP_RATIO: the disclosed 61.1% WIP ratio exceeds 40%, pointing to a concentrated unfinished-production exposure and potential delivery-timing risk., HIGH_INVENTORY_DAYS: the separately disclosed 76-day DIO also exceeds the 60-day manufacturing benchmark; irrespective of methodology, inventory efficiency is weaker than the relevant standard..

Investment Implications

Key takeaways include Core profitability weakened sharply: revenue declined 43.3% YoY and operating margin contracted to 1.2% from 13.1%., Reported net income of ¥269m overstates the strength of recurring operations because it includes a ¥152m gain on sales of investment securities., Liquidity is a material offset, with ¥5.248bn of cash, a 224.0% current ratio, and 7.4% debt/capital., Inventory and WIP conversion are the key operating variables, given the 89.4% YoY rise in inventories and the disclosed 215-day CCC., The full-year forecast requires a heavily back-end-loaded Q4, including ¥334m of operating income versus ¥66m cumulatively through Q3..

Metrics to watch include Q4 revenue conversion versus the ¥4.308bn implied requirement, Q4 operating income versus the ¥334m implied requirement, Operating margin recovery from 1.2%, Work-in-process conversion, finished-goods levels, and inventory days, Cash conversion cycle relative to the disclosed 215 days, Recurring operating profit relative to dividend income and securities gains, Investment-security valuation movements and their effect on equity.

Regarding relative positioning, The company is financially liquid and conservatively capitalized, but current operating and capital efficiency are weak for a manufacturing company: the 1.2% EBIT margin, 3.8% reported ROE, 1.3% reported ROIC, and extended inventory cycle place operating performance below standard profitability and working-capital benchmarks.