TOHO Co.,Ltd. FY2027 Q2 Earnings Report

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Executive Summary

The Company reported higher revenue and earnings this period, mainly driven by growth in the Distributor Business. However, the gross margin and operating margin declined slightly from the same period last year, indicating that revenue growth has not translated sufficiently into improved profitability. Revenue was ¥136.45B (+10.9% YoY), Operating Income was ¥3.70B (+7.0%), Ordinary Income was ¥3.77B (+8.1%), and Net Income attributable to owners of the parent was ¥2.37B (+32.3%). The strong growth in Net Income was primarily attributable to the reduction in extraordinary losses from ¥0.51B in the same period last year to ¥0.12B, and should be evaluated separately from the growth rate at the operating level.

Factors Affecting Performance

【Revenue】Revenue was ¥136.45B (+10.9% YoY), with the Distributor Business, which accounted for 78.7% of the revenue mix, leading overall growth at +13.6% YoY. Growth in the Cash & Carry Business (+1.6%) and Food Solutions Business (+2.6%) remained modest.

【Profit and Loss】Operating Income was ¥3.70B (+7.0% YoY), 3.9pt below the revenue growth rate. The gross margin declined to 18.8% (19.4% in the same period last year), while the operating margin declined to 2.7% (2.8% in the same period last year). SG&A expenses increased by +7.9% YoY, below the rate of revenue growth; therefore, the primary cause of the decline in profitability was not SG&A expenses but the decrease in the gross margin. Ordinary Income was ¥3.77B (+8.1% YoY), ¥0.07B above Operating Income, while Net Income increased to ¥2.37B (+32.3%) due to the reduction in extraordinary losses (¥0.51B → ¥0.12B). In conclusion, the Company achieved higher revenue and earnings.

Segment Analysis

The Distributor Business generated Revenue of ¥107.42B (+13.6% YoY), Operating Income of ¥3.02B (+19.7% YoY), and a 2.8% operating margin, serving as the primary driver of overall earnings growth. In contrast, the Cash & Carry Business generated Revenue of ¥22.41B (+1.6% YoY) and Operating Income of ¥0.53B (-18.7% YoY), while the Food Solutions Business generated Revenue of ¥6.62B (+2.6% YoY) and Operating Income of ¥0.13B (-50.6% YoY); both businesses reported lower earnings. In the Food Solutions Business, an impairment loss of ¥0.05B was recorded in the Cash & Carry Business, contributing to the deterioration in profitability. Dependence on the core business for earnings has increased, making the recovery of profitability in the two non-core businesses a key focus going forward.

Key Financial Metrics

【Profitability】The operating margin was 2.7% (2.8% in the same period last year), the net profit margin was 1.7% (1.5% in the same period last year), and the gross margin declined to 18.8% (19.4% in the same period last year). Annualized ROE was 13.0% (Equity Ratio: 36.2%), indicating a wholesale-type earnings structure in which a low net profit margin is offset by high total asset turnover and financial leverage. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥2.97B, equivalent to 1.25 times Net Income, indicating adequate cash support for earnings. However, the OCF conversion rate relative to EBITDA was comparatively weak, affected by increases in working capital (Accounts Receivable +¥1.89B, Inventories +¥1.60B). 【Investment Efficiency】Basic EPS increased substantially to ¥74.36 (¥55.78 in the same period last year, +33.3% YoY), boosted by the reduction in extraordinary losses. 【Financial Soundness】The Equity Ratio was 36.2% (35.7% in the same period last year), showing an improving trend. Cash and deposits of ¥10.41B exceeded and covered current maturities of long-term borrowings of ¥6.83B. Long-term borrowings were ¥10.42B, with financial leverage remaining within a manageable range.

Cash Flow Analysis

Operating Cash Flow was ¥2.97B, down -5.3% from ¥3.14B in the same period last year, indicating that cash generation from operations weakened slightly despite the increase in Net Income. The primary causes of the decrease were increases of ¥1.89B in Accounts Receivable and ¥1.60B in Inventories, partially offset by a ¥2.65B cash inflow from the increase in Accounts Payable. Investing Cash Flow was an outflow of ¥1.74B, mainly comprising ¥1.01B for the acquisition of property, plant and equipment and intangible assets and ¥0.64B for the acquisition of shares in subsidiaries. Financing Cash Flow was an outflow of ¥2.27B, primarily due to repayments of long-term borrowings of ¥4.26B and dividend payments of ¥0.80B, partially offset by new long-term borrowings of ¥3.00B. As a result, Free Cash Flow remained positive at ¥1.23B; however, cash and cash equivalents declined by ¥0.96B, indicating that working capital management during a period of revenue growth is influencing cash-generation capacity.

Earnings Quality

Ordinary Income exceeded Operating Income by ¥0.07B. However, both non-operating income (¥0.21B, including a ¥0.07B foreign exchange gain and ¥0.05B dividends received) and non-operating expenses (¥0.14B, including ¥0.11B in interest expenses) were small, and profit at the Ordinary Income level generally reflects operating performance. Extraordinary losses of ¥0.12B were recorded (including an impairment loss of ¥0.05B, disaster-related losses of ¥0.04B, and loss on disposal of fixed assets of ¥0.03B), a significant reduction from ¥0.51B in the same period last year. This was the primary cause of the high growth rate in Net Income attributable to owners of the parent (+32.3%). OCF was 1.25 times Net Income, indicating solid cash support for earnings; however, increases in Accounts Receivable and Inventories are placing pressure on working capital, and from an accrual perspective, attention should be paid to the increasing working capital burden associated with revenue growth. Comprehensive Income was ¥2.47B, slightly exceeding Net Income of ¥2.36B. The principal positive factor was an increase of ¥0.18B in valuation differences on securities, while the principal negative factor was an adjustment of -¥0.12B related to retirement benefits.

Earnings Forecast and Guidance

The full-year Company forecast calls for Revenue of ¥280.00B (+7.8% YoY), Operating Income of ¥8.20B (+4.4%), and Ordinary Income of ¥8.30B (+4.7%), and the earnings forecast was revised during the current quarter. First-half progress rates were 48.7% for Revenue, 45.1% for Operating Income, and 45.4% for Ordinary Income, all below the standard 50%, with the delay particularly evident at the Operating Income level. Achieving the full-year forecast will depend on maintaining or improving the gross margin in the second half and restoring profitability in the non-core businesses (Cash & Carry and Food Solutions).

Shareholder Returns

The Q2 dividend was ¥30.00 per share, while the full-year forecast dividend is ¥61.00 (including the impact of the stock split compared with the actual dividend for the previous fiscal year). The Payout Ratio based on the interim dividend was 41.8% (dividends paid ÷ Net Income). As no share repurchases were conducted, the Total Return Ratio and Payout Ratio are at the same level. Coverage of total interim dividends by Free Cash Flow of ¥1.23B was 1.24 times, indicating that the current-period dividend was funded within the range of FCF. The forecast Payout Ratio based on forecast EPS of ¥150.54 is approximately 40.5%, with the Company planning to maintain a level in the 40% range.

Risk Factors

1. Concentration in the core business: The Distributor Business accounts for 78.7% of Revenue and the majority of Operating Income, creating a structure in which demand trends and price competition in this business could have a significant impact on overall Company performance.

2. Low-margin structure: With a gross margin of 18.8% and an operating margin of 2.7%, the Company operates on thin margins. If increases in procurement prices, logistics costs, and personnel expenses cannot be passed on to selling prices promptly, earnings may come under pressure.

3. Deterioration in the profitability of non-core businesses: Operating Income declined by -18.7% YoY in the Cash & Carry Business and by -50.6% YoY in the Food Solutions Business. If this situation continues, the expansion of the earnings-growth base will be constrained.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin are slightly below the industry median, placing the Company in the lower profitability group within the industry.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeds the industry median, indicating a top-tier growth rate within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. While Revenue increased by +10.9% YoY, a high rate within the industry, the gross margin (18.8%, -62bp YoY) and operating margin (2.7%, -10bp YoY) declined. The fact that revenue growth has not translated sufficiently into improved margins is a key structural point.

2. The +32.3% increase in Net Income was largely attributable to the reduction in extraordinary losses (¥0.51B → ¥0.12B). As this is different in nature from growth at the operating level (+7.0%), the two should be evaluated separately.

3. OCF/Net Income was 1.25 times, indicating adequate cash support for earnings. However, OCF declined by -5.3% YoY due to increases in Accounts Receivable and Inventories, making working capital efficiency during a period of revenue growth a key determinant of future cash-generation capacity.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥1,254–¥1,327 at ±1% for the cost of equity, and ¥1,286–¥1,295 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥9.3 per share is added back to earnings (for non-cash expense treatment and comparability with IFRS companies).
• Net assets as of the quarter-end are used (there is a timing difference 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 five-year fade) / Interest rate reference month: 2026-08 / Mechanically calculated using only publicly disclosed data; this does not constitute a forecast of the market stock price or a recommendation of any specific investment action, and does not predict or guarantee future stock 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 responsibility, and you should consult a professional as necessary.

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