THK (6481) FY2025 FY Earnings Report

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Executive Summary

FY2025 was marked by a consolidated net loss resulting from an impairment loss associated with the classification of the Transportation Equipment Business as held for sale, despite securing revenue growth from continuing operations. Revenue was ¥240.44B (+7.9% YoY), Operating Income was ¥14.44B (-9.3% YoY), Profit Before Tax was ¥15.75B, and Net Income attributable to owners of the parent was ¥-69.48B, down from ¥10.66B in the previous year. The primary cause of the consolidated loss was a ¥80.04B loss related to the discontinued operation (Transportation Equipment Business), of which ¥81.64B was a fair value measurement loss associated with its classification as held for sale. On a continuing-operations-only basis, the company secured profit of ¥10.56B, indicating that its operating performance was not as weak as the bottom-line loss suggests.

Factors Affecting Performance

【Revenue】Revenue was ¥240.44B, up +7.9% YoY. By region, China led growth at ¥76.03B (+21.6%), while Japan at ¥110.86B (-1.8%), the Americas at ¥90.25B (-1.6%), and Europe at ¥67.52B (-0.1%) all recorded declines. Growth was therefore strongly dependent on China.

【Profit and Loss】Operating Income was ¥14.44B, down -9.3% YoY, and the Operating Margin declined to 6.0% from 7.1% in the previous year. The Gross Margin declined to 29.3% from 30.6%, while the SG&A ratio improved to 22.6% from 24.1%; therefore, the primary cause of the decline in profit was deterioration in the cost-of-sales ratio. Segment profit was negative in Japan at ¥-3.62B, the Americas at ¥-36.28B, and Europe at ¥-26.22B, while China alone secured a profit of ¥1.87B, down -74.0% YoY. The substantial deterioration in Net Income was caused by the impairment loss in the discontinued operation. Since profitability was maintained on a continuing-operations basis, the results represent a combination of higher revenue and lower profit from continuing operations and a sharp decline in consolidated Net Income caused by a temporary factor.

Segment Analysis

The reporting segments consist of Japan, the Americas, Europe, China, and Other, organized by region. Japan recorded revenue of ¥110.86B (-1.8%) and an Operating Loss of ¥3.62B; the Americas recorded revenue of ¥90.25B (-1.6%) and an Operating Loss of ¥36.28B; and Europe recorded revenue of ¥67.52B (-0.1%) and an Operating Loss of ¥26.22B. All three major regions were therefore loss-making. China alone remained profitable, with revenue of ¥76.03B (+21.6%) and Operating Income of ¥1.87B (2.5% margin), although profit declined 74.0% YoY. Much of the regional losses includes figures from the Transportation Equipment Business. Given that this business will be classified as a discontinued operation and sold, regional profitability on a continuing-operations basis after completion of the sale will be the key focus going forward.

Key Financial Indicators

【Profitability】The Operating Margin of 6.0% declined from 7.1% in the previous year, primarily due to deterioration in the Gross Margin to 29.3% from 30.6%. ROE was -21.7%, compared with +2.8% in the previous year, reflecting the consolidated net loss caused by the one-time impairment loss in the discontinued operation and not the earnings power of continuing operations alone.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥42.75B, up +50.5% YoY, indicating strong cash conversion relative to EBITDA. However, OCF relative to consolidated Net Income was substantially negative, reflecting an accounting divergence caused by a non-cash impairment loss. Inventories declined -28.9% YoY, but annualized inventory and receivables turnover days are still considered to be at high levels, leaving room for improvement in working capital efficiency.【Investment Efficiency】Capital expenditures of ¥17.21B were nearly balanced by depreciation and amortization of ¥17.51B, remaining at a level centered on maintenance investment.【Financial Soundness】The Equity Ratio declined to 55.3% from 67.6% in the previous year. However, liquidity remains ample, with current assets of ¥284.37B versus current liabilities of ¥100.37B, and cash and cash equivalents of ¥120.53B. Total interest-bearing debt was ¥123.21B, but net interest-bearing debt after deducting cash was limited, and no sharp deterioration in financial leverage itself was observed.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥42.75B, increasing +50.5% from ¥28.41B in the previous year, supported by inventory reduction, which contributed +¥5.48B. Investing Cash Flow was ¥-19.80B, including capital expenditures of ¥17.21B, which were nearly balanced by depreciation and amortization of ¥17.51B. Financing Cash Flow was ¥-42.06B, with dividend payments of ¥29.36B and share repurchases of ¥36.52B as the primary cash outflows. Free Cash Flow was positive at ¥22.95B, indicating that capital expenditures could be funded through OCF. However, total dividends and share repurchases of ¥65.88B substantially exceeded FCF, suggesting that shareholder returns during the period were funded partly through a drawdown of cash on hand. Cash and cash equivalents stood at ¥120.53B at period-end, down from ¥138.29B at the beginning of the period.

Earnings Quality

Against Profit Before Tax of continuing operations of ¥15.75B and profit for the period of ¥10.56B, a loss of ¥80.04B was recorded from the discontinued operation (Transportation Equipment Business). Of this amount, ¥81.64B was a fair value measurement loss associated with classification as held for sale, representing a one-time factor. This one-time impairment loss reduced consolidated Net Income to ¥-69.48B, and it must be clearly distinguished from profit from continuing operations, which reflects recurring earnings power. Equity-method investment income and loss turned from a profit of +¥0.06B in the previous year to a loss of -¥1.59B, weighing on a portion of Operating Income. Comprehensive Income was ¥-56.50B (of which ¥-57.09B was attributable to owners of the parent), broadly in line with the net loss, with no significant divergence caused by foreign currency translation adjustments or other comprehensive income. Given that OCF remained positive at ¥42.75B, the substantial loss for the period can be interpreted as being primarily caused by a non-cash impairment loss, with the company’s underlying cash-generating capacity not impaired.

Earnings Forecast and Guidance

The company’s forecast for the fiscal year ending December 2026 is Revenue of ¥260.00B, Operating Income of ¥26.00B (+80.1% YoY), Ordinary Income of ¥14.90B, Net Income of ¥13.40B, EPS of ¥191.93, and a dividend of ¥184.00. The Operating Income forecast represents a significant improvement from the FY2025 result of ¥14.44B, implying an improvement in the Operating Margin from 6.0% to 10.0%. Achieving this will require normalization of the portfolio following completion of the sale of the Transportation Equipment Business, as well as improvement in the cost ratio and recovery in regional profitability. The forecast Ordinary Income and Net Income may use accounting classifications different from FY2025 IFRS Profit Before Tax and Net Income, respectively, and caution is warranted when making comparisons.

Shareholder Returns

The FY2025 annual dividend was ¥246 per share, with total dividend payments of ¥29.36B. Because consolidated Net Income was negative, the Payout Ratio has no meaningful interpretation; however, compared with continuing-operations profit of ¥10.56B, the dividend amount exceeded that profit. Share repurchases of ¥36.52B were conducted, bringing total returns, including dividends, to ¥65.88B, substantially above FCF of ¥22.95B. The company’s basic policy is an 8% dividend on equity (DOE), and its dividend forecast for the fiscal year ending December 2026 is ¥184, representing a reduction of ¥62 and 25.2% from the FY2025 result of ¥246. This dividend reduction plan is considered to reflect an adjustment toward a shareholder equity-based return policy, rather than one linked to capital scale reduction and Net Income.

Risk Factors

1. Earnings and capital impact associated with the sale of the Transportation Equipment Business: Of the ¥80.04B loss from the discontinued operation, ¥81.64B was a fair value impairment loss associated with classification as held for sale. Additional earnings and capital impacts may arise depending on the timing of completion of the sale and the final consideration.

2. Declining profitability of continuing operations: The Operating Margin declined to 6.0% from 7.1% in the previous year, and the Gross Margin also deteriorated to 29.3%. Significant improvement is required to achieve the 10.0% Operating Margin targeted in the FY2026 plan.

3. Regional imbalance in profitability: Japan, the Americas, and Europe, the three major regions, all recorded Operating Losses. China, the only profitable region, also experienced a 74.0% decline in profit YoY. Revenue growth is heavily concentrated in China, creating instability in regional profitability.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Return on Equity and Net Profit Margin are substantially below the industry median due to the impact of the one-time impairment loss in the discontinued operation, while the Operating Margin is also somewhat below the industry median.

Growth and Capital Efficiency

The Revenue Growth Rate exceeds the industry median, indicating a relatively favorable position in terms of top-line performance.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The consolidated net loss was caused by a one-time impairment loss in the discontinued operation (Transportation Equipment Business), while continuing operations secured Operating Income of ¥14.44B and profit from continuing operations of ¥10.56B. When evaluating the financial results, it is useful to distinguish between consolidated Net Income and the profit and loss of continuing operations.

2. The Operating Margin of continuing operations declined to 6.0% from the previous year. Achieving the 10.0% target in the FY2026 plan will require improvement in the Gross Margin and normalization of regional profitability. Performance trends on a continuing-operations basis after completion of the sale of the Transportation Equipment Business will be a key point of focus.

3. Dividends and share repurchases totaled ¥65.88B, exceeding FCF of ¥22.95B, and the dividend forecast for FY2026 has been reduced to ¥184. The balance between the scale of capital returns and cash-generating capacity will be an important monitoring point going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,245–¥2,367 at Cost of Equity ±1%; ¥2,304–¥2,305 at ω±0.1.

Notes:

• Since 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 value based solely on publicly disclosed data; it 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 discretion and responsibility, after consulting with a professional advisor as necessary.

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