TSUBAKIMOTO CHAIN CO. FY2027 Q1 Earnings Report

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Executive Summary

In Q1, revenue increased substantially, driven by growth in the core Power Transmission Business and Mobility Business, while improved SG&A expenses as a percentage of revenue enabled Operating Income to grow at a faster pace than Revenue. Revenue was ¥85.05B (+30.2% year on year), Operating Income was ¥5.16B (+57.4%), and Ordinary Income was ¥6.97B (+60.0%). Meanwhile, Net Income attributable to owners of the parent declined slightly to ¥4.36B (¥4.496B in the previous year, -3.1%), due to temporary factors, namely the absence of the ¥1.83B gain on the sale of investment securities recorded in the previous year and the recognition of ¥0.91B in business structure reform expenses in the current period. Underlying performance at the operating and ordinary income levels has improved.

Factors Affecting Business Performance

【Revenue】Revenue of ¥85.05B (+30.2% year on year) was driven by the Mobility Business (¥33.21B, 39% of total, +48.5%) and Power Transmission Business (¥34.82B, 41% of total, +17.3%). Material Handling generated ¥14.51B (17% of total, +10.2%), continuing to increase revenue, although its growth rate was relatively slower. The Other segment surged to ¥3.56B (+342.1%) due to the addition of welfare equipment, steel materials, and other items; however, it should be noted that this growth was from a low revenue base.

【Profit and Loss】The gross profit margin declined to 28.7% from 29.5% in the previous year, a decrease of 0.8pt, while the SG&A expense ratio improved by 1.9pt to 22.6% from 24.5%. Consequently, the Operating Income margin improved by 1.1pt to 6.1% from 5.0%. SG&A expenses grew by +20.2%, below Revenue growth of +30.2%, allowing the effect of higher revenue to flow efficiently through to Operating Income. Non-operating items included ¥1.10B in dividend income and ¥0.34B in foreign exchange gains, among others, enabling Ordinary Income to grow at a faster pace than Operating Income (+60.0%). However, the Company recorded ¥0.91B in business structure reform expenses as an extraordinary loss, while the temporary earnings contribution from the ¥1.83B gain on the sale of investment securities recorded in the previous year disappeared. As a result, Net Income declined slightly by -3.1% year on year. Performance can be characterized as higher revenue and higher profit through the operating and ordinary income levels, with the decline in Net Income representing an exceptional decrease caused by temporary factors.

Segment Analysis

The Power Transmission Business was the largest earnings contributor, generating Operating Income of ¥3.71B (10.7% margin, +10.9% year on year), while the Mobility Business followed with ¥3.23B (9.7% margin, +54.1%), reflecting strong growth. Together, the two businesses accounted for the majority of Operating Income and were the primary drivers of the Company-wide profit increase. Although Material Handling revenue increased by 10.2%, it posted an Operating Loss of -¥0.73B (-5.0% margin), with the loss expanding by 15.1% from the previous year, indicating delayed improvement in profitability. The Other segment also posted an Operating Loss of -¥0.59B, with the loss expanding by 227.9% year on year, making a negative contribution to earnings. Including the -¥0.46B adjustment for Company-wide expenses and other items, the structure remains one in which the earnings power of the two core businesses absorbs losses from Material Handling and Other.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 6.1% from 5.0% in the previous year, while the Net Income margin declined to 5.1% from 6.9% due to the recognition of extraordinary losses. 【Cash Quality】Operating Cash Flow (OCF) of ¥6.06B was equivalent to 1.39 times Net Income of ¥4.36B, indicating favorable performance from an accruals perspective. However, OCF/EBITDA (EBITDA of approximately ¥9.11B) stood at 66.5%, as working capital factors such as increased inventories and decreased trade payables constrained cash conversion. 【Investment Efficiency】ROE was 1.4% (quarterly basis, not annualized), while the total asset turnover ratio was 18.3% (quarterly basis), indicating room for improvement in asset efficiency. 【Financial Soundness】The Equity Ratio was 65.4%, the Current Ratio was 277.5%, and the Quick Ratio was 240.9%, demonstrating a robust financial base. EBIT and the Interest Coverage Ratio were 24.3 times, also indicating strong debt-servicing capacity. However, short-term borrowings increased by +54.0% year on year (from ¥10.15B to ¥15.63B), requiring continued monitoring of changes in the funding structure.

Cash Flow Analysis

Cash flow from operating activities was ¥6.06B, a decrease of -28.8% year on year. From the subtotal before the increase in working capital of ¥7.95B, the increase in inventories of -¥3.25B and the decrease in trade payables of -¥1.67B were deducted, while collections of +¥3.96B resulting from a decrease in trade receivables provided support. Cash flow from investing activities was -¥2.87B, consisting primarily of capital expenditures. As a result, Free Cash Flow (Operating CF + Investing CF) was ¥3.18B. Cash flow from financing activities was -¥5.65B. The primary outflows were share repurchases of -¥6.20B and dividend payments of -¥4.16B, partially offset by an increase in short-term borrowings of +¥5.30B. Total shareholder returns for the quarter (dividends of ¥4.16B + share repurchases of ¥6.20B = ¥10.37B) exceeded Free Cash Flow of ¥3.18B, indicating that part of the funding for shareholder returns was provided through increased short-term borrowings.

Earnings Quality

Non-operating income was ¥2.21B, equivalent to only 2.6% of Revenue, and consisted primarily of ¥1.10B in dividend income and ¥0.34B in foreign exchange gains, among other items; dependence on recurring income is therefore not excessive. Meanwhile, the Company recorded ¥0.91B in business structure reform expenses as an extraordinary loss, which can be clearly classified as a temporary factor. In the same period of the previous year, the Company recorded an extraordinary gain of ¥1.83B from the sale of investment securities. The decline in Net Income in the current period was primarily due to the reversal of this temporary earnings contribution. From an accruals perspective, Operating CF of ¥6.06B was 1.39 times Net Income of ¥4.36B, indicating favorable cash realization of earnings. However, the OCF/EBITDA ratio remained at 66.5%, with changes in working capital, including inventories and trade payables, weighing on cash conversion. Excluding the temporary nature of extraordinary gains and losses, the earnings trend through the ordinary income level can be said to be improving.

Earnings Forecast and Guidance

Progress in Q1 against the full-year Company plan (Revenue of ¥350.00B, Operating Income of ¥25.50B, Ordinary Income of ¥26.00B, and Net Income of ¥22.00B) was 24.3% for Revenue, 20.3% for Operating Income, 26.8% for Ordinary Income, and 19.8% for Net Income. Compared with standard progress of 25% assuming an even quarterly distribution, Operating Income and Net Income were slightly below the expected pace, while Ordinary Income exceeded it due to higher non-operating income. No revisions were made to the earnings or dividend forecasts during the quarter, and the Company maintained its current plan. The relatively slow progress of Operating Income and Net Income reflects the continued losses in the Material Handling Business and the recognition of extraordinary losses. Improvement in profitability toward the second half of the fiscal year is expected to be a prerequisite for achieving the plan.

Shareholder Returns

The Company’s annual dividend plan remains unchanged at ¥40 per share, implying a Payout Ratio of approximately 18.3% against the full-year EPS forecast of ¥218.17. Cash dividend payments during Q1 amounted to ¥4.16B, exceeding Free Cash Flow of ¥3.18B for the same quarter, although they are expected to be covered by operating cash generation over the full year. In addition, the Company conducted share repurchases of ¥6.20B during Q1. Total shareholder returns for the quarter, including dividends and share repurchases, amounted to ¥10.37B, substantially exceeding Net Income of ¥4.36B for the same period. While the Payout Ratio based solely on dividends remains conservative, the Total Return Ratio including share repurchases was temporarily high. The balance between the funding sources for shareholder returns and cash on hand and borrowings will be a key focus going forward.

Risk Factors

1. Continued losses in the Material Handling Business: The Operating Loss in Q1 was -¥0.73B, with the loss expanding by 15.1% from the previous year. This represents a structural factor suppressing the Company-wide Operating Income margin (6.1%).

2. Declining cash conversion efficiency due to working capital: Inventories were a cash-use factor of -¥3.25B, and the OCF/EBITDA ratio remained at 66.5%. Increases in inventories and work-in-process inventories are weighing on Operating CF.

3. Increased dependence on short-term funding: Short-term borrowings increased by +54.0% year on year (from ¥10.15B to ¥15.63B), indicating a structure in which shareholder returns, including share repurchases, and working capital requirements are being funded through short-term financing. Liquidity remains robust, with a Current Ratio of 277.5% and a Quick Ratio of 240.9%, but changes in the funding structure require monitoring.

Industry Benchmark (For Reference; Compiled by the Company)

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 relatively low within the industry.

Growth and Capital Efficiency

The Company’s Revenue growth rate substantially exceeds the industry median, positioning it among the industry’s high-growth companies.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Revenue and profit growth in the two core businesses (Power Transmission and Mobility), together with a 1.9pt improvement in the SG&A expense ratio, improved the Operating Income margin by 1.1pt to 6.1%. Operating leverage was evident, with the effect of higher revenue flowing through to profit at a faster pace than SG&A expenses.

2. The decline in Net Income (-3.1%) was primarily caused by the temporary factors of ¥0.91B in business structure reform expenses and the reversal of the ¥1.83B gain on the sale of investment securities recorded in the previous year. This should be viewed separately from the earnings trend through the ordinary income level.

3. Continued losses in the Material Handling Business and lower cash conversion efficiency due to working capital factors, including increased inventories (OCF/EBITDA of 66.5%), led to the lack of growth in Operating CF (-28.8%). Future developments will be an important point to monitor.

Theoretical Stock 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 five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,765–¥2,929 at ±1% for the cost of equity, and ¥2,840–¥2,848 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥2.8 per share has been added back to profit (as a non-cash expense and to improve comparability with IFRS companies).
• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest rate reference month: 2026-06 / This value does not predict or guarantee the future stock price)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific 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 discretion and responsibility, after consulting with a professional as necessary.

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