Tokyo Cosmos Electric Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥4.85B
• Operating Income: ¥300M
• Net Income: ¥-27M
• EPS: ¥-20.06

Income Statement

Balance Sheet

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

Verdict: Soft quarter with margin compression and a tax-driven swing to a small net loss despite healthy liquidity. Revenue declined 6.1% YoY to 48.54, reflecting weaker demand and/or price pressure. Gross profit was 12.20 with a gross margin of 25.1%. SG&A held at 9.19, and operating income fell 44.6% YoY to 3.00, implying an operating margin of 6.2%. Ordinary income declined 46.8% YoY to 2.55 as non-operating balance was negative (0.20 income vs 0.65 expenses; net -0.45). Profit before tax was 0.30, and net income posted a small loss of -0.27, with EPS -20.06 JPY. Effective tax rate was an unusually high 189.3%, indicating one-off or timing effects that overwhelmed low pre-tax profit. Operating margin compressed by roughly 428 bps YoY (from about 10.5% to 6.2%) based on provided YoY changes. Ordinary margin likewise compressed by roughly 401 bps (from ~9.3% to 5.3%). Balance sheet remains conservative with equity of 74.75 (≈63.4% equity ratio) and D/E of 0.58x. Liquidity is strong: current ratio 298% and quick ratio 280%; cash and deposits 28.26 provide ample buffer. Interest burden is manageable with interest coverage around 27x (3.00 OI vs 0.11 interest). ROE was -0.4%, driven by a -0.6% net margin and modest leverage (1.58x). ROIC at 2.8% sits below a 5% warning threshold, signaling capital efficiency challenges. Lack of cash flow disclosure limits earnings quality assessment; the tax distortion raises quality questions for this quarter. Forward-looking, normalization of the tax rate and stabilization of gross margin are key to restoring double-digit operating margin and positive ROE, while strong liquidity affords time to execute margin recovery and portfolio/product mix measures.

Profitability Analysis

ROE decomposition (DuPont): ROE (-0.4%) = Net Profit Margin (-0.6%) × Asset Turnover (0.412x) × Financial Leverage (1.58x). The most significant adverse change stems from the net profit margin turning negative, despite still-positive operating income, due to a sharp non-operating drag and an unusually high effective tax rate (189.3%) on minimal PBT. Business drivers likely include weaker pricing/volume (6.1% revenue decline) compressing operating margin, combined with higher non-operating expenses and tax items that are non-recurring or timing-related. Asset turnover at 0.412x is modest and likely cyclical for components makers at mid-year; leverage remains conservative, limiting ROE volatility. Sustainability: operating margin pressure could persist if end-market demand remains soft; the extreme tax rate is unlikely to be recurring and should normalize, offering some relief to net margin. Watch SG&A discipline: while absolute SG&A (9.19) did not spike, the 44.6% drop in operating income versus a 6.1% revenue decline indicates negative operating leverage; further SG&A efficiency or gross margin improvement is needed to stabilize profits.

Growth Assessment

Top-line contracted 6.1% YoY to 48.54, indicating softer demand or pricing in core product lines. Operating income fell 44.6% YoY to 3.00, substantially outpacing the revenue decline, pointing to margin pressure rather than only volume effects. Ordinary income fell 46.8% YoY to 2.55, with non-operating items net negative (-0.45) versus modest income last year implied by the YoY drop. Net income of -0.27 was heavily affected by a 189.3% effective tax rate; absent this, net profit would have likely been positive. Revenue sustainability hinges on end-market recovery in industrial/auto electronics and stabilization of ASPs; current balance sheet strength allows investment in product mix upgrades. Near-term outlook: focus on gross margin restoration and cost control to recapture lost operating margin (targeting a return toward ~10% OPM from 6.2% currently). A normalized tax rate and lower non-operating losses would materially lift bottom-line trajectory even on flat revenues.

Financial Health

Liquidity is strong: current ratio 298.2% and quick ratio 279.7%; no warning triggers. Working capital is ample with 47.97 in surplus; cash and deposits of 28.26 cover current liabilities (24.20) comfortably. Solvency is conservative: D/E 0.58x; equity ratio (calculated) ≈63.4% (74.75/117.92). Long-term loans total 7.44 with no reported short-term loans; maturity profile appears balanced given large current assets versus current liabilities. Interest coverage is robust at ~27x, suggesting low financial distress risk. No off-balance sheet obligations are disclosed in the provided data. Overall, the company can withstand earnings volatility without immediate refinancing risks.

Cash Flow Quality

Operating, investing, and financing cash flows were unreported, preventing direct assessment of OCF/NI, free cash flow, or working capital cash impacts. Thus, OCF/Net Income quality tests are not calculable this quarter. Earnings quality flags: the extremely high effective tax rate (189.3%) relative to minimal pre-tax profit likely reflects one-off or timing effects rather than core profitability; this distorts bottom-line quality. Balance sheet working capital looks reasonable: receivables 18.51 vs annualized revenue imply DSO roughly ~69 days; inventories 4.48 vs annualized COGS suggests ~23 days inventory—both within typical component industry ranges. Without OCF disclosure, we cannot confirm cash conversion, FCF sustainability, or working capital optimization progress.

Dividend Sustainability

Dividend data were not disclosed for the period; payout and FCF coverage cannot be computed. The reported calculated payout ratio (-884.8%) is not reliable without confirmed dividend amounts and given the small net loss; it should not be interpreted as an actual payout behavior. From a balance sheet perspective, retained earnings of 44.59 and cash of 28.26 provide capacity to maintain a modest dividend if one is policy-committed, but current ROIC (2.8%) and a net loss argue for prudence until margins normalize. Sustainability assessment therefore remains indeterminate pending OCF and dividend policy disclosure.

Risk Assessment

Business Risks:

• Demand cyclicality in industrial and automotive electronics leading to revenue volatility (-6.1% YoY this quarter).
• Gross margin pressure from pricing erosion and product mix shifts (operating margin compressed to 6.2%).
• Execution risk in cost control amid negative operating leverage (OP down 44.6% vs sales down 6.1%).
• Supply chain and component availability risks that can impact lead times and costs.

Financial Risks:

• Tax expense volatility; 189.3% effective tax rate created a net loss despite positive operating income.
• Non-operating losses (-0.45 net) reducing ordinary income and adding earnings variability.
• Low capital efficiency (ROIC 2.8%) risking value dilution if not improved.
• Potential FX exposure affecting margins and non-operating line items (not disclosed but typical for exporters).

Key Concerns:

• Sustained margin compression from ~10% implied prior OPM to 6.2% currently (~428 bps).
• Bottom-line sensitivity to non-operating items and tax, which can negate operating profits.
• Lack of cash flow disclosure limits assessment of cash conversion and dividend capacity.

Investment Implications

Key Takeaways:

• Core profitability weakened: operating margin fell to 6.2% with negative operating leverage.
• Extraordinary tax burden (189.3% ETR) turned a slim pre-tax profit into a net loss; likely non-recurring.
• Balance sheet is a clear strength: equity ratio ~63%, D/E 0.58x, and strong liquidity buffers.
• ROE (-0.4%) and ROIC (2.8%) are below value-creation thresholds; capital efficiency needs improvement.
• Non-operating expenses and tax normalization are pivotal swing factors for 2H earnings.

Metrics to Watch:

• Gross and operating margin trajectory (bps recovery QoQ/YoY).
• Ordinary income components (interest, FX, other) and non-operating balance.
• Effective tax rate normalization toward historical levels.
• Order trends and sales recovery to lift asset turnover above 0.4x.
• Operating cash flow and free cash flow once disclosed.
• Inventory and receivables turns (DSO/DIO) for working capital discipline.

Relative Positioning: Within small-cap Japanese electronic components peers, the company shows above-average balance sheet strength and interest coverage but currently lags on profitability and capital efficiency due to margin compression and tax-driven bottom-line weakness.

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