T.RAD (7236) FY2026 Q3 Earnings Report

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Executive Summary

This earnings period saw a sharp recovery in profits at a pace exceeding revenue growth, with improved profitability being the defining feature of the period. Revenue was ¥1180.8B (+3.7% YoY), Operating Income was ¥83.3B (+168.2%), Ordinary Income was ¥92.2B (+124.0%), and Net Income attributable to owners of the parent was ¥68.8B, a substantial increase from ¥11.6B in the previous year. While revenue growth remained modest, profit expanded sharply, primarily due to improved cost absorption and fixed-cost leverage.

Factors Affecting Earnings

【Revenue】Revenue was ¥1180.8B, representing a +3.7% YoY increase. By segment, Japan was the largest at ¥625.5B (53.0% of total), followed by United States at ¥317.6B (26.9%), Asia at ¥193.1B (16.4%), China at ¥101.1B (8.6%), and Europe at ¥40.7B (3.4%). Asia had a notably high profit margin of 18.8%, while there were significant regional differences in profitability, with Japan at 5.3%, China at 8.7%, United States at 1.1%, and Europe at 0.3%.

【Profit and Loss】Gross profit was ¥169.2B, with a gross margin of 14.3%. After deducting SG&A expenses of ¥85.9B, Operating Income was ¥83.3B, representing a margin of 7.1%, a substantial improvement from 2.7% in the previous year. Non-operating income and expenses resulted in net income of ¥8.9B, including interest income of ¥2.0B and equity in earnings of affiliates of ¥5.5B, thereby boosting Ordinary Income to ¥92.2B. Extraordinary income and expenses resulted in net income of ¥4.5B, primarily due to a gain on the sale of investment securities of ¥4.6B, which provided a temporary boost to Net Income. After deducting income taxes and other taxes of ¥27.9B from Profit Before Tax of ¥96.7B, the company recorded Net Income of ¥68.8B. Profit growth was notably stronger than revenue growth, resulting in higher revenue and profits as well as a structural improvement in profit margins.

Segment Analysis

Japan accounted for more than half of total revenue at ¥625.5B, but its profit margin of 5.3% was substantially below Asia’s 18.8%. United States generated substantial revenue of ¥317.6B but had a profit margin of only 1.1%, making its contribution to profitability limited. Asia generated Operating Income of ¥36.3B on revenue of ¥193.1B and served as the core earnings contributor, accounting for 43.6% of company-wide Operating Income of ¥83.3B. Europe was nearly breakeven, generating Operating Income of ¥0.1B on revenue of ¥40.7B. Differences in regional profitability therefore determine the structure of the company-wide profit margin of 7.1%.

Key Financial Indicators

【Profitability】The Operating Income margin of 7.1% improved by approximately 4.3pt from approximately 2.7% in the previous year, while the Net Income margin rose to 5.8% from approximately 1.0% in the previous year. The gross margin remained at 14.3%, indicating that cost absorption remains relatively low compared with industry peers.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥108.6B, approximately 1.6 times Net Income of ¥68.8B, indicating strong cash conversion.【Investment Efficiency】ROE was 14.1%, and asset turnover against total assets of ¥970.7B remained solid. Capital expenditures of ¥52.0B exceeded depreciation and amortization of ¥40.0B, indicating continued investment aimed at expanding capacity.【Financial Soundness】The Equity Ratio was 50.3%. Current assets of ¥590.4B compared with current liabilities of ¥287.5B indicate ample liquidity. With interest-bearing debt consisting primarily of long-term borrowings of ¥154.2B, short-term funding risk is limited.

Cash Flow Analysis

Operating Cash Flow (OCF) increased substantially by +79.1% YoY to ¥108.6B, exceeding Net Income of ¥68.8B and indicating progress in cash conversion. One factor behind the increase was a ¥29.4B increase in trade payables, which offset the use of working capital resulting from increases of ¥5.6B in trade receivables and ¥5.8B in inventories. Investing Cash Flow was an outflow of ¥53.8B, of which the majority consisted of capital expenditures of ¥52.0B. Free Cash Flow, calculated as Operating Cash Flow less Investing Cash Flow, was ¥54.8B, securing financial capacity even after capital expenditures. Financing Cash Flow was an outflow of ¥78.6B, primarily due to repayments of long-term borrowings and the repurchase of treasury stock amounting to ¥36.5B. As a result, cash and cash equivalents declined, but the ending balance was maintained at ¥143.4B.

Earnings Quality

The primary driver of earnings in the current period was a recovery in the core business. Operating Income expanded sharply by +168.2% YoY, while non-operating income, including interest income of ¥2.0B and equity in earnings of affiliates of ¥5.5B, boosted Ordinary Income. Of extraordinary income of ¥4.9B, the ¥4.6B gain on the sale of investment securities was a temporary factor and represented a meaningful portion of Net Income of ¥68.8B. Accordingly, Operating Income and Ordinary Income should be emphasized when assessing recurring earnings power. Operating Cash Flow exceeded Net Income, and from an accrual perspective regarding earnings quality, there are no indications that accounting profit is excessively dependent on the recognition of uncollected revenue. However, the increase in trade payables may have boosted cash flow through a temporary effect, and attention should be paid to a potential reversal going forward. Comprehensive Income was ¥56.0B, below Net Income of ¥68.8B, primarily due to a negative foreign currency translation adjustment of ¥10.2B.

Earnings Forecast and Guidance

The company’s full-year forecast is Revenue of ¥1600.0B (+0.5% YoY), Operating Income of ¥109.0B (+49.0%), and Ordinary Income of ¥122.0B (+50.6%). Cumulative progress rates were 73.8% for Revenue, 76.4% for Operating Income, and 75.6% for Ordinary Income, with profit progress exceeding the standard progress rate of 75%. Achieving the full-year plan requires approximately ¥26.7B of Operating Income in Q4. Under this scenario, the full-year Operating Income margin would be approximately 6.8%, slightly below the cumulative margin of 7.1%. If the current level of profitability can be maintained, the company appears to have potential to outperform its plan.

Shareholder Returns

The Q2 dividend was ¥160 per share, and the full-year dividend forecast is ¥320. Based on forecast full-year Net Income of ¥87.0B, the Payout Ratio remains low at approximately 21.7%. Treasury stock repurchases of ¥36.5B were conducted. Combined with dividend payments of ¥18.96B, total returns amounted to ¥55.4B, resulting in a Total Return Ratio of approximately 80.6% against Net Income of ¥68.8B. Total returns were approximately in line with Free Cash Flow of ¥54.8B. Given cash and deposits of ¥143.4B and the low level of interest-bearing debt, funding for shareholder returns in the current fiscal year is secured.

Risk Factors

1. Sustainability of profitability: Although the gross margin of 14.3% has improved, its absolute level is not high. If the pass-through of raw material and energy costs is delayed, the improvement in the Operating Income margin to 7.1% may prove temporary.

2. Level of R&D investment: R&D expenses were ¥9.3B, equivalent to only 0.8% of Revenue. In manufacturing, including automotive components, investment to address technological transformation is directly linked to competitiveness. Sustaining investment at this level could affect long-term product competitiveness.

3. Regional profitability disparities: Profitability is low in United States, which accounts for 26.9% of revenue and has a profit margin of 1.1%, and Europe, which accounts for 3.4% and has a profit margin of 0.3%. Regional differences in profitability, including Japan, which accounts for 53.0% and has a profit margin of 5.3%, structurally influence the company-wide profit margin.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Profitability is slightly below the industry median for both the Operating Income margin and Net Income margin.

Growth and Capital Efficiency

The Revenue growth rate is slightly above the industry median.

※Source: Compiled by the Company

Key Takeaways from the Earnings

1. The Operating Income margin improved substantially from the previous year, but the gross margin of 14.3% remains below the industry median. The ability to pass through cost increases will determine the sustainability of the profit margin going forward.

2. Operating Cash Flow reached approximately 1.6 times Net Income, and Free Cash Flow of ¥54.8B was secured even after capital expenditures, indicating strong cash conversion and cash-generation capabilities.

3. Progress against the full-year forecast exceeded 75% on the profit front. By region, Asia is driving company-wide profits with its high profit margin, while improving profitability in United States and Europe remains a key structural focus.

Theoretical Share Price (For Reference)

Sensitivity: 10,840円〜11,502円 at ±1% for the cost of equity, and 11,095円〜11,269円 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

（Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices）

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

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