TS TECH CO.,LTD. FY2026 FY Earnings Report

Financial Highlights

• Net Sales: ¥442.32B
• Operating Income: ¥10.32B
• Net Income: ¥9.66B
• EPS: ¥60.37

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

FY2026 results were mixed: core operations weakened materially while strong financial income and disciplined balance sheet management cushioned the bottom line. Revenue declined 4.0% to 4,423.2, and operating income fell 37.2% to 103.3, as gross margin compressed and Americas profitability deteriorated. Gross profit margin narrowed to 12.3% (-136 bps YoY), while the operating margin fell to 2.3% (-130 bps). SG&A efficiency improved modestly to 10.0% of sales (-23 bps), but could not offset gross margin pressure. Non-operating tailwinds were notable: finance income of 48.4 and equity-method gains of 5.9 lifted ordinary income 65.9% YoY to 193.0, far outpacing operating trends. Net income attributable to owners was 71.3 (-17.3% YoY), with a net margin of 1.6% (-26 bps). Segment-wise, Japan remained the earnings anchor (OP 96.3; margin 10.8%), China delivered double-digit margins (12.6%) on lower revenue, while Americas’ margin collapsed to 0.6% (OP -76% YoY) and Asia/Europe stayed slightly loss-making. Cash generation was solid versus earnings: operating cash flow was 226.1, 3.17x net income, supported by receivables collection and inventory discipline. Free cash flow was slightly negative at -11.1 after 192.5 of capex, and total shareholder returns (dividends 103.5 and buybacks 50.0) exceeded FCF, funded by cash on hand. The balance sheet remains robust with an equity ratio of 73.3%, cash of 926.0, and low financial liabilities, supporting liquidity and investment flexibility. ROE slipped to about 2.2–2.3% as weaker margins outweighed modest asset turnover and conservative leverage. Comprehensive income improved sharply to 226.7, driven mainly by favorable FX translation (OCI +13.0). Inventory days of ~41 and a cash conversion cycle near 23 days indicate sound working-capital efficiency. Management guides FY2027 to a modest recovery (OP 130.0, NI owners 80.0) and a normalized DPS of 46, implying prudence after an outsized FY2026 payout. Near-term priorities are stabilizing Americas profitability, sustaining China/Japan margins, and improving ROIC from a low base.

Profitability Analysis

ROE decomposes to roughly 1.6% net profit margin × 1.05x asset turnover × 1.29x financial leverage ≈ 2.2%. The largest driver of deterioration YoY was net profit margin, reflecting operating margin compression from 3.6% to 2.3% (-130 bps) and a -136 bps decline in gross margin. The business drivers were weaker pricing/mix and cost pass-through in the Americas (OP margin 0.6%, OP -76% YoY), alongside an impairment charge of 15.8 within operating expenses. SG&A ratio improved 23 bps, implying limited operating leverage on lower revenue but decent cost control. Interest burden improved (EBT/EBIT >1) thanks to net financial income, which is supportive but not a substitute for core margin recovery. The margin pressure looks partly cyclical and partly execution-related in the Americas; improvements will depend on cost resets, pricing, and program ramp efficiencies. A concerning trend is top-line -4% YoY vs SG&A -6.1% YoY, which is positive on costs, but the magnitude of gross margin compression dominates; sustaining SG&A discipline while restoring gross margin is essential.

Growth Assessment

Revenue declined 4.0% amid sharp China (-21.3%) and Asia/Europe (-7.1%) contractions, partly offset by stable Americas (-0.6%) and modest Japan growth (+0.9%). Profitability fell disproportionately: operating income -37.2% due to gross margin compression and impairment costs, despite improved SG&A efficiency. Non-operating income (finance income and equity-method) provided resilience, lifting ordinary income 65.9%. Segment mix shifted toward lower-margin Americas (59% of sales) while the highest-margin regions (China and Japan) could not offset Americas’ profitability drop. Working-capital execution was a relative strength (DSO ~53 days, DIO ~41, DPO ~71; CCC ~23 days), supporting OCF. For FY2027, management guides modest recovery (OP 130.0, NI owners 80.0) on flattish sales (440.0), implying some operating margin improvement; execution in the Americas and stable demand in Japan/China are key to achieving this. Capex at 192.5 (Capex/Depreciation 1.33x) suggests continued investment for efficiency and programs, which should aid medium-term competitiveness if utilized effectively.

Financial Health

Liquidity is strong: current ratio ~2.7x (current assets 2,296.4 vs current liabilities 850.0) and cash/equivalents of 926.0. Solvency is conservative: equity ratio 73.3% and low financial liabilities (other financial liabilities ~63.9), implying de minimis net debt. Debt-to-equity of 0.29x is well within conservative bounds; interest coverage is ample given finance costs 2.85 vs operating income 103.25. No warnings on Current Ratio <1.0 or D/E >2.0. Maturity mismatch risk is low, with significant cash and receivables exceeding short-term obligations (payables 753.4 within a strong working-capital position). Notable capital structure actions include a reduction in treasury stock via cancellation, which simplifies equity while keeping liquidity intact. No off-balance-sheet obligations were indicated in the provided data.

Notable B/S Changes

Treasury stock: -269.99 to -124.27 (+54.0%) - Cancellation reduced contra-equity, simplifying capital structure. Deferred tax liabilities: 73.05 to 13.62 (-81%) - Tax timing shift lowered NCL, contributing to higher equity ratio. Other financial assets (noncurrent): 35.00 to 43.26 (+23.6%) - Increased investment securities, raising financial asset exposure. Property, plant & equipment: 93.78 to 102.60 (+9.4%) - Ongoing investment in production capacity/efficiency. Cash and equivalents: 111.54 to 92.60 (-17.0%) - Funded returns and capex despite solid OCF.

Cash Flow Quality

OCF of 226.1 vs net income 71.3 yields OCF/NI of 3.17x, indicating strong cash realization. Cash conversion (OCF/EBITDA) of 0.91x is healthy. Working-capital drivers were favorable on receivables (+102.1) and inventories (+0.7), partially offset by lower payables (-93.4). Free cash flow was slightly negative at -11.1 after capex of 192.5; this shortfall, combined with dividends (103.5) and buybacks (50.0), resulted in a cash decline of 190.3, funded from a large opening cash balance. Accruals ratio of -3.7% supports earnings quality. No signs of aggressive working-capital manipulation are evident; CCC around 23 days is efficient for an auto-parts manufacturer.

Dividend Sustainability

FY2026 DPS totaled 90 yen, implying a payout ratio above 100% on reported earnings and FCF coverage of approximately -0.10x. Including buybacks, the total return outlay exceeded FCF materially, funded by balance sheet cash. While the balance sheet can support such returns in the short term, sustainability hinges on operating cash flow growth and capex discipline. Guidance implies normalization: FY2027 DPS of 46 yen alongside a projected earnings recovery (NI owners 80.0), which would realign payout with earnings capacity. Monitoring total return ratio against FCF and ensuring capex remains at or below internally funded levels is key.

Risk Assessment

Business risks include Customer concentration: Honda group accounts for 382.1 of 442.3 (≈86%) sales, exposing earnings to OEM volume/pricing decisions., Regional concentration: Americas contributes 59% of revenue with very low margin (0.6%), magnifying execution risk., Commodity and logistics cost volatility impacting gross margin pass-through timing., Program mix and ramp risk in seat/trim programs, particularly in North America., FX fluctuation risk given large overseas exposure; translation impact notable in OCI..

Financial risks include High effective tax rate (~54%) depresses net margin and ROE., FCF slightly negative with elevated capex (Capex/Depreciation 1.33x) alongside generous shareholder returns., Pension/defined benefit remeasurement volatility (OCI -12.05) can affect equity., Low ROIC (~2%) below typical WACC, pressuring long-term value creation if margins do not recover..

Key concerns include Sustained low operating margin (2.3%) and gross margin (12.3%) relative to peers/benchmarks., Americas profitability collapse (-76% OP YoY) with large revenue share., Tax burden (NI/EBT 0.46) structurally depressing net margins., Total shareholder returns exceeding internally generated FCF in FY2026..

Investment Implications

Key takeaways include Core operations softened; profitability recovery depends on Americas margin restoration., Cash generation remains resilient vs earnings, supporting near-term flexibility., Balance sheet strength (equity ratio 73%) provides cushion for investment and selective returns., ROE and ROIC are below acceptable thresholds; margin uplift is required for value accretion., Management guides modest profit recovery and normalized DPS, signaling prudence..

Metrics to watch include Americas segment OPM and absolute OP recovery trajectory, Group gross margin and cost pass-through effectiveness, Effective tax rate normalization vs guidance, FCF (OCF – Capex) relative to total shareholder returns, Inventory, DSO, and CCC to confirm continued WC discipline.

Regarding relative positioning, Within Japanese auto-parts peers, the company exhibits strong balance sheet quality and working-capital efficiency but lags on margin, ROE, and ROIC. Execution in North America and tax-rate management are the key swing factors for improving relative standing.