TOKYO SANGYO CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The key point for the quarter was that, despite declines in revenue and operating income, Ordinary Income increased as a result of higher non-operating income. Revenue was ¥15.06B, down -1.5% year on year, while Operating Income was ¥0.48B, down -19.2%, with the decline widening. In contrast, Ordinary Income turned to growth at ¥0.92B, up +2.2% year on year. Net Income was ¥0.49B, down -19.3%, as the high effective tax rate weighed on bottom-line profit. The primary causes of the earnings decline were the Environmental, Chemicals and Machinery segment turning loss-making and an increase in SG&A expenses, while the increase in Ordinary Income was attributable to contributions from non-operating income, including dividend income and interest income.

Factors Affecting Earnings

【Revenue】Revenue was ¥15.06B, representing a year-on-year decline of -1.5%. By segment, the Electric Power Business secured revenue growth of ¥6.35B (+3.3%), while the Environmental, Chemicals and Machinery Business recorded ¥7.19B (-5.5%) and the Lifestyle Industry Business recorded ¥1.52B (-0.7%), both declining and weighing on the overall result. Revenue composition was approximately 48% for Environmental, Chemicals and Machinery, approximately 42% for Electric Power, and approximately 10% for Lifestyle Industry. The decline in the largest segment affected the company-wide top line.

【Profit and Loss】The gross margin improved to 17.2% from the previous year, but the SG&A ratio rose to 14.0%, causing the Operating Income margin to deteriorate to 3.2%. Operating Income consequently declined to ¥0.48B (-19.2%). The primary cause was the Environmental, Chemicals and Machinery segment falling into an Operating Loss of ¥0.38B (-249.1% year on year). Ordinary Income increased to ¥0.92B (+2.2%), supported by ¥0.54B in non-operating income, including ¥0.39B in dividend income. However, the effective tax rate rose to approximately 46.5%, resulting in a decline in Net Income to ¥0.49B (-19.3%). In conclusion, the company experienced declines in both revenue and profit.

Segment Analysis

The Electric Power Business independently drove company-wide profit, recording revenue of ¥6.35B (+3.3%), Operating Income of ¥0.80B (+25.4%), and a profit margin of 12.6%. The Environmental, Chemicals and Machinery Business recorded revenue of ¥7.19B (-5.5%) and fell into the red with an Operating Loss of ¥0.38B, compared with a profit of ¥0.06B in the same period of the previous year, causing its profit margin to deteriorate to -5.2%. The Lifestyle Industry Business was broadly flat but recorded a slight decline in profit, with revenue of ¥1.52B (-0.7%) and Operating Income of ¥0.06B (-11.4%). Profitability disparities among the segments have widened, with the high profitability of the Electric Power Business absorbing the losses of the Environmental, Chemicals and Machinery Business.

Key Financial Metrics

【Profitability】The Operating Income margin deteriorated to 3.2% from 3.9% in the previous year, while the Net Income margin also declined to 3.3%. Although the gross margin improved to 17.2% from the previous year, this improvement was offset by the rise in the SG&A ratio to 14.0%.【Cash Quality】Ordinary Income of ¥0.92B exceeded Operating Income of ¥0.48B, with the contribution from non-operating income reaching ¥0.44B, indicating a high degree of dependence on income outside the core business.【Investment Efficiency】ROE was 1.9%, while EPS was ¥18.93 (¥23.50 in the previous year), indicating that capital efficiency remains low.【Financial Soundness】The Equity Ratio improved to 30.2% from 24.7% in the previous year, strengthening the financial base year on year, although Total Assets declined to ¥86.81B.

Cash Flow Analysis

As the statement of cash flows has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥14.61B, a decrease of ¥4.77B from ¥19.37B in the previous year. Nevertheless, cash and deposits remained at 1.8 times the level of short-term borrowings of ¥8.04B, providing a certain degree of flexibility in near-term liquidity management. Accounts receivable declined significantly to ¥22.19B, while contract liabilities increased to ¥27.56B, indicating that the recording of advance payments for contracted projects and progress in revenue recognition are changing the working-capital structure. Accounts payable declined to ¥9.87B, and current liabilities overall also contracted, reducing short-term payment burdens from the previous year. As the company appears to have maintained its cash position while funding capital expenditures and dividend payments, its cash-generation capacity is estimated to have been secured to a certain extent despite the weakness in Operating Income.

Quality of Earnings

Ordinary Income of ¥0.92B exceeded Operating Income of ¥0.48B by ¥0.44B, primarily due to ¥0.54B in non-operating income, centered on ¥0.39B in dividend income. Non-operating income was equivalent to 3.6% of revenue, indicating that non-operating income is supplementing the low margins of the core business. No extraordinary gains or losses were recorded, and no temporary factors were identified. However, the effective tax rate rose substantially from the previous year to approximately 46.5%, widening the gap between Ordinary Income and Net Income. From an accrual perspective, the significant decline in accounts receivable and increase in contract liabilities suggest changes in the timing of revenue recognition and cash collection, indicating that the cash backing of earnings may be improving moderately.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year plan—Revenue of ¥63.00B, Operating Income of ¥2.50B, Ordinary Income of ¥2.50B, and Net Income of ¥1.70B—were 23.9% for Revenue, 19.4% for Operating Income, 37.0% for Ordinary Income, and 29.1% for Net Income. Compared with the standard progress rate of 25%, Operating Income was 5.6pt below the benchmark, indicating a noticeable delay, while Ordinary Income and Net Income were ahead of schedule. The delay in Operating Income was primarily attributable to the Environmental, Chemicals and Machinery segment’s losses and the increase in SG&A expenses, whereas the early progress in Ordinary Income was strongly influenced by non-operating income and has a temporary nature. The full-year Operating Income forecast already incorporates a year-on-year decline of -27.0%, and progress in improving the loss-making segment during the second half will determine performance against the plan. No revision to the earnings forecast has been made.

Shareholder Returns

The company’s full-year dividend forecast is ¥40.00, implying a Payout Ratio of approximately 61.5% based on forecast full-year EPS of ¥65.08. The previous year’s actual dividend was ¥19 (one of the interim or year-end installments; comparative figure as presented in the materials), suggesting an increase in the full-year dividend. No revision to the dividend forecast has been made. Cash and deposits of ¥14.61B and investment securities of ¥10.51B provide a certain buffer. However, given the low Operating Income margin and challenges in cash generation from the core business, the Payout Ratio should be reviewed together with progress in improving operating profitability. No disclosure regarding share repurchases has been identified.

Risk Factors

1. Concentration of segment profitability: The Environmental, Chemicals and Machinery Business fell into an Operating Loss of ¥0.38B (-249.1% year on year), becoming a burden on company-wide Operating Income of ¥0.48B. Dependence on the highly profitable Electric Power Business, which has a profit margin of 12.6%, is increasing.

2. Compression of Net Income due to high tax burden: The effective tax rate rose substantially from the previous year to approximately 46.5% (Profit Before Tax of ¥0.92B and income taxes of ¥0.43B), resulting in a -19.3% decline in Net Income despite growth in Ordinary Income.

3. Changes in financial leverage and working-capital structure: Although the Equity Ratio improved to 30.2%, dependence on current liabilities, including short-term borrowings of ¥8.04B, continues. Accounts receivable declined significantly to ¥22.19B, while contract liabilities increased to ¥27.56B, necessitating monitoring of changes in revenue recognition and credit management.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

The company’s profitability is below the industry median on both measures, placing its earnings power somewhat behind its industry peers.

Growth and Capital Efficiency

The Revenue Growth Rate was 4.6pt below the industry median, placing the company among the slower-growing businesses within the industry.

※Source: Company analysis

Key Earnings Highlights

1. The Electric Power Business independently drove company-wide profit with revenue of ¥6.35B and Operating Income of ¥0.80B (profit margin of 12.6%), while the Environmental, Chemicals and Machinery Business fell into the red. The widening profit disparity among segments is a key feature of the results.

2. Ordinary Income was supported by ¥0.44B from non-operating income, including ¥0.39B in dividend income, creating a significant divergence from the core business Operating Income margin of 3.2%. The effective tax rate also rose to 46.5%, making trends in core operating profitability and the tax rate important points of focus in assessing earnings quality.

3. Accounts receivable declined significantly to ¥22.19B, while contract liabilities increased to ¥27.56B, indicating a structural change in the timing of revenue recognition and cash collection. The Equity Ratio improved to 30.2%, warranting attention together with changes in the financial base.

Theoretical Share Price (Reference Value)

Sensitivity: ¥896–¥946 at ±1% for the Cost of Equity, and ¥918–¥922 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; therefore, there is a timing gap relative to the full-year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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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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