Tokyo Cosmos Electric (6772) FY2026 Q3 Earnings Report

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Executive Summary

This earnings period saw a significant contraction in net income as declining revenue, reduced fixed-cost absorption, extraordinary losses, and a high effective tax rate coincided. Revenue was ¥72.2B (YoY -9.2%), Operating Income was ¥4.4B (same -48.5%), Ordinary Income was ¥4.3B (same -49.3%), and Net Income was ¥0.1B (same -97.3%). The Operating Margin declined 4.7pt to 6.1% from 10.8% in the same period of the previous year, with increases in both the cost-of-sales ratio and the SG&A ratio contributing to the decline. An extraordinary loss of ¥3.1B and an effective tax rate of 88.9% further compressed net income.

Factors Affecting Earnings

【Revenue】Revenue was ¥72.2B, down 9.2% YoY, with revenue declining across both reported segments and all other categories. Automotive electrical components, the core business, accounted for 60.2% of the revenue mix at ¥43.5B (same -7.4%), while variable resistors accounted for 38.8% at ¥28.0B (same -11.0%); demand contraction continues in both businesses.

【Profit and Loss】Operating Income was ¥4.4B (same -48.5%) and Ordinary Income was ¥4.3B (same -49.3%). A decline in the gross margin to 24.9% (previous year 27.8%) and an increase in the SG&A ratio to 18.8% (previous year 17.0%) occurred simultaneously, resulting in a decline in profit exceeding the decrease in revenue. Together with the extraordinary loss of ¥3.1B and the effective tax rate of 88.9%, Net Income contracted to ¥0.1B (same -97.3%). Both revenue and earnings declined.

Segment Analysis

Variable resistors recorded Revenue of ¥28.0B (same -11.0%) and segment profit of ¥8.4B (same -10.0%), with a margin of 29.8%, a slight improvement from 29.5% in the same period of the previous year, thereby maintaining its position as a highly profitable segment. Meanwhile, Automotive electrical components recorded Revenue of ¥43.5B (same -7.4%), while segment profit fell sharply to ¥3.5B (same -47.3%), with the margin declining 6.2pt from 14.3% to 8.1%. Against combined segment profit of ¥12.2B, corporate expenses were recorded at ¥7.8B (YoY -1.7%), broadly unchanged. The reduced ability to absorb corporate expenses amid declining revenue was therefore a factor compressing consolidated Operating Income to ¥4.4B.

Key Financial Indicators

【Profitability】The Operating Margin declined 4.7pt to 6.1% from 10.8% in the same period of the previous year, with both the gross margin of 24.9% (previous year 27.8%) and the SG&A ratio of 18.8% (previous year 17.0%) contributing to the deterioration. Annualized ROE remained at approximately 0.2%, primarily due to the sharp decline in the Net Margin to 0.2%.【Cash Flow Quality】Comprehensive Income was ¥3.2B, exceeding Net Income of ¥0.1B, while foreign currency translation adjustments of ¥1.8B and valuation difference on other securities of ¥1.2B supported equity as other comprehensive income.【Investment Efficiency】Profit Before Tax remained at ¥1.3B, reflecting the deduction of the ¥3.1B extraordinary loss from Ordinary Income of ¥4.3B. The effective tax rate was high at 88.9%, amplifying the compression of net income.【Financial Soundness】The Equity Ratio was 64.6% (previous year 63.1%), while long-term borrowings decreased to ¥6.7B (YoY -28.0%). Cash and deposits were ¥26.2B, down 30.5% YoY, but remained above current liabilities of ¥23.3B.

Cash Flow Analysis

Although individual disclosure of the cash flow statement is not available, cash flow trends can be assessed from changes in the balance sheet. Cash and deposits were ¥26.2B, a decrease of ¥11.2B, or 30.5%, from ¥33.4B in the same period of the previous year. Meanwhile, long-term borrowings declined to ¥6.7B (YoY -28.0%), and treasury stock also decreased significantly to negative ¥0.2B (negative ¥4.0B in the previous year), suggesting that funds were used through capital transactions. Retained earnings were ¥45.0B, down ¥5.8B YoY, indicating that the pace of increasing retained earnings has slowed alongside the sharp decline in Net Income. The current ratio was 310.6% and the quick ratio was 290.0%, maintaining a high level of short-term liquidity; the decline in cash balances does not immediately present a liquidity concern.

Earnings Quality

Ordinary Income of ¥4.3B declined 49.3% YoY, reflecting a recurring deterioration in core earning power, while the compression of Net Income to ¥0.1B was significantly affected by the non-recurring item of an extraordinary loss of ¥3.1B. Non-operating income was ¥0.4B, equivalent to only 0.6% of revenue, and primarily consisted of dividend income of ¥0.2B. Non-operating expenses included interest expenses of ¥0.2B and foreign exchange losses of ¥0.2B; however, interest coverage exceeded 25x, indicating that deterioration in funding costs was not the primary cause. Corporate taxes and other taxes of ¥1.1B were recorded against Profit Before Tax of ¥1.3B, resulting in a high effective tax rate of 88.9%. This reflects the relatively heavy tax burden against the low level of Profit Before Tax; from an accrual perspective, the non-recurring nature of the extraordinary loss will be key to the recovery of earnings quality going forward.

Earnings Forecast and Guidance

Cumulative Q3 progress against the Full-Year forecast was 76.7% for Revenue, 91.9% for Operating Income, 100.7% for Ordinary Income, and 26.0% for Net Income. Revenue progress was slightly above the standard 75%, while the high progress rates for Operating Income and Ordinary Income reflect the conservative level of the Full-Year forecasts, which already incorporate substantial YoY earnings declines (forecast Operating Income same -53.9%; forecast Ordinary Income same -58.2%). The Net Income progress rate of 26.0% remained low due to the impact of the extraordinary loss and high effective tax rate. To achieve the company’s plan, the fourth quarter must secure Revenue of ¥21.96B, Operating Income of ¥0.39B, and Net Income of ¥0.37B.

Risk Factors

1. Deterioration in the profitability of Automotive electrical components: The segment profit margin declined 6.2pt from 14.3% in the same period of the previous year to 8.1%. Profit declined 47.3% against a 7.4% decrease in revenue, indicating high sensitivity to pricing and cost conditions as well as changes in product mix.

2. Net income volatility due to the high effective tax rate: The effective tax rate was 88.9%, with corporate taxes and other taxes of ¥1.1B recorded against Profit Before Tax of ¥1.3B. When Profit Before Tax is compressed by extraordinary losses, the tax burden can cause substantial fluctuations in Net Income.

3. Declining working capital efficiency: Cash and deposits decreased 30.5% YoY to ¥26.2B. Although the current ratio remained at 310.6% and there is no immediate liquidity concern, trends in funding efficiency, including accounts receivable and inventory balances, require ongoing monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s profitability is below the industry median, with its Net Margin positioned particularly low within the industry.

Growth and Capital Efficiency

Revenue growth is substantially below the industry median, positioning the Company notably within the industry’s declining-revenue trend.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Margin declined 4.7pt to 6.1%, representing a significant deterioration in profitability from 10.8% in the same period of the previous year. The primary factor was the decline in the segment profit margin of the core Automotive electrical components business, while Variable resistors maintained a margin of approximately 30%.

2. While the financial foundation and short-term liquidity remain solid, supported by a conservative capital structure including a current ratio of 310.6% and a Debt/Capital ratio equivalent to 8.1%, Net Income was compressed to ¥0.1B by the extraordinary loss of ¥3.1B and the effective tax rate of 88.9%.

3. The Full-Year company forecast incorporates substantial YoY declines in both Operating Income and Ordinary Income. The recovery of profitability in Automotive electrical components during Q4 and whether extraordinary gains or losses recur are key issues to be confirmed in future earnings data.

Theoretical Share Price (Reference Value)

Sensitivity: ¥815–¥861 at Cost of Equity ±1%, and ¥829–¥843 at ω±0.1.

Notes:

• Net Income has been substantially compressed relative to Operating Income due to tax burden, acquisition-related expenses, and non-controlling interests, among other factors (Net Income ÷ Operating Income 10%). This value reflects that compression at face value; if these factors are temporary, underlying earnings power may be higher.
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the quarter-end are used (there is a timing difference from the Full-Year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(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 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 discretion and responsibility, after consulting professionals as necessary.

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