TOKYO KEIKI INC. FY2027 Q1 Earnings Report

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Executive Summary

Although revenue growth continued, the profitability of the core business remained weak. The key feature of the results was that the operating loss was offset by non-operating and extraordinary factors, securing a net profit. Revenue was ¥115.9B (+9.9% YoY), Operating Income was ¥-2.5B (improving from ¥-3.3B in the previous year), Ordinary Income was ¥-0.5B (¥-3.0B in the previous year), and Net Income (net income attributable to the period, including the portion attributable to non-controlling interests) was ¥0.0B (¥-2.0B in the previous year). Revenue growth was primarily driven by the expansion of Marine, Defense Systems, and Hydraulic Equipment, while non-operating income of ¥2.5B and extraordinary income of ¥1.0B (gain on the sale of investment securities) made a significant contribution to the return to net profitability.

Factors Affecting Results

【Revenue】Revenue was ¥115.9B, representing a +9.9% YoY increase. By segment, Defense Systems and Information & Communications (¥40.0B, +19.2%) and Marine (¥37.3B, +16.8%) led growth, while Hydraulic Equipment (¥28.7B, +6.0%) also contributed to the increase in revenue. Meanwhile, Flow Meters (¥7.2B, -12.7%) and Other Businesses (¥6.3B, -23.8%) posted declines, indicating variation in growth trends among businesses.

【Profit and Loss】The Operating Loss was ¥-2.5B, narrowing from ¥-3.3B in the previous year. The gross margin improved to 24.3% from 23.7% in the previous year, while the SG&A ratio also declined slightly to 26.5% from 26.8%. However, the structure in which gross profit remains below SG&A expenses continued. By segment, Marine led company-wide profit with Operating Income of ¥3.9B (10.5% margin), while Flow Meters (¥-2.2B, -30.1% margin) and Defense Systems (¥-1.2B, -3.0% margin) were loss-making factors. Non-operating income of ¥2.5B (including dividend income of ¥0.8B) and extraordinary income of ¥1.0B (gain on the sale of investment securities) raised the Ordinary Loss to ¥-0.5B, Profit Before Tax to ¥0.5B, and Net Income to ¥0.0B. In conclusion, the Company experienced revenue growth but lower profit, with the operating balance remaining in the red, while the increase in net profit depended on non-recurring factors.

Segment Analysis

Of the five segments, only Marine (¥3.9B, 10.5% margin) and Hydraulic Equipment (¥0.4B, 1.4% margin) secured Operating Income. Marine recorded double-digit YoY growth in both revenue and profit (revenue +16.8%, profit +27.0%) and served as the principal driver of company-wide profit. Defense Systems (revenue +19.2%, Operating Loss ¥-1.2B) remained loss-making despite higher revenue, but its loss narrowed from ¥-2.5B in the previous year, indicating an improving trend in profitability. Flow Meters (revenue -12.7%, Operating Loss ¥-2.2B, -30.1% margin) did not move toward either a revenue decline or an expansion of losses, but remained the least profitable business. Other Businesses (¥-3.0B) also experienced an expansion of losses. Improving the segment mix is key to improving company-wide Operating Income.

Key Financial Indicators

【Profitability】The Operating Margin was -2.1%, improving by approximately 1pt from -3.1% in the previous year, but remained negative. The improvement in the gross margin to 24.3% from 23.7% in the previous year partially offset the increase in SG&A expenses. The Net Profit Margin secured a marginal profit of 0.3%. 【Cash Quality】Extraordinary income of ¥1.0B exceeded Net Income of ¥0.0B, indicating a high degree of dependence on one-time factors for the period’s bottom-line profit. 【Investment Efficiency】ROE was 0.0%, indicating substantial room for improvement from a capital-efficiency perspective. Basic EPS was ¥1.90 (¥-10.75 in the previous year), marking a return to profitability, while BPS was ¥2,753.97, slightly down from ¥2,770.05 in the previous year. 【Financial Soundness】The Equity Ratio remained high at 56.1% (54.5% in the previous year). Current Assets of ¥533.9B compared with Current Liabilities of ¥249.5B indicate substantial liquidity; however, the fact that Short-Term Borrowings of ¥137.1B significantly exceed Cash and Deposits of ¥37.9B requires monitoring.

Cash Flow Analysis

Details of the statement of cash flows are limited within the disclosed scope. However, based on changes in the balance sheet, Cash and Deposits were ¥37.9B, down from ¥40.2B in the previous year. Accounts Receivable and Notes Receivable declined substantially YoY to ¥134.1B, suggesting progress in collections. Meanwhile, Work in Process increased to ¥184.3B, and Raw Materials also expanded to ¥96.0B, indicating a structure in which the accumulation of inventories and work in process is placing pressure on cash. Short-Term Borrowings remained substantial at ¥137.1B, indicating continued dependence on short-term funding. With operating losses continuing, reducing working capital will be key to improving future cash-generation capacity.

Quality of Earnings

The earnings structure for the period involved offsetting weak recurring profitability with non-recurring factors. Against an Operating Loss of ¥-2.5B, non-operating income of ¥2.5B (including dividend income of ¥0.8B and equity in net income of ¥0.2B) and extraordinary income of ¥1.0B (gain on the sale of investment securities) accumulated to produce Profit Before Tax of ¥0.5B and Net Income of ¥0.0B. Extraordinary income of ¥1.0B exceeded the amount of Net Income, indicating that the return to profitability for the period was highly dependent on one-time factors. Comprehensive Income was ¥3.6B (¥3.9B attributable to owners of the parent), exceeding Net Income, with a substantial contribution from the ¥5.2B valuation difference on securities. The divergence between Net Income and Comprehensive Income was primarily attributable to changes in the valuation of securities and does not reflect the earning power of the business activities themselves.

Earnings Forecast and Guidance

The Full-Year forecast is Revenue of ¥700.0B (+14.4% YoY), Operating Income of ¥70.0B (+30.6%), Ordinary Income of ¥70.7B (+28.7%), and forecast EPS of ¥328.61. Q1 progress was 16.6% for revenue, while Operating Income was negative and Net Income was minimal, below the simple one-quarter progress benchmark of 25%. The Company revised its earnings forecast during the quarter, and the concentration of deliveries in the second half and improvement in segment profitability are prerequisites for achieving the plan.

Shareholder Returns

The annual dividend forecast is ¥48.00, with no revision to the dividend forecast during the quarter. This represents a planned increase from the previous year’s dividend of ¥40. Based on the average number of shares outstanding during the period of approximately 16.43 million shares, the annual total dividend is estimated at approximately ¥7.9B. The Payout Ratio against the full-year Net Income forecast of ¥54.0B is approximately 14.6%, a conservative level on a plan basis. However, Operating Loss continued in Q1, and dividend sustainability depends on a recovery in performance from the second half onward.

Risk Factors

1. Segment earnings imbalance: Losses at Flow Meters (Operating Margin of -30.1%) and Defense Systems (-3.0%) offset the profit generated by Marine (10.5%), placing pressure on company-wide Operating Income.

2. Heavy reliance on short-term funding: Cash and Deposits of ¥37.9B compared with Short-Term Borrowings of ¥137.1B indicate a capital structure in which cash is substantially below short-term borrowings.

3. Low progress against the full-year plan: Revenue progress was 16.6% as of Q1, while Operating Income was negative, below the standard quarterly progress benchmark of 25%. Concentrated deliveries and margin improvement in the second half are prerequisites for achieving the plan.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability is substantially below the industry median, with both the Operating Margin and Net Profit Margin positioned below peers within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate exceeds the industry median, positioning top-line growth relatively favorably within the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. While revenue growth and gross margin improvement progressed, Operating Income remained negative, confirming a structure in which Net Income returned to profitability through reliance on non-operating income and extraordinary income.

2. By segment, Marine’s high profitability supports the Company as a whole, while correcting losses at Flow Meters and Defense Systems remains a challenge for improving core business profitability.

3. Q1 progress against the full-year plan was below the standard pace for both revenue and profit. The concentration of deliveries and progress in margin improvement toward the second half are points to monitor in future results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,924–¥3,101 at Cost of Equity ±1%, and ¥3,005–¥3,021 at ω±0.1.

Note:

• Net assets as of the quarter-end were used (there is a time lag relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / These are mechanically calculated values based solely on publicly disclosed data and do not constitute a forecast of market share prices or a recommendation of any specific investment action, nor do they 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 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 with a professional as necessary.

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