TOKYO SEIMITSU (7729) FY2027 Q1 Earnings Report

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Executive Summary

Led by the core Semiconductor Manufacturing Equipment Business, the Company posted higher revenue and profits, accompanied by improved profit margins. Revenue was ¥36.72B (¥30.88B in the prior year, +18.9%), while operating income was ¥5.92B (¥4.58B in the prior year, +29.2%), resulting in an operating margin of 16.1%, an improvement of 1.3pt from 14.8% in the prior year. Ordinary income was ¥6.43B (+44.1%), while net income attributable to owners of the parent was ¥4.67B (¥3.23B in the prior year, +44.5%), representing profit growth exceeding the rate of revenue growth. The primary drivers of profit growth were higher gross margins resulting from improved pricing and product mix and enhanced productivity in the Semiconductor Manufacturing Equipment segment. The shift from a foreign exchange loss to a foreign exchange gain in non-operating items also supported growth at the ordinary income level.

Factors Affecting Results

【Revenue】Revenue of ¥36.72B (+18.9%) was driven by the core Semiconductor Manufacturing Equipment segment, which generated ¥28.51B (+21.1%) and accounted for 77.7% of total Company revenue. The Metrology Business segment grew to ¥8.20B (+11.8%), although its growth rate was below that of the core business. Contract liabilities (customer advances) increased to ¥10.37B (¥6.49B in the prior year, +60.0%), indicating that the order backlog is building.

【Profit and Loss】Operating income of ¥5.92B (+29.2%) was primarily attributable to an improvement in the gross margin to 41.9% (up +1.8pt from 40.2% in the prior year), which absorbed the increase in the SG&A ratio to 25.8%. Ordinary income of ¥6.43B (+44.1%) benefited from the prior-year foreign exchange loss (▲¥0.15B) turning into a foreign exchange gain of ¥0.16B in the current period. However, the scale of non-operating income and expenses itself remained limited at approximately 1.4% of revenue, with growth in core operating income serving as the main driver. Extraordinary income and expenses were virtually absent (extraordinary income of ¥0.003B), indicating that the substance of profit growth was based on the core business. Accordingly, the results can be characterized as a margin-improvement-driven earnings performance, with both revenue and profit growth and a profit growth rate exceeding the revenue growth rate.

Segment Analysis

The Semiconductor Manufacturing Equipment segment generated revenue of ¥28.51B (+21.1%), operating income of ¥5.41B (+34.2%), and an operating margin of 19.0% (improved from 17.1% in the prior year), accounting for approximately 91.4% of total Company operating profit and serving as the primary engine of revenue and profit growth. The Metrology Business segment secured revenue growth to ¥8.20B (+11.8%), but operating income declined to ¥0.51B (-6.9%), with its operating margin remaining at 6.2% (down from 7.5% in the prior year). The difference in profit margins between the two segments (19.0% versus 6.2%) is substantial, indicating a structure in which the Company-wide margin depends on the pace of revenue growth in the Semiconductor Manufacturing Equipment segment. If profitability in the Metrology Business improves, this could provide upside potential for the Company-wide profit margin.

Key Financial Metrics

【Profitability】The operating margin improved to 16.1% (up +1.3pt from 14.8% in the prior year), the gross margin improved to 41.9% (up +1.8pt from 40.2% in the prior year), and the net margin attributable to owners of the parent improved to 12.7% (up +2.3pt from 10.5% in the prior year). 【Cash Quality】Comprehensive income was ¥5.31B, consisting of net income attributable to owners of the parent of ¥4.67B plus other comprehensive income of ¥0.57B, including foreign currency translation adjustments of +¥0.29B and valuation differences on available-for-sale securities of +¥0.35B. The difference from net income was small, indicating that earnings quality was generally sound. 【Investment Efficiency】Quarterly, non-annualized ROE was 2.5%, while the total asset turnover ratio was 0.146 times (quarterly), both at low levels. The accumulation of work-in-process inventory associated with long-term made-to-order equipment production is suppressing asset efficiency. 【Financial Soundness】The equity ratio was 76.4% (slightly down from 77.0% in the prior year). Interest-bearing debt was limited to ¥7.80B (short-term ¥1.30B and long-term ¥6.50B) against cash and deposits of ¥59.92B, while the current ratio was 341% (current assets of ¥174.56B / current liabilities of ¥51.14B), indicating a strong financial foundation.

Cash Flow Analysis

As the cash flow statement has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased by +¥6.85B (+12.9%) from the prior year to ¥59.92B, strengthening liquidity. This appears to reflect the cash collection and customer advance effects arising from the reduction in accounts receivable and notes receivable to ¥32.22B from ¥42.52B in the prior year, a decrease of -¥10.31B (-24.2%), and the increase in contract liabilities (customer advances) to ¥10.37B, up +¥3.89B (+60.0%). Meanwhile, work-in-process inventory increased by +¥5.27B (+13.0%) to ¥45.64B, resulting in funds being tied up in investment associated with the progress of long-lead-time equipment projects. Long-term borrowings decreased by -¥1.50B (-18.8%) to ¥6.50B from ¥8.00B in the prior year, indicating that interest-bearing debt reduction is progressing alongside the increase in cash. Overall, the accumulation of customer advances and collection of accounts receivable are supporting cash generation, while the increase in work-in-process inventory is slowing cash turnover. The progress of converting WIP into cash as orders are completed will determine future capital efficiency.

Earnings Quality

Profit growth in the current period was almost entirely derived from the core business, and earnings quality can generally be assessed as sound. The ¥1.76B difference between ordinary income of ¥6.43B and net income attributable to owners of the parent of ¥4.67B can be explained by income taxes of ¥1.70B and net income attributable to non-controlling interests of ¥0.07B, with no unusual adjustment factors identified. Non-operating income of ¥0.58B (including dividend income of ¥0.05B, foreign exchange gains of ¥0.16B, and gains on investment business partnerships of ¥0.05B) was limited to 1.6% of revenue. The increase in ordinary income therefore reflects operating income growth (+29.2%) supplemented by a modest non-operating tailwind. Extraordinary items consisted only of extraordinary income of ¥0.003B and had no material impact, indicating that profit growth was not driven by temporary factors. Comprehensive income of ¥5.31B was close to net income of ¥4.67B, and fluctuations in other comprehensive income, such as foreign currency translation adjustments and valuation differences on securities, were limited. From an accrual perspective as well, no signs were identified that would undermine earnings sustainability.

Earnings Forecast and Guidance

The full-year earnings forecast is revenue of ¥189.00B (+13.3%), operating income of ¥44.00B (+30.4%), and ordinary income of ¥44.00B (+26.3%). As of this disclosure, revisions have been made to both the earnings forecast and the dividend forecast. The Q1 progress rates were 19.4% for revenue, 13.5% for operating income, 14.6% for ordinary income, and 15.2% for net income (attributable to owners of the parent, versus the full-year plan of ¥30.80B), all below the 25% benchmark for simple quarterly straight-line progress. In the equipment business, acceptance inspections and mass-production ramp-ups tend to be weighted toward the second half. The 60.0% year-on-year increase in contract liabilities (customer advances) can be viewed as a leading indicator of the depth of orders supporting revenue recognition in the second half. The key issue going forward will be determining whether the apparently low progress rates are merely due to timing differences within the fiscal year or reflect a structural downside.

Shareholder Returns

The full-year dividend forecast is ¥304 per share, implying an expected payout ratio of approximately 40.1% (¥304 ÷ ¥758.83) against the full-year EPS forecast of ¥758.83. Interest-bearing debt was limited to ¥7.80B against cash and deposits of ¥59.92B, resulting in net cash of ¥52.12B. From the perspective of securing funds for dividends, the Company therefore has substantial financial support. The dividend forecast was revised in this disclosure, which may reflect a revision incorporating the profit growth recorded in Q1. Going forward, cash generation from operating activities as orders are completed will be a factor determining the stability of dividend funding throughout the full year.

Risk Factors

1. Segment concentration risk: The Semiconductor Manufacturing Equipment segment accounts for 77.7% of revenue (¥28.51B/¥36.72B) and 91.4% of operating income (¥5.41B/¥5.92B), creating a structure in which fluctuations in semiconductor-related capital investment trends are likely to affect overall results.

2. Working capital efficiency: Work-in-process inventory of ¥45.64B accounts for 62.5% of total inventories (approximately ¥73.02B, comprising raw materials, work-in-process, and finished goods), while accounts receivable and notes receivable of ¥32.22B are equivalent to 87.7% of quarterly revenue. These figures reflect the long order-to-acceptance cycle for made-to-order equipment, making the time lag before cash conversion an item requiring monitoring.

3. Foreign exchange sensitivity: The foreign exchange gain of ¥0.16B included in non-operating income represented a reversal from the foreign exchange loss in the prior year and supported part of the +44.1% growth in ordinary income. Although specific sensitivity data has not been disclosed, given the characteristics of the equipment business, which is believed to have a certain level of overseas project exposure, fluctuations in the yen exchange rate could affect future non-operating income and expenses.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net margin significantly exceed the industry median, placing the Company among the higher-performing companies in the industry in terms of profitability.

Growth and Capital Efficiency

The revenue growth rate also significantly exceeds the industry median, placing the Company among the industry’s leading group in terms of growth.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. Revenue and profit growth in the Semiconductor Manufacturing Equipment segment and the expansion of its operating margin to 19.0% led the improvement in the Company-wide profit margin. Contract liabilities (customer advances) increased to ¥10.37B (¥6.49B in the prior year, +60.0%), attracting attention as a leading indicator of order depth.

2. The full-year progress rates of 19.4% for revenue and 13.5% for operating income were below simple quarterly straight-line progress of 25%. However, the equipment business may be weighted toward the second half due to concentrated acceptance inspections, and the evaluation of progress rates should account for quarterly seasonality.

3. With an equity ratio of 76.4%, cash and deposits of ¥59.92B against interest-bearing debt of ¥7.80B, and a high level of financial soundness, the funds for the full-year dividend forecast of ¥304 (expected payout ratio of approximately 40.1%) appear to be secured.

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 of any specific investment action.

Sensitivity: ¥5,892–¥6,241 at ±1% for the cost of equity, and ¥6,029–¥6,113 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not forecast 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 summary data. It does not recommend investment in any specific issue. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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AI Financial Analysis

Executive Summary

Tokyo Seimitsu delivered a strong FY2027 Q1 earnings result, with revenue growth translating into faster operating and net-profit growth. Revenue rose 18.9% YoY to ¥36.72bn. Operating income increased 29.2% to ¥5.92bn, lifting the operating margin by 128bp to 16.1%. Gross profit rose 24.1% to ¥15.40bn and the gross margin improved by 176bp to 41.9%. SG&A expenses increased 21.1% to ¥9.48bn, slower than gross-profit growth but modestly faster than revenue, resulting in a 48bp rise in the SG&A-to-sales ratio to 25.8%. The positive operating leverage nevertheless remained clear because revenue growth and gross-margin expansion more than absorbed the higher fixed-cost base. Ordinary income grew 44.1% to ¥6.43bn, outpacing operating income due to a ¥0.58bn non-operating income contribution. Foreign-exchange gains of ¥0.16bn and subsidy income of ¥0.20bn supported non-operating profit, while interest expense was limited to ¥0.07bn. Net income attributable to owners rose 44.5% to ¥4.67bn, and net margin expanded 225bp YoY to 12.7%. The effective tax rate was 26.4%, producing a normal tax burden factor of 0.725. Semiconductor manufacturing equipment was the core business, generating ¥28.52bn of revenue and ¥5.41bn of segment profit. The measurement equipment segment expanded revenue to ¥8.20bn but segment profit declined to ¥0.51bn, pointing to segment-level margin pressure. The balance sheet remains highly liquid, with ¥59.93bn of cash and a 341.3% current ratio. The principal operational watchpoint is working-capital intensity, reflected in an 80-day DSO, 313-day DIO, and a 350-day cash conversion cycle. Q1 revenue progress against the full-year plan was 19.4%, while operating-income progress was 13.5%, below the standard 25% quarterly run rate. The full-year forecast therefore requires substantial earnings acceleration through the remaining quarters, although management has disclosed forecast and dividend revisions. The FY2027 full-year dividend forecast of ¥304 per share implies a dividend payout ratio of approximately 40.1% against forecast EPS of ¥758.83, leaving room for retained investment and balance-sheet resilience.

Profitability Analysis

Annualized DuPont ROE is 9.7%, comprising a 12.7% net profit margin, 0.584x annualized asset turnover, and 1.31x financial leverage. Profitability is principally driven by a high net margin rather than balance-sheet leverage, consistent with the company's net-cash financial structure. The largest positive earnings change was margin-led: operating margin increased to 16.1% from 14.8% in the prior-year quarter, while net margin increased to 12.7% from 10.5%. Gross-margin expansion to 41.9% from 40.2% was the key operating driver, indicating favorable sales mix, pricing, production efficiency, or a combination thereof. SG&A rose 21.1%, above the 18.9% revenue increase, and should be monitored because continued expense growth above sales growth could eventually moderate operating leverage. However, the 29.2% growth in operating income demonstrates that the current gross-profit expansion more than offset the increase in SG&A intensity. Semiconductor manufacturing equipment posted a segment margin of 19.0%, up from 17.1% a year earlier, and accounted for 91.4% of consolidated operating income. Measurement equipment recorded a segment margin of 6.2%, down from 7.5%, despite 11.8% sales growth, making this the principal segmental profitability concern. The 5-factor DuPont tax burden of 0.725 is normal, while the interest burden of 1.087 reflects net non-operating income rather than debt-service pressure. Interest coverage was exceptionally strong at 91.1x. The JGAAP goodwill balance is immaterial at ¥0.18bn, or 0.1% of equity, so goodwill amortization and impairment risk do not materially distort reported operating or net profit.

Growth Assessment

Revenue growth was broad-based across both reportable segments. Semiconductor manufacturing equipment revenue grew 21.1% YoY to ¥28.52bn, materially above consolidated growth, confirming that it is the dominant growth engine. Its segment profit increased 34.2% to ¥5.41bn, with segment-margin expansion of 186bp. Measurement equipment revenue grew 11.8% to ¥8.20bn, but segment profit declined 6.9% to ¥0.51bn, implying that volume growth has not yet converted into incremental earnings in that business. Consolidated gross-profit growth of 24.1% exceeded revenue growth by 5.2 percentage points, supporting the sustainability of the current operating-profit improvement if product mix and manufacturing execution remain favorable. Net-income growth of 44.5% exceeded operating-income growth, but part of that outperformance was supported by non-operating income, including FX gains and subsidy income. Extraordinary income was only ¥0.03bn and therefore did not materially affect earnings quality. Against full-year guidance of ¥189.0bn in sales and ¥44.0bn in operating income, Q1 progress was 19.4% for sales and 13.5% for operating income. Sales progress is 5.6 percentage points below a standard 25% Q1 run rate, while operating-income progress is 11.5 percentage points below it. The operating-income shortfall versus the standard progress rate requires a stronger margin and volume contribution in subsequent quarters. Full-year guidance calls for 13.3% sales growth and 30.4% operating-income growth, implying that management expects further operating-margin expansion from the FY2026 base. Semiconductor capital-equipment demand, customer capital-expenditure timing, and the recovery of profitability in measurement equipment will be central to achieving that profile.

Financial Health

Financial health is robust. Current assets of ¥174.56bn exceeded current liabilities of ¥51.14bn by ¥123.42bn, producing a 341.3% current ratio and a 334.7% quick ratio. Cash and deposits of ¥59.93bn alone were 46.1x short-term loans of ¥1.30bn. Interest-bearing debt totaled ¥7.80bn, consisting of ¥1.30bn of short-term loans and ¥6.50bn of long-term loans. Interest-bearing debt represented only 4.1% of total equity and debt/capital was 3.9%, indicating conservative financial leverage. The reported debt-to-equity ratio of 0.31x remains well below the 2.0x risk threshold. Short-term debt represented 16.7% of total interest-bearing debt, and current assets far exceed short-term funding needs, so maturity-mismatch risk is limited. Total liabilities accounted for only 23.6% of total assets, while owners' equity was ¥190.13bn. Contract liabilities rose 60.0% YoY to ¥10.37bn, providing customer-funded operating liquidity but also increasing the execution obligation associated with future delivery. Asset retirement obligations were ¥0.11bn, or approximately 0.2% of total liabilities, and are not material to solvency. Equity declined modestly by 0.4% YoY, despite quarterly profitability, while accumulated other comprehensive income increased to ¥8.81bn.

Notable B/S Changes

Contract liabilities: +¥3.89bn (+60.0% YoY) to ¥10.37bn - increased customer advances support liquidity but raise the scale of delivery and project-execution obligations. Provision for bonuses: +¥2.03bn (+58.8% YoY) to ¥5.48bn - reflects a higher accrued personnel-cost obligation and should be assessed against subsequent revenue and profit conversion. Electronically recorded monetary claims: +¥1.79bn (+33.4% YoY) to ¥7.14bn - partly offsets the decline in trade receivables and remains relevant to collection-cycle monitoring. Work in process: +¥5.27bn (+13.1% YoY) to ¥45.64bn - the large absolute WIP balance underpins the high inventory days and increases execution and inventory-conversion risk. Long-term loans: -¥1.50bn (-18.8% YoY) to ¥6.50bn - further strengthens an already conservative funding profile.

Cash Flow Quality

Working-capital efficiency is the principal cash-conversion concern. The quality alert for an 80-day DSO indicates slower-than-benchmark conversion of customer receivables into cash, relative to the manufacturing benchmark of below 45 days. This is partly contextualized by the company's project-oriented semiconductor manufacturing equipment business, where milestone billing and customer acceptance can lengthen collection cycles, but the elevated DSO can still delay conversion of reported revenue into operating cash. The 313-day DIO materially exceeds the 90-day manufacturing warning threshold. Inventory is concentrated in work in process, which amounted to ¥45.64bn and represented 62.5% of manufacturing inventory. The high WIP ratio exceeds the 40% warning level and may indicate long production lead times, production bottlenecks, customer-specific build schedules, or elevated unfinished-system inventory. Raw materials were ¥23.98bn and finished goods were ¥3.39bn, indicating that the inventory risk is predominantly tied to in-process production rather than unsold finished goods. The reported 350-day cash conversion cycle is substantially above the 120-day warning level, combining extended collection timing with a very long production cycle. Trade payables of ¥9.98bn and electronically recorded obligations of ¥8.67bn provide some supplier financing, but they do not offset the scale of receivables and WIP tied up in operations. The YoY reduction in trade receivables to ¥32.22bn from ¥42.52bn is favorable, although electronically recorded monetary claims increased to ¥7.14bn from ¥5.35bn. Sustained reduction in WIP and improvement in collection days would be important evidence that reported margin gains are translating into stronger cash conversion.

Dividend Sustainability

The full-year dividend forecast is ¥304 per share. Based on forecast EPS of ¥758.83, the implied dividend payout ratio is approximately 40.1%, below the 60% sustainability benchmark. Forecast dividends therefore appear appropriately covered by forecast earnings of ¥30.80bn. The conservative capital structure supports financial flexibility, with ¥59.93bn of cash against ¥7.80bn of interest-bearing debt. The balance sheet can absorb ordinary investment requirements without reliance on incremental leverage. The payout framework leaves approximately 60% of forecast earnings available for reinvestment, working-capital funding, balance-sheet reserves, and potential shareholder-return flexibility. Dividend sustainability will nevertheless be linked to delivery of the full-year earnings plan, given Q1 operating-income progress of 13.5% against the full-year forecast.

Risk Assessment

Business risks include Semiconductor capital-equipment cyclicality is the highest business risk because the semiconductor manufacturing equipment segment generates 77.7% of revenue and 91.4% of operating income. Customer fab-investment deferrals or weaker advanced-node demand would have a disproportionate effect on consolidated earnings., Measurement equipment margin risk is material: segment revenue increased 11.8% YoY, but segment profit decreased 6.9% and margin fell to 6.2% from 7.5%. Continued cost inflation, unfavorable mix, or pricing pressure could constrain the segment's recovery., HIGH_WIP_RATIO alert: WIP represents 62.5% of inventory, above the 40% warning threshold. Long production cycles and complex system assembly can be normal for semiconductor equipment, but the concentration raises exposure to production delays, specification changes, cancellation risk, and cost overruns., HIGH_INVENTORY_DAYS alert: DIO of 313 days is well above the 90-day warning threshold. The likely root cause is the long build cycle and large WIP base; the impact is higher obsolescence, demand-revision, and inventory-valuation risk if customer investment conditions weaken., Foreign-exchange exposure contributed a ¥0.16bn gain in Q1. This was modest at 2.7% of operating income, but exchange-rate reversals can affect non-operating profit and the competitiveness of exported capital equipment..

Financial risks include HIGH_RECEIVABLE_DAYS alert: DSO of 80 days exceeds the 60-day warning threshold. Project billing and acceptance timing may explain part of the elevation, but slower collections increase operating-cash volatility and counterparty exposure., LONG_CCC alert: the 350-day cash conversion cycle exceeds the 120-day warning threshold. This is the combined consequence of elevated DSO and DIO, and it increases the amount of capital required to support growth., Contract liabilities of ¥10.37bn increased 60.0% YoY. These customer advances support liquidity, but they also create delivery, acceptance, and execution obligations that can affect revenue timing if projects are delayed., Debt-servicing risk is low: debt/capital is 3.9%, cash covers short-term debt by 46.1x, and interest coverage is 91.1x. The financial-risk profile is therefore primarily working-capital driven rather than leverage driven..

Key concerns include The highest-priority monitoring item is whether WIP, DIO, DSO, and the cash conversion cycle decline as semiconductor manufacturing equipment shipments progress., The second priority is the conversion of measurement equipment sales growth into restored segment-margin expansion., The third priority is execution against full-year guidance, as Q1 sales progress was 19.4% and operating-income progress was 13.5%, with the latter more than 10 percentage points below a standard Q1 progress rate., The company has low M&A balance-sheet risk: goodwill is only ¥0.18bn, equivalent to 0.1% of equity, so impairment is not a material investment-thesis risk..

Investment Implications

Key takeaways include Revenue, operating income, and net income grew 18.9%, 29.2%, and 44.5% YoY, respectively, demonstrating strong Q1 momentum., Operating margin improved to 16.1%, above the 15% excellent-profitability benchmark, led by gross-margin expansion and strong semiconductor manufacturing equipment profitability., Semiconductor manufacturing equipment is the core earnings engine, while measurement equipment requires margin recovery., The company combines a conservative capital structure with substantial cash resources, limiting leverage-related downside., Working-capital intensity is the central operating risk, particularly the 313-day DIO, 80-day DSO, 350-day CCC, and WIP concentration..

Metrics to watch include Semiconductor manufacturing equipment segment revenue growth and segment margin, Measurement equipment segment margin versus the Q1 level of 6.2%, Operating-income progress relative to the ¥44.0bn full-year forecast, DSO of 80 days and the balance of trade and electronic receivables, DIO of 313 days, WIP balance of ¥45.64bn, and WIP share of inventory, Cash conversion cycle of 350 days, Contract liabilities and the timing of conversion into revenue.

Regarding relative positioning, Tokyo Seimitsu exhibits an attractive profitability and balance-sheet profile for a Japanese precision manufacturing and semiconductor-equipment supplier: operating margin is 16.1%, annualized ROE is 9.7%, leverage is low, and goodwill exposure is immaterial. Relative differentiation is supported by the 19.0% segment margin in semiconductor manufacturing equipment. The offset is unusually capital-intensive working-capital absorption, with inventory concentrated in WIP and a cash conversion cycle far above conventional manufacturing benchmarks.