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

Financial Highlights

• Net Sales: ¥4.85B
• Operating Income: ¥300M
• Net Income: ¥295M
• 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

Tokyo Cosmos Electric Co., Ltd. (TSE:67720) reported FY2026 Q2 consolidated results under JGAAP showing top-line softness and pronounced margin compression. Revenue was ¥4,854 million, down 6.1% YoY, reflecting demand moderation and/or pricing pressure. Gross profit was ¥1,427 million, implying a gross margin of 29.4%, which is solid for components but likely down YoY given the sharp operating profit decline. Operating income fell to ¥300 million (-44.6% YoY), taking operating margin to 6.2%, highlighting negative operating leverage as fixed costs weighed on a smaller revenue base. Ordinary income was ¥255 million (5.3% margin), after ¥12.9 million of interest expense; interest coverage remained healthy at 23.2x, indicating limited financing burden. Despite positive operating and ordinary profits, the company posted a net loss of ¥27 million (net margin -0.56%), driven by tax expense of ¥184 million and/or below-the-line items, suggesting one-off tax effects or deferred tax valuation changes. The DuPont-calculated ROE is -0.36%, derived from net margin -0.56%, asset turnover 0.412x, and financial leverage 1.58x, pointing to margin pressure as the primary driver of the slip into negative ROE. The balance sheet is strong: total assets ¥11,792 million and equity ¥7,475 million imply an equity ratio of about 63.4%, despite an uninformative reported 0.0% figure. Liquidity is ample, with current assets of ¥7,838 million versus current liabilities of ¥2,560 million, yielding a current ratio of 306% and quick ratio of 286%. Working capital of ¥5,279 million provides a substantial buffer to navigate demand volatility. Inventory is modest at ¥523 million (6.7% of total assets), which should help limit obsolescence risk. Cash flow data (OCF/Investing/Financing) and D&A are not disclosed in the XBRL feed (reported as 0), limiting assessment of earnings quality and capex intensity this quarter; conclusions below on cash flow are therefore constrained. The company paid no dividend (DPS ¥0) and shows a payout ratio of 0%, consistent with the net loss and a conservative stance. Overall, results indicate resilient gross profitability but significant operating deleverage and tax-related drag to the bottom line, set against a conservative capital structure and strong liquidity. Near-term focus should be on the trajectory of orders, gross margin stabilization, and normalization of tax items to restore positive net earnings.

Profitability Analysis

ROE decomposition (DuPont): Net margin -0.56% × asset turnover 0.412 × leverage 1.58 = ROE -0.36%, with the margin component the dominant negative driver. Operating margin is 6.2% (¥300m/¥4,854m), versus a gross margin of 29.4%, indicating SG&A and other operating costs of roughly 23.2% of sales absorbed most of gross profit. Ordinary margin of 5.3% shows limited non-operating drag beyond interest. The steep YoY decline in operating income (-44.6%) against a 6.1% sales decline highlights pronounced negative operating leverage, implying a relatively high fixed-cost base and/or under-absorption. Interest burden is modest (¥12.9m), with interest coverage of 23.2x, so financing costs are not the cause of the net loss. The net loss appears linked to a large tax expense (¥184m) despite positive ordinary profit, pointing to non-recurring tax adjustments, valuation allowance changes, or jurisdictional mix effects; the reported effective tax rate metric is not meaningful given the loss. EBITDA is not disclosed; D&A is unreported in the feed, preventing assessment of true operating cash profitability. Overall margin quality is pressured by lower volume and potential pricing normalization, with cost discipline needed to mitigate fixed-cost absorption effects.

Growth Assessment

Revenue of ¥4,854m declined 6.1% YoY, suggesting soft demand in end-markets and/or pricing pressure in resistive or sensor components. The drop in operating income (-44.6% YoY) far outpaced the sales decline, evidencing unfavorable mix and limited cost flexibility. Ordinary income tracked operating trends, indicating limited support from non-operating gains. Net income swung negative to -¥27m, driven by taxes; absent the tax drag, bottom-line performance would have been closer to break-even. Without order/backlog data, revenue sustainability beyond Q2 is unclear; however, the inventory level (¥523m) relative to sales suggests cautious stock positioning rather than overbuild. Profit quality is mixed: gross margin stayed healthy at 29.4%, but operating deleverage and tax items undermined earnings conversion. Near-term outlook hinges on stabilization of demand in industrial/automotive electronics and normalization of tax effects; if volumes recover modestly, operating margin should recover faster than revenue due to operating leverage. Lack of disclosed D&A and OCF constrains assessment of underlying trend persistence and investment cycle intensity.

Financial Health

Liquidity is strong: current assets ¥7,838m vs current liabilities ¥2,560m yield a current ratio of 306% and quick ratio of 286%, providing ample short-term coverage. Working capital stands at ¥5,279m, supporting operational flexibility and buffer against supply/demand swings. Solvency appears robust: total equity ¥7,475m vs total assets ¥11,792m implies an equity ratio around 63.4% and financial leverage of ~1.58x (assets/equity). Debt-to-equity is 0.59x on the provided metric set, consistent with conservative gearing. Interest expense is modest (¥12.9m), and interest coverage at 23.2x indicates comfortable service capacity. The balance sheet suggests the company can weather near-term profitability pressure without liquidity stress. Note: cash and cash equivalents are undisclosed in the feed (reported as 0), so absolute cash cushion cannot be quantified here.

Cash Flow Quality

Operating, investing, and financing cash flows are not disclosed in this dataset (shown as 0, indicating unreported items). As a result, we cannot compute OCF-to-net income, working capital cash dynamics, or free cash flow with confidence for the period. Earnings quality signals from the P&L are mixed: positive operating profit but a net loss due to tax expense suggests non-cash or one-off items below operating line. With D&A unreported, separation of cash vs non-cash operating profit is not possible. Inventory of ¥523m relative to revenue implies disciplined stock levels, which may support working capital efficiency; however, receivables and payables details are needed to assess cash conversion. Given the strong liquidity and low interest burden, medium-term FCF potential likely depends on capex intensity, which is also not disclosed here.

Dividend Sustainability

The company reported DPS of ¥0 and a payout ratio of 0%, aligning with a net loss in the period. Without disclosed OCF/FCF, we cannot evaluate dividend coverage from cash flows. Balance sheet strength (equity ratio ~63%) suggests capacity to resume dividends when earnings normalize, but policy direction is not inferable from the current data. Near-term dividend outlook likely hinges on restoring sustainable net profitability and clarity on capex/FCF trajectory.

Risk Assessment

Business Risks:

• End-market demand volatility in industrial and automotive electronics affecting volumes and mix
• Pricing pressure and competitive intensity in passive/components markets
• Negative operating leverage due to fixed-cost base amid revenue declines
• Supply chain and lead-time variability impacting gross margin and deliveries
• FX fluctuations affecting export competitiveness and imported material costs
• Customer concentration risk common in components sector (data not disclosed here)
• Technology and product obsolescence risk given long product lifecycles and spec-in dynamics

Financial Risks:

• Tax expense volatility driving divergence between ordinary profit and net income
• Potential inventory obsolescence if demand weakens (though inventories currently modest)
• Limited visibility on cash flows, capex, and D&A due to non-disclosure in this period
• Interest rate risk is modest but present; debt metrics not fully disclosed in detail

Key Concerns:

• Operating income fell 44.6% YoY on a 6.1% sales decline, underscoring negative operating leverage
• Net loss of ¥27m despite positive operating and ordinary profits due to ¥184m tax expense
• Cash flow data (OCF/FCF) and D&A unreported, constraining assessment of earnings quality
• Need for margin stabilization and cost control to restore net profitability

Investment Implications

Key Takeaways:

• Revenue ¥4,854m (-6.1% YoY) with operating margin compressed to 6.2%
• Net margin -0.56% and ROE -0.36% driven by tax-related drag and deleverage
• Gross margin resilient at 29.4%, but SG&A intensity elevated relative to sales
• Strong liquidity: current ratio 306%, quick ratio 286%, working capital ¥5,279m
• Conservative balance sheet: equity ratio ~63%, interest coverage 23.2x
• Limited visibility on cash generation due to undisclosed OCF and capex
• DPS ¥0 reflects prudent stance amid net loss

Metrics to Watch:

• Order intake and book-to-bill to gauge revenue trajectory
• Gross margin trend and product mix shifts
• SG&A-to-sales ratio and fixed-cost actions to mitigate operating leverage
• Inventory turnover and receivables days to assess cash conversion
• OCF and FCF once disclosed; capex and D&A to understand investment cycle
• Tax rate normalization and one-off tax effects
• FX rates and pricing environment in key end-markets

Relative Positioning: Versus Japanese small-cap electronics/component peers, the company exhibits stronger-than-average liquidity and low financial leverage but weaker profitability in this quarter due to pronounced operating deleverage and tax effects; near-term performance hinges on demand stabilization and cost discipline.

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