TDK (6762) FY2026 Q3 Earnings Report

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Executive Summary

TDK maintained a trend of revenue and profit growth, led by higher sales of its core Energy Application Products. Revenue was ¥1,8585.7B (up +11.3% YoY), Operating Income was ¥2,307.4B (up +10.4%), and Net Income attributable to owners of the parent was ¥1,812.1B (up +12.6%). Operating Income growth was somewhat slower than revenue growth, and the gross margin declined from 32.9% to 32.3%; however, an improvement in the SG&A ratio (21.7%→21.0%) partially offset this decline. Progress against the full-year company plan was 75.2% for revenue, 87.1% for Operating Income, and 95.4% for Net Income, indicating progress above the standard level on the profit side.

Factors Affecting Financial Results

【Revenue】Revenue was ¥1,8585.7B (up +11.3% YoY). By segment, Energy Application Products accounted for 55.2% of the revenue mix, and the segment’s +14.4% revenue growth drove overall revenue growth. Sensor Application Products (+17.3%) and Magnetic Application Products (+13.0%) also posted high growth, while Passive Components revenue increased only +3.2%. By region, China accounted for 55.8% of the mix and grew +11.0%, while Other Asia grew +17.9%, with China and Asia leading growth.

【Profit and Loss】Operating Income was ¥2,307.4B (up +10.4%). Although the gross margin declined by 60bp, the SG&A ratio improved by 70bp, limiting the decline in the operating margin to 10bp, from 12.5%→12.4%. Financial income of ¥279.9B exceeded financial expenses of ¥241.7B, keeping net financial income positive; however, the larger increase in financial expenses caused Profit Before Tax growth (+7.8%) to fall below Operating Income growth. Net Income increased +12.6% due to a lower effective tax burden, resulting in higher revenue and profit. By segment profit, Sensor and Magnetic Application Products posted substantial profit growth (+259.8%, +380.3%), while Passive Components recorded a △25.6% decline in profit. The core Energy Application Products segment also saw its profit margin decline from 22.0%→20.0%, indicating variability in the quality of profit growth across businesses.

Segment Analysis

Energy Application Products generated revenue of ¥1,252.4B (55.2% of the mix, +14.4%) and segment profit of ¥2,050.8B (76.3% of the mix, +4.3%), accounting for the majority of total company profit. However, its profit margin declined by 200bp from 22.0% to 20.0%, requiring monitoring of profitability. Passive Components recorded segment profit of ¥304.3B (△25.6%) against revenue of ¥438.19B (+3.2%), resulting in a decline in profit; its profit margin decreased by 270bp from 9.6% to 6.9%. However, on a standalone Q3 basis, the profit margin of Passive Components improved year on year, suggesting a recovery in profitability toward the second half of the fiscal year. Sensor Application Products (profit margin 11.5%, +259.8% profit growth) and Magnetic Application Products (profit margin 10.4%, +380.3% profit growth) showed substantial profitability improvements. By region, China was the largest market, with revenue of ¥1,365.9B (55.8% of the mix, +11.0%), and therefore has a significant impact on financial performance.

Key Financial Indicators

【Profitability】The Operating Income margin was 12.4%, broadly flat compared with 12.5% in the same period last year, while the Net Income margin improved slightly to 9.9% from 9.6% in the prior year. The gross margin declined by 60bp to 32.3% from 32.9% in the same period last year, indicating cost inflationary pressure.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥3,531.8B, approximately 1.95 times Net Income of ¥1,812.1B, indicating a high level of cash conversion and strong realization of earnings into cash.【Capital Efficiency】ROE (annualized) was 8.7%, remaining at a level with room for improvement in capital efficiency. Total asset turnover was low, suggesting that profit growth has somewhat lagged asset expansion.【Financial Soundness】The Equity Ratio declined slightly to 48.3% from 48.9% in the prior year; however, cash and deposits of ¥8,781.6B exceeded total interest-bearing debt of ¥6,236.8B, placing the company effectively in a net cash position.

Cash Flow Analysis

Operating Cash Flow was ¥3,531.8B, down △4.3% YoY, but remained approximately 1.95 times Net Income, demonstrating solid cash-generation capacity supporting earnings. In addition to non-cash depreciation and amortization expense of ¥1,487.8B, an increase of ¥2,539.3B in trade payables boosted OCF, while trade receivables and inventories increased by ¥1,560.8B and ¥1,054.0B, respectively, making the expansion of working capital a drag on cash generation. Investing Cash Flow was △¥2,482.8B, with continued investment in the production base, primarily through ¥1,978.9B in purchases of property, plant and equipment. Financing Cash Flow was positive at ¥182.9B, as financing, including ¥500B in bond issuance, exceeded dividend payments of ¥607.1B. As a result, free cash flow was positive at ¥1,049.0B, indicating that the company can fund shareholder returns and financing needs through internal funds while continuing to invest. However, increases in trade receivables and inventories will affect future cash conversion efficiency, making continued monitoring useful.

Quality of Earnings

The growth in quarterly Net Income in the ¥184.1B range (+12.6%) can be characterized as recurring profit growth, supported not only by Operating Income growth (+10.4%) but also by a decline in the effective tax rate (income taxes of ¥509.5B, representing a 21.7% burden relative to Profit Before Tax). Outside operating income, financial income of ¥279.9B exceeded financial expenses of ¥241.7B, resulting in positive net financial income of ¥38.1B, which expanded from ¥9.1B in the same period last year and may include foreign-exchange-related effects. Comprehensive Income was ¥3,588.1B, substantially exceeding Net Income of ¥1,841.2B, with the principal cause of the difference being foreign currency translation adjustments for foreign operations of ¥1,738.4B. This divergence reflects foreign currency translation rather than the earnings power of the core business; accordingly, it is appropriate to place greater emphasis on Net Income when evaluating recurring earnings quality. With OCF/Net Income at approximately 1.95 times, there are no significant concerns regarding earnings quality from an accruals perspective.

Earnings Forecast and Guidance

The full-year company forecast calls for revenue of ¥2,470B (up +12.0% YoY), Operating Income of ¥265B (up +18.2%), EPS of ¥100.11, and dividends of ¥34.00. The forecast and dividend outlook were revised during Q3. The nine-month cumulative progress rates were 75.2% for revenue, 87.1% for Operating Income, and 95.4% for Net Income (Net Income of ¥1,841.2B ÷ forecast of ¥1,900B), significantly exceeding the standard progress level of approximately 75% on the profit side. Based on this pace, only moderate year-on-year growth in Operating Income and Net Income in Q4 would be sufficient, making the trend in the profit margin of the core Energy Application Products business and the extent of working capital reduction key points for achieving the full-year plan.

Shareholder Returns

The Q2 dividend was ¥16.00 per share, and cumulative dividend payments totaled ¥607.1B. The Payout Ratio, calculated using cumulative Net Income attributable to owners of the parent of ¥1,812.1B as the numerator, was 33.5%; dividend coverage was sufficiently secured relative to free cash flow of ¥1,049.0B. No share repurchases were conducted, and shareholder returns during the period consisted solely of dividends; therefore, evaluation based on the Payout Ratio is appropriate. The full-year dividend forecast is ¥34.00, implying an approximate Payout Ratio of 34% based on the full-year Net Income forecast of ¥1,900B, broadly consistent with the level in the same period last year. A financial foundation consisting of cash and cash equivalents of ¥8,781.6B and a substantial net cash position supports the stability of continued dividend payments.

Risk Factors

1. Concentration of profit in the core business: Energy Application Products accounts for 76.3% of segment profit, while its cumulative profit margin declined by 200bp from 22.0% to 20.0%. Fluctuations in the profitability of this business could have a significant impact on company-wide performance.

2. Dependence on China: Revenue from China was ¥1,365.9B, accounting for 55.8% of consolidated revenue. Local demand trends, foreign exchange, and changes in trade policy could become factors affecting financial performance.

3. Expansion of working capital: Trade receivables increased by +¥2,040.6B (+35.0%) and inventories by +¥1,389.0B (+33.9%) from the end of the previous fiscal year, each growing faster than revenue. A trend toward declining cash conversion efficiency is apparent.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Profitability clearly exceeds the industry median and is at a level positioning the company among the top performers within the manufacturing sector.

Growth and Capital Efficiency

The revenue growth rate significantly exceeds the industry median and is also above the upper bound of the IQR, representing a high rate of growth.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The company secured higher revenue and profit on a nine-month cumulative basis (revenue +11.3%, Operating Income +10.4%, Net Income +12.6%), with progress against the full-year profit forecasts exceeding standard levels at 87.1% for Operating Income and 95.4% for Net Income.

2. While the gross margin declined by 60bp year on year, this was partially offset by an improvement in the SG&A ratio (21.7%→21.0%), confirming a qualitative change in the cost structure.

3. Trade receivables and inventories are increasing at a faster pace than revenue growth, while OCF is supported by the increase in trade payables. The future trend in working capital efficiency will be an important point of observation in assessing the sustainability of cash flow.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,110–¥1,176 at ±1% in the Cost of Equity, and ¥1,141–¥1,143 at ±0.1 in ω.

Notes:

• Because Net Income progress against the full-year forecast (95%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of plan tend to outperform their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the quarter-end are used (there is a timing mismatch with the full-year forecast).

（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 future share 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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