TS TECH CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Although revenue and profit increased in the quarter, the primary driver of profit growth was non-operating financial income, while improvement in core business profitability remained limited. Revenue was ¥1128.5B (¥1027.0B in the previous year, YoY+9.9%), operating income was ¥17.3B (+14.1%), profit before tax was ¥29.2B (+23.6%), and net income attributable to owners of the parent was ¥16.0B (¥5.9B in the previous year, YoY+172.0%). The sharp increase in net income was primarily attributable to the reversal of the previous year's non-controlling interests and changes in the corporate tax burden, while the operating margin remained low at 1.5%. By region, the Americas, Japan, and Asia/Europe recorded revenue growth, whereas China experienced a significant revenue decline and continued to report losses.

Factors Affecting Business Performance

【Revenue】Revenue was ¥1128.5B, representing a YoY increase of +9.9%. The Americas expanded to ¥711.9B (+16.7%, 63.1% of total), Japan to ¥227.7B (+16.2%), and Asia/Europe to ¥113.5B (+20.9%), while China recorded a significant revenue decline to ¥75.3B (-40.8%). The Company has a high dependence on the Americas, and regional concentration is a key characteristic of its top-line composition.

【Profit and Loss】Operating income was ¥17.3B (+14.1%), with the operating margin improving only modestly by +5bp YoY to 1.5%. The gross margin declined by approximately 80bp YoY to 11.8%, while selling, general and administrative expenses were restrained to a +4.0% increase, enabling operating income to increase. Profit before tax was ¥29.2B (+23.6%), supported by financial income of ¥12.4B (financial expenses: ¥0.8B), indicating a significant contribution from non-operating factors. Net income attributable to owners of the parent increased substantially to ¥16.0B (+172.0%), also reflecting the reversal of the previous year's non-controlling interests. In conclusion, although revenue and profit increased, the quality of profit growth remains highly dependent on non-operating factors, and improvement in core business margins is limited.

Segment Analysis

There is a significant disparity in profitability among the segments. Japan serves as the core contributor to consolidated profit, with revenue of ¥227.7B (+16.2%), operating income of ¥24.7B (+54.4%), and a profit margin of 10.8%. The Americas is the largest segment by scale, with revenue of ¥711.9B (+16.7%), but remains low-margin, with operating income of ¥9.9B and a profit margin of 1.4%. China continues to operate at a loss, with revenue of ¥75.3B (-40.8%) and an operating loss of ¥7.1B (profit margin: -9.5%). Asia/Europe is showing improvement, with revenue of ¥113.5B (+20.9%) and operating income of ¥5.1B (+280.6%, profit margin: 4.5%). The low margin in the Americas, which has the largest share of revenue, and the losses in China are the primary factors depressing the consolidated operating margin to 1.5%.

Key Financial Indicators

【Profitability】The operating margin was 1.5% (1.5% in the previous year), while the net margin improved to 1.4% (0.6% in the previous year). However, the gross margin declined by -80bp YoY to 11.8%. ROE remained low at 0.4%; under a DuPont decomposition of net margin × total asset turnover × financial leverage, the primary factor is the low total asset turnover, reflecting thin profitability relative to the asset base. 【Cash Flow Quality】Operating Cash Flow (OCF) was negative at -¥7.3B, indicating weak cash conversion relative to quarterly net income of ¥13.8B. 【Investment Efficiency】Capital expenditures were ¥36.2B, while investing cash flow was positive at ¥30.1B, with the withdrawal of time deposits serving as a source of funds. 【Financial Soundness】The equity ratio was high at 74.7% (73.3% in the previous year), indicating a conservative financial foundation.

Cash Flow Analysis

Operating Cash Flow (OCF) deteriorated substantially to -¥7.3B from ¥80.4B in the previous year, due primarily to a decrease in trade payables (-¥61.3B), an increase in inventories (-¥19.7B), and corporate income tax payments (-¥23.1B). Investing cash flow was positive at ¥30.1B, as proceeds from the withdrawal of time deposits (¥130.3B) exceeded capital expenditures (-¥36.2B) and served as a source of funds. Financing cash flow was -¥65.7B, with dividend payments (-¥53.9B) and lease payments (-¥4.1B) representing the main cash outflows. As a result, free cash flow (OCF + investing cash flow) was ¥22.8B, but this was supported by a temporary cash inflow from investing activities and therefore does not indicate a recovery in the core business's cash-generating capacity. Cash and cash equivalents were ¥891.6B, down from ¥925.0B at the end of the previous fiscal year.

Earnings Quality

Of profit before tax of ¥29.2B, operating income accounted for ¥17.3B. Non-operating factors, primarily financial income of ¥12.4B (financial expenses: ¥0.8B), accounted for approximately ¥11.8B, highlighting the dependence on non-operating income in the earnings composition. Income taxes were ¥15.4B, resulting in a high effective tax rate of approximately 52.8% and placing pressure on net income. The difference between net income attributable to owners of the parent of ¥16.0B and quarterly net income of ¥13.8B was attributable to non-controlling interests (-¥2.2B); the reversal from non-controlling interests income of ¥6.1B in the previous year was one factor supporting the substantial increase in net income attributable to owners of the parent. In addition, while OCF was negative at -¥7.3B, net income was positive at ¥13.8B. This divergence reflects the impact of accruals arising from changes in working capital, such as increased inventories and decreased trade payables. Comprehensive income was ¥71.4B (¥70.3B attributable to owners of the parent), substantially exceeding net income. This was supported by other comprehensive income items, including foreign currency translation adjustments for foreign operations (+¥27.9B) and valuation gains on equity financial assets (+¥25.8B), although these items are subject to market factors spanning multiple fiscal years.

Earnings Forecast and Guidance

Against the full-year forecasts (revenue of ¥4400.0B, operating income of ¥130.0B, and net income of ¥85.0B), Q1 progress was 25.6% for revenue, approximately in line with the simple progress benchmark of 25%, while operating income was 13.3% and consolidated net income was 16.2%, both below the benchmark. The full-year operating income forecast assumes a YoY increase of +25.9%, requiring acceleration from the current quarter's operating income growth of YoY+14.1%. There were no revisions to the earnings or dividend forecasts during the quarter. If the decline in the gross margin and continued losses in the China business persist, the degree of margin improvement achieved in the second half will be the key focus for meeting the full-year plan.

Shareholder Returns

The Company disclosed ¥44 per share as the previous year's interim and quarterly dividend results. The full-year dividend forecast is ¥92 per share, and the dividend amount actually paid during the quarter was ¥53.9B. Based on forecast net income attributable to owners of the parent of ¥80.0B (Company forecast), the payout ratio is approximately 134% when calculated using the forecast total dividend amount (¥92 × average shares outstanding during the period of 116.7M shares, approximately ¥10.7B), exceeding current-period net income. Dividend payments of ¥53.9B exceeded quarterly free cash flow of ¥22.8B, meaning that dividends were funded by cash on hand during the quarter. No share repurchases were conducted during the quarter.

Risk Factors

1. Regional concentration risk: While the Americas account for 63.1% of revenue, the operating margin is only 1.4%. The concentration of regional profitability creates a structure in which regional earnings concentration affects the stability of consolidated earnings.

2. Continued losses in the China business: Revenue in China declined to ¥75.3B (-40.8% YoY), and the segment recorded an operating loss of ¥7.1B (profit margin: -9.5%). China continues to make a negative contribution to consolidated operating income.

3. Working capital and cash flow quality: OCF was negative at -¥7.3B, creating a divergence from quarterly net income of ¥13.8B. Inventories increased while trade payables decreased, requiring continued monitoring of cash-generating capacity.

Industry Benchmark (For Reference; Based on Our Analysis)

Industry Benchmark (manufacturing)

Profitability and Return

Both of the Company's profitability metrics are substantially below the industry median, placing it in the lower-tier group.

Growth and Capital Efficiency

Revenue growth exceeded the industry median, indicating that top-line expansion is relatively strong within the industry.

※Source: Based on our analysis

Key Points from the Financial Results

1. Profit growth was achieved through increased revenue and support from non-operating income, but the gross margin declined by -80bp YoY, and improvement in core business profitability remains limited. The operating margin of 1.5% is substantially below the industry median.

2. Despite the Americas' high revenue share of 63.1%, its profit margin is only 1.4%, while China continues to report losses. The regional imbalance in the earnings structure is affecting consolidated profitability.

3. While OCF was negative, net income and comprehensive income increased. Changes in working capital, such as increased inventories and decreased trade payables, caused a divergence between earnings and cash flow. Trends in working capital during the second half will be a key focus.

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). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥2,159–¥2,278 at ±1% for the cost of equity, and ¥2,203–¥2,226 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 gap relative to the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / 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 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 professionals as necessary.

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