TSUBAKI NAKASHIMA CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

Although profitability at the operating level clearly improved, the Company remained in the red at the net income level due to interest expenses and a high effective tax rate. Revenue increased 2.2% YoY to ¥368.6B, while Operating Income rose 66.7% YoY to ¥13.2B. However, financial expenses of ¥10.9B absorbed most of EBIT of ¥13.2B, leaving Profit Before Tax at only ¥3.2B. In addition, the recognition of income taxes and other taxes of ¥4.5B resulted in Net Income of ¥-1.2B, representing a narrowed loss from ¥-9.7B in the previous year. While cost improvements, reflected in a gross margin of 17.9% (+2.3pt YoY), drove the increase in Operating Income, the structure in which interest and tax burdens weigh on net income remains unchanged.

Factors Affecting Performance

【Revenue】Revenue was ¥368.6B, representing a modest 2.2% increase YoY. By segment, the core PrecisionComponents business led overall performance with revenue of ¥363.6B, accounting for 98.6% of total revenue and increasing 2.3% YoY. BlowerAndRealEstate remained flat at ¥5.0B, accounting for 1.4% of total revenue and recording YoY ±0.0%. Although revenue growth was moderate, the structure indicates a high concentration in the core business.

【Profit and Loss】Operating Income increased significantly by 66.7% YoY to ¥13.2B, primarily because the gross margin improved to 17.9%, up +2.3pt from the previous year. SG&A expenses increased to ¥55.5B, with the SG&A ratio rising +1.2pt YoY to 15.1%; however, the improvement in gross profit exceeded this increase and contributed to higher Operating Income. Nevertheless, financial expenses of ¥10.9B offset most of EBIT of ¥13.2B, reducing Profit Before Tax to ¥3.2B. Furthermore, the recognition of income taxes and other taxes of ¥4.5B resulted in Net Income of ¥-1.2B, as the tax burden exceeded Profit Before Tax and the net loss continued. The structure is one in which operating-level improvements are offset by interest and tax burdens; consequently, the Company reported higher revenue and higher Operating Income but continued to post a net loss.

Segment Analysis

PrecisionComponents recorded revenue of ¥363.6B, representing 98.6% of total revenue, and Operating Income of ¥13.4B, up +90.5% YoY, resulting in an operating margin of 3.7% and effectively generating all of the Company’s Operating Income. BlowerAndRealEstate generated only ¥5.0B in revenue, representing 1.4% of total revenue, while Operating Income declined to ¥-0.2B, with the loss expanding by 127.1% YoY. Profit dependence on a single segment is extremely high, leaving overall performance highly sensitive to supply-demand and pricing trends in the core business.

Key Financial Indicators

【Profitability】The Operating Margin was 3.6%, improving from approximately 2.2% in the previous year, while the Net Income Margin was -0.3%. The improvement in gross margin to 17.9% (+2.3pt YoY) contributed to higher Operating Income, whereas financial expenses and the tax burden continued to weigh on net income.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥-0.3B, indicating weak cash generation even relative to Net Income of ¥-1.2B. The increase in accounts receivable (equivalent to +¥21.0B) and the decrease in inventories (equivalent to -¥8.9B) were the primary drivers of changes in working capital.【Investment Efficiency】ROE was -0.3%, total assets were ¥1545.1B, and the Equity Ratio was 25.3%, improving from 24.4% in the previous year. Asset efficiency remains low due to the impact of the net loss.【Financial Soundness】The Equity Ratio of 25.3% remains low. With short-term borrowings of ¥545.1B versus cash and deposits of ¥349.8B, continued attention to short-term liquidity management is necessary.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥-0.3B, deteriorating substantially from ¥39.5B in the previous year. Although OCF before changes in working capital was secured at ¥10.3B, the increase in accounts receivable, which had a cash flow impact of -¥16.9B, was the primary factor causing OCF to turn negative. Meanwhile, the decrease in inventories of +¥13.9B contributed positively to cash generation. Investing Cash Flow was positive at ¥1.0B, as proceeds from the sale of fixed assets and other items offset capital expenditures of ¥9.4B. Financing Cash Flow was ¥-1.7B; although funding shifted toward long-term borrowings, cash outflows remained limited. As a result, free cash flow (Operating Cash Flow + Investing Cash Flow) was modestly positive at ¥0.7B. However, this was insufficient to fully cover interest payments of ¥5.8B, making the recovery of cash-generating capacity a key future issue.

Quality of Earnings

Operating Income of ¥13.2B was supported by the recurring factor of gross margin improvement. However, other income of ¥10.9B and other expenses of ¥8.0B had a certain impact on EBIT, and their net amount may contain a somewhat temporary component. The primary factor pushing Net Income into negative territory was the recognition of income taxes and other taxes of ¥4.5B against Profit Before Tax of ¥3.2B, resulting in an effective tax rate exceeding 100%; fluctuations in the tax burden are strongly temporary in nature. OCF of ¥-0.3B, which was weak relative to Net Income of ¥-1.2B, indicates that accruals associated with the increase in accounts receivable—the accumulation of uncollected revenue—created a divergence between earnings and cash flow, suggesting a delay in the conversion of earnings into cash.

Earnings Forecast and Guidance

The full-year Company forecasts are Revenue of ¥700.0B, Operating Income of ¥25.0B, and EPS of ¥13.07. Revenue of ¥368.6B and Operating Income of ¥13.2B in the first half correspond to progress rates of 52.7% and 52.8%, respectively, representing generally standard progress when seasonality is taken into account. However, while the full-year Net Income forecast is ¥5.0B, the first half recorded a loss of ¥-1.2B. Normalization of the tax burden and containment of interest expenses in the second half are therefore prerequisites for achieving the plan. Neither the earnings forecast nor the dividend forecast was revised during the current quarter.

Shareholder Returns

The dividend for Q2 was ¥0, and the full-year dividend forecast also remains ¥0, with no dividend planned. In addition to the first-half net loss, free cash flow is insufficient to fully cover interest payments, making the calculation of a Payout Ratio of limited significance at this stage. The resumption of shareholder returns will require a return to profitability for the full year and a recovery in cash-generating capacity.

Risk Factors

1. Business concentration risk: PrecisionComponents accounts for 98.6% of revenue and virtually all Operating Income, creating a structure in which performance is highly dependent on supply-demand and pricing trends in a single business.

2. Interest burden risk: Financial expenses of ¥10.9B account for most of EBIT of ¥13.2B, and the EBIT/financial expenses ratio is approximately 1.2x, indicating limited resilience to rising interest rates or changes in borrowing terms.

3. Working capital and liquidity risk: Cash and deposits of ¥349.8B are held against short-term borrowings of ¥545.1B. In addition, the increase in accounts receivable (equivalent to +¥21.0B YoY) is weighing on OCF, requiring monitoring of the Company’s liquidity position.

Industry Benchmark (Reference; Company Analysis)

Profitability and Returns

Profitability is significantly below the industry median and ranks at the lower end within the manufacturing sector.

Growth and Capital Efficiency

Revenue growth also falls below the industry median, and the pace of top-line expansion is relatively moderate.

※Source: Company aggregation

Key Takeaways from the Earnings Results

1. Although an improvement in profitability at the operating level has been confirmed, the structure in which interest and tax burdens pressure net income continues. Whether the structural improvement of +2.3pt in gross margin can be sustained is a key point of focus.

2. OCF was ¥-0.3B, creating a divergence from Net Income, while changes in working capital associated with the increase in accounts receivable constrained cash generation. Trends in working capital efficiency warrant close monitoring.

3. Revenue and Operating Income progress toward the full-year forecasts are approximately 53%, which is standard. However, achieving the Net Income forecast of ¥5.0B requires normalization of the tax burden in the second half. Trends in the effective tax rate from the next quarter onward will influence the likelihood of achieving the earnings forecast.

Theoretical Share Price (Reference Value)

Sensitivity: ¥768–¥813 at ±1% for the cost of equity, and ¥783–¥795 at ±0.1 for ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to the tax burden, acquisition-related expenses, minority interests, and other factors (Net Income ÷ Operating Income 20%). This value reflects that compression at face value; if these factors are temporary, normalized 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 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, and does not predict or guarantee future share prices.)

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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 constitute a recommendation to invest in any specific security. The industry benchmarks are reference information aggregated by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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