TSUBAKI NAKASHIMA (6464) FY2026 Q1 Earnings Report

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Executive Summary

The significant increases in operating income and net income were primarily attributable to the one-time gain of ¥1.043B on the sale of fixed assets, and therefore need to be evaluated separately from any improvement in recurring earnings power. Revenue declined to ¥17.78B (-2.7% YoY), while operating income increased to ¥1.13B (+214.6% YoY) and net income turned profitable at ¥0.31B (+155.1% YoY; a ¥0.56B loss in the same period of the previous year). The operating margin improved to 6.3%; however, the estimated operating margin excluding the gain on the sale of fixed assets was only approximately 0.5%, indicating that the underlying profitability of the core business was below the level recorded in the same period of the previous year.

Factors Affecting Financial Results

【Revenue】Revenue was ¥17.78B, down 2.7% YoY. The Precision Components Business, which accounts for 98.0% of consolidated revenue, declined to ¥17.44B (-3.1% YoY), weighing on consolidated results overall. The Blower & Real Estate Business increased revenue to ¥0.35B (+25.3% YoY), but accounted for only 2.0% of consolidated revenue.

【Profit and Loss】Operating income rose substantially to ¥1.13B (+214.6% YoY), but most of the increase was attributable to the one-time gain of ¥1.043B on the sale of property, plant and equipment. Estimated operating income excluding the gain was ¥0.084B, representing approximately 0.5% of revenue and below the reported operating margin of approximately 2.0% in the same period of the previous year. Finance costs of ¥0.65B were equivalent to 57.2% of operating income, compressing profit before tax to ¥0.53B. Despite the high effective tax rate of 42.0%, net income turned profitable at ¥0.31B. As earnings increased due to a one-time factor amid declining revenue, the overall result is characterized as lower revenue and higher profit.

Segment Analysis

The Precision Components Business recorded revenue of ¥17.44B (-3.1% YoY) and segment profit of ¥1.12B (+288.9% YoY; margin of 6.4%). The Blower & Real Estate Business recorded revenue of ¥0.35B (+25.3% YoY) and segment profit of ¥0.01B (-84.5% YoY; margin of 3.2%), indicating that revenue growth has not translated into improved profitability. The sharp increase in segment profit in the core business may, like consolidated operating income, include the impact of the gain on the sale of fixed assets; additional verification is required to determine whether recurring profitability has actually improved.

Key Financial Metrics

【Profitability】The operating margin was 6.3% and the net profit margin was 1.7%. However, the estimated operating margin excluding the ¥1.043B gain on the sale of fixed assets was approximately 0.5%, representing a significant divergence from the reported figure. The gross margin was 16.2%, nearly offset by the SG&A ratio of 15.8%, indicating limited capacity to absorb costs.【Cash Flow Quality】ROE was low at 0.8%. While operating cash flow (OCF) was negative ¥0.63B, net income was positive at ¥0.31B, resulting in negative OCF/net income.【Investment Efficiency】Capital expenditures were ¥0.26B, remaining at a restrained level relative to the depreciation burden.【Financial Soundness】The equity ratio was 25.2%, a slight improvement from 24.4% in the same period of the previous year. Total interest-bearing debt was ¥93.55B, comprising short-term borrowings of ¥53.97B (a decrease of ¥18.03B from ¥71.995B at the end of the previous fiscal year) and long-term borrowings of ¥39.59B (an increase of ¥18.74B), indicating continued lengthening of the debt maturity profile.

Cash Flow Analysis

OCF was negative ¥0.63B, deteriorating from positive ¥1.03B in the same period of the previous year. The primary factors were a ¥0.65B increase in trade receivables, a ¥0.52B decrease in operating liabilities, ¥0.49B of outflows from other working capital, and ¥0.39B of corporate income tax payments, which more than offset the support provided by a ¥1.34B decrease in inventories. Investing cash flow was positive at ¥0.78B, but this depended on ¥1.05B of proceeds from the sale of property, plant and equipment and differs in nature from recurring investment cash generation exceeding capital expenditures of ¥0.26B. Financing cash flow was negative ¥0.08B, primarily reflecting repayments of lease liabilities. Free cash flow was positive at ¥0.15B, but in substance this was generated through asset sales; it should be noted that cash-generation capacity from ordinary operating activities was negative as of the current quarter. Cash and cash equivalents were ¥34.83B, representing a slight increase from the end of the previous fiscal year.

Earnings Quality

The improvement in earnings for the current period was primarily dependent on a one-time factor and must be evaluated separately from any improvement in recurring earnings power. Of operating income of ¥1.13B, the gain on the sale of fixed assets accounted for ¥1.04B, leaving estimated recurring operating income of only approximately ¥0.08B. Finance costs of ¥0.65B substantially exceeded finance income of ¥0.05B, resulting in a non-operating balance that weighed on profit. The effective tax rate was high at 42.0%, and the conversion rate from profit before tax of ¥0.53B to net income of ¥0.31B was only 58.0%. Comprehensive income was ¥1.24B, exceeding net income of ¥0.31B, primarily due to ¥0.98B in foreign currency translation adjustments for foreign operations; this does not represent the recurring earnings power of the business. The fact that OCF was negative while net income was positive indicates a divergence between accounting earnings and actual cash generation and warrants caution from an earnings-quality perspective.

Earnings Forecast and Guidance

Q1 progress toward the full-year forecast was 25.4% for revenue (forecast: ¥70.00B), 45.1% for operating income (forecast: ¥2.50B), and 61.6% for net income (forecast: ¥0.50B). While revenue was broadly in line with the standard progress rate of 25%, the high progress rates for operating income and net income reflected the inclusion of the ¥1.04B gain on the sale of fixed assets. Based on estimated operating income excluding this gain, progress was only approximately 3.4%. Accordingly, caution is warranted in interpreting the high progress rates for profit as an upside to the full-year forecast. No revisions were made to either the earnings forecast or the dividend forecast during the current quarter.

Shareholder Returns

Dividend payments during Q1 amounted to ¥0.001B, resulting in a Payout Ratio of approximately 0.3% against net income of ¥0.31B (dividend-only Payout Ratio). The full-year forecast for dividends per share is ¥0, and no annual cash dividend is currently assumed. Given negative OCF, the current capital allocation phase is considered one in which improving working capital and the debt structure should remain the near-term priorities.

Risk Factors

1. Financial leverage and interest burden: Interest-bearing debt was ¥93.55B, and high leverage continues under an equity ratio of 25.2%. EBIT coverage of finance costs was only 1.75x, based on EBIT of ¥1.13B against finance costs of ¥0.65B, and would be even more fragile excluding the gain on asset sales.

2. Working capital and operating cash flow: OCF was negative ¥0.63B, indicating that net income has not been converted into cash. The increase in trade receivables combined with the decrease in operating liabilities has increased the amount of funds tied up in working capital.

3. Declining revenue and low gross margin in the core business: The Precision Components Business, which accounts for 98.0% of consolidated revenue, experienced a 3.1% YoY decline in revenue. The gross margin was low at 16.2%, suggesting that the capacity to pass on cost increases through pricing may be limited.

Industry Benchmark (For Reference; Based on Company Research)

Industry Benchmark (manufacturing)

Profitability and Returns

The operating margin is slightly below the industry median, while the net profit margin is substantially below the median.

Growth and Capital Efficiency

The revenue growth rate is substantially below the industry median and is also below the lower bound of the IQR.

※Source: Based on company research

Key Points from the Financial Results

1. The substantial increases in reported operating income and net income were heavily dependent on the one-time gain of ¥1.04B on the sale of fixed assets. The estimated operating margin excluding the gain was only approximately 0.5%; it should be noted that the high progress rates toward the full-year forecast—45.1% for operating income and 61.6% for net income—do not indicate recurring upside.

2. The core Precision Components Business, which accounts for 98.0% of consolidated revenue, recorded a 3.1% YoY decline in revenue. The future recovery of the top line will therefore be a key focus.

3. While OCF was negative ¥0.63B, financial leverage remained high, with interest-bearing debt of ¥93.55B and an equity ratio of 25.2%. Rather than earnings growth, the compression of working capital and stabilization of the financial structure should be observed as structural challenges.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥754–¥799 at ±1% for the cost of equity, and ¥769–¥781 at ±0.1 for ω.

Notes:

• Because net income progress toward the full-year forecast (62%) exceeds the standard rate (25%), forecast EPS has been adjusted upward within a ceiling of +10% (because companies with leading progress tend to outperform forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net income is substantially compressed relative to operating income due to tax expenses, acquisition-related costs, and non-controlling interests, among other factors (net income ÷ operating income: 20%). This figure reflects that compression at face value; if the 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.
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market price or a recommendation of any specific investment action, nor does it predict or guarantee future stock 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 benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q1 showed a sharp reported earnings recovery despite a 2.7% year-on-year decline in revenue to ¥17.78bn. Operating income increased 214.6% year on year to ¥1.13bn, lifting the reported operating margin to 6.3% from 2.0% a year earlier, an expansion of 430bp. Net income attributable to owners was ¥0.31bn, compared with a ¥0.56bn loss in the prior-year quarter. The net profit margin was 1.7%, versus a negative margin in the prior period, but it remains low for a manufacturer. Gross profit increased 2.7% to ¥2.89bn despite lower sales, and gross margin improved to 16.2% from 15.4%, an 80bp improvement. SG&A expenses increased 6.9% to ¥2.81bn, faster than revenue, limiting the conversion of gross-margin improvement into recurring earnings. Reported operating income was materially supported by ¥1.07bn of other income, principally a ¥1.04bn gain on disposal of property, plant and equipment. Excluding this gain, gross profit less SG&A was approximately ¥0.08bn, indicating that underlying Q1 operating profitability remained very limited. The Precision Component Business, the core business by operating-income contribution, generated ¥17.44bn of revenue and ¥1.12bn of segment profit. Its segment margin improved to 6.4% from 1.6% in the previous year, though the reported segment result should be assessed in the context of the disposal gain recorded at the consolidated level. The Blower & Real Estate Business increased revenue by 25.3% to ¥0.35bn, while segment profit fell 84.5% to ¥0.01bn. Finance costs of ¥0.65bn consumed 57% of EBIT, leaving only ¥0.53bn of profit before tax. The effective tax rate was elevated at 42.0%, reducing the conversion of pretax profit to net income. Operating cash flow was negative ¥0.63bn while net income was positive ¥0.31bn, producing an OCF/net-income ratio of negative 2.05x. Although reported free cash flow was positive ¥0.15bn, this was dependent on ¥1.05bn of proceeds from property disposals; free cash flow before disposal proceeds was negative by approximately ¥0.90bn. The balance sheet has substantial liquidity, with ¥34.83bn of cash and a current ratio of 1.32x, but leverage remains high, with reported D/E of 2.97x and an equity ratio of only 25.2%. Full-year guidance was unchanged, and Q1 progress is ahead of a standard seasonal run rate for operating profit and net income; however, the excess progress is not fully indicative of recurring earnings because of the fixed-asset disposal gain. The central forward implication is that margin recovery in the Precision Component Business and conversion of inventories into cash need to replace asset-sale gains as the principal drivers of earnings improvement.

Profitability Analysis

Annualized DuPont ROE is 3.2%, decomposed into a 1.7% net profit margin, 0.468x annualized asset turnover, and 3.97x financial leverage. Financial leverage is the principal support for ROE, rather than a strong return generated by margins or asset efficiency. The greatest year-on-year improvement was in the reported operating margin, which rose 430bp to 6.3%, alongside the return to positive net income. Gross margin improved by 80bp to 16.2%, suggesting some improvement in production economics or product mix despite lower revenue. However, SG&A rose 6.9% year on year while revenue fell 2.7%, creating negative operating leverage before other income. The reported operating result was boosted by ¥1.07bn of other income, including ¥1.04bn from PPE disposal, which is equivalent to 92.5% of reported operating income. Consequently, the improvement in reported EBIT and the associated ROE recovery are not yet evidence of a sustainably improved earnings base. The five-factor analysis shows a tax burden of 0.580 and an interest burden of 0.471; the latter means finance costs absorbed roughly 53% of EBIT. EBIT margin was 6.3%, but the net margin was only 1.7% because of the heavy interest and tax burden. The Precision Component Business is the core business, representing 98.0% of external revenue and 99.0% of segment profit. Its reported segment margin was 6.4%, compared with 1.6% a year earlier. The Blower & Real Estate Business had a higher prior-year margin but delivered only a 3.2% margin in Q1, down from 25.6%, and therefore did not materially support consolidated profit growth. The 16.2% gross margin remains below the stated 20% reference level, leaving profitability sensitive to sales volume, pricing, raw-material costs and manufacturing utilization.

Growth Assessment

Revenue declined 2.7% year on year to ¥17.78bn, with the Precision Component Business declining 3.1% to ¥17.44bn. The smaller Blower & Real Estate Business grew revenue 25.3% to ¥0.35bn, but its small scale means it did not offset the core business revenue contraction. Gross profit increased ¥0.08bn, or 2.7%, showing that the gross-margin improvement more than offset the sales decline. Reported operating income rose ¥0.77bn year on year and net income improved by ¥0.87bn, from a loss to a profit. Earnings growth quality is constrained by the ¥1.04bn gain on PPE disposal included in other income. The disposal gain is larger than the reported net income and therefore materially limits the recurring interpretation of the profit recovery. Against unchanged FY2026 guidance, Q1 revenue progress is 25.4% versus the standard 25% first-quarter pace. Operating-income progress is 45.1% versus the standard 25%, and net-income progress is 61.6%, both more than 10 percentage points ahead of the standard pace. These apparent outperformance rates should not be extrapolated mechanically because the asset-disposal gain accelerated reported Q1 profit. Revenue durability will depend chiefly on stabilization in Precision Component demand and whether the improved gross margin can be retained without SG&A increasing faster than revenue.

Financial Health

Liquidity is adequate on the reported balance sheet, with current assets of ¥88.58bn and current liabilities of ¥67.04bn, resulting in a current ratio of 1.32x. This is above 1.0x, so there is no immediate current-ratio warning, although it is below the 1.5x healthy benchmark. Cash and cash equivalents of ¥34.83bn represent 39.3% of current assets and provide a meaningful liquidity buffer. Calculated working capital is ¥21.54bn. Interest-bearing bonds and borrowings total ¥93.55bn, comprising ¥53.97bn current and ¥39.59bn non-current borrowings. The reported D/E ratio is 2.97x, above the 2.0x warning threshold, and explicitly indicates aggressive debt financing relative to the ¥38.31bn equity base. This high leverage is material because the equity ratio is only 25.2%. Interest coverage, calculated as EBIT divided by finance costs, is approximately 1.75x, below the 2.0x warning threshold. Accordingly, the company has limited headroom for a decline in operating profit or a rise in funding costs. The maturity profile improved mechanically during Q1 as current borrowings fell ¥18.03bn and non-current borrowings rose ¥18.74bn; this reduced immediate refinancing pressure while leaving total borrowings broadly unchanged. Current assets exceed current liabilities by ¥21.54bn, mitigating near-term maturity mismatch risk. Retained earnings remained negative at ¥11.73bn, although they improved by ¥0.31bn during the quarter. The high-leverage alert is especially significant for a cyclical precision-components manufacturer because demand and utilization changes can quickly reduce EBIT and debt-servicing capacity.

Notable B/S Changes

Current bonds and borrowings: -¥18.03bn (-25.0%) from FY2025 year-end to ¥53.97bn, while non-current bonds and borrowings increased ¥18.74bn (+89.9%) to ¥39.59bn - debt was principally shifted toward longer maturities, easing near-term refinancing concentration. Inventories: -¥1.20bn (-4.6%) to ¥24.53bn - inventory liquidation supported Q1 operating cash flow, but the remaining balance is still high at 150 annualized inventory days. Trade receivables: +¥0.78bn (+4.2%) to ¥19.37bn - receivables rose despite lower revenue, consistent with elevated 99-day annualized DSO and weaker cash conversion. Equity: +¥1.27bn (+3.4%) to ¥38.31bn - the increase was driven by ¥0.31bn of quarterly profit and ¥0.93bn of other comprehensive income, including foreign-currency translation effects. Goodwill and intangible assets: +¥0.24bn (+0.9%) to ¥26.66bn - the asset base retains a meaningful intangible component, while its stability in Q1 provides no indication of a new acquisition-driven balance-sheet expansion.

Cash Flow Quality

Cash conversion was weak in Q1. Operating cash flow was negative ¥0.63bn despite net income of ¥0.31bn, resulting in an OCF/net-income ratio of negative 2.05x and triggering the earnings-quality alert. The principal working-capital supports were a ¥13.37bn inventory reduction, but this was more than offset by a ¥6.46bn increase in receivables, a ¥5.19bn decrease in payables and ¥4.87bn of other working-capital outflows. The receivables increase is notable given annualized DSO of 99 days, well above the 60-day warning level, and requires close monitoring of collection timing and customer credit quality. Annualized inventory days of 150 are also elevated against both the 90-day warning threshold and the 60-day manufacturing reference level. The annualized cash conversion cycle of 210 days is long and indicates substantial cash tied up in the operating cycle. For a manufacturer of precision balls, rollers and related components, this raises exposure to inventory obsolescence, demand volatility and production-planning inefficiency. The inventory reduction in the cash flow statement is positive for cash generation in the quarter, but the inventory balance remained substantial at ¥24.53bn, or 16.1% of total assets. Reported free cash flow was positive ¥0.15bn, but investing cash flow included ¥10.46bn of PPE disposal proceeds. Capital expenditure was only ¥2.64bn, and operating cash flow plus capital expenditure was negative ¥0.90bn before asset-sale proceeds. Therefore, reported FCF does not demonstrate self-funded recurring cash generation in Q1. The accruals ratio of 0.6% is low and does not independently indicate elevated accrual risk, but the negative operating cash flow and elongated working-capital cycle are the more relevant near-term quality concerns.

Dividend Sustainability

Q1 dividends paid were immaterial at ¥0.01bn, and the disclosed FY2026 forecast dividend per share is ¥0. The absence of a forecast dividend means a forward dividend payout ratio cannot be calculated. On current-period cash generation, recurring free cash flow before PPE-disposal proceeds was negative, so a meaningful recurring cash dividend would need to be assessed against future operating cash-flow recovery rather than Q1 reported FCF. The company retains a large cash balance of ¥34.83bn, but this must be considered alongside ¥93.55bn of interest-bearing borrowings and weak interest coverage. High reported leverage and finance costs make deleveraging and working-capital discipline important capital-allocation priorities. The minimal dividend cash outflow in Q1 preserves liquidity. Dividend sustainability would improve if operating cash flow becomes consistently positive without asset disposals and if interest coverage rises materially above the current approximately 1.75x level.

Risk Assessment

Business risks include Core Precision Component Business revenue declined 3.1% year on year to ¥17.44bn. As it accounts for 98.0% of consolidated revenue, continued weakness in industrial, automotive or machinery demand would have a direct impact on group earnings., The reported operating recovery was substantially supported by a ¥1.04bn gain on PPE disposal. Repetition is unlikely, creating a risk that subsequent reported earnings will not match Q1 levels without a material improvement in the underlying manufacturing margin., Gross margin of 16.2% remains below the 20% reference level. Raw-material costs, energy costs, utilization rates, pricing pressure and foreign-exchange movements can materially affect profitability in precision-component manufacturing., Annualized DIO of 150 days and a 210-day cash conversion cycle indicate elevated exposure to inventory obsolescence, demand forecasting errors and slow working-capital release., The Blower & Real Estate Business's segment profit declined 84.5% despite revenue growth, highlighting volatility in the smaller diversification business..

Financial risks include HIGH_LEVERAGE: reported D/E of 2.97x exceeds the 2.0x warning threshold. Debt-funded capital structure amplifies the effect of operating volatility on equity returns and refinancing risk., HIGH_INTEREST_BURDEN: the 0.471 interest burden means finance costs consumed approximately 53% of EBIT. EBIT-to-finance-cost coverage of about 1.75x provides limited tolerance for weaker earnings or higher interest rates., EARNINGS_QUALITY: operating cash flow of negative ¥0.63bn versus net income of ¥0.31bn produced an OCF/net-income ratio of negative 2.05x. This limits internally generated cash available for debt service and investment., HIGH_TAX_BURDEN: the 42.0% effective tax rate reduced the tax burden to 0.580, below the 0.60 warning level, constraining earnings conversion from pretax income., HIGH_RECEIVABLE_DAYS: annualized DSO of 99 days signals slow cash collection and increases exposure to customer-payment delays., HIGH_INVENTORY_DAYS: annualized DIO of 150 days is substantially above manufacturing benchmarks, tying up capital and increasing inventory valuation risk., LONG_CCC: the 210-day annualized cash conversion cycle indicates inefficient conversion of production and sales into cash..

Key concerns include The highest-priority issue is whether recurring EBIT can improve sufficiently to cover finance costs after excluding the PPE disposal gain., The second priority is restoration of positive operating cash flow through receivables collection, inventory discipline and stabilization of supplier-payment dynamics., The third priority is deleveraging or a further extension of debt maturities, given high D/E and sub-2x interest coverage., The low gross margin leaves the company vulnerable to cyclical volume declines and input-cost inflation., Positive Q1 guidance progress should be viewed cautiously because non-recurring other income materially inflated reported operating and net profit..

Investment Implications

Key takeaways include Reported Q1 profitability recovered strongly, with operating income of ¥1.13bn and net income of ¥0.31bn, but this recovery was materially dependent on a ¥1.04bn gain on PPE disposal., Underlying profitability remains weak: gross profit less SG&A was only about ¥0.08bn, while SG&A grew faster than declining revenue., The Precision Component Business is the decisive earnings driver, accounting for nearly all consolidated revenue and segment profit., Balance-sheet liquidity is supported by ¥34.83bn of cash and a 1.32x current ratio, but the reported 2.97x D/E ratio and approximately 1.75x interest coverage remain material constraints., Working-capital efficiency is poor, with 99-day annualized DSO, 150-day annualized DIO and a 210-day annualized cash conversion cycle., Reported Q1 FCF was positive only because of PPE disposal proceeds; recurring cash generation before those proceeds remained negative..

Metrics to watch include Precision Component Business revenue growth and segment margin, Gross margin and SG&A-to-revenue trend, Operating income excluding gains on asset disposals, Operating cash flow and FCF before asset disposal proceeds, Annualized DSO, DIO and cash conversion cycle, Net debt trajectory, reported D/E ratio and maturity composition of borrowings, EBIT-to-finance-cost coverage, Progress toward FY2026 guidance after adjusting for non-recurring income.

Regarding relative positioning, The company combines a globally diversified precision-components manufacturing base with meaningful cash liquidity, but its current financial profile is weaker than that of a conservatively financed industrial peer because profitability is low, reported earnings were disposal-gain supported, working-capital intensity is high and leverage is elevated.