TSUZUKI DENKI CO.,LTD. FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, Tsuzuki Denki reported Revenue of ¥1037.3B (YoY +¥54.7B, +5.6%), Operating Income of ¥81.8B (YoY +¥17.0B, +26.2%), Ordinary Income of ¥83.2B (YoY +¥17.2B, +26.1%), and Net Income attributable to owners of the parent of ¥66.1B (YoY +¥17.1B, +35.1%), achieving revenue growth and substantial profit growth. Operating margin improved to 7.9% from 6.6% a year earlier (+1.3pt), and ROE rose to 13.5% from 11.3% (+2.2pt), indicating significant improvements in profitability and capital efficiency. The Company recorded special gains of ¥24.2B from the sale of investment securities; after deducting impairment losses of ¥3.7B and others, the net effect of ¥10.7B boosted profit before tax, and net margin improved to 6.4% from 5.0% (+1.4pt).

Drivers of Performance

[Revenue] Revenue expanded steadily to ¥1037.3B (+5.6%). Gross profit was ¥249.7B, and gross margin improved to 24.1% from 23.1% (+1.0pt), driven by a higher mix of high-margin projects and cost controls. Although segment-level disclosure is limited, trade receivables increased to ¥234.1B (YoY +¥13.0B, +5.9%), in line with sales growth, and contract assets were ¥7.4B (YoY -¥1.6B), reflecting progress on long-term projects. Inventories increased substantially to ¥42.6B (YoY +¥16.6B, +63.7%), indicating inventory buildup due to advance procurement for contracted orders and recognition timing across inspections.

[Profitability] SG&A was ¥167.9B (+3.7%), growing below the revenue growth rate, and the SG&A ratio improved to 16.2% from 16.5% (-0.3pt). Operating Income rose to ¥81.8B (+26.2%), with an operating margin of 7.9% (+1.3pt), clearly improving profitability. Non-operating income was ¥2.7B (including dividend income ¥1.2B and interest income ¥0.8B), and non-operating expense was ¥1.3B (interest expense ¥1.2B), resulting in a small net non-operating gain of ¥1.4B. Ordinary Income was ¥83.2B (+26.1%), confirming earnings improvement led by core operations. Special gains included ¥24.2B from sale of investment securities, and special losses included impairment losses ¥3.7B and loss on retirement of fixed assets ¥0.2B, resulting in Profit Before Tax of ¥93.9B (+37.1%). After income taxes of ¥27.8B (effective tax rate 29.6%) and non-controlling interests of ¥1.4B, Net Income attributable to owners of the parent was ¥66.1B (+35.1%). The special gains contributed to net income growth, but the fundamental earnings improvement was driven by higher operating profitability, resulting in a year of revenue and profit increases.

Key Financial Metrics

[Profitability] Operating margin 7.9% (prior year 6.6%, +1.3pt), Net margin 6.4% (prior year 5.0%, +1.4pt) — profitability clearly improved. Gross margin improved to 24.1% (prior year 23.1%, +1.0pt) and SG&A ratio was contained at 16.2% (prior year 16.5%, -0.3pt), demonstrating operating leverage. ROE 13.5% (prior year 11.3%, +2.2pt), ROA 9.9% (prior year 8.2%, +1.7pt) — both capital and asset efficiency increased.

[Cash Quality] Operating Cash Flow (OCF) was ¥63.2B, 0.96x of Net Income ¥66.1B; OCF/EBITDA (Operating Income + Depreciation ¥94.3B) was 0.67x, indicating limited cash conversion. Increases in accounts receivable ¥29.9B and inventories ¥16.6B absorbed cash, partially offset by an increase in accounts payable ¥22.8B. Days Sales Outstanding (DSO) was 82 days, indicating room to improve working capital cash conversion.

[Investment Efficiency] Capex was ¥2.5B / Depreciation ¥12.5B = 0.20x, indicating conservative investment levels. Intangible assets declined to ¥20.1B (prior year ¥25.4B), and acquisitions of investment properties ¥10.5B were limited growth investments. Total asset turnover was 1.18x (prior year 1.23x), a slight decline but still at a healthy level.

[Financial Soundness] Equity Ratio 55.7% (prior year 55.2%), Current Ratio 254.3% (prior year 222.8%), Quick Ratio 239.7% (prior year 214.1%) — liquidity is very strong. Interest-bearing debt totaled ¥83.9B (short-term borrowings ¥37.5B, long-term borrowings ¥41.0B, lease liabilities ¥5.4B), Debt/EBITDA 0.89x, Interest Coverage (EBIT / Interest Expense) 69.8x — ample financial capacity. Cash of ¥434.7B represents 49.6% of total assets and cash/short-term liabilities ratio is 11.59x, making liquidity risk minimal.

Cash Flow Analysis

Operating Cash Flow was ¥63.2B (prior year ¥34.1B, +85.6%), a significant improvement. OCF subtotal (before working capital changes) was ¥73.5B; changes in working capital were accounts receivable increase -¥29.9B, inventories increase -¥16.6B, accounts payable increase +¥22.8B for net working capital absorption of -¥23.7B; after corporate tax payments -¥12.7B, OCF settled at ¥63.2B. Investing Cash Flow was +¥17.1B, a large positive driven by investment securities sales proceeds ¥29.8B, which far exceeded capital expenditures -¥2.5B and intangible asset additions -¥10.5B. Free Cash Flow (OCF + Investing CF) was ¥80.3B, ample. Financing Cash Flow was -¥32.7B, including dividend payments -¥19.5B (including non-controlling interests), net short-term borrowings decrease -¥8.6B, long-term borrowings repayment -¥41.0B offset by new borrowings ¥41.0B, treasury shares disposal +¥1.2B, and lease liabilities repayment -¥4.8B. Cash increased from ¥387.0B at the beginning of the period to ¥434.7B at the end (+¥47.6B), further strengthening liquidity. OCF/Net Income 0.96x and OCF/EBITDA 0.67x indicate limited cash conversion, making working capital efficiency an issue to address going forward.

Quality of Earnings

Profit growth at the operating level led the increase in Ordinary Income, confirming improvement in core business profitability. Non-operating income ¥2.7B (composed of dividend income ¥1.2B and interest income ¥0.8B) is recurring. Special gains of ¥24.2B (sale of investment securities) are one-off, and Ordinary Income ¥83.2B serves as the benchmark for sustainable earnings power. Comprehensive income of ¥61.3B was ¥4.8B below Net Income ¥66.1B, primarily due to other securities valuation losses of -¥11.3B (decline in market value of held equities), partially offset by retirement benefit adjustments +¥6.5B. OCF ¥63.2B is 0.96x of Net Income, indicating generally sound cash backing, but the ¥10.3B gap between OCF subtotal ¥73.5B and OCF is due to working capital increases and corporate tax payments; the accrual-cash timing difference stems from working capital build-up. Inventory increase +¥16.6B and accounts receivable increase +¥29.9B reflect project expansion but are temporary cash outflows contingent on future monetization and collection, so quality risk is limited. Core profit excluding special items is Ordinary Income ¥83.2B, indicating high quality of earnings.

Forecasts & Guidance

For FY2027 ending March 2027, the Company forecasts Revenue ¥1070.0B (vs prior year +3.2%), Operating Income ¥87.0B (vs prior year +6.4%), Ordinary Income ¥87.0B (vs prior year +4.6%), and Net Income attributable to owners of the parent ¥57.5B (vs prior year -13.0%). The plan assumes revenue and operating profit growth but a decline in net income reflecting the absence of special gains. Progress toward the full-year guidance based on current results is: Revenue 97.0%, Operating Income 94.0%, Ordinary Income 95.6%, Net Income 115.0% — Net Income exceeded the forecast. Operating margin is broadly in line with the guidance (actual 7.9% vs forecast 8.1%), and the Net Income outperformance was due to the contribution of special gains. Forecast EPS for next fiscal year is 315.70円, down from current-year 355.94円, reflecting the drop-off of special gains and conservative tax assumptions. The forecast dividend for next fiscal year is 95円, down from current-year aggregate 126円 (interim 50円, year-end 76円) but not a cut in terms of sustaining payouts; payout ratio is expected to rise from 30.1% to 35.4%, indicating maintained shareholder return stance.

Shareholder Returns

This fiscal year’s dividends totaled 126円 (interim 50円, year-end 76円), a substantial increase from prior total 45円. Payout ratio was 37.6% (based on Net Income), DOE 4.2% (dividend on equity), indicating an appropriate level of shareholder returns. Total dividends amounted to approximately ¥19.5B; relative to Free Cash Flow ¥80.3B, FCF coverage is 4.12x, indicating high sustainability. No share buybacks were executed this fiscal year; treasury shares disposal +¥1.2B likely relates to share-based compensation. Total Return Ratio based on dividends only is 37.6%; retained earnings increased by ¥45.2B (increase in retained earnings), balanced between growth investments and strengthening the financial base. The forecast dividend for next fiscal year is 95円 (no reduction), which corresponds to a payout ratio of 35.4% against forecast Net Income ¥57.5B, maintaining a stable level. Long-term dividend policy is articulated in the mid-term management plan "Trust & Challenge 2029", pledging continuous shareholder returns alongside growth investments.

Risk Factors

1. Working capital expansion risk: Inventories +63.7% (+¥16.6B), trade receivables +5.9% (+¥13.0B) — significant increase in working capital. DSO 82 days and a marked lengthening of inventory turnover days year-on-year. While advance procurement and cross-period inspection timing due to project expansion are primary drivers, demand fluctuations or inspection delays could lead to inventory write-downs or bad debt realization, impairing cash flows.

2. Net income boost driven by special gains: Of Net Income ¥66.1B, ¥24.2B (pre-tax) came from sale of investment securities. The forecast for next fiscal year assumes Net Income ¥57.5B, reflecting this reversal; the Company’s earnings on an ordinary basis will be tested. Held securities have declined to ¥23.8B (prior year ¥45.4B), limiting scope for future realized gains.

3. Concentration of short-term liabilities and refinancing risk: Of Current Liabilities ¥291.9B, short-term borrowings ¥37.5B and long-term borrowings maturing within one year ¥41.0B total approximately ¥78.5B, concentrating short-term debt. Short-term liability ratio 47.8% indicates refinancing risk, but cash ¥434.7B (cash/short-term liabilities 11.59x) provides a strong buffer, keeping actual risk low. However, in a rising interest-rate environment refinancing costs could increase.

Industry Benchmark (Reference — Company Data)

Profitability & Returns

Operating margin is slightly below the industry median, while Net margin is above the median, securing upper-middle profitability.

Growth & Capital Efficiency

Revenue growth rate is 4.5pt below the industry median, indicating modest growth within the IT & Communications sector.

※Source: Company compilation

Key Points from the Financial Results

1. Structural improvement in profitability: Operating margin 7.9% (+1.3pt), ROE 13.5% (+2.2pt) — clear improvements in profitability and capital efficiency. Both gross margin improvement and containment of SG&A have worked in tandem, demonstrating operating leverage. Next fiscal year guidance expects Operating margin to improve to 8.1%, underpinned by a shift toward higher-margin projects and continued cost optimization.

2. Room to improve working capital efficiency: OCF/EBITDA 0.67x and DSO 82 days indicate relatively weak cash conversion within the industry. Inventory +63.7% and accounts receivable +5.9% reflect project expansion; if inspection and collection timeliness improve, OCF can further increase. Optimizing working capital will be the next focal point for enhancing shareholder value.

3. Financial strength and dividend sustainability: Cash ¥434.7B (49.6% of total assets), Debt/EBITDA 0.89x, current ratio 254% — financial position is extremely solid. Payout ratio 37.6% and FCF coverage 4.12x indicate high dividend sustainability. Next fiscal year’s forecast dividend of 95円 implies no cut, maintaining a stable dividend policy. Under the mid-term plan, a balance between growth investment and shareholder returns is expected to continue.

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This report is an earnings analysis automatically generated by AI analyzing XBRL financial statement data. It is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company based on public financial statements. Investment decisions are your own responsibility; please consult a professional if necessary.