TOSHO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.84B
• Operating Income: ¥3.68B
• Net Income: ¥2.40B
• EPS: ¥44.75

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: Solid Q2 with strong margin expansion and high-quality earnings despite flat top line. Revenue was 138.42, down 0.3% YoY, but operating income rose 27.8% YoY to 36.82 and ordinary income rose 26.6% YoY to 36.96, driving a notable profitability uplift. Net income increased 26.1% YoY to 17.01, pushing the net margin to 12.3%. Operating margin improved to 26.6%, up roughly 590 bps YoY by our estimate (from ~20.7% last year, based on back-calculation). Net margin expanded by about 255 bps YoY (from ~9.7% last year). Gross profit margin stood at 32.7%, and EBITDA margin was 34.6%, indicating meaningful operating leverage. Earnings quality looks strong: OCF was 35.69, 2.10x net income, indicating cash conversion well above benchmark. Capex was 9.78, allowing implied positive FCF of roughly 25.91 (OCF−Capex), more than covering buybacks of 5.41 and leaving room for dividends. Liquidity is healthy with a current ratio of 171.7% and cash of 218.40 exceeding current liabilities of 138.01; interest coverage is very strong at 54.06x. Leverage remains conservative with D/E at 0.66x and debt/EBITDA at 1.87x. ROIC is 7.6%, within the typical target zone, while ROE is a modest 3.9%, constrained by low asset turnover (0.190) and moderate leverage (1.66x). Tax rate is elevated at 36.2%, a headwind to bottom-line conversion. Non-operating income was modest at 1.13 with interest income of 0.14; non-operating expenses were 0.99 including interest expense of 0.68, indicating minimal reliance on non-core items. Overall, the quarter signals improved cost discipline and operating leverage, robust cash generation, and ample balance sheet capacity. Forward-looking, the key question is sustainability of the margin gains given flattish sales; continued cost control and stable demand will be crucial. With buybacks ongoing and a low calculated payout ratio (11.3%), capital returns appear supported by cash flow. Risks include energy and wage inflation pressures, demand normalization in leisure/real estate-adjacent businesses, and a high effective tax rate limiting net margin.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.9% = Net Profit Margin 12.3% × Asset Turnover 0.190 × Financial Leverage 1.66x. The most material change this quarter is the net margin expansion, driven by sharp operating margin improvement (operating income +27.8% YoY on flat revenue). Business drivers likely include cost normalization (e.g., utilities/energy), mix/price discipline, and SG&A efficiency (SG&A at 8.47, ~6.1% of sales). Asset turnover remains low at 0.190, reflecting an asset-heavy model with significant noncurrent assets (492.62) versus sales scale; leverage is moderate at 1.66x and not the key profitability lever. Sustainability: margin gains appear partly structural (cost discipline, fixed-cost leverage) but may include cyclical tailwinds (energy relief) that could normalize; watch for operating margin stability if revenue stays flat. Concerning trends: none acute, but note that revenue declined slightly YoY while profits rose, implying reliance on cost management; if SG&A or input costs re-inflate, operating leverage could reverse.

Growth Assessment

Top-line was essentially flat (-0.3% YoY to 138.42), suggesting demand is stable but not accelerating. Profit growth was strong: operating income +27.8% and net income +26.1% YoY, driven by margin expansion rather than volume. Non-operating impact was minor (non-op income 1.13 vs non-op expenses 0.99), indicating clean quality of earnings. EBITDA of 47.95 (34.6% margin) underscores improved operating efficiency. Outlook hinges on sustaining operating margin near 26–27% against potential cost headwinds; with a high effective tax rate (36.2%), incremental pre-tax profit growth is essential to drive EPS. We see profit sustainability as reasonable in the near term given cash cost discipline and low financial leverage, but sales growth reacceleration would be needed to maintain double-digit profit growth over a multi-quarter horizon.

Financial Health

Liquidity is strong: current ratio 171.7% and quick ratio 171.7% (no reported inventories). Cash and deposits (218.40) comfortably exceed current liabilities (138.01), minimizing short-term liquidity risk. No warning thresholds breached (Current Ratio well >1.0; D/E at 0.66x is conservative and far below 2.0). Interest-bearing debt detail is partially unreported, but reported short-term loans 5.48 and long-term loans 84.38 imply manageable leverage (Debt/EBITDA 1.87x). Maturity mismatch risk appears low given cash > current liabilities; rollover risk is limited by small short-term loans. Off-balance sheet obligations are not disclosed in the provided data; no indications of material commitments surfaced in this snapshot.

Cash Flow Quality

OCF/Net Income is 2.10x, comfortably above the 1.0x benchmark, signaling high-quality earnings and strong cash conversion. Implied FCF (OCF 35.69 − Capex 9.78) is approximately 25.91, indicating ample coverage for shareholder returns and potential debt reduction. Financing cash flow was -20.54, including share repurchases of -5.41; dividends paid are unreported but likely covered by FCF given the low calculated payout ratio (11.3%). Working capital drivers are not fully disclosed (AR 7.84, AP reported as 0.00, inventories unreported), limiting assessment of potential timing effects; nothing suggests aggressive manipulation. Overall, cash generation supports both reinvestment and returns.

Dividend Sustainability

The calculated payout ratio is 11.3%, well below the <60% benchmark, suggesting ample room to sustain or modestly increase dividends. With implied FCF of ~25.91, dividends plus buybacks of 5.41 appear well covered. While DPS is unreported this quarter, balance sheet strength (cash 218.40, low leverage) and robust OCF provide flexibility. Policy outlook: given positive earnings momentum and buybacks, a shareholder return stance appears supportive; the main constraints would be capex needs or unforeseen macro shocks.

Risk Assessment

Business Risks:

• Demand softness risk given flattish revenue (-0.3% YoY), especially if leisure/fitness/hotel-related demand normalizes.
• Cost inflation risk (energy and wages) that could compress the expanded operating margin.
• High effective tax rate (36.2%) limiting net profit scalability.
• Asset intensity and low asset turnover (0.190), reducing ROE resilience.

Financial Risks:

• Potential interest rate increases raising financing costs, albeit mitigated by low debt (Debt/EBITDA 1.87x).
• Refinancing risk on long-term loans (84.38) over the medium term if credit conditions tighten.
• Partial data on interest-bearing debt and investing cash flows limits full leverage and liquidity assessment.

Key Concerns:

• Profit growth currently driven by cost control rather than revenue expansion; sensitivity to cost re-inflation.
• Sustainability of 26%+ operating margin if sales remain flat.
• Limited visibility on segment mix and non-operating items beyond interest income/expense.

Investment Implications

Key Takeaways:

• Strong margin-led earnings beat dynamics: OI +27.8% on -0.3% revenue.
• High-quality cash flow: OCF/NI 2.10x; implied FCF ~25.91.
• Healthy balance sheet: current ratio 171.7%, D/E 0.66x, interest coverage 54x.
• ROIC 7.6% (within target range), but ROE modest at 3.9% due to low asset turnover.
• Capital returns ongoing (5.41 in buybacks) with ample coverage.

Metrics to Watch:

• Operating margin trajectory (current ~26.6%) and gross margin stability.
• Revenue growth reacceleration from -0.3% YoY to positive territory.
• Energy and wage cost trends impacting SG&A and COGS.
• Effective tax rate normalization potential from 36.2%.
• Capex pipeline and its impact on FCF and ROIC.

Relative Positioning: Versus domestic mid-cap peers in leisure/real-estate-adjacent services, the company shows stronger cash conversion and balance sheet strength, with above-peer margin momentum but lower ROE due to asset intensity; earnings quality and liquidity position are relative strengths, while top-line momentum and asset turnover are relative weaknesses.

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