T.RAD Co., Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Although Revenue increased, Operating Income declined due to deteriorating profitability in the Japan and U.S. segments, while Ordinary Income and Net Income remained roughly at the prior-year level, supported by temporary factors. Revenue was ¥39.73B (+1.6% YoY), Operating Income was ¥2.73B (▲8.4%), Ordinary Income was ¥3.01B (+0.4%), and Net Income attributable to owners of the parent (hereinafter, “Net Income”) was ¥2.14B (+0.1%). The Operating Income margin declined to 6.9% from 7.6% in the prior year, but an increase in non-operating income and the recognition of extraordinary income supported Ordinary Income and Net Income.

Factors Affecting Results

【Revenue】Revenue was ¥39.73B, up +1.6% YoY. By region, the U.S. at ¥11.63B (+7.3%), Europe at ¥1.36B (+26.9%), and Asia at ¥6.51B (+2.4%) contributed to the increase, while Japan, the largest market, declined to ¥20.17B (▲2.7%), and China declined to ¥3.19B (▲1.9%). Japan is the core market, accounting for 50.8% of the sales mix, but remains on a declining trend, while overseas growth, particularly in Europe and the U.S., drove the overall increase in Revenue.

【Profit and Loss】Operating Income was ¥2.73B (▲8.4%), and the Operating Income margin declined by 0.7pt to 6.9% from 7.6% in the prior year. The cost of sales ratio increased to 85.4% from 85.2%, while SG&A expenses rose to ¥3.05B (+9.3%), causing the SG&A ratio to increase to 7.7% (+0.65pt) and weighing on profitability. By segment, Asia became the core business, generating Operating Income of ¥1.39B (+17.4%; margin of 21.3%) and more than half of total company profits. In contrast, Japan generated ¥0.72B (▲38.8%; margin of 3.6%), while the U.S. generated ¥0.18B (▲44.6%; margin of 1.5%), both recording substantial declines and becoming the primary causes of the deterioration in overall profitability. Ordinary Income was ¥3.01B (+0.4%), as the ¥0.37B increase in non-operating income, including ¥0.07B in foreign exchange gains, offset the decline in Operating Income. In addition, the Company recorded ¥0.30B in extraordinary income related to fixed assets (¥0.09B in extraordinary losses, including ¥0.06B in impairment losses), increasing Profit Before Tax to ¥3.22B (+7.4%). However, income taxes increased to ¥1.08B (+25.6%), and the effective tax rate rose from 28.6% to 33.5%, leaving Net Income at ¥2.14B (+0.1%). In conclusion, the current period resulted in higher Revenue but lower profit.

Segment Analysis

By segment, Asia achieved Revenue of ¥6.51B (+2.4%) and Operating Income of ¥1.39B (+17.4%), with a 21.3% margin, securing outstanding profitability among all segments and becoming the core business generating more than half of total Operating Income. Japan, the largest market, recorded Revenue of ¥20.17B (▲2.7%) and Operating Income of ¥0.72B (▲38.8%), with its margin declining to 3.6%, making it the primary factor depressing overall profitability. The U.S. recorded higher Revenue of ¥11.63B (+7.3%), while Operating Income declined substantially to ¥0.18B (▲44.6%) and the margin fell to 1.5%, resulting in a structure characterized by simultaneous Revenue growth and profit decline. Europe recorded Revenue of ¥1.36B (+26.9%) and Operating Income of ¥0.03B (¥0.001B in the prior year), representing a small-scale business but with a significant improvement in profitability. China remained almost flat, with Revenue of ¥3.19B (▲1.9%) and Operating Income of ¥0.24B (▲2.0%).

Key Financial Indicators

【Profitability】The Operating Income margin was 6.9%, down from 7.6% in the prior year, while the Net Income margin was 5.4%, broadly flat from 5.5% in the prior year. ROE was 4.0%. 【Cash Flow Quality】Operating Cash Flow (OCF) of ¥3.29B was approximately 1.5 times Net Income of ¥2.14B, representing a well-supported level accompanied by ¥1.39B in depreciation and amortization. 【Investment Efficiency】Total asset turnover was 0.39x and financial leverage was 1.90x; ROE of 4.0% was broadly consistent with the product of these factors. 【Financial Soundness】The Equity Ratio was 52.7%, down 0.5pt from 53.2% in the prior year. The current ratio was 204.3% (current assets of ¥59.87B / current liabilities of ¥29.31B), and liquidity was secured, with cash and deposits of ¥16.28B compared with short-term interest-bearing debt of ¥5.73B.

Cash Flow Analysis

Operating Cash Flow was ¥3.29B, down ▲5.9% YoY, but remained approximately 1.5 times Net Income of ¥2.14B, providing solid support for earnings. In terms of working capital, an increase in inventories had a negative impact of ¥0.57B, while an increase in trade payables of ¥0.84B and a decrease in trade receivables of ¥0.27B contributed positively. OCF reflects these factors after deducting income tax payments of ¥1.36B. Investing Cash Flow was ▲¥1.97B, primarily consisting of capital expenditures of ¥1.74B, approximately 1.25 times depreciation and amortization of ¥1.39B, indicating continued investment in capacity expansion in addition to maintenance investment. Financing Cash Flow was ▲¥1.92B, with dividend payments of ¥2.27B representing the primary outflow, partially offset by a net increase of ¥0.49B in short-term borrowings. As a result, Free Cash Flow (OCF + Investing Cash Flow) was positive at ¥1.33B, indicating that the Company maintained its fundamental cash-generating capacity to fund investment and shareholder returns.

Earnings Quality

Profit Before Tax increased to ¥3.22B (+7.4% YoY), but this included a ¥0.21B net boost from extraordinary items, comprising ¥0.30B in extraordinary income, such as gains on the sale of fixed assets, less ¥0.09B in extraordinary losses, including ¥0.06B in impairment losses. This temporary factor exceeded the growth at the Ordinary Income level (+0.4%). Meanwhile, income taxes increased to ¥1.08B (+25.6%), causing the effective tax rate to rise from 28.6% to 33.5%. Consequently, the increase in Profit Before Tax was almost entirely absorbed at the Net Income level, with Net Income reaching ¥2.14B (+0.1%) and failing to translate into a substantive increase in profit. Comprehensive Income was ¥2.52B, exceeding Net Income of ¥2.14B, primarily due to foreign currency translation adjustments of +¥0.45B. Compared with the foreign currency translation adjustments of ▲¥1.58B in the same period of the prior year, this indicates that the yen’s depreciation increased the translated value of overseas assets. Adjustments related to retirement benefits made a small negative contribution of ▲¥0.09B.

Earnings Forecast and Guidance

The full-year earnings forecast is Revenue of ¥165.00B (+1.7% YoY), Operating Income of ¥12.30B (+9.3%), and Ordinary Income of ¥13.40B (+8.3%). The Company announced revisions to its earnings forecast and dividend forecast as of today (the announcement date). Q1 progress rates were 24.1% for Revenue (¥39.73B/¥165.00B), 22.2% for Operating Income (¥2.73B/¥12.30B), and 22.4% for Ordinary Income (¥3.01B/¥13.40B), all slightly below the simple quarterly run rate of one-quarter (25%). Operating Income progress was particularly low relative to the other measures, making profitability improvement from the second half onward a key issue for achieving the full-year plan.

Shareholder Returns

The full-year dividend forecast is ¥82 per share, disclosed on a basis that reflects the 10-for-1 stock split of common shares, effective July 1, 2026 (equivalent to ¥820 without taking the split into account). The Company announced a revision to its dividend forecast (an increase) as of today, indicating an increase in dividends on a post-stock-split-adjusted basis. The Payout Ratio relative to forecast EPS of ¥167.79 is approximately 48.9%, calculated as ¥82/¥167.79, representing a reasonable level of shareholder returns. Share repurchases were negligible at ¥0.00B during the quarter, and shareholder returns are centered on dividends.

Risk Factors

1. Differences in profitability by segment: Operating Income margins in the two major markets have deteriorated, at 3.6% in Japan (down from approximately 5.8% in the prior year) and 1.5% in the U.S. (down from approximately 2.7% in the prior year), increasing dependence on Asia, which has a 21.3% profit margin.

2. Working capital burden: The Company has substantial asset balances, including inventories of ¥3.86B (of which raw materials account for ¥1.01B) and trade receivables of ¥23.43B. Inventories increased by ¥0.57B during the period, becoming a factor depressing cash flow.

3. Increase in short-term funding: Short-term borrowings increased 72.1% YoY to ¥5.73B, while total interest-bearing debt was ¥19.96B, equivalent to 37.4% of equity of ¥53.33B. There is no liquidity concern compared with cash and deposits of ¥16.28B, but monitoring the potential increase in financing costs under changing interest-rate conditions and refinancing trends would be useful.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin were both below the industry median, placing its profitability in the middle-to-lower range within the industry.

Growth and Capital Efficiency

The Revenue growth rate was below the industry median, indicating a relatively moderate level of growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. While the Asia segment has emerged as a highly profitable business generating more than half of Operating Income, declining margins in Japan and the U.S. depressed the Company-wide Operating Income margin (6.9%, ▲0.7pt YoY). The resulting shift in the regional earnings structure was the central feature of these results.

2. Ordinary Income and Net Income remained almost at the prior-year levels due to non-recurring factors, including an increase in non-operating income and the recognition of extraordinary income. The divergence from the trend in core earnings power, as represented by Operating Income, is an important point to consider when assessing the quality of the results.

3. Progress rates against the full-year plan were 24.1% for Revenue and 22.2% for Operating Income, both slightly below the simple quarterly run rate of 25%. The fact that revisions to the earnings and dividend forecasts were announced as of today provides a reference point for assessing progress during the remainder of the fiscal year.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥1,185–¥1,254 at ±1% for the cost of equity, and ¥1,212–¥1,229 at ±0.1 for ω.

Notes:

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

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value is not intended to forecast 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. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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