TOKAI RIKA CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In Q1, the Company secured revenue growth across all segments, while Operating Income and below declined due to higher expenses and an increased tax burden, resulting in higher revenue but lower profit. Revenue was ¥1,652.8B (+8.2% YoY), Operating Income was ¥76.8B (-2.0%), Ordinary Income was ¥88.8B (-5.9%), and Net Income attributable to owners of the parent was ¥45.3B (-12.6%). The increase in the SG&A ratio to 9.0% (+0.5pt YoY) and deteriorating profitability in the North America segment (segment Operating Income -21.1%) were the primary factors behind the decline in operating profit. The increase in the effective tax rate to 43.3% from 39.3% further intensified downward pressure on Net Income.

Factors Affecting Earnings

【Revenue】All reported segments posted revenue growth, and the top line remained solid. Japan recorded ¥825.4B (+9.6%), North America ¥478.9B (+10.0%), Asia ¥486.6B (+5.6%), and Other (Europe and South America) ¥132.2B (+11.4%), with all regions showing growth rates close to double digits. Differences in revenue growth among regions were limited, confirming broad-based increases in both volume and pricing across the Company rather than growth concentrated in a particular region.

【Profit and Loss】Operating Income was ¥76.8B (-2.0% YoY), and the Operating Margin declined to 4.6% from 5.1% in the previous year. Although the gross margin was broadly flat at 13.7%, the SG&A ratio rose by +0.5pt to 9.0%, placing pressure on profit from the cost side. By segment, Asia became the largest source of earnings, with Operating Income of ¥61.2B and a margin of 12.6% (essentially flat YoY). North America, meanwhile, posted higher revenue but Operating Income declined to ¥22.7B (-21.1%), with the margin deteriorating to 4.7% from 6.6% in the previous year (-1.9pt), weighing on the Company-wide margin. Ordinary Income was ¥88.8B (-5.9%). Non-operating income of ¥16.1B, including foreign exchange gains of ¥8.8B, provided support but was insufficient to offset the decline at the operating level. No extraordinary gains or losses were recorded in the current period, as the impairment loss of ¥0.8B recognized in the same period of the previous year did not recur. Accordingly, Ordinary Income and Profit Before Tax were both ¥88.8B. Net Income attributable to owners of the parent after corporate income taxes was ¥45.3B (-12.6%). The effective tax rate rose to 43.3% from 39.3% in the previous year, and the increased tax burden resulted in a decline exceeding that at the operating level. This was a quarterly result characterized by higher revenue but lower profit.

Segment Analysis

Japan is the largest segment, with revenue of ¥825.4B (+9.6%), but continued to report an operating loss of ¥14.9B. The loss narrowed from ¥18.4B in the same period of the previous year, and the margin improved from -2.4% to -1.8%.

Asia recorded revenue of ¥486.6B (+5.6%), Operating Income of ¥61.2B (+5.9%), and a margin of 12.6% (essentially flat from 12.5% in the previous year), the highest among the four segments and the core pillar of Company-wide earnings.

North America posted strong revenue growth of ¥478.9B (+10.0%), while Operating Income declined to ¥22.7B (-21.1%) and the margin fell to 4.7% from 6.6% in the previous year (-1.9pt). The fact that higher revenue did not translate into improved profitability was the primary factor behind the decline in the Company-wide margin.

Other (Europe and South America) secured both revenue and profit growth, with revenue of ¥132.2B (+11.4%), Operating Income of ¥12.6B (+30.0%), and a margin of 9.5% (+1.4pt from 8.2% in the previous year).

In terms of segment mix, high-margin Asia remained the earnings pillar, while the narrowing loss in Japan and profit growth in Other also contributed. However, deteriorating profitability in North America was the largest negative factor, and the decline in the Company-wide Operating Margin (-0.5pt) can be explained almost entirely by the impact of North America.

Key Financial Indicators

【Profitability】The Operating Margin declined to 4.6% from 5.1% in the previous year, while the gross margin remained broadly flat at 13.7% (13.7% in the previous year), and the SG&A ratio rose by +0.5pt to 9.0%. The Net Profit Margin attributable to owners of the parent was 2.7%, below 3.4% in the previous year.【Cash Quality】Cash and deposits increased by +12.7% from the end of the previous fiscal year to ¥911.5B, while accounts receivable declined by -3.4% to ¥821.1B and inventories remained broadly flat at ¥296.1B (+0.8% from the end of the previous fiscal year).【Investment Efficiency】Quarterly ROE was 1.3%, and quarterly total asset turnover was 0.30x, indicating that asset efficiency remained limited.【Financial Soundness】The Equity Ratio was 67.5% (based on net assets, -0.3pt from 67.8% at the end of the previous fiscal year), while the current ratio was 227.7% (current assets of ¥3,130.7B / current liabilities of ¥1,374.8B), maintaining a high level of short-term liquidity.

Cash Flow Analysis

Cash and deposits increased by +¥102.4B (+12.7%) from the beginning of the period to ¥911.5B, confirming an accumulation of funds since the start of the fiscal year. Meanwhile, short-term securities declined by -¥86.9B (-23.6%) to ¥281.9B, suggesting a shift of funds from securities to cash. Property, plant and equipment increased by +¥53.7B (+4.0%) to ¥1,406.8B, with other property, plant and equipment showing particularly strong growth of +¥55.5B (+14.1%), indicating that production-related investment is continuing. Current liabilities increased by +¥127.3B (+10.2%) to ¥1,374.8B. Other current liabilities grew significantly by +¥103.5B (+24.8%), while provision for bonuses declined by -¥60.6B (-50.5%) due to seasonality. Overall, the Company’s fund allocation reflects continued investment in production facilities while building cash liquidity.

Quality of Earnings

No extraordinary gains or losses were recorded in the current period (compared with an impairment loss of ¥0.8B in the same period of the previous year), and Ordinary Income and Profit Before Tax were both ¥88.8B. Non-operating income of ¥16.1B consisted primarily of foreign exchange gains of ¥8.8B, interest income of ¥3.4B, and dividend income of ¥0.9B. Foreign exchange gains are an item with limited repeatability because they depend on market fluctuations. The effective tax rate rose to 43.3% from 39.3% in the previous year, and the higher tax burden was the primary factor depressing the Net Profit Margin attributable to owners of the parent to 2.7%. Given that the gross margin was flat while the SG&A ratio increased, the decline in Operating Income in the current period can be interpreted as reflecting a change in the cost structure rather than merely a temporary factor. Comprehensive Income was ¥71.6B, exceeding Net Income attributable to owners of the parent of ¥45.3B. The difference was primarily attributable to foreign currency translation adjustments of ¥26.4B, which should be distinguished as a source of volatility separate from the Company’s recurring earnings power.

Earnings Forecast and Guidance

Progress against the Full-Year plan was 25.4% for Revenue (¥1,652.8B/¥6,500B), 25.6% for Operating Income (¥76.8B/¥300B), 26.9% for Ordinary Income (¥88.8B/¥330B), and 22.6% for Net Income attributable to owners of the parent (¥45.3B/¥200B). Compared with the benchmark of 25% for even quarterly progress, Revenue, Operating Income, and Ordinary Income were broadly in line with or slightly above the benchmark, while Net Income was somewhat behind. One factor is that the effective tax rate has remained relatively high compared with the plan. No revisions were made to the earnings forecast as of the end of the current quarter.

Shareholder Returns

The Full-Year dividend forecast is ¥60 per share, representing a planned increase of +¥5 (+9.1%) from the previous fiscal year’s actual dividend of ¥55. Based on the Company’s planned EPS of ¥234.79, the Payout Ratio is 25.6%, calculated using a single consistent standard. Assuming 89,234 thousand shares outstanding, including 4,039 thousand treasury shares, and considering the financial base of cash and deposits of ¥911.5B and an Equity Ratio of 67.5%, the Company appears to have sufficient capacity to implement the planned dividend. There has been no revision to the dividend forecast as of the end of the current quarter.

Risk Factors

1. Deteriorating profitability in the North America segment: North America posted higher revenue of ¥478.9B (+10.0%), but Operating Income declined to ¥22.7B (-21.1%) and the margin fell to 4.7% from 6.6% in the previous year (-1.9pt). The fact that higher revenue did not translate into improved profitability suggests rising costs or delays in passing through higher prices.

2. Persistently high quality assurance costs: The provision for product warranties was ¥124.9B, equivalent to 7.6% of Q1 Revenue. It remained broadly flat from ¥124.3B at the end of the same period of the previous year, making the level of quality-related expenses an area that continues to warrant monitoring.

3. Pressure on Net Income from the increased tax burden: The effective tax rate was 43.3%, up from 39.3% in the same period of the previous year. As a result, the decline in Net Income (-12.6%) was greater than the decline in Ordinary Income (-5.9%). Changes in the tax burden, together with foreign exchange factors outside the operating business, are sources of volatility in Net Income.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Margin and Net Profit Margin are significantly below the industry median, placing the Company’s profitability in the lower tier of the industry.

Growth and Capital Efficiency

The Revenue growth rate exceeds the industry median, and top-line growth is relatively high within the industry.

Source: Compiled by the Company

Key Points from the Earnings Results

1. Revenue growth was confirmed across all segments, but the Operating Margin declined to 4.6% from 5.1% in the previous year. Changes in the cost structure, including higher SG&A expenses and deteriorating profitability in the North America segment, affected profitability.

2. The Asia segment’s 12.6% margin supported Company-wide earnings. Together with the narrowing loss in the Japan segment (-¥14.9B versus -¥18.4B in the previous year), changes in the regional earnings structure were evident.

3. The effective tax rate rose to 43.3% from 39.3% in the previous year, causing Net Income to decline more than Ordinary Income. Full-Year progress for Net Income was somewhat delayed at 22.6%, making developments in the tax burden a key focus going forward.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥3,819–¥4,043 at ±1% for the cost of equity, and ¥3,913–¥3,939 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below Book Value per Share.
• Net assets as of the end of the quarter 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 / Interest Rate Base Month: 2026-06 / This value does not predict or guarantee the future share price)

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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 benchmark is 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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