DKK-TOA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.13B
• Operating Income: ¥158M
• Net Income: ¥262M
• EPS: ¥8.71

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

For FY2026 Q2, Toa DKK (consolidated, JGAAP) delivered modest top-line growth but a sharp contraction in earnings, indicating margin pressure and unfavorable operating leverage. Revenue was ¥8,134 million (+0.9% YoY), but operating income fell to ¥158 million (-50.5% YoY), compressing the operating margin to about 1.9%. Ordinary income was ¥188 million, and net income came in at ¥172 million (-34.3% YoY), implying a net margin of 2.11%. Gross profit was ¥2,795 million, equating to a gross margin of 34.4%, which suggests the bulk of the profit compression occurred below gross profit (e.g., SG&A or other operating items). EBITDA was ¥461 million (5.7% margin), indicating limited operating cushion during the period. DuPont metrics point to low ROE of 0.78%, driven primarily by low asset turnover (0.285) and thin net margins (2.11%) rather than balance sheet leverage (financial leverage 1.30). The balance sheet appears conservative: total assets were ¥28,495 million and total liabilities ¥6,733 million, implying leverage is modest; using non-zero balances, equity of ¥21,997 million suggests an equity ratio around the high-70% range. Liquidity is strong with a current ratio of 536% and working capital of ¥14,438 million, giving the company ample short-term financial flexibility. Operating cash flow was robust at ¥1,224 million, yielding an OCF/Net Income ratio of 7.12, indicative of strong cash conversion (likely aided by working capital movements). Interest expense was only ¥5 million, and interest coverage was 31.6x, consistent with low financial risk. The reported effective tax rate metric (0.0%) is not decision-useful this period given conflicting line items; we rely on net profit and margins for assessment. Free cash flow was not derivable from the disclosed data because investing cash flows were unreported (zero indicates undisclosed, not actual zero). Dividend data (DPS and payout) were not disclosed, so no inference on distribution policy can be made from this dataset. Overall, the period reflects resilient sales but notable operating headwinds, with strong cash generation and a solid balance sheet cushioning weaker profitability. Key watchpoints are expense control, the trajectory of operating margin recovery, and sustainability of the favorable cash conversion.

Profitability Analysis

ROE of 0.78% decomposes into net margin of 2.11%, asset turnover of 0.285, and financial leverage of 1.30. The very low asset turnover suppresses ROE, implying a capital base that is large relative to current revenue run-rate. Gross margin of 34.4% appears healthy for an instrumentation/industrial context, but the operating margin of roughly 1.9% indicates elevated SG&A or other operating costs this period. EBITDA margin of 5.7% underscores limited operating buffer and negative operating leverage when revenue growth is modest. The YoY decline in operating income (-50.5%) despite marginal revenue growth (+0.9%) confirms adverse operating leverage (cost growth outpacing sales). Ordinary income (¥188 million) exceeded operating income (¥158 million), implying positive non-operating contributions (e.g., financial income or other gains), albeit not enough to offset operating weakness. Net margin at 2.11% is compressed relative to gross margin, highlighting cost structure sensitivity below gross profit. The interest burden is negligible (¥5 million) and not a driver of margin compression. Overall profitability quality is mixed: gross margin is supportive, but expense discipline and scale efficiency are key to restoring operating margin.

Growth Assessment

Revenue growth of +0.9% YoY to ¥8,134 million indicates a flat-to-slightly expanding demand environment. The steep decline in operating income (-50.5% YoY) points to worsening operating economics, likely from higher SG&A, wage inflation, logistics, or an unfavorable product/region mix. With EBITDA margin at 5.7% and operating margin around 1.9%, the company is not currently scaling efficiently; modest growth is not translating into profit growth. The positive ordinary income vs. operating income gap suggests some non-operating support, which may not be sustainable for structural earnings. Net income declined 34.3% YoY to ¥172 million; absent visibility on orders/backlog, it is difficult to assert near-term re-acceleration. The asset turnover of 0.285 implies that the asset base is underutilized relative to sales and would benefit from improved throughput or portfolio optimization. Near-term outlook hinges on cost normalization and margin recovery rather than top-line acceleration. Sustainability of revenue at current levels appears reasonable given stability, but profit quality will depend on managing fixed costs and maintaining gross margin.

Financial Health

Total assets were ¥28,495 million and total liabilities ¥6,733 million, indicating a conservative balance sheet. Using the provided non-zero balances, equity of ¥21,997 million implies an equity ratio of roughly 77% (equity/assets), despite the reported equity ratio item being undisclosed. Current assets of ¥17,750 million vs. current liabilities of ¥3,312 million yield a current ratio of 536% and working capital of ¥14,438 million, reflecting ample liquidity. The quick ratio of 488% (approx.) indicates strong coverage of short-term obligations even excluding inventories of ¥1,605 million. Debt-to-equity of 0.31x (based on total liabilities/equity) suggests low structural leverage; interest expense is minimal at ¥5 million, and interest coverage is a comfortable 31.6x. Solvency risk appears low, supported by a large equity cushion and modest liabilities. Overall, the company has significant financial flexibility to weather profit volatility.

Cash Flow Quality

Operating cash flow was ¥1,224 million versus net income of ¥172 million, producing an OCF/Net Income ratio of 7.12, which indicates strong cash conversion this period. The gap likely reflects favorable working capital movements (e.g., collections, payables timing) and non-cash expenses such as depreciation of ¥303 million. Free cash flow cannot be assessed because investing cash flow was undisclosed (reported as zero, which indicates not reported). With limited visibility on capex and investment activity, the sustainability of FCF is unclear despite strong OCF. Inventories stood at ¥1,605 million; given robust liquidity metrics, inventory levels do not appear to be a near-term cash drag, but inventory turns are not derivable here. Overall earnings quality looks solid on a cash conversion basis for the period, but we need multiple periods of OCF and actual capex data to confirm trend sustainability.

Dividend Sustainability

Dividend disclosures (DPS and payout ratio) were not provided in the dataset, so we cannot assess current distributions. EPS was ¥8.71, but without DPS or capex we cannot evaluate payout ratios or FCF coverage. The balance sheet and liquidity are strong, which would typically support capacity for distributions; however, profitability is currently compressed and investing cash flows are undisclosed. Therefore, any view on dividend sustainability or policy trajectory is limited by data availability. We recommend monitoring management guidance and upcoming disclosures for dividend policy updates and capex plans that affect FCF coverage.

Risk Assessment

Business Risks:

• Margin pressure from SG&A inflation and potential unfavorable product/region mix, evidenced by a 50.5% YoY decline in operating income despite flat sales.
• Negative operating leverage due to low sales growth and a relatively fixed cost base.
• Demand cyclicality in industrial and measurement-related end-markets, which can affect order intake and utilization.
• Execution risk in restoring operating margin given current EBITDA margin of 5.7% and operating margin of ~1.9%.
• Dependence on non-operating gains to support ordinary income, which may be volatile.

Financial Risks:

• Low asset turnover (0.285) indicates potential underutilization of assets, pressuring ROE (0.78%).
• Visibility on capex and investments is limited due to undisclosed investing cash flows, creating uncertainty around future FCF.
• Potential working capital volatility; current strong OCF may reflect timing effects that could reverse.
• Tax expense disclosure does not reconcile cleanly this period, adding uncertainty to effective tax rate assumptions.

Key Concerns:

• Sustained operating margin compression if costs are not aligned with revenue trajectory.
• Unclear FCF profile due to lack of capex data, constraining dividend and reinvestment assessments.
• Asset efficiency improvements are needed to lift ROE from the current 0.78%.

Investment Implications

Key Takeaways:

• Stable revenue (+0.9% YoY) but significant profit compression with operating income down 50.5% YoY.
• Gross margin remains healthy at 34.4%, but overhead intensity is high, driving a low 1.9% operating margin.
• Balance sheet strength (equity ~¥21,997 million; liabilities ¥6,733 million) provides resilience.
• Cash conversion was strong (OCF/Net Income 7.12x), but FCF cannot be determined without capex data.
• ROE is low at 0.78% due to thin margins and low asset turnover.
• Interest burden is negligible; financial risk is low.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio trajectory over the next quarters.
• Order backlog/book-to-bill to gauge demand sustainability (when disclosed).
• Working capital components (receivables, payables, inventories) and OCF persistence.
• Capex and investing cash flows to assess true FCF and capital intensity.
• Gross margin stability and product mix shifts.
• Asset turnover improvement and ROE progression.

Relative Positioning: The company exhibits stronger-than-average balance sheet strength and liquidity with relatively low leverage, but currently trails on profitability and ROE due to weak operating leverage and low asset turnover; near-term performance hinges on cost control and efficiency gains rather than top-line acceleration.

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