TSUBAKI NAKASHIMA (6464) FY2025 FY Earnings Report

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Executive Summary

FY2025 results marked a sharp deterioration from an operating profit in the previous fiscal year to a substantial operating loss, primarily due to the recognition of ¥16.696B in impairment losses. Revenue was ¥69.84B (-8.0% YoY), Operating Income was ¥-22.26B (deteriorating from ¥0.81B in the previous year), Profit Before Tax was ¥-23.92B, and Net Income attributable to owners of the parent was ¥-26.99B. Even excluding impairment losses, Operating Income was estimated at approximately ¥-5.56B, indicating that deterioration in the profitability of the core business is a structural issue, as shown by a gross margin of 4.6% and an SG&A ratio of 15.8%.

Factors Affecting Performance

【Revenue】Revenue was ¥69.84B, down -8.0% YoY. While the core Precision Components Business led the overall revenue decline, with revenue of ¥68.92B (98.7% of total, -8.2% YoY), the Blower & Real Estate Business increased revenue to ¥0.91B (1.3% of total, +11.5% YoY), although its impact on the Company as a whole was limited due to its small scale.

【Profit and Loss】Operating Income was ¥-22.26B (¥0.81B in the previous year), with the Precision Components Business’ operating loss of ¥22.43B accounting for almost the entire amount. The business included ¥16.696B in impairment losses as a one-time factor; even excluding this, the business remained loss-making, as it was unable to absorb fixed costs, with a gross margin of 4.6% versus an SG&A ratio of 15.8%. In addition to Profit Before Tax of ¥-23.92B, the recognition of ¥2.87B in income tax expenses further expanded Net Income to ¥-26.99B. The result was a decline in both revenue and earnings.

Segment Analysis

The Precision Components Business generated revenue of ¥68.92B (-8.2% YoY) and an operating loss of ¥22.43B (deteriorating from an operating profit of ¥0.63B in the previous year), and accounted for the majority of total Company assets at ¥127.60B. The business recorded ¥16.696B in impairment losses, explaining most of the operating loss. The Blower & Real Estate Business generated revenue of ¥0.91B (+11.5% YoY) and Operating Income of ¥0.17B (-8.3% YoY), maintaining a profit margin of 18.2%; however, its contribution to overall Company performance was limited, as it accounted for only 1.3% of total revenue.

Key Financial Metrics

【Profitability】The Operating Income margin deteriorated significantly to -31.9% (1.1% in the previous year), while the Net Income margin was -38.6%. The gross margin was 4.6%, down 930bp from 13.9% in the previous year, indicating a marked decline in cost absorption capacity.【Cash Flow Quality】Operating Cash Flow (OCF) was positive at ¥10.52B, but this was primarily attributable to a ¥12.68B decrease in inventories and non-cash impairment expenses, rather than cash generation reflecting improved profitability.【Investment Efficiency】ROE was -54.7%, while capital expenditures were ¥1.88B, approximately half of depreciation and amortization of ¥3.74B, indicating restrained capital spending.【Financial Soundness】The Equity Ratio declined to 24.6% (35.2% in the previous year), while bonds and borrowings totaled ¥72.00B on a current basis and ¥20.85B on a non-current basis, indicating increased current maturities. Current interest-bearing liabilities exceeded cash and deposits of ¥34.63B, highlighting the importance of liquidity management.

Cash Flow Analysis

Operating Cash Flow (OCF) was positive at ¥10.52B, up +115.9% YoY. However, the details indicate that the result was driven by working capital compression, including a ¥12.68B decrease in inventories and a ¥2.68B decrease in trade receivables, as well as non-cash impairment expenses, and therefore does not indicate an improvement in recurring earnings power. Investing Cash Flow was positive at ¥1.12B, as proceeds from the sale of businesses of ¥2.05B and proceeds from the sale of property, plant and equipment of ¥0.78B exceeded capital expenditures of ¥1.88B. Financing Cash Flow was ¥-1.30B, with dividend payments of ¥0.38B and the acquisition of treasury shares of ¥0.60B as the main cash outflows. Free Cash Flow was positive at ¥11.64B, and cash and cash equivalents increased by ¥11.30B to ¥34.63B; however, it should be noted that the primary drivers of the increase were asset reduction and disposals rather than improved profitability.

Quality of Earnings

The current-period loss included ¥16.696B in impairment losses as a one-time factor. Excluding this, the Operating Loss was estimated at approximately ¥5.56B. The fact that the Company remained loss-making even excluding impairment indicates deterioration in its recurring earnings structure, including declining revenue, a lower gross margin, and higher SG&A expenses. Outside the operating level, financial expenses of ¥2.00B exceeded financial income of ¥0.34B, further expanding the loss, while other expenses of ¥15.12B, primarily impairment-related, were the main cause of the loss before tax. Despite positive OCF, Net Income was significantly negative, and accruals—the divergence between accrual-basis and cash-basis accounting—were reflected in cash generation through working capital compression. Comprehensive Income was ¥-23.54B, slightly better than Net Loss of ¥-26.99B, due to a positive contribution of ¥3.39B from other comprehensive income, including foreign currency translation adjustments; this does not materially alter the quality of earnings.

Earnings Forecast and Guidance

The Company had planned Revenue of ¥70.00B, Operating Income of ¥2.50B, and EPS of ¥12.91. Actual Revenue was ¥69.84B (99.8% progress), broadly in line with the plan, whereas Operating Income was ¥-22.26B, representing a substantial shortfall. Although there was no significant divergence in the outlook for demand volume, the results indicate that earnings conversion capacity—gross profit and the cost structure—fell substantially short of the plan.

Shareholder Returns

Both the fiscal year-end dividend and interim dividend for the current period were ¥0 per share, resulting in no annual dividend. The Payout Ratio was 0%. Although the Company repurchased ¥0.60B of treasury shares, the Total Return Ratio cannot be meaningfully calculated because Current Net Income was ¥-26.99B. Dividend payments of ¥0.38B reflect payment of the previous fiscal year’s dividend recorded in the cash flow statement and should be distinguished from the current period’s no-dividend policy.

Risk Factors

1. Business concentration risk: The Precision Components Business accounts for 98.7% of Revenue, and its operating loss of ¥22.43B essentially determines the Company-wide loss. Fluctuations in demand for this business have a direct impact on overall performance.

2. Profitability deterioration risk: Profitability has deteriorated substantially, with a gross margin of 4.6% and an Operating Income margin of -31.9%; an Operating Loss of ¥5.56B remains even excluding impairment losses. If factors such as raw material costs and lower utilization rates persist, losses may continue.

3. Financial soundness risk: The Equity Ratio declined to 24.6% (35.2% in the previous year), and current liabilities consisting of bonds and borrowings of ¥72.00B exceeded cash and deposits of ¥34.63B. Intangible assets and goodwill of ¥26.43B correspond to 70.9% of equity, potentially placing further pressure on capital if additional impairment losses arise.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

All profitability metrics were substantially below the industry median, placing the Company in the lower tier of the industry.

Growth and Capital Efficiency

The Revenue Growth Rate was also below the industry median, and the declining revenue trend was notable even within the industry.

Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Revenue reached 99.8% of the Company’s plan and was broadly in line with expectations, whereas Operating Income was ¥-22.26B against a plan of ¥2.50B, representing a substantial shortfall. The challenge lies more clearly in earnings conversion capacity than in demand volume.

2. The ¥16.696B impairment loss was the primary cause of the current-period loss; however, an Operating Loss remained even excluding this item, leaving the correction of the gross profit structure and fixed costs as structural challenges.

3. OCF was positive at ¥10.52B, but a substantial portion was attributable to inventory reduction and asset sales, requiring a cautious assessment of recurring cash generation capacity. In addition, the decline in the Equity Ratio to 24.6% and the increase in current interest-bearing liabilities have heightened the importance of liquidity management.

Theoretical Share Price (Reference Value)

Sensitivity: 734円–777円 at ±1% for the Cost of Equity, and 748円–760円 at ±0.1 for ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burden, acquisition-related expenses, and non-controlling interests, among other factors (Net Income ÷ Operating Income 20%). This figure reflects that compression at face value; if these factors are temporary, underlying earnings power may be higher.
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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