TOKYO KEIKI INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥24.43B
• Operating Income: ¥722M
• Net Income: ¥804M
• EPS: ¥51.07

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Strong top-line but weaker profitability; margins compressed despite robust revenue growth, with earnings supported by non-operating and likely extraordinary gains. Revenue rose 18.7% YoY to 244.25, while operating income declined 17.6% YoY to 7.22, indicating negative operating leverage. Gross profit reached 63.30, implying a gross margin of 25.9%. Operating margin fell to 2.96% (from ~4.26% a year ago by our estimate), a compression of roughly 130 bps. Net income was 8.39 (-24.7% YoY), putting the net margin at 3.43% vs ~5.42% a year ago, an estimated compression of ~199 bps. Ordinary income fell 18.8% to 8.25, but profit before tax was higher at 10.14, suggesting net extraordinary gains of about 1.89 that softened the decline in bottom-line results. Non-operating income of 2.14 (notably 0.80 dividends) exceeded non-operating expenses of 1.11, adding a net 1.03 tailwind to ordinary profit. Earnings quality was solid this quarter: operating cash flow of 16.00 was 1.91x net income, indicating cash conversion strength, likely aided by working capital inflows. Liquidity is strong with a current ratio of 213% and quick ratio of 202%, despite sizable short-term loans of 123.89. Leverage is moderate (D/E 0.83x) and interest coverage healthy at 7.85x. However, capital efficiency remains weak: ROE is 2.0% and ROIC is 1.0%, well below typical cost of capital. SG&A at 56.08 nearly consumed the entire gross profit increase, pointing to cost pressure or mix/price challenges. The effective tax rate of 20.7% is supportive but not the driver of earnings volatility. Forward-looking, execution on margin recovery (pricing, cost pass-through, mix) will be critical; absent improvement, low ROIC and high payout ratio (71.2%) could pressure capital allocation flexibility. Data gaps (investing CF, capex, dividend cash out) limit FCF assessment and dividend sustainability analysis. Overall, the quarter shows resilient sales but deteriorating core profitability, underpinned by healthy cash conversion and a temporary boost from below-OP items.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.0% = Net Profit Margin 3.4% × Asset Turnover 0.323 × Financial Leverage 1.83x. The biggest change vs last year is the drop in margin (net margin down from ~5.4% to 3.4%, ~-199 bps), far outweighing movements in leverage or asset turnover. Business drivers likely include higher SG&A relative to gross profit (SG&A 56.08 vs gross profit 63.30), negative mix and/or limited price pass-through, and possibly project timing that lifted revenue but at lower margins. Non-operating and extraordinary items partly cushioned ordinary profit and PBT, masking weaker operating profitability. Sustainability: the margin compression is likely cyclical/operational rather than one-off; recovery requires better cost control and pricing. Asset turnover at 0.323 is low for an industrial equipment/instrument maker and may reflect a large asset base or rising inventories/receivables; improving turnover would support ROE. Flags: Operating income fell despite strong sales growth, indicating SG&A growth and/or gross margin pressure outpaced revenue; the non-operating income ratio (25.5%) is elevated, indicating reliance on below-OP items.

Growth Assessment

Revenue growth of 18.7% YoY to 244.25 is solid, suggesting healthy demand and/or improved delivery timing. However, operating profit contracted 17.6% YoY to 7.22, demonstrating negative operating leverage. The gap between top-line growth and OP decline points to either weaker gross margin or elevated SG&A; with SG&A at 56.08, cost discipline is a priority. Ordinary income (-18.8% YoY) and net income (-24.7% YoY) underscore the earnings pressure, mitigated by non-operating gains and extraordinary items that lifted PBT to 10.14. EBITDA of 14.71 (6.0% margin) shows modest cash earnings capacity for the scale of sales. Outlook hinges on margin normalization via pricing, cost reductions, and mix improvements; absent that, further sales growth may not translate into profit. Given the low ROIC (1.0%), incremental growth must come with higher returns to be value-accretive. FX could be a tailwind to revenue if export exposure is meaningful, but input cost inflation may offset. Lack of segment/mix detail limits visibility on sustainability of the 18.7% growth. Watch order backlog and book-to-bill to gauge demand durability.

Financial Health

Liquidity is strong: current ratio 213.2% and quick ratio 201.9% well above benchmarks; no warning on sub-1.0 thresholds. Capital structure is conservative to moderate: D/E at 0.83x and interest coverage at 7.85x indicate manageable leverage and serviceability. Maturity profile: short-term loans of 123.89 are material but comfortably covered by current assets of 530.09 (cash 58.85, receivables 144.78, inventories 28.14) and overall working capital of 281.43; near-term refinancing risk appears contained. Long-term loans are 69.00, with noncurrent liabilities at 93.45. No explicit off-balance sheet obligations are disclosed in the provided data. Equity stands at 413.85 (owners’ equity 408.53), providing a solid buffer. Overall solvency is sound, but reliance on short-term borrowings should be monitored if OCF weakens.

Cash Flow Quality

OCF/Net Income is 1.91x (>1.0), indicating high-quality earnings and good cash conversion this period. Operating CF of 16.00 exceeds operating income of 7.22, implying working capital inflows and/or non-cash charges (depreciation 7.49) supported cash generation. Investing CF and capex are unreported, preventing FCF calculation and long-term sustainability assessment. Financing CF of -7.88 reflects net debt repayments and a small share buyback (-0.01); dividends cash out is unreported. Without capex data, we cannot confirm whether OCF consistently covers maintenance and growth capex plus dividends; however, current-period cash generation appears sufficient for interest and some debt reduction. No clear signs of working capital manipulation from the limited snapshot; receivables (144.78) and inventories (28.14) are reasonable relative to sales scale, but trend data is missing.

Dividend Sustainability

The calculated payout ratio is 71.2%, above the <60% benchmark for comfort and elevated relative to a low ROE of 2.0%. With OCF of 16.00 exceeding net income of 8.39, cash coverage looks adequate this period, but lack of investing CF/capex data precludes a definitive FCF coverage view. If capex is moderate and stable, dividends may be covered by OCF; however, the compressed operating margin and low ROIC make the dividend more sensitive to earnings volatility. Policy outlook is unclear due to missing DPS and total dividends paid; absent a stated progressive policy, maintaining a >70% payout amid declining profits could constrain reinvestment. Near-term sustainability appears cautious but not clearly at risk given current liquidity; medium-term sustainability depends on margin recovery and ROIC improvement.

Risk Assessment

Business Risks:

• Margin compression from cost inflation and limited price pass-through (OP margin down ~130 bps YoY).
• Execution risk in reducing SG&A intensity and improving mix to restore profitability.
• Project timing/order volatility impacting quarterly margins and cash flows.
• Supply chain and component availability potentially raising costs and lead times.
• FX exposure on exports and imported components affecting gross margin.

Financial Risks:

• Dependence on short-term loans (123.89) introduces refinancing and interest rate risk if OCF weakens.
• Low ROIC (1.0%) and ROE (2.0%) increase the risk of value dilution if growth continues at sub-WACC returns.
• Elevated payout ratio (71.2%) reduces financial flexibility amid declining earnings.
• Earnings reliance on non-operating/extraordinary gains to support PBT this quarter.

Key Concerns:

• Core operating profitability weakened despite strong sales; negative operating leverage.
• High non-operating income ratio (25.5%) and net extraordinary gains (~1.89) flattered PBT.
• Limited data on capex/investing CF obscures FCF and dividend coverage visibility.
• Asset turnover is low (0.323), weighing on capital efficiency.

Investment Implications

Key Takeaways:

• Top-line growth (+18.7% YoY) did not translate into profits; OP -17.6% YoY and margin down to 2.96%.
• Net margin fell to 3.43% (~-199 bps YoY), with PBT aided by non-operating and extraordinary gains.
• Earnings quality is good this quarter (OCF/NI 1.91x), supporting liquidity and deleveraging.
• Balance sheet is liquid (current ratio 213%, quick 202%) and leverage moderate (D/E 0.83x).
• Capital efficiency is weak (ROIC 1.0%, ROE 2.0%); improving margins and turnover are essential.
• Payout ratio of 71.2% is elevated given declining earnings and low ROE.

Metrics to Watch:

• Operating margin and gross margin trajectory (pricing vs input costs).
• SG&A to sales ratio and cost reduction progress.
• Order backlog/book-to-bill and segment mix to assess revenue sustainability.
• OCF/NI ratio and working capital trends (AR and inventories turnover).
• Capex and investing CF to gauge FCF and dividend coverage.
• Short-term debt levels and interest coverage amid rate environment.
• ROIC improvement relative to 7–8% target range typical for industrial peers.

Relative Positioning: Within Japanese industrial instrument/equipment peers, the company shows above-peer revenue growth momentum but below-peer profitability and capital efficiency, offset by strong liquidity and manageable leverage; near-term performance hinges on reversing margin compression.

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