TSUZUKI DENKI (8157) FY2026 Q3 Earnings Report

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Executive Summary

Cumulative results for Q3 showed profit growth significantly exceeding revenue growth, with improved profitability driven primarily by an improved gross profit margin and greater efficiency in selling, general and administrative expenses. Revenue was ¥673.3B (+3.1% YoY), Operating Income was ¥40.0B (+66.9%), Ordinary Income was ¥41.4B (+64.3%), and Net Income attributable to owners of the parent was ¥33.3B (¥18.3B in the previous year). The Operating Income margin improved to 5.9% from 3.7% in the same period of the previous year, while the increase in Net Income included the positive impact of extraordinary gains and losses, including a ¥16.6B gain on the sale of investment securities.

Factors Affecting Performance

【Revenue】Revenue increased 3.1% YoY to ¥673.3B. Although this was generally consistent with the full-year forecast of +4.3% YoY, the growth rate remained moderate, and progress toward the full-year Revenue forecast was 65.7%, below the standard Q3 cumulative progress rate of 75%.

【Profit and Loss】Operating Income was ¥40.0B (+66.9% YoY), with the ¥16.1B increase almost entirely explained by a ¥15.5B increase in gross profit and a ¥0.6B decrease in selling, general and administrative expenses. The gross profit margin improved to 24.0% from 22.4% in the previous year, while the SG&A ratio improved to 18.0% from 18.7%. Non-operating income and expenses resulted in a surplus of only ¥1.4B; however, a ¥16.6B gain on the sale of investment securities and ¥9.6B in extraordinary losses resulted in a net positive impact of ¥7.0B from extraordinary income and expenses, causing the Net Income growth rate (+91.6%) to exceed the Operating Income growth rate. The Company achieved both revenue and profit growth, with the primary driver of profit growth being improved profitability in the core business.

Key Financial Metrics

【Profitability】The Operating Income margin was 5.9%, improving from 3.7% in the same period of the previous year. The Ordinary Income margin was 6.2% (3.9% in the previous year), and the Net Income margin was 5.1% (2.8% in the previous year). Annualized ROE was 10.0%.【Cash Quality】Cash and deposits were ¥371.7B, representing 48.0% of total assets. Inventories increased significantly to ¥75.8B from the previous year, while accounts receivable and notes receivable decreased to ¥158.6B.【Investment Efficiency】The gross profit margin improved to 24.0% (22.4% in the previous year), while the SG&A ratio declined to 18.0% (18.7% in the previous year).【Financial Soundness】The Equity Ratio was 59.2% (55.7% in the previous year). With Net Assets of ¥458.5B against Total Assets of ¥774.3B, the capital structure remains conservative.

Cash Flow Analysis

Although a standalone Cash Flow Statement has not been disclosed, funding trends can be inferred from movements in the balance sheet. Cash and deposits decreased from the previous year to ¥371.7B, while Inventories increased significantly to ¥75.8B and accounts receivable and notes receivable decreased to ¥158.6B. Current liabilities decreased from the previous year to ¥217.7B, and total liabilities also contracted. As Total Assets declined from ¥774.3B, Net Assets increased to ¥458.5B, indicating that the reduction of liabilities and accumulation of retained earnings supported the change in the funding structure. The increase in Inventories may have tied up a portion of working capital, requiring continued monitoring from the perspective of capital efficiency.

Earnings Quality

The increase in profit for the current period was supported by recurring factors, namely an improved gross profit margin and control of SG&A expenses, indicating good quality at the Operating Income and Ordinary Income levels. However, Net Income attributable to owners of the parent of ¥33.3B reflects a ¥16.6B gain on the sale of investment securities and ¥9.6B in extraordinary losses, including losses on the disposal of fixed assets, resulting in a net positive contribution of ¥7.0B from extraordinary income and expenses. Due to these extraordinary factors, Net Income growth of 91.6% YoY exceeded Operating Income growth of 66.9%. Non-operating income was primarily composed of ¥1.2B in dividends received, exceeding ¥0.8B in interest expenses, and non-operating income and expenses themselves remained stable as a recurring source of earnings. The sharp increase in Inventories warrants attention from an accrual perspective, and the actual status of inventory valuation and project progress should be monitored continuously.

Earnings Forecast and Guidance

Progress toward the full-year Company forecasts was 65.7% for Revenue, 50.1% for Operating Income, 50.8% for Ordinary Income, and 55.5% for Net Income, all below the standard Q3 cumulative progress rate of 75%. The delay in Operating Income progress is particularly significant, and achieving the full-year forecast of ¥80.0B will require Q4 Operating Income of ¥39.9B on a standalone basis, equivalent to an Operating Income margin of 11.4%. This would be significantly above the Q3 cumulative Operating Income margin of 5.9%, making the trend in project acceptance at the end of the fiscal year the key to achieving the plan.

Shareholder Returns

The Q2 dividend was ¥50.00 per share, while the Company’s full-year dividend forecast is ¥121.00 per share. Based on the full-year dividend forecast and the average number of shares outstanding during the period, total annual dividends are estimated at approximately ¥22.0B, resulting in an estimated Payout Ratio of approximately 36.7% against the full-year forecast of ¥60.0B in Net Income attributable to owners of the parent. Given the Q2 dividend of ¥50.00 per share, the implied year-end dividend is ¥71.00 per share, and the payment of this dividend depends on achievement of the full-year earnings plan, particularly the level of Operating Income achieved in Q4.

Risk Factors

1. Risk of concentration of full-year results at the fiscal year-end: Progress toward full-year Operating Income was only 50.1%, requiring the Operating Income margin to rise to 11.4% in Q4. Achievement may fluctuate depending on the timing of project acceptance and project profitability.

2. Working capital efficiency: Inventories increased 191.3% YoY to ¥75.8B, while accounts receivable decreased 26.2%. The sharp increase in Inventories should be monitored for inventory valuation risk, and trends in the collection cycle also require ongoing review.

3. Dependence on extraordinary income and expenses: The increase in Net Income was supported by a ¥16.6B gain on the sale of investment securities, meaning that a low-repeatability factor affected the level of final profit. This factor should be evaluated separately from recurring earnings power.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Return

Profitability remains below the industry median, although the improvement trend from the same period of the previous year has continued.

Growth and Capital Efficiency

The growth rate is significantly below the industry median, and the pace of revenue growth is relatively moderate.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The Operating Income margin improved from 3.7% in the same period of the previous year to 5.9%, and the earnings data confirms that improved gross profit margins and greater SG&A efficiency were the primary drivers of profit growth.

2. Progress toward the full-year Operating Income forecast was 50.1%, below the standard progress rate, and the Operating Income margin of 11.4% required in Q4 is significantly above the Q3 cumulative actual result.

3. The increase in Net Income included a ¥16.6B gain on the sale of investment securities, making it necessary to distinguish between recurring earnings improvement and the impact of extraordinary factors.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,712–¥2,871 at Cost of Equity ±1%; ¥2,783–¥2,800 at ω±0.1.

Note:

• Net Assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these do not constitute a forecast of the market share price or a recommendation of any specific investment action and do 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 with a professional as necessary.

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