Tokyo Century Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥693.28B
• Operating Income: ¥72.52B
• Net Income: ¥97.74B
• EPS: ¥190.04

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A strong headline quarter with sharp profit growth and margin expansion, but quality is mixed due to heavy reliance on extraordinary gains and weak capital efficiency (low ROIC). Revenue rose 4.1% YoY to 6,932.8, while operating income jumped 28.8% YoY to 725.2, evidencing clear operating leverage. Ordinary income increased 21.3% YoY to 772.3, and net income surged 115.2% YoY to 928.0, implying a large one-time boost. We estimate operating margin expanded by roughly 200 bps YoY to 10.5% given operating income growth outpacing revenue. Ordinary margin similarly expanded by about 160 bps to 11.1%. Net margin more than doubled to 13.4%, an approximate 690 bps expansion, largely due to extraordinary gains. Profit before tax of 1,403.0 versus ordinary income of 772.3 implies approximately 630.7 of extraordinary gains, a key driver of the outsized jump in net profit. Comprehensive income (151.4) was far below net income (928.0), indicating large negative OCI (around -776.6), likely from valuation losses on investment securities or hedging, which offsets some of the economic gains. Interest coverage remains strong at 13.5x, supported by higher operating profit relative to interest expense of 53.6. Liquidity is adequate (current ratio 146.8%), but leverage is high (D/E 4.84x), making the company sensitive to funding costs and credit conditions. ROE is 7.9% (via DuPont), but ROIC is a low 1.4%, indicating returns are being driven by leverage rather than asset-level efficiency. Non-operating income of 106.4 (dividend 9.1, interest 9.0) contributed positively, but the profit mix was dominated by the extraordinary line rather than recurring operations. Cash flow statements were not disclosed, so earnings quality cannot be corroborated by operating cash flow this quarter. The payout ratio is a manageable 32.9%, but FCF coverage cannot be assessed without OCF and capex data. Forward-looking, sustaining the current net profit run-rate will require recurring operating growth and normalization of OCI; absent repeat one-offs, growth will likely moderate, and low ROIC remains a structural headwind.

Profitability Analysis

DuPont breakdown (ROE = NPM × Asset Turnover × Leverage): NPM 13.4% × Asset Turnover 0.101 × Leverage 5.84x ≈ ROE 7.9%. The largest change YoY is in net profit margin, which we estimate expanded by ~690 bps (from ~6.5% to 13.4%) given NI +115% on revenue +4%, driven primarily by extraordinary gains (~630.7 above ordinary income). Operating margin likely expanded ~200 bps YoY to 10.5% as operating income grew +28.8% versus revenue +4.1%, reflecting operating leverage and cost control (SG&A contained relative to gross profit). Asset turnover (0.101) remains low, typical for asset-heavy leasing; no evidence of improvement this quarter. Financial leverage is high at 5.84x (Assets/Equity), a key support for ROE despite low ROIC (1.4%). Business drivers: improved operating margin suggests better spreads/volume and SG&A discipline, but the outsized net margin is largely one-time from extraordinary gains. Sustainability: the operating margin improvement has partial durability if cost control and pricing hold; the extraordinary gain is non-recurring and should not be extrapolated. Watch for SG&A growth outpacing revenue in future quarters; this quarter, operating profit growth far exceeded revenue growth, implying positive operating leverage rather than cost pressure.

Growth Assessment

Revenue growth of 4.1% is steady for an asset-finance model, indicating moderate demand and stable portfolio growth. Operating income growth of 28.8% suggests improved spreads, mix, or better cost absorption; absent segment detail, we attribute it to operating leverage and possibly lower credit costs embedded in operating lines. Ordinary income rose 21.3%, consistent with incremental non-operating contributions but mainly reflecting operating improvement. Net income rose 115.2%, primarily due to ~630.7 of extraordinary gains (PBT exceeding ordinary income), not underlying run-rate expansion. Given the magnitude of extraordinary gains and large negative OCI, headline growth likely overstates recurring earnings momentum. Outlook: growth should normalize as one-offs fade; sustaining double-digit operating profit growth will require continued margin discipline and stable credit costs amid potentially higher funding costs. We see limited visibility on equity-method/affiliate contributions and credit cost trajectory due to data gaps.

Financial Health

Liquidity: Current ratio 146.8% and quick ratio 145.0% indicate adequate short-term liquidity (>1.0), though slightly below the 1.5x benchmark for strong liquidity. Working capital is positive at 9,847.3. No warning for current ratio (<1.0) is warranted. Solvency and leverage: D/E is high at 4.84x (warning threshold >2.0), typical for leasing but still a material financial risk if funding costs rise. Interest coverage is strong at 13.5x, providing buffer against rate shocks. Maturity/mismatch: Short-term loans of 3,624.3 are comfortably covered by current assets of 30,910.1 and cash of 2,659.3; however, the model relies on continuous refinancing of long-term assets with a mix of short/long-term debt (long-term loans 22,862.2), implying structural funding risk if markets tighten. Off-balance sheet: Not disclosed this quarter; leasing businesses often have guarantees and residual value exposures—no quantified obligations available here.

Cash Flow Quality

Operating cash flow, investing cash flow, and financing cash flow were not disclosed; OCF/NI and FCF cannot be calculated. Therefore, earnings quality cannot be validated via cash conversion metrics this period (OCF/NI>1.0 benchmark not assessable). Indicators within the P/L suggest quality mixed: operating profit growth appears genuine, but net profit is boosted by large extraordinary gains (~630.7), which are non-recurring. The large negative OCI (comprehensive income 151.4 vs net income 928.0) points to valuation/FX swings in securities or hedges, introducing volatility to equity. Working capital signals are not available (no AR/AP/inventory turnover disclosure beyond inventory), limiting detection of manipulation. Dividend and capex coverage by FCF cannot be assessed.

Dividend Sustainability

The calculated payout ratio is 32.9%, which is comfortably below the 60% benchmark and appears sustainable on an earnings basis. However, without OCF and capex data, FCF coverage cannot be confirmed. Given the reliance on extraordinary gains this quarter, the payout should be assessed against recurring earnings (ordinary or operating profit-derived EPS), not headline NI. Interest coverage (13.5x) and liquidity (current ratio 1.47x) are supportive. Policy outlook cannot be inferred as DPS is unreported; we assume a stable-to-gradual payout policy typical for leasing companies, contingent on funding costs and credit environment.

Risk Assessment

Business Risks:

• Residual value risk on leased assets if secondary market prices weaken.
• Credit cost risk from client delinquencies in an economic slowdown.
• Spread compression risk if asset yields do not keep pace with rising funding costs.
• Exposure to market valuation swings in investment securities (OCI volatility).
• Execution risk in maintaining SG&A discipline while growing assets.

Financial Risks:

• High leverage (D/E 4.84x) increases sensitivity to funding markets and interest rates.
• Refinancing risk due to reliance on both short- and long-term debt.
• Earnings quality risk from dependence on non-recurring extraordinary gains this quarter (~630.7).
• Potential capital ratio pressure if OCI losses persist (comprehensive income far below NI).

Key Concerns:

• ROIC at 1.4% is below the 5% warning threshold, indicating weak capital efficiency.
• Large negative OCI (~-776.6) undermines the sustainability of book value growth.
• Profit mix skewed to one-offs; recurring earnings trajectory less robust than headline NI.
• Data gaps (no cash flow statement, limited segment/EI breakdown) obscure true underlying performance.

Investment Implications

Key Takeaways:

• Core operations improved: operating margin estimated up ~200 bps with OI +28.8% on revenue +4.1%.
• Headline net profit strength (+115%) is not fully repeatable due to ~630.7 of extraordinary gains.
• Balance sheet carries high leverage (D/E 4.84x) but maintains solid interest coverage (13.5x).
• Capital efficiency is weak (ROIC 1.4%) and ROE (7.9%) is leverage-driven.
• Comprehensive income weakness highlights valuation risk in securities/hedges.

Metrics to Watch:

• Operating cash flow and FCF (to validate earnings quality and dividend cover).
• Credit costs and NPL trends embedded in operating lines.
• Funding cost trajectory and interest spread management; interest coverage.
• Recurring vs. non-recurring profit mix (ordinary vs. extraordinary gains).
• OCI movements and equity volatility; ROIC by business line if disclosed.

Relative Positioning: Versus domestic leasing peers, Tokyo Century shows better near-term operating leverage this quarter but weaker capital efficiency (low ROIC) and elevated reliance on one-off gains, with leverage in the higher range typical for the sector.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis