TOKYO KEIKI INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥24.43B
• Operating Income: ¥722M
• Net Income: ¥32M
• 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

Tokyo Keiki (7721) delivered strong top-line growth in FY2026 Q2, with revenue up 18.7% YoY to ¥24.43bn, but profitability compressed as operating income declined 17.6% YoY to ¥0.72bn. The operating margin was a modest 3.0%, indicating cost pressure and/or an unfavorable mix despite revenue momentum. Gross profit of ¥5.09bn implies a 20.9% gross margin, which is reasonable for a project/solution-heavy industrial portfolio but leaves limited buffer for SG&A inflation. Ordinary income of ¥0.83bn exceeded operating income, suggesting positive non-operating contributions (e.g., financial income or FX) partially cushioning the margin drag. Net income of ¥0.84bn (-24.7% YoY) translates to a 3.44% net margin, with an effective tax rate near 0% for the half, likely reflecting mid-term timing and credit effects rather than a structural tax level. DuPont decomposition shows ROE at 2.03%, driven by a low asset turnover of 0.323 and moderate financial leverage of 1.83; margin weakness is currently the key constraint on returns. Liquidity is strong: current ratio 233.5% and quick ratio 222.9%, supported by ¥56.19bn in current assets versus ¥24.06bn current liabilities. Solvency is sound with debt-to-equity at 0.86x and robust interest coverage of 12.9x, indicating ample capacity to service debt at current earnings levels. Cash conversion is the soft spot this half: operating cash flow was -¥1.98bn, equating to an OCF/NI ratio of -2.36, pointing to a substantial working capital build consistent with project growth. Inventories are comparatively low at ¥2.56bn, implying that receivables/contract assets and other current items likely drove the OCF shortfall. Free cash flow is not computable from disclosed data (investing CF unreported); therefore, we cannot confirm organic funding capacity this half. Balance sheet strength (equity ¥41.39bn, assets ¥75.60bn) provides resilience to near-term cash flow volatility. Dividend data are not disclosed; thus payout and FCF coverage cannot be assessed, but the company’s solid liquidity and leverage profile suggest flexibility subject to 2H cash conversion. Overall, revenue execution is solid, but the investment case hinges on recovering operating margins and normalizing cash conversion in 2H. Data gaps (e.g., cash balance, investing CF, share data) limit precision; conclusions focus on reported non-zero metrics.

Profitability Analysis

ROE at 2.03% is explained by: Net margin 3.44% × Asset turnover 0.323 × Financial leverage 1.83. The main drag is operating margin at 2.96% (¥0.72bn/¥24.43bn), despite a fair 20.9% gross margin; this suggests elevated SG&A, pricing lag, or mix effects in project-heavy segments. EBITDA of ¥1.21bn (4.9% margin) implies D&A of ¥0.48bn, so non-cash charges are meaningful but not excessive. Ordinary income (¥0.83bn) above operating income indicates supportive non-operating items, offsetting some operating pressure. Interest burden is low (¥56m), with 12.9x coverage providing cushion. Margin quality: gross margin supports profitability, but operating leverage is currently negative—expenses grew faster than gross profit, compressing operating margin vs prior-year Q2 (YoY OI -17.6%). Scale benefits from revenue growth did not translate into margin expansion this half, implying either cost inflation (materials/wages), delivery timing that defers revenue recognition to later periods, or mix toward lower-margin projects. For ROE to improve, either asset turnover needs to rise (through faster project completion/collection) or operating margin must recover.

Growth Assessment

Revenue growth of +18.7% YoY evidences healthy demand and/or strong order execution across core businesses. However, profit growth lagged materially, with operating income down 17.6% YoY and net income down 24.7% YoY, indicating that growth was not accretive to margins this half. The disparity suggests project timing, cost passthrough lags, or a shift toward lower-margin deliveries. Sustainability: backlog-driven businesses can sustain revenue if book-to-bill remains >1, but backlog and orders were not disclosed, limiting visibility. Profit quality: ordinary income outpacing operating income implies some non-operating support; recurring profit sustainability depends on operating margin recovery rather than financial items. Outlook hinges on 2H seasonality and cash conversion; if receivables/contract assets unwind, margin and OCF could improve with higher revenue recognition and completion milestones. Key growth enablers include stabilized input costs, pricing actions, and improved operating efficiency; risks include continued cost inflation and potential delivery delays.

Financial Health

Liquidity is strong: current ratio 233.5% (¥56.19bn/¥24.06bn) and quick ratio 222.9% reflect ample current asset coverage of obligations. Working capital is sizeable at ¥32.13bn, supporting ongoing project execution but tying up cash in the short term. Solvency is sound with debt-to-equity at 0.86x; leverage is moderate given equity of ¥41.39bn against total assets of ¥75.60bn (implied financial leverage 1.83x). Interest coverage is robust at 12.9x, suggesting limited refinancing risk under current conditions. The reported equity ratio of 0.0% is an undisclosed metric rather than zero; based on reported balances, the implicit equity ratio is healthy (~54.7%). Overall balance sheet strength offsets interim cash flow volatility.

Cash Flow Quality

Operating CF of -¥1.98bn versus net income of ¥0.84bn yields an OCF/NI ratio of -2.36, indicating weak cash conversion this half. With inventories at only ¥2.56bn, the OCF weakness likely stems from increases in receivables/contract assets or other working capital (details not disclosed). D&A of ¥0.48bn supports underlying cash earnings (EBITDA ¥1.21bn), but working capital outflows dominated. Investing CF is undisclosed (0 reported), so free cash flow cannot be reliably calculated; the provided FCF figure (0) reflects missing data, not a true zero. Financing CF of +¥3.39bn suggests the company raised capital (debt or other) to fund working capital and operations pending cash inflows. Earnings quality appears acceptable on an accrual basis, but cash flow quality is presently weak due to timing; normalization depends on collection and project milestone receipts in 2H.

Dividend Sustainability

Dividend data are not disclosed for the period (DPS reported as 0.00 indicates missing data). With net income positive and leverage moderate, the balance sheet could theoretically support dividends, but negative OCF this half reduces near-term cash distribution capacity absent 2H recovery. Payout ratio and FCF coverage cannot be computed from available data; thus, no conclusion on sustainability can be drawn. Typical Japanese dividend policies emphasize stability; the company’s ability to maintain or grow dividends will depend on recovering operating margin and converting backlog to cash in 2H.

Risk Assessment

Business Risks:

• Margin pressure from input cost inflation and wage increases not fully offset by pricing
• Project timing and mix risk causing uneven revenue recognition and margins
• Dependence on large projects with milestone-based cash inflows, leading to volatile OCF
• Potential delays in customer acceptances or supply chain disruptions
• Exposure to cyclical industrial and defense-related demand fluctuations

Financial Risks:

• Negative operating cash flow driven by working capital build
• Reliance on financing inflows (+¥3.39bn) to bridge operating cash shortfall
• Potential receivables/contract asset concentration increasing credit and collection risk
• Interest rate risk on floating-rate debt, though interest burden currently low

Key Concerns:

• Operating margin compression despite strong revenue growth
• Weak cash conversion (OCF/NI -2.36) vs accrual earnings
• Lack of disclosed investing CF and cash balance, limiting FCF visibility

Investment Implications

Key Takeaways:

• Top-line growth is strong (+18.7% YoY), but profitability lagged with OPM ~3.0%
• ROE is low at 2.03%, constrained by margin pressure and low asset turnover
• Liquidity and solvency are solid (current ratio 233.5%, D/E 0.86x, interest coverage 12.9x)
• Cash flow is the near-term weak point (OCF -¥1.98bn), likely due to working capital timing
• Non-operating items supported ordinary profit; sustainable improvement requires OPM recovery

Metrics to Watch:

• Order backlog and book-to-bill (not disclosed) to gauge revenue sustainability
• Operating margin trajectory and SG&A ratio in 2H
• Working capital movements: receivables/contract assets and collections
• Cash conversion (OCF/NI) and free cash flow as investing CF is disclosed
• Pricing passthrough vs input cost trends and wage inflation
• Interest-bearing debt levels and funding mix after +¥3.39bn financing CF

Relative Positioning: Within Japan’s industrial instruments/equipment peers, Tokyo Keiki shows above-average revenue growth but below-peer mid-cycle margins and low interim ROE, counterbalanced by strong liquidity and acceptable leverage; execution on margin recovery and cash conversion will determine convergence toward peer profitability.

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
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