TOKYO RADIATOR MFG.CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥17.36B
• Operating Income: ¥1.25B
• Net Income: ¥1.12B
• EPS: ¥111.42

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

Verdict: A strong FY2026 Q2 with clear margin expansion and profit outperformance versus modest top-line growth. Revenue grew 3.8% YoY to 173.64, while operating income rose 68.8% YoY to 12.53 and net income jumped 82.7% YoY to 10.53, confirming effective cost control and favorable non-operating tailwinds. Operating margin improved to 7.2%, up roughly 277 bps from an estimated 4.4% in the prior-year period. Net margin expanded to 6.1%, up about 262 bps from an estimated 3.4% last year. Gross margin stood at 15.5%, indicating improved conversion of sales to profit at the gross and operating levels. Ordinary income of 13.67 was supported by 1.22 in non-operating income (notably 0.48 interest income and 0.40 dividends), while non-operating expenses were small at 0.08. Profit before tax of 12.63 was below ordinary income, implying a net extraordinary loss of about 1.04; the effective tax rate was a low 11.5%, aiding net profit. Total comprehensive income was only 3.86, much lower than net income due to sizable negative other comprehensive income, likely valuation losses on investment securities or FX-related OCI. Balance sheet strength is notable: cash and deposits of 87.79 exceed total liabilities of 83.12, with a current ratio of 291% and D/E of 0.35x. ROE calculated via DuPont is 4.4% (NPM 6.1%, asset turnover 0.537, leverage 1.35x), improving with margin gains but still modest for shareholders. Interest coverage is very strong at 164.9x given minimal interest expense. Dividend payout ratio is calculated at 44.9%, appearing sustainable on earnings, though cash flow coverage cannot be verified due to unreported OCF/FCF. The company reports ROIC of 7.3%, within the typical target range and consistent with improved operating execution. Forward-looking, margin gains look supported by cost discipline and higher interest income on cash, but the gap between ordinary income and PBT and the weak comprehensive income signal some non-recurring and market-related headwinds to watch. The absence of cash flow disclosures is a key limitation in fully validating earnings quality and dividend sustainability.

Profitability Analysis

ROE decomposition (DuPont): ROE 4.4% = Net Profit Margin 6.1% × Asset Turnover 0.537 × Financial Leverage 1.35x. The largest YoY improvement appears in the Net Profit Margin component, driven by strong operating leverage (OP up 68.8% vs sales up 3.8%) and a low effective tax rate (11.5%), with a modest boost from non-operating income (interest and dividends). Asset turnover is relatively low at 0.537, reflecting a cash-rich, conservative balance sheet and a capital-intensive manufacturing base. Financial leverage is modest at 1.35x (Assets 323.13 / Equity 240.01), limiting ROE magnification but enhancing resilience. Operating margin expanded to 7.2% from an estimated 4.4% a year ago (+~277 bps), suggesting material cost normalization and/or price/pass-through improvements alongside SG&A discipline (SG&A 14.43, growing slower than operating profit). The margin expansion likely reflects sustainable elements (cost initiatives, improved mix) combined with potentially transitory factors (unusually low tax rate, interest income uplift from higher cash yields). Watchpoints include the gap between ordinary income and PBT (implied extraordinary loss of ~1.04) and the fact that revenue growth (3.8%) lagged profit growth, indicating heavy reliance on cost tailwinds. No evidence of SG&A growth outpacing revenue (SG&A ratio ~8.3% of sales) this quarter.

Growth Assessment

Top-line growth was modest at +3.8% YoY to 173.64, consistent with a steady but not accelerating demand environment. Profit growth was outsized: operating income +68.8%, ordinary +63.4%, and net +82.7%, driven by margin expansion and supportive non-operating income. Operating margin reached 7.2% and net margin 6.1%, both significantly higher YoY, implying improved cost of goods and SG&A efficiency as well as favorable tax. The non-operating line (interest income 0.48, dividends 0.40) added roughly 10% of ordinary profit, aided by higher yields on a large cash balance. Given the implied extraordinary loss (ordinary 13.67 vs PBT 12.63), some non-recurring items partially offset earnings and could normalize. Sustainability: cost improvements and pricing/mix benefits could persist, but the very low tax rate and elevated interest income are less dependable supports. With asset turnover at 0.537 and revenue growth modest, sustaining double-digit profit growth without further top-line acceleration may be challenging. Outlook hinges on demand from key auto customers, input cost trends, and the company's ability to maintain pricing and productivity gains.

Financial Health

Liquidity is strong: current ratio 291.1% (210.00 / 72.14) and quick ratio 278.8% (excluding 8.89 inventories). Cash and deposits of 87.79 exceed total liabilities of 83.12, indicating a net cash position. D/E at 0.35x (Liabilities/Equity) is conservative; no red flags from leverage. There is no warning for current ratio (<1.0) or D/E (>2.0). Maturity mismatch risk appears low: current assets 210.00 cover current liabilities 72.14 almost 3x, and cash plus receivables (143.26) comfortably exceed accounts payable (27.42). Interest-bearing debt details are unreported, but overall liabilities are modest and liquidity ample. Off-balance sheet obligations are not disclosed; none identified in the provided data. Equity base is solid at 240.01, with retained earnings of 173.24 supporting resilience despite OCI-driven swings in comprehensive income.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported, so we cannot compute OCF/Net Income or assess FCF coverage of dividends and capex. As such, OCF/NI and FCF coverage are not assessable this quarter. Earnings quality signals are mixed: operating profit growth far outpaced sales, which is positive if driven by sustainable cost and mix improvements, but requires cash validation. The large negative gap between net income (10.53) and total comprehensive income (3.86) suggests material unrealized valuation losses in OCI, which affect equity but not cash; this does not, by itself, impugn operating cash generation. No direct signs of working capital manipulation are evident from the limited snapshot; inventories (8.89) and receivables (55.47) look modest versus sales and payables (27.42), but without cash flow statements or turnover metrics, conclusions are tentative.

Dividend Sustainability

The calculated payout ratio is 44.9%, within a generally sustainable range (<60%), assuming normalized earnings. However, with OCF and FCF unreported, we cannot confirm cash coverage for dividends. The company’s strong net cash position and low leverage provide a buffer for dividends even if cash flows are temporarily soft. Absence of DPS detail prevents validation against policy trends (e.g., progressive dividends). Watch for normalization of the effective tax rate and non-operating income (interest/dividends), which could influence earnings available for distribution. On balance, dividend capacity appears supported by earnings and balance sheet strength, but cash flow disclosure is needed for full validation.

Risk Assessment

Business Risks:

• Customer concentration in major auto OEMs and Tier-1s, exposing volumes and pricing to their production schedules.
• Electrification transition may alter thermal management component demand/mix, challenging legacy radiator product lines.
• Raw material and energy cost volatility affecting COGS and margins if pass-through lags.
• Supply chain disruptions (logistics, parts) potentially impacting deliveries and costs.

Financial Risks:

• Earnings sensitivity to non-operating items: interest income and dividend income contributed meaningfully; reversal would pressure ordinary profit.
• Negative OCI this quarter (comprehensive income 3.86 vs NI 10.53) highlights market valuation risk on investment securities.
• Potential normalization of the low effective tax rate (11.5%) could reduce net margin.
• Limited visibility on cash flows and capex due to unreported CF statements.

Key Concerns:

• Implied extraordinary loss (~1.04) reduced PBT vs ordinary income; nature and recurrence unknown.
• Modest revenue growth (+3.8%) versus strong profit growth increases reliance on continued cost and mix tailwinds.
• Asset turnover is low (0.537), constraining ROE despite margin gains.
• Data limitations (OCF, capex, DPS detail) hinder full assessment of earnings quality and dividend coverage.

Investment Implications

Key Takeaways:

• Clear margin recovery: operating margin up ~277 bps YoY to 7.2%; net margin up ~262 bps to 6.1%.
• Profitability outpaced sales: OP +68.8% on sales +3.8%, indicating strong operating leverage and cost control.
• Balance sheet is very conservative with net cash (cash 87.79 > total liabilities 83.12) and current ratio ~291%.
• ROE at 4.4% remains modest; improvement driven mainly by margin, not leverage or asset turnover.
• Non-operating income (interest/dividends) and a low tax rate materially supported bottom line; both may normalize.
• Total comprehensive income weakness signals market-related valuation headwinds in OCI.

Metrics to Watch:

• Operating cash flow and free cash flow (OCF/NI > 1.0 target).
• Order trends and revenue growth reacceleration with key auto customers.
• Material cost pass-through and gross margin trajectory.
• Effective tax rate normalization and any recurring extraordinary items.
• Interest income sustainability given cash levels and rate environment.
• Inventory and receivables turnover to confirm working capital discipline.
• Capex intensity versus ROIC (target ≥ 7–8%).

Relative Positioning: Among small-cap Japanese auto parts peers, the company stands out for its net cash balance, strong liquidity, and recovering margins, but posts only mid-single-digit ROE due to low asset turnover and conservative leverage; earnings appear on an improving trend, albeit with some reliance on non-operating supports and a modest top-line.

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