Toyo Denki Co., Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.75B
• Operating Income: ¥27M
• Net Income: ¥44M
• EPS: ¥12.77

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Soft quarter with sharp top-line decline and compressed profitability, partially cushioned by non-operating income. Revenue fell 16.3% YoY to 37.55, while operating income dropped 54.6% YoY to 0.27, indicating meaningful negative operating leverage. Gross profit came in at 10.69, translating to a gross margin of 28.5% on the quarter. SG&A of 10.42 effectively consumed nearly all gross profit, leaving an operating margin of 0.72%. Ordinary income was 0.83 (-19.8% YoY), supported by 0.76 of non-operating income (notably 0.49 of dividend income), while non-operating expenses were 0.19 including 0.13 of interest expense. Net income declined 49.2% YoY to 0.53, with an elevated effective tax rate of 47.7% (0.40 tax on 0.83 PBT) weighing on bottom-line conversion. Based on the YoY rates and current results, we estimate operating margin compressed by about 61 bps YoY (from roughly 1.33% to 0.72%). Net margin also compressed by about 91 bps YoY (from roughly 2.32% to 1.41%). Ordinary income margin slightly narrowed by around 10 bps YoY (from ~2.31% to ~2.21%), highlighting the stabilizing effect of non-operating gains. ROE is weak at 0.8%, driven by a low net margin (1.4%), modest asset turnover (0.357x), and moderate leverage (1.65x). ROIC is just 0.3%, well below a 5% warning threshold, underscoring capital efficiency challenges. Cash flow disclosure is absent this quarter, so we cannot validate earnings quality via OCF/NI or FCF; however, reliance on dividend income and thin interest coverage (~2.0x) are cautionary. Liquidity remains solid with a current ratio of 268% and net cash position (cash 27.22 vs total loans 19.59), mitigating near-term solvency risk. The balance sheet is conservatively positioned (liabilities/equity 0.65x), and working capital is ample at 44.67. Forward-looking, recovery hinges on restoring gross margin and right-sizing SG&A while reducing reliance on financial income. Without evidence of order intake/backlog or OCF strength, sustainability of dividends (calculated payout ~195%) and profit run-rate remains uncertain.

Profitability Analysis

ROE decomposition (DuPont): ROE 0.8% = Net Profit Margin 1.4% × Asset Turnover 0.357 × Financial Leverage 1.65x. The largest deterioration driver YoY is net profit margin, as revenue fell 16.3% and operating income fell 54.6%, compressing operating margin from ~1.33% to 0.72% (-61 bps), with net margin down ~91 bps to 1.41%. Asset turnover is modest at 0.357x, reflecting a small scale (revenue 37.55) relative to the asset base (105.18); this likely worsened YoY given the revenue decline. Financial leverage at 1.65x is moderate and not the primary swing factor. Business reasons for margin pressure include negative operating leverage (SG&A 10.42 largely fixed near-term) and a heavier reliance on non-operating items (dividend income 0.49) to support ordinary income, while interest expense (0.13) capped coverage at ~2x. The margin mix is not ideal: core operating margin is thin, while ordinary income margin resilience owes to non-core income—less controllable and potentially volatile. Sustainability: without structural cost reductions or mix improvement, the operating margin improvement path is uncertain; dividend income may not be a stable recurring driver. Concerning trends include SG&A effectively flat to elevated relative to gross profit (SG&A at 97% of gross profit), implying operating deleverage as sales decline; and an elevated effective tax rate (47.7%) further suppressing net margin.

Growth Assessment

Revenue contracted 16.3% YoY to 37.55, indicating demand softness and/or project timing delays. Profitability contracted more than sales: operating income -54.6% and net income -49.2%, demonstrating negative operating leverage. Ordinary income (-19.8% YoY) outperformed operating income due to higher non-operating gains (notably dividends), masking weaker core operations. Gross margin stands at 28.5% but with limited disclosure we cannot confirm YoY trend; however, the operating margin drop suggests either gross margin pressure or insufficient SG&A flex. With non-operating income at 0.76, profit composition leans on financial income, elevating volatility risk. Near-term outlook hinges on order recovery and SG&A control to rebuild operating margin towards prior-year levels (~1.3%). Absent visibility on order backlog or pipeline, revenue sustainability is uncertain; the small inventory level (2.49) suggests limited buffer for near-term shipment ramp without replenishment. Tax rate normalization could help net income, but interest expense and thin coverage remain headwinds. Overall, growth visibility is low, with a need for cost discipline and improved conversion of gross profit to operating income.

Financial Health

Liquidity is strong: current ratio 268.1% and quick ratio 258.7%, with working capital of 44.67. No warning on current ratio (<1.0) or excessive leverage (D/E > 2.0); liabilities/equity is 0.65x. Cash and deposits (27.22) exceed total interest-bearing loans (short-term 13.36 + long-term 6.23 = 19.59), implying net cash of ~7.63, which reduces solvency risk. Maturity mismatch risk appears limited: short-term loans (13.36) are comfortably covered by cash (27.22) and receivables (18.88). Interest coverage is thin at ~2.01x (operating income 0.27 vs interest expense 0.13), so earnings volatility could pressure coverage if rates rise or operating income weakens further. No off-balance sheet obligations are disclosed in the provided data. Asset base is sizeable relative to turnover (asset turnover 0.357x), contributing to low capital efficiency (ROIC 0.3%).

Cash Flow Quality

Operating, investing, and financing cash flows are unreported for the period, so we cannot compute OCF/Net Income or FCF and cannot directly assess earnings quality. In lieu of OCF, we note reliance on non-operating income (0.76) and a high payout ratio, which raises sustainability questions without corroborating cash generation. Working capital appears ample; however, we cannot assess period-to-period working capital movements or potential timing effects that could inflate earnings. With interest coverage near 2x, stable OCF is important; absence of OCF data is a key limitation. We cannot evaluate FCF coverage for dividends or capex, as capex and dividends paid are unreported.

Dividend Sustainability

The calculated payout ratio is 194.9%, which is well above a typical sustainable level (<60%), implying dividends likely exceed current earnings power for the period. DPS and total dividends paid are unreported, so the numerator/assumption behind the calculated payout cannot be cross-verified. Without OCF/FCF data, we cannot confirm cash coverage of dividends. Given low ROE (0.8%) and ROIC (0.3%), sustaining high payouts would likely require either a second-half earnings rebound or tapping balance sheet capacity (net cash ~7.63) or non-operating income. Policy outlook is unclear from disclosures; prudence would suggest aligning payout with normalized earnings and cash generation once visibility improves.

Risk Assessment

Business Risks:

• Demand softness or project delays evidenced by -16.3% YoY revenue decline
• Negative operating leverage as SG&A (10.42) remained high versus gross profit (10.69)
• Profit dependence on non-operating income (dividends 0.49) rather than core operations
• Elevated effective tax rate (47.7%) suppressing net margins
• Execution risk in restoring gross margin and right-sizing costs

Financial Risks:

• Thin interest coverage (~2.01x) leaves limited buffer if operating income weakens
• Potential dividend cash shortfall given calculated payout ratio of ~195% amid low earnings
• Capital efficiency risk (ROIC 0.3%) signaling subpar returns relative to capital employed
• Refinancing/interest rate risk on 13.36 of short-term loans, albeit mitigated by cash 27.22

Key Concerns:

• Sustainability of non-operating gains (dividend income) that support ordinary income
• Visibility on orders/backlog and revenue pipeline is lacking
• Absence of cash flow disclosure restricts assessment of earnings quality and dividend coverage
• High sensitivity of bottom line to small changes in margin given low operating base

Investment Implications

Key Takeaways:

• Core profitability weakened: operating margin ~0.72% with ~61 bps YoY compression
• Ordinary income resilience is non-operating led (0.76 non-op income; dividends 0.49)
• Net margin compressed ~91 bps to 1.41%; ROE 0.8% and ROIC 0.3% highlight efficiency issues
• Balance sheet is conservative with net cash ~7.63 and current ratio ~2.68x
• Dividend sustainability appears stretched with a ~195% payout ratio and no FCF data

Metrics to Watch:

• Order intake and backlog/book-to-bill (not disclosed)
• Gross margin trend and product/service mix
• SG&A trajectory vs sales (operating leverage)
• Share of non-operating income in ordinary profit
• Interest coverage and financing costs
• OCF/Net income and FCF once disclosed
• ROIC trajectory toward >5% threshold

Relative Positioning: Versus domestic small-cap industrial/electrical peers, liquidity and net cash are strengths, but operating margins and capital efficiency are weaker, with heightened reliance on financial income to meet profit targets.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis