Teikoku Tsushin Kogyo Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.49B
• Operating Income: ¥656M
• Net Income: ¥741M
• EPS: ¥47.41

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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

Teikoku Tsushin Kogyo (6763) delivered FY2026 Q2 consolidated results showing solid top-line growth but notable margin compression at the operating level. Revenue rose 6.6% year on year to ¥8.494 billion, while operating income fell 25.1% to ¥656 million, indicating negative operating leverage in the period. Gross profit of ¥2.665 billion implies a healthy gross margin of 31.4%, but the operating margin contracted to 7.7%, suggesting higher SG&A or product mix pressure despite a stable gross margin base. Ordinary income of ¥749 million exceeded operating income, pointing to positive non-operating contributions (e.g., financial income or FX gains) partially offsetting weaker core operations. Net income declined 36.2% to ¥446 million, yielding a net margin of 5.25%, and EPS was ¥47.41 for the half-year. DuPont metrics show a calculated ROE of 1.59%, decomposed into a 5.25% net margin, 0.256x asset turnover, and 1.18x financial leverage; this is modest profitability relative to a very conservative balance sheet. Liquidity is exceptionally strong, with a current ratio of 758% and quick ratio of 699%, supported by current assets of ¥21.25 billion versus current liabilities of ¥2.80 billion. Total equity of ¥28.08 billion against total assets of ¥33.18 billion indicates low leverage (liabilities/equity ~0.18x), consistent with strong solvency. Cash flow conversion was weak in the half-year: operating cash flow (OCF) was ¥126 million versus net income of ¥446 million (OCF/NI ~0.28), likely reflecting working-capital investment; depreciation was ¥392 million, underscoring that non-cash charges supported accounting earnings more than cash. Interest expense was minimal at ¥0.96 million, and interest coverage was extremely high at 686x, underscoring negligible financial risk from debt in the near term. While the “effective tax rate” in the calculated metrics is shown as 0.0% (unreported), the disclosed income tax expense of ¥222 million versus net income implies an indicative tax burden around one-third of pre-tax earnings. Operating CF was positive but modest; investing CF and cash balance were not disclosed in this dataset (values shown as zero indicate unreported items), limiting visibility into capex and liquidity buffers. Financing CF was an outflow of ¥458 million, likely reflecting dividends and/or debt repayments, but dividend data are not fully disclosed in this period. Overall, the company exhibits strong balance sheet health and resilience but faces near-term profitability headwinds evidenced by revenue growth not translating into operating profit growth. The outlook hinges on managing SG&A, normalizing working capital, and sustaining gross margin while maintaining pricing and mix in core product lines.

Profitability Analysis

roe_decomposition: ROE 1.59% = Net margin 5.25% × Asset turnover 0.256 × Financial leverage 1.18. Low asset turnover and very conservative leverage are the primary constraints; net margin is mid-single-digit. On a half-year basis, this ROE is modest and would annualize higher if H2 performance improves. margin_quality: Gross margin of 31.4% is solid, but operating margin is 7.7% (¥656m/¥8,494m), indicating SG&A absorption pressure and/or product mix shift. Ordinary margin at 8.8% suggests non-operating gains aided results. Net margin at 5.25% is respectable for components but down YoY given the 36.2% drop in net income. operating_leverage: Revenue grew 6.6% YoY while operating income fell 25.1% YoY, evidencing negative operating leverage. This implies elevated fixed costs or step-up in expenses (e.g., R&D, labor, logistics), or price/mix headwinds offsetting volume growth.

Growth Assessment

revenue_sustainability: Top-line momentum of +6.6% YoY indicates healthy demand, likely from industrial/communications-related customers, though sustainability depends on order backlog and end-market cycles. profit_quality: Ordinary income exceeding operating income implies reliance on non-operating items in the period; core profit quality weakened versus sales growth. Depreciation of ¥392m supports EBITDA, but cash conversion was weak (OCF/NI ~0.28). outlook: To translate growth into earnings, management must stabilize SG&A intensity, maintain gross margin via pricing and mix, and normalize working capital. If demand holds and costs moderate, H2 margins could recover; otherwise, ROE will remain subdued.

Financial Health

liquidity: Current assets ¥21.25bn vs current liabilities ¥2.80bn yield a current ratio of 758% and quick ratio of 699%, indicating very strong short-term liquidity. Working capital is ¥18.45bn. solvency: Total liabilities ¥5.05bn against equity ¥28.08bn imply low leverage (liabilities/equity ~0.18x). Interest expense is negligible (¥0.96m) with coverage of 686x, signaling minimal solvency risk. capital_structure: Assets ¥33.18bn vs equity ¥28.08bn imply equity supports ~85% of assets (indicative equity ratio ~84.6%). The conservative balance sheet provides flexibility for investment or shareholder returns.

Cash Flow Quality

earnings_quality: Net income ¥446m vs OCF ¥126m gives OCF/NI of 0.28, indicating weak cash conversion in H1, likely due to working capital build. Depreciation ¥392m highlights that non-cash charges underpin EBITDA. fcf_analysis: Investing CF is unreported in this dataset; therefore, Free Cash Flow cannot be reliably derived. The reported FCF of 0 should be treated as unavailable rather than zero. working_capital: Inventories ¥1.651bn vs H1 COGS ¥5.303bn implies ~57 days of inventory on a half-year basis (indicative). The OCF shortfall versus earnings suggests increases in receivables and/or inventory; detailed components were not disclosed.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are shown as 0.00 in the dataset (unreported). With net income positive and low leverage, capacity exists, but the actual payout cannot be assessed from the provided data. fcf_coverage: FCF coverage cannot be determined because investing cash flows (and capex) were not disclosed; the reported 0.00x should be interpreted as unavailable, not zero. policy_outlook: Given a strong balance sheet and modest financing outflows (¥458m), the company likely has room for stable dividends; however, weak H1 cash conversion and margin pressure suggest prudence until operating cash flow normalizes.

Risk Assessment

Business Risks:

• Demand cyclicality in electronics/industrial end-markets affecting order visibility
• Pricing pressure and product mix shifts compressing margins
• Raw material and logistics cost volatility impacting gross margins
• Customer concentration risk typical in components supply chains
• FX fluctuations affecting ordinary income and export competitiveness
• Supply chain disruptions leading to inventory and delivery challenges

Financial Risks:

• Weak H1 cash conversion (OCF/NI 0.28) indicating working-capital drag
• Potential capex needs not disclosed, creating uncertainty around future FCF
• Reliance on non-operating gains to support ordinary income in the period
• Limited disclosure on cash and equivalents constraining liquidity visibility

Key Concerns:

• Negative operating leverage despite revenue growth
• Visibility on capex and cash balances due to unreported items
• Sustainability of non-operating contributions to earnings

Investment Implications

Key Takeaways:

• Top-line grew 6.6% YoY to ¥8.494bn, but operating income fell 25.1% YoY to ¥656m
• Gross margin held at 31.4%, yet operating margin compressed to 7.7%
• Ordinary income exceeded operating income (¥749m vs ¥656m), highlighting non-operating support
• ROE is modest at 1.59% given low leverage and subdued asset turnover
• Balance sheet is very strong with liabilities/equity ~0.18x and interest coverage 686x
• OCF was ¥126m vs NI ¥446m (OCF/NI 0.28), indicating weak cash conversion in H1
• Investing CF and cash balance are unreported, limiting FCF and liquidity assessment

Metrics to Watch:

• Operating margin and SG&A ratio trajectory in H2
• OCF/NI and changes in receivables, inventories, and payables
• Capex and investing CF disclosure to gauge FCF
• Order trends and book-to-bill in core end-markets
• FX gains/losses and other non-operating items’ contribution
• Inventory days and pricing/mix impacts on gross margin

Relative Positioning: Within TSE-listed electronics/components peers, the company exhibits superior balance sheet strength and liquidity but lags on ROE due to conservative leverage and lower asset turnover; near-term profitability is constrained by negative operating leverage despite revenue growth.

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