Quick View
| Metric | Current Period | Same Period Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥165.28B | ¥152.69B | +8.2% |
| Operating Income | ¥7.68B | ¥7.83B | −2.0% |
| Ordinary Income | ¥8.88B | ¥9.43B | −5.9% |
| Net Income | ¥5.04B | ¥5.67B | −11.3% |
| ROE | 1.3% | 1.5% | - |
Executive Summary
FY2027 Q1 resulted in higher revenue but lower earnings, with the key takeaway being that revenue growth did not translate into profit growth. Revenue increased to ¥165.28B (+8.2% YoY), while Operating Income declined to ¥7.68B (-2.0%), Ordinary Income to ¥8.88B (-5.9%), and Net Income attributable to owners of the parent to ¥4.53B (-12.6%). Overseas operations (North America and Asia) drove revenue growth, but the low gross profit margin of 13.7% and the operating loss in the Japan segment pressured company-wide profitability.
Factors Affecting Earnings
【Revenue】Revenue increased to ¥165.28B, up +8.2% YoY. By region, revenue grew across all regions: Japan ¥82.54B (+9.6%), North America ¥47.89B (+10.0%), Asia ¥48.66B (+5.6%), and Other ¥13.22B (+11.4%). In particular, the expansion of the overseas businesses in North America and Asia drove growth.
【Profit and Loss】The gross profit margin remained at 13.7%, and together with an SG&A expense ratio of 9.0%, the Operating Income margin declined to 4.6% from 5.1% in the same period of the previous year. By region, Asia was the largest contributor to profit, with Operating Income of ¥6.12B (+5.9%, 12.6% margin), while North America recorded ¥2.27B (-21.1%), representing a decline in earnings. Japan posted an operating loss of ¥1.49B, although this narrowed from an operating loss of ¥1.84B in the previous year. Foreign exchange gains of ¥0.88B in non-operating income supported Ordinary Income, but the high consolidated effective tax rate of 43.3% weighed on Net Income. Despite higher revenue, Operating Income, Ordinary Income, and Net Income all declined, resulting in higher revenue but lower earnings.
Segment Analysis
By segment, Asia served as the earnings pillar, with revenue of ¥48.66B (+5.6%) and Operating Income of ¥6.12B (+5.9%, 12.6% margin). North America recorded higher revenue of ¥47.89B (+10.0%), but Operating Income declined to ¥2.27B (-21.1%), presenting a pattern of higher revenue but lower earnings. Japan had the largest revenue scale, at ¥82.54B (+9.6%), but recorded an operating loss of ¥1.49B; improving domestic profitability remains a challenge for recovering the company-wide margin. Other regions showed strong growth, with revenue of ¥13.22B (+11.4%) and Operating Income of ¥1.26B (+30.0%).
Key Financial Metrics
【Profitability】The Operating Income margin of 4.6%, gross profit margin of 13.7%, and Net Income margin attributable to owners of the parent of 2.7% all declined from the same period of the previous year (Operating Income margin: 5.1%; Net Income margin: 3.4%). The consolidated effective tax rate was high at 43.3%, suppressing Net Income growth.【Cash Quality】Non-operating income of ¥1.61B, including foreign exchange gains of ¥0.88B, boosted Ordinary Income. Although the Ordinary Income margin of 5.4% exceeded the Operating Income margin, it should be noted that these earnings differ in nature from recurring earning power.【Investment Efficiency】ROE (cumulative basis) was 1.3%, equivalent to approximately 5.2% on an annualized basis. Total asset turnover was approximately 1.20x on an annualized basis, while financial leverage was approximately 1.58x, both at low levels. Improving profitability is therefore the central challenge for enhancing capital efficiency.【Financial Soundness】The financial base is solid, with an Equity Ratio of 67.5%, a current ratio of 227.7%, and a D/E ratio of 0.48x. Meanwhile, the work-in-process ratio (the proportion of work-in-process inventory to the total of raw materials, work-in-process, and finished goods) was 52.9%, while provisions for product warranties amounted to 7.6% of revenue. Both were above general benchmarks, warranting close monitoring of production- and quality-related costs.
Cash Flow Analysis
Cash and deposits amounted to ¥91.15B, an increase of ¥12.64B from the end of the previous fiscal year, confirming an accumulation of funds. Current assets of ¥313.07B substantially exceeded current liabilities of ¥137.48B, resulting in a current ratio of 227.7% and a high quick ratio. Working capital (current assets - current liabilities) was substantial at ¥175.59B, indicating strong short-term liquidity. Property, plant and equipment increased to ¥140.68B from ¥135.31B in the previous year, suggesting that capital investment is continuing. With interest expense of ¥0.01B against EBIT of ¥7.68B, the interest burden was extremely limited, and constraints from financing costs were minor from a financial perspective.
Earnings Quality
The difference between Ordinary Income of ¥8.88B and Operating Income of ¥7.68B was primarily attributable to non-operating income of ¥1.61B. Foreign exchange gains of ¥0.88B were the largest component, equivalent to 11.5% of Operating Income. Because these foreign exchange gains differ in nature from the company’s recurring earning power, caution is warranted in interpreting the boost to Ordinary Income as a sustainable improvement in profitability. Comprehensive Income was ¥7.16B, exceeding Net Income attributable to owners of the parent of ¥4.53B. The difference was primarily attributable to foreign currency translation adjustments of ¥2.64B. This divergence resulted from the yen-converted valuation of overseas subsidiaries and represents an accounting fluctuation separate from the underlying earning power of the business. The consolidated effective tax rate was high at 43.3%, and the tax burden diminished the quality of Net Income.
Earnings Forecast and Guidance
The full-year company plan calls for Revenue of ¥650.0B (+0.8% YoY), Operating Income of ¥30.0B (-15.8%), Ordinary Income of ¥33.0B (-24.6%), and Net Income attributable to owners of the parent of ¥20.0B. Q1 progress rates were 25.4% for Revenue, 25.6% for Operating Income, 26.9% for Ordinary Income, and 22.6% for Net Income, with deviations from the standard progress rate of 25% generally limited. However, the full-year plan itself assumes lower earnings, and profitability improvement over the full year has been estimated conservatively despite the Q1 trend of higher revenue. No revision to the earnings forecast was made during the quarter.
Shareholder Returns
The full-year forecast annual dividend is ¥120 per share, and the forecast Payout Ratio calculated using full-year forecast EPS of ¥234.79 is approximately 51.1%. This Payout Ratio is calculated by dividing dividends alone by Net Income and does not include share repurchases. The full-year forecast dividend has increased to ¥120 from the previous year’s actual dividend of ¥55. No revision to the dividend forecast was made during the quarter. The Q1 progress rate of 22.6% for Net Income attributable to owners of the parent does not indicate a significant concern regarding securing funds for the annual dividend. However, close attention is required because the high tax burden and trends in quality-related costs could affect the profit margin in the second half of the fiscal year and, consequently, dividend sustainability.
Risk Factors
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Low profitability of the domestic business: Although the Japan segment is the largest in scale, with revenue of ¥82.54B, it recorded an operating loss of ¥1.49B. If low domestic profitability continues, it could impede recovery in the consolidated Operating Income margin.
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High work-in-process inventory levels: Work-in-process inventory was ¥44.21B, representing a high 52.9% of total raw materials, work-in-process, and finished goods. Risks include inventory accumulation and valuation losses when production plans change, as well as reduced cash-generation capacity.
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High quality-related costs: The provision for product warranties of ¥12.49B corresponds to 7.6% of revenue, exceeding general levels. Quality defects or additional provisions could affect profitability.
Industry Benchmark (Reference; Company Research)
Industry Benchmark (manufacturing)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Income Margin | 4.6% | 8.7% (4.2%–14.3%) | −4.0pt |
| Net Income Margin | 3.0% | 7.1% (3.2%–10.6%) | −4.1pt |
Both the Operating Income margin and Net Income margin were substantially below the industry median, placing profitability at a low level within the industry.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 8.2% | 6.2% (-1.1%–14.6%) | +2.0pt |
The Revenue growth rate exceeded the industry median, indicating that top-line expansion was relatively strong within the industry.
※Source: Company research
Key Points from the Earnings Results
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While Revenue increased by 8.2%, Operating Income declined by 2.0%. The earnings data indicate that the focus is on margin trends rather than revenue growth.
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By region, Asia was the largest contributor to profit, with Operating Income of ¥6.12B, while Japan recorded an operating loss of ¥1.49B and North America posted lower earnings. Differences in regional profitability are a defining feature of the consolidated earnings structure.
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The financial base is solid, with a current ratio of 227.7%, an Equity Ratio of 67.5%, and a D/E ratio of 0.48x, indicating relatively high financial resilience to fluctuations in profitability.
Theoretical Share Price (Reference Value)
| Scenario | Theoretical Share Price |
|---|---|
| bear (bearish) | ¥3,862 |
| base (base case) | ¥3,926 |
| bull (bullish) | ¥3,987 |
| Valuation Assumption | Value |
|---|---|
| Book Value per Share (BPS) | ¥4,386 |
| Adjusted Forecast EPS | ¥258.9 |
| Cost of Equity r | 9.77% (10-year government bond 2.77% + equity risk premium 6.00% + size premium 1.00%) |
| Residual Income Persistence Factor ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 51.1% |
| Forecast EPS Confidence Adjustment | ×1.103 (based on the industry’s historical guidance achievement rate) |
| Implied PBR / PER | 0.90x / 15.2x |
Sensitivity: ¥3,820–¥4,037 at a ±1% change in the cost of equity, and ¥3,911–¥3,936 at a ±0.1 change in ω.
Notes:
- 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 mismatch with 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 / This is a 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 the future share price.)
This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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 responsibility, after consulting with a professional as necessary.
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AI Financial Analysis
Executive Summary
Tokai Rika delivered solid top-line growth in FY2027 Q1, but profitability and owner-attributable earnings weakened as cost and tax burdens more than offset the sales increase. Revenue rose 8.2% year on year to ¥165.3bn. Operating income declined 2.0% to ¥7.7bn despite the higher sales base. Gross profit increased to ¥22.6bn from ¥20.9bn, but gross margin narrowed by 40bp to 13.7%. SG&A expense increased 14.3% year on year to ¥14.9bn, outpacing revenue growth and reducing operating leverage. Consequently, operating margin compressed by 50bp to 4.6%, below the 5% efficiency threshold. Ordinary income fell 5.9% to ¥8.9bn, although net foreign-exchange gains increased to ¥0.9bn from ¥0.5bn. Profit attributable to owners fell 12.6% to ¥4.5bn, faster than the operating-income decline. The tax burden was elevated: the effective tax rate was 43.3%, while the DuPont tax-burden factor was 51.0%, materially reducing conversion of pretax income into profit attributable to owners. Comprehensive income rose 50.8% to ¥7.2bn, supported principally by positive foreign-currency translation effects and therefore exceeding the increase in underlying earnings. Asia remained the principal earnings contributor, generating segment profit of ¥6.1bn and a segment margin of 12.6% on total segment sales. Japan remained loss-making at a ¥1.5bn segment loss, although this improved from a ¥1.8bn loss a year earlier. North American segment profit fell 21.1% to ¥2.3bn despite 10.0% external-sales growth, indicating margin pressure in the region. The balance sheet remains conservatively financed, with a 227.7% current ratio, 206.2% quick ratio and 0.48x debt-to-equity ratio. The FY2027 full-year revenue forecast requires only a normal 25.4% Q1 progress rate, while operating-income progress of 25.6% is modestly ahead of the seasonal benchmark. However, owner-attributable-profit progress is 22.6%, below the 25% benchmark, making normalization of the tax burden and preservation of regional margins important for full-year delivery. The central earnings issue is therefore not sales momentum but the ability to convert growth into sustainable operating and net margins amid Japan losses, North American margin compression, elevated warranty obligations and a WIP-heavy production profile.
Profitability Analysis
Annualized DuPont ROE was 4.8%, comprising a 2.7% net profit margin, 1.195x asset turnover and 1.48x financial leverage. The low return profile is driven primarily by the 2.7% net margin rather than insufficient asset utilization or excessive leverage. Financial leverage is moderate and does not indicate an aggressive capital structure; balance-sheet leverage is not being used to compensate for weak margins. The largest adverse operating change was margin compression: gross margin declined 40bp year on year to 13.7%, and operating margin declined 50bp to 4.6%. SG&A expenses increased 14.3%, materially faster than 8.2% revenue growth, absorbing the ¥1.7bn increase in gross profit and producing a ¥0.2bn decline in operating income. The 4.6% EBIT margin triggers the low-operating-efficiency alert and leaves earnings sensitive to modest changes in vehicle production, material costs, labor costs or customer pricing. Gross margin of 13.7% also triggers the low-gross-margin alert; for an automotive-components manufacturer, this highlights limited room to absorb cost inflation and product-mix volatility. The five-factor DuPont tax burden of 0.510 is weak, whereas the interest burden of 1.156 reflects net non-operating income rather than financing stress. Interest expense was only ¥0.01bn and interest coverage was an exceptionally strong 548.2x. FX gains of ¥0.9bn equaled 11.5% of operating income, providing a meaningful but non-core contribution to ordinary income. Asia is the core business by segment-profit contribution, with ¥6.1bn of profit, rising 5.9% year on year, and an estimated 12.6% margin on total segment sales. Other overseas operations generated ¥1.3bn of segment profit, up 30.0%, with an estimated 9.5% margin. North America generated ¥2.3bn of profit, down 21.1%, and its estimated margin declined from 6.6% to 4.7%. Japan's ¥1.5bn segment loss improved by ¥0.3bn year on year, but the estimated negative margin of 1.8% continues to dilute consolidated profitability. Margin recovery depends on improving Japanese operating absorption, restoring North American profitability and preventing SG&A growth from continuing to exceed sales growth.
Growth Assessment
Revenue growth was broad-based across regions. External sales in Japan increased 5.8% year on year to ¥63.8bn. North American external sales increased 10.0% to ¥47.8bn. Asian external sales increased 9.3% to ¥40.7bn. Other-region external sales increased 10.8% to ¥13.0bn. This geographically diversified revenue growth is constructive, but profit conversion varied significantly by region. Asian segment profit growth lagged sales growth, while North American segment profit contracted despite double-digit revenue expansion. Japan's reduced segment loss is a favorable directional development but has not yet reached breakeven. Full-year company guidance calls for revenue of ¥650.0bn, up 0.8% year on year, operating income of ¥30.0bn, down 15.8%, ordinary income of ¥33.0bn, down 24.6%, and owner-attributable profit of ¥20.0bn. Q1 revenue represents 25.4% of the full-year target, closely aligned with the standard 25% first-quarter progress rate. Q1 operating income represents 25.6% of guidance, 0.6 percentage points above the standard progress rate. Q1 ordinary income represents 26.9% of guidance, 1.9 percentage points above the standard progress rate. Q1 owner-attributable profit represents 22.6% of guidance, 2.4 percentage points below the standard progress rate. The earnings-progress divergence reflects the elevated first-quarter tax burden rather than weak operating progress alone. Management has not revised either earnings or dividend forecasts. Growth sustainability will depend on sustained overseas automotive demand, execution in Japanese operations and the company's ability to protect pricing and production efficiency as volumes rise.
Financial Health
Liquidity is strong. Current assets of ¥313.1bn exceed current liabilities of ¥137.5bn by ¥175.6bn, producing working capital of ¥175.6bn and a 227.7% current ratio. The 206.2% quick ratio confirms that liquidity is not dependent on inventory liquidation. Cash and deposits were ¥91.1bn, equivalent to 66.3% of current liabilities. Trade receivables were ¥82.1bn and electronically recorded monetary claims were ¥10.3bn, providing a substantial liquid operating-asset base. Total liabilities were ¥179.7bn against total equity of ¥373.7bn. Debt-to-equity of 0.48x is conservative and well below the 2.0x risk threshold. A ¥10.0bn current portion of bonds payable is readily covered by cash and deposits, with no apparent near-term refinancing pressure based on the reported liquidity position. Noncurrent liabilities declined ¥9.9bn year on year to ¥42.2bn, while current liabilities increased ¥12.7bn, consistent with a shift of bond obligations into the current portion and higher operating liabilities. Net defined-benefit liability was ¥16.5bn, representing a meaningful long-term obligation but only 4.4% of total equity. Product-warranty provision was ¥12.5bn and should be monitored as a contingent quality-cost exposure. Asset retirement obligations were ¥0.7bn, immaterial relative to total liabilities. Equity increased to ¥373.7bn from ¥371.5bn, supported by comprehensive income, while the capital adequacy ratio remained high at 63.1%.
Notable B/S Changes
Cash and deposits: +¥10.2bn (+12.7%) to ¥91.1bn - materially strengthens liquidity and coverage of near-term obligations. Short-term investment securities: -¥8.7bn (-23.6%) to ¥28.2bn - indicates a shift in the composition of liquid financial assets alongside higher cash balances. Property, plant and equipment: +¥5.4bn (+4.0%) to ¥140.7bn - continued capital intensity and investment in manufacturing capacity or equipment. Current liabilities: +¥12.7bn (+10.2%) to ¥137.5bn - includes a ¥10.0bn current portion of bonds payable and should be monitored alongside short-term liquidity. Noncurrent liabilities: -¥9.9bn (-18.9%) to ¥42.2bn - broadly consistent with liability reclassification into current maturities rather than deterioration in solvency. Foreign currency translation adjustment: +¥2.5bn (+6.9%) to ¥38.3bn - currency movements supported equity and comprehensive income but add translation volatility.
Cash Flow Quality
The balance-sheet working-capital movement is mixed for cash conversion. Trade receivables declined by ¥2.9bn year on year and electronically recorded monetary claims declined by ¥0.4bn, which is favorable for collections. Trade payables declined by ¥1.9bn, partly offsetting the receivable benefit through lower supplier financing. Raw materials increased modestly by ¥0.1bn, work in process increased ¥0.4bn and finished goods increased ¥0.2bn. Work in process represents 52.9% of manufacturing inventory, triggering the high-WIP-ratio alert because it exceeds the 40% benchmark. A high WIP mix can signal a production bottleneck, a lengthening manufacturing cycle, unfinished customer programs or elevated exposure to production scheduling changes; it requires monitoring even though the year-on-year increase was modest. Warranty provision of ¥12.5bn equals 7.6% of quarterly revenue, materially above the 3% warning level. This high-warranty alert indicates a substantial quality-cost and future cash-outflow exposure relative to the current sales base, increasing sensitivity to claims experience, recalls and customer quality negotiations. The ¥0.3bn loss on sales and retirement of noncurrent assets was a non-operating, non-recurring expense but was not material relative to owner-attributable profit. Foreign-exchange gains of ¥0.9bn supported ordinary income and are less recurring than operating profit. Earnings quality would improve if operating-margin recovery is accompanied by lower WIP intensity, stable warranty provisioning and reduced reliance on FX gains.
Dividend Sustainability
The full-year dividend forecast is ¥120 per share, unchanged from management's prior forecast. Against forecast EPS of ¥234.79, the implied dividend payout ratio is 51.1%. This is below the 60% sustainability benchmark and leaves a reasonable earnings retention buffer. Using 89.2 million issued shares, the indicated annual cash dividend is approximately ¥10.7bn; the amount is lower when calculated on shares outstanding net of treasury shares. The forecast dividend is covered by the ¥20.0bn full-year owner-attributable-profit target on an earnings basis. The company's strong liquidity, ¥91.1bn cash balance and low 0.48x debt-to-equity ratio provide additional balance-sheet capacity to support the stated distribution. Nonetheless, the Q1 owner-attributable profit run rate was 22.6% of the full-year target, slightly below the standard 25% pace, while the Q1 tax burden was elevated. Dividend sustainability therefore depends on achieving the remaining full-year earnings plan and containing warranty-related quality costs. No dividend-policy revision has been announced.
Risk Assessment
Business risks include Automotive production and customer-program risk: the company is exposed to vehicle production volumes, model cycles and OEM sourcing decisions across Japan, North America and Asia., Japan profitability risk: the Japanese segment remained loss-making at ¥1.5bn, and a delayed recovery would continue to dilute consolidated earnings., North American execution risk: segment profit fell 21.1% to ¥2.3bn despite 10.0% sales growth, indicating possible pricing, labor, launch-cost or manufacturing-efficiency pressure., Manufacturing bottleneck risk: work in process accounted for 52.9% of manufacturing inventory, above the 40% warning benchmark, potentially indicating longer production cycles or incomplete production flow., Product-quality and warranty risk: the ¥12.5bn warranty provision, equal to 7.6% of quarterly revenue, is substantially above the 3% warning threshold and exposes earnings to claims, recalls and customer charge-backs., FX risk: ¥0.9bn of FX gains supported ordinary income, equivalent to 11.5% of operating income; future currency movements could reverse this contribution..
Financial risks include Tax-conversion risk: the 43.3% effective tax rate and 0.510 DuPont tax-burden factor materially reduced conversion of pretax income into owner-attributable earnings., Margin risk: 13.7% gross margin and 4.6% operating margin are below stated quality benchmarks, leaving limited protection against material, labor, logistics and customer-pricing pressure., Liability-mix risk: the ¥10.0bn current portion of bonds payable increases short-term obligations, although liquidity coverage is strong., Defined-benefit obligation risk: net defined-benefit liabilities of ¥16.5bn could be affected by discount-rate and investment-return assumptions..
Key concerns include Highest priority is restoration of operating leverage, as SG&A grew 14.3% versus 8.2% sales growth and caused operating-margin compression., The combination of high WIP and high warranty provision raises the risk that operational complexity or quality costs may constrain cash generation and margins., Asia remains the earnings anchor, so any slowdown in Asian automotive demand or deterioration in its 12.6% segment margin would have a disproportionate consolidated impact., The full-year operating-income plan is currently on track at 25.6% Q1 progress, but owner-attributable-profit progress of 22.6% requires a lower tax burden or stronger subsequent-quarter earnings conversion..
Investment Implications
Key takeaways include Top-line momentum is broad-based, with all disclosed geographic segments posting external-sales growth., Consolidated operating earnings declined despite revenue growth because gross-margin pressure and SG&A growth outweighed the sales increase., Asia is the core profit engine, while Japan remains structurally loss-making and North America experienced meaningful margin deterioration., The balance sheet is a major support, characterized by high liquidity, low leverage and exceptional interest coverage., High warranty provisioning and a WIP-heavy inventory mix are the principal manufacturing-operational issues to monitor., The forecast dividend implies a 51.1% payout ratio and is supported by the full-year earnings plan and balance-sheet liquidity..
Metrics to watch include Consolidated gross margin and operating margin, particularly whether operating margin can recover above 5%., SG&A growth relative to revenue growth., Japan segment loss trajectory and timing of a return to profitability., North America segment margin recovery following the decline to an estimated 4.7%., Asia segment profit margin, currently an estimated 12.6%., Work-in-process share of inventory, currently 52.9%., Warranty provision relative to sales, currently 7.6% of quarterly revenue., Effective tax rate and conversion of ordinary income into owner-attributable profit., FX gains or losses relative to operating income., Progress against full-year guidance: revenue 25.4%, operating income 25.6%, ordinary income 26.9% and owner-attributable profit 22.6% after Q1..
Regarding relative positioning, Tokai Rika combines a strong, conservatively financed balance sheet with modest profitability. Its annualized 4.8% ROE, 2.7% net margin and 4.6% operating margin place earnings efficiency below the stated manufacturing benchmarks, while its 227.7% current ratio, 0.48x debt-to-equity ratio and 548.2x interest coverage indicate substantially stronger financial resilience than its profitability profile alone would suggest.