TEAC CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.24B
• Operating Income: ¥-226M
• Net Income: ¥-202M
• EPS: ¥-7.01

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

TEAC Co., Ltd. (6803) reported FY2026 Q2 consolidated results under IFRS with revenue of 72.38億円, up 7.5% YoY, indicating modest top-line momentum. Gross profit was 29.32億円, yielding a solid gross margin of 40.5%, but elevated SG&A of 32.19億円 led to an operating loss of 2.26億円 (operating margin around -3.1%). Net loss narrowed to 2.02億円, improving 23.3% YoY, supported by slightly better operating performance and a small tax benefit. EBITDA turned marginally positive at 0.21億円, reflecting the add-back of 2.47億円 of depreciation and amortization, but remains thin, highlighting limited operating cushion. DuPont metrics show a net margin of -2.8%, asset turnover of 0.663x, and financial leverage of 3.28x, resulting in ROE of -6.1%, consistent with the reported calculation. The balance sheet shows total assets of 109.14億円 and equity of 33.29億円, implying an equity ratio of 30.5% and liabilities-to-equity of 2.18x; leverage is meaningful but not excessive for an electronics manufacturer. Current assets are high at 85.68億円 (79% of total assets), with inventories at 36.61億円 and receivables at 31.08億円, underscoring working capital intensity. Operating cash flow was positive at 1.05億円 despite the net loss, and free cash flow was slightly positive at 0.20億円 after 0.85億円 of investing outflows. Financing cash inflow of 1.50億円 supported liquidity, and period-end cash and equivalents were 15.52億円. Dividend cash outflow was 0.29億円; with negative net income, the calculated payout ratio appears negative, and FCF coverage (0.69x) suggests dividends exceeded internally generated free cash in the period. Profitability remains constrained by SG&A burden despite healthy gross margins; achieving operating breakeven hinges on cost control and operating leverage from revenue growth. Inventory and receivables are sizable versus payables (10.24億円), which may pressure cash if demand moderates or if sell-through lags. The absence of disclosed interest expense, current liabilities, and interest-bearing debt details limits the assessment of interest coverage and near-term liquidity risk. Nonetheless, positive OCF in a loss-making half and a 30.5% equity ratio suggest near-term resilience, albeit with tight margin of safety. Key focus areas are cost discipline, inventory management, and sustaining gross margin amid FX and component cost variability. Overall, the quarter shows incremental improvement in losses and cash generation, but earnings quality is fragile and reliant on execution and demand continuity. Data gaps (non-operating items, current liabilities, R&D, DPS) constrain precision; analysis is based on available non-zero disclosures.

Profitability Analysis

ROE of -6.1% reflects the combination of a -2.8% net margin, 0.663x asset turnover, and 3.28x equity multiplier. Gross margin is robust at 40.5%, indicating pricing power/product mix or effective sourcing, but SG&A of 32.19億円 exceeded gross profit (29.32億円), driving an operating loss of 2.26億円. Operating margin is approximately -3.1%, improving slightly YoY given the +2.9% YoY change in operating income. EBITDA of 0.21億円 indicates minimal operating buffer; D&A of 2.47億円 is sizable relative to EBITDA, amplifying sensitivity to revenue fluctuations. Contribution margins appear adequate at the gross level, but fixed cost absorption in SG&A remains the key drag; incremental revenue needs to flow through at higher drop-through to reach breakeven. With non-operating items unreported, ordinary income dynamics cannot be analyzed; however, profit before tax of -2.41億円 is close to operating loss, implying limited non-operating effects in the half. The effective tax rate was 6.6%, reflecting a small tax benefit against a pre-tax loss, possibly due to limitations on recognizing deferred tax assets. Operating leverage is currently unfavorable; revenue growth of 7.5% did not translate into positive operating income. To improve ROE, management must either lift net margins via SG&A discipline and mix or increase asset turnover by accelerating inventory turns and receivable collections.

Growth Assessment

Revenue grew 7.5% YoY to 72.38億円, signaling steady demand across key product lines. Despite growth, profitability remains negative, indicating revenue quality and cost structure misalignment; gross margin strength suggests mix is supportive, but SG&A intensity is dilutive. Net loss narrowed 23.3% YoY, signaling incremental progress in cost control or improved gross economics. EBITDA turning slightly positive is a constructive sign, though still too small to absorb shocks. The sustainability of revenue growth hinges on end-market demand in audio/professional equipment and related verticals, channel inventory health, and FX tailwinds from a weaker yen. With inventories at 36.61億円 and receivables at 31.08億円, execution on sell-through and collections will be pivotal to convert sales into cash. Absent disclosure on order backlog, regional mix, or R&D, product cycle visibility is limited. Near-term outlook: gradual improvement is plausible if gross margins hold and SG&A normalization continues; however, breakeven requires further scale or cost takeout. Non-operating items were not disclosed, leaving upside/downside from FX or financial income/expense unclear. Capex was not separately disclosed, limiting insight into growth investments versus maintenance.

Financial Health

Total assets: 109.14億円; total liabilities: 72.57億円; total equity: 33.29億円; equity ratio: 30.5%. Debt-to-equity (liabilities/equity) is 2.18x, indicating moderate leverage. Current assets are high at 85.68億円, but current liabilities were not disclosed, preventing current and quick ratio analysis. Cash and deposits detail is unreported, though cash and equivalents at period end were 15.52億円, providing liquidity. Accounts receivable of 31.08億円 and inventories of 36.61億円 dominate the asset base, highlighting working capital intensity and potential liquidity sensitivity to demand and customer payment behavior. Accounts payable of 10.24億円 is modest relative to inventories/receivables, suggesting limited supplier financing leverage. Interest-bearing debt and interest expense were not disclosed, so solvency and interest coverage cannot be precisely assessed; financing cash inflow of 1.50億円 suggests some reliance on external funding in the half. Capital surplus is 0.11億円 and retained earnings 22.11億円; book value per share is 115.58円, aligning with XBRL. Overall, the balance sheet supports operations, but the lack of current liability detail and debt structure disclosure is a constraint on assessing short-term financial flexibility.

Cash Flow Quality

Operating cash flow was +1.05億円 versus net income of -2.02億円, resulting in an OCF/NI ratio of -0.52x (positive cash despite accounting loss). This positive divergence suggests favorable working capital movements or non-cash expenses (notably 2.47億円 of D&A) offsetting losses. EBITDA at 0.21億円 is thin; therefore, OCF likely benefited from working capital release or timing. Free cash flow was +0.20億円 after -0.85億円 of investing cash flow; with capex not separately disclosed, we cannot parse maintenance vs growth investment. Financing cash flow was +1.50億円, indicating supplemental external funding, which, combined with small positive FCF, helped maintain liquidity. The quality of earnings remains mixed: while gross cash generation was positive, reliance on working capital swings and slim EBITDA introduces volatility. Inventories (36.61億円) and receivables (31.08億円) are large; any reversal (inventory build or slower collections) could quickly compress OCF. Tax cash impact was limited (income tax -0.16億円 with a loss), offering little buffer. Overall, cash conversion improved in the half but is not yet robust given negative operating profit and minimal EBITDA.

Dividend Sustainability

Dividend details are largely unreported, but the cash flow statement shows dividends paid of 0.29億円. With net income at -2.02億円, the calculated payout ratio appears at -14.3%, which is not economically meaningful due to negative earnings. Free cash flow of 0.20億円 covers only about 69% of dividends paid (FCF coverage 0.69x), implying the payout exceeded internally generated free cash in the period and was effectively funded in part by existing cash or financing. Given EBITDA of 0.21億円 and operating loss, near-term dividend sustainability depends on continued positive OCF and/or access to financing. Policy visibility is limited as DPS and guidance were not disclosed; any stable or increasing dividend stance would need rapid improvement in operating profitability or reduction in working capital intensity to be sustainably covered by FCF. Until operating margins turn positive, dividend coverage will likely remain tight and sensitive to working capital timing.

Risk Assessment

Business Risks:

• Execution risk in reducing SG&A to achieve operating breakeven despite modest revenue growth.
• Demand volatility in core audio/professional equipment markets and potential channel inventory corrections.
• Gross margin sensitivity to product mix, component costs, and FX (yen depreciation/strength).
• Inventory obsolescence risk given inventories of 36.61億円 and product cycle dynamics.
• Customer credit risk with receivables at 31.08億円 and uneven global macro conditions.
• Supply chain disruptions affecting lead times and cost structure.

Financial Risks:

• Limited visibility into interest-bearing debt and interest expense; potential refinancing/interest rate exposure.
• Liquidity assessment constrained by absent current liabilities; potential short-term funding gaps cannot be ruled out.
• Thin EBITDA (0.21億円) offers limited buffer against shocks, raising coverage risk if interest costs are material.
• Dividend cash outflow (0.29億円) exceeding FCF (0.20億円) in the period, increasing reliance on cash/financing.
• Working capital intensity may swing OCF negative if sales soften or collections slow.

Key Concerns:

• Sustained operating losses despite 7.5% revenue growth indicate cost structure rigidity.
• High inventories and receivables relative to payables could stress cash in a downturn.
• Lack of disclosure on current liabilities, debt, R&D, and DPS reduces transparency and hampers risk assessment.

Investment Implications

Key Takeaways:

• Top-line grew 7.5% YoY to 72.38億円, but operating margin remained negative at roughly -3.1%.
• Gross margin is solid at 40.5%, but SG&A (32.19億円) exceeded gross profit (29.32億円).
• Net loss improved 23.3% YoY to -2.02億円; EBITDA turned slightly positive at 0.21億円.
• OCF was positive at 1.05億円; FCF was modestly positive at 0.20億円.
• Balance sheet shows equity ratio of 30.5% and liabilities/equity of 2.18x; leverage is moderate.
• Working capital heavy with inventories 36.61億円 and receivables 31.08億円 versus payables 10.24億円.
• Dividend cash outflow (0.29億円) exceeded FCF, reducing payout flexibility.
• Data gaps (debt, interest, current liabilities, R&D, DPS) limit precision of liquidity and growth investment assessment.

Metrics to Watch:

• Operating margin trajectory and SG&A-to-sales ratio.
• EBITDA growth and interest coverage once interest expense is disclosed.
• Inventory turns and days sales outstanding (cash conversion cycle).
• Gross margin stability by product/region mix and FX impacts.
• OCF to net income relationship and sustainability of positive FCF.
• Disclosure of current liabilities and debt maturity profile.
• Dividend policy updates and FCF coverage of dividends.

Relative Positioning: Within Japanese listed electronics/audio peers, TEAC exhibits respectable gross margins but weaker operating profitability and thinner EBITDA, with higher working capital intensity and lower transparency on liability structure; moderate balance sheet strength (30.5% equity ratio) provides some resilience, but execution on cost control and cash conversion lags best-in-class peers.

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