TSUZUKI DENKI CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Despite higher revenue, operating income fell from a profit in the same period of the previous year into a loss due to a sharp deterioration in the gross profit margin, making the quality of earnings the focus of this quarter’s results. Revenue secured double-digit growth at ¥220.1B (¥188.3B in the same period of the previous year, YoY +16.9%), while Operating Income of ¥-1.2B (¥3.0B in the same period of the previous year) and Ordinary Income of ¥-1.1B (¥3.6B in the same period of the previous year) both fell into negative territory. Net income attributable to owners of the parent was ¥-1.11B (¥2.72B in the same period of the previous year, YoY -140.8%), resulting in EPS of ¥-6.13 (¥15.03 in the same period of the previous year). The primary factor was the decline in the gross profit margin from 23.1% to 19.0%, a decrease of approximately 4.1pt, which could not be fully offset by the improvement in the SG&A expense ratio (21.5%→19.5%).

Factors Affecting Performance

【Revenue】Revenue increased by double digits to ¥220.1B (¥188.3B in the same period of the previous year, YoY +16.9%). As the company operates as a single segment (Information Network Solutions Services Business), a breakdown by business is not disclosed; however, the expansion in project volume appears to have driven the revenue increase.

【Profit and Loss】Gross profit declined to ¥41.8B (from slightly below ¥41.8B in the same period of the previous year, -4.1%), and the gross profit margin deteriorated by 4.1pt to 19.0% from 23.1% in the same period of the previous year. SG&A expenses increased to ¥43.0B (+6.1%), but as a percentage of revenue, improved by 2.0pt to 19.5% from 21.5% in the same period of the previous year, indicating that fixed-cost control itself is effective. However, the impact of the deteriorating gross profit margin outweighed this improvement, and Operating Income fell into a loss of ¥-1.2B (¥3.0B in the same period of the previous year). Non-operating income totaled ¥0.5B, mainly comprising dividend income of ¥0.4B, but was offset by non-operating expenses of ¥0.4B, including interest expenses of ¥0.3B, resulting in Ordinary Income also falling into a loss of ¥-1.1B. Extraordinary losses were minimal at ¥0.03B, consisting primarily of losses on disposal of fixed assets, and the impact of temporary factors was limited. Net income attributable to owners of the parent was ¥-1.11B (¥2.72B in the same period of the previous year); in conclusion, the company posted higher revenue but lower earnings, with Operating Income turning negative.

Key Financial Indicators

【Profitability】The Operating Income margin deteriorated to -0.6% (+1.6% in the same period of the previous year), the Ordinary Income margin to -0.5% (+1.9% in the same period of the previous year), and the Net Income margin, on an attributable-to-owners-of-the-parent basis, to -0.5% (+1.4% in the same period of the previous year). The gross profit margin of 19.0% declined by 4.1pt from 23.1% in the same period of the previous year, serving as the primary cause of the deterioration in profitability.【Cash Flow Quality】Cash and deposits remained ample at ¥453.3B (¥433.7B in the same period of the previous year), while the current ratio was high at approximately 278% (current assets of ¥671.3B / current liabilities of ¥241.5B). Meanwhile, inventories increased by +68.8% YoY to ¥71.9B, confirming an accumulation of inventory.【Investment Efficiency】ROE was -0.2%, primarily due to the deterioration in the Net Income margin. The Equity Ratio rose to 58.4% (55.1% in the same period of the previous year), maintaining a conservative capital structure.【Financial Soundness】Interest-bearing debt totaled ¥78.5B, comprising short-term borrowings of ¥37.5B and long-term borrowings of ¥41.0B, representing a limited proportion of total assets of ¥808.7B. Liabilities related to retirement benefits amounted to ¥37.4B and represent a medium- to long-term cash outflow factor.

Cash Flow Analysis

As cash flow statement data are not disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits stood at ¥453.3B, up from ¥433.7B in the same period of the previous year, with no sign of tight liquidity. Meanwhile, inventories increased by ¥29.3B (+68.8% YoY) to ¥71.9B, suggesting an accumulation of work-in-process inventory related to projects. Accounts receivable declined significantly by ¥119.8B (-49.6%) YoY to ¥121.7B, while accounts payable also declined by ¥44.6B (-32.3%) to ¥93.8B. The substantial decline in accounts receivable and the reduction in accounts payable are progressing simultaneously, creating a situation in which changes in the composition of working capital may readily affect liquidity. The combination of rising inventories and reduced accounts payable could weaken short-term cash generation capacity.

Quality of Earnings

Non-operating income of ¥0.5B primarily comprised dividend income of ¥0.4B and is recurring in nature. Extraordinary losses were minimal at ¥0.03B, consisting primarily of losses on disposal of fixed assets, and the impact of temporary factors on earnings was almost nonexistent. Comprehensive income was ¥-0.5B, of which ¥-0.85B was attributable to owners of the parent, resulting in a difference of approximately ¥0.26B from net income attributable to owners of the parent of ¥-1.11B. This divergence was relatively small and resulted from other comprehensive income items, including a ¥+0.1B valuation difference on securities and a ¥+0.1B adjustment related to retirement benefits. The deterioration in earnings this quarter was attributable not to extraordinary gains or losses but to operating performance, specifically the deterioration in the gross profit margin; therefore, in terms of earnings quality, it can be interpreted as reflecting a change in the profitability of the core business rather than a one-off factor.

Earnings Forecast and Guidance

The Full-Year forecast is Revenue of ¥1070.0B (YoY +3.2%), Operating Income of ¥87.0B (YoY +6.4%), Ordinary Income of ¥87.0B (YoY +4.6%), forecast EPS of ¥315.64, and forecast dividend of ¥190. No revisions to the forecast had been made as of this quarter. Q1 progress was generally steady for Revenue, which amounted to ¥220.1B, or 20.6% of the Full-Year forecast; however, progress rates for both Operating Income and Ordinary Income were negative because both were in the red. Achievement of the Full-Year plan assumes normalization of the gross profit margin and recognition of high-margin projects from Q2 onward.

Shareholder Returns

The Full-Year dividend forecast is ¥190, implying a Payout Ratio of approximately 60.2% based on forecast EPS of ¥315.64. Although net income attributable to owners of the parent was negative in Q1, the dividend forecast has not been revised. The financial base of cash and deposits of ¥453.3B and an Equity Ratio of 58.4% could support distributions; however, if Full-Year earnings progress falls below plan, the potential for a further increase in the Payout Ratio will need to be assessed in light of future performance trends.

Risk Factors

1. Risk of deteriorating project profitability: The gross profit margin declined by 4.1pt from 23.1% to 19.0%, with the project mix and delays in passing through price increases putting pressure on profitability. The trend in the gross profit margin will be key to the recovery of profitability going forward.

2. Deterioration in working capital efficiency: While inventories increased by +68.8% YoY, accounts receivable and accounts payable both declined significantly, by -49.6% and -32.3%, respectively, raising concerns about inventory accumulation and slowing cash generation capacity.

3. Pressure on earnings from higher non-operating expenses: Interest expenses rose to ¥0.3B (an increase YoY), and the interest burden is further depressing Ordinary Income while Operating Income remains negative.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The company’s profitability is substantially below the industry median in terms of both Operating Income margin and Net Income margin, placing it toward the lower end of the industry.

Growth and Capital Efficiency

The Revenue growth rate is at a level comparable to the industry median and upper quartile, placing the company’s top-line expansion among the stronger performers within the industry.

※Source: Compiled by the Company

Key Points in the Financial Results

1. While Revenue secured double-digit growth of +16.9%, the gross profit margin deteriorated by 4.1pt from 23.1% to 19.0%, causing Operating Income to fall from a profit in the same period of the previous year into a loss. The coexistence of revenue growth and earnings decline, including the shift into a loss, is a defining feature of the current period, as top-line expansion has not translated directly into improved profitability.

2. While inventories increased by +68.8% YoY, both accounts receivable and accounts payable declined significantly, confirming a change in the working capital structure. Inventory trends merit monitoring as an indicator of the timing of future revenue recognition and profitability improvement.

3. Progress against the Full-Year plan was generally steady for Revenue at 20.6%, whereas Operating Income and Ordinary Income showed negative progress, implying an earnings scenario weighted toward the second half. Since no forecast revision has been made, actual results from Q2 onward will provide a basis for assessing the credibility of the plan.

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: ¥2,725–¥2,879 at ±1% for the cost of equity, and ¥2,795–¥2,808 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference relative to the Full-Year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This value 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 responsibility, after consulting with professionals as necessary.

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