Tokyo Metro Co.,Ltd. FY2026 FY Earnings Report

Financial Highlights

• Net Sales: ¥422.41B
• Operating Income: ¥89.59B
• Net Income: ¥56.33B
• EPS: ¥101.63

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

Verdict: Solid year with modest topline growth and resilient profitability; earnings quality is strong and cash generation comfortably covered investments and shareholder returns. Revenue increased 3.6% YoY to 4224.1, led by Transportation (+3.8%), supporting operating income growth of 3.0% to 895.9. Net income rose 9.8% to 590.2, outpacing operating income on the back of higher extraordinary gains. Operating margin was 21.2%, slightly compressing by about 13 bps from the prior year’s 21.3%. Net margin improved to 14.0%, expanding by roughly 80 bps YoY. Ordinary income rose 2.9% to 792.3 as non-operating items remained small relative to revenue, with interest expense stable at 120.6. EBITDA reached 1635.1, with a healthy EBITDA margin of 38.7% and interest coverage of 7.43x, underscoring strong operating capacity. Cash generation was robust: operating cash flow of 1337.6 was 2.27x net income, supporting free cash flow of 463.6. Capex cash outflow of 917.7 (purchase of PP&E/intangibles) was well absorbed by OCF, enabling dividends of 234.0 and modest buybacks of 7.7 while still reducing net cash by only 5.5. Balance sheet strength remains high with current ratio of 166% and Debt/EBITDA of 1.67x, consistent with investment-grade credit metrics. ROE was 8.0% (DuPont: NPM 14.0% × AT 0.206 × Leverage 2.79x), slightly below the 10%+ ‘good’ threshold but improving on margin gains. Extraordinary income of 202.2 (incl. 64.1 gain on retirement plan revision and 10.1 evaluation on facilities received) offset by losses (13.5 loss on reduction of noncurrent assets) boosted bottom line; these are largely non-recurring. Segment mix remains concentrated: Transportation contributed 90.9% of revenue and 85.1% of segment profit, with Consumer & Corporate Services and Real Estate providing high-margin adjacencies. Looking forward, management’s forecast implies revenue growth but lower operating income and margin, suggesting cost headwinds (maintenance, wages, safety investments) and normalization of one-offs. Dividend policy appears disciplined: FY payout ratio about 41%, FCF coverage 1.90x, with forecast DPS indicating a cautious stance. Overall, the company enters the next fiscal year with strong liquidity, manageable leverage, and stable core demand, but with an expectation of margin softening as investments and cost inflation weigh on profitability.

Profitability Analysis

ROE decomposition: 8.0% = 14.0% Net Profit Margin × 0.206 Asset Turnover × 2.79x Financial Leverage. The component with the most notable improvement YoY was net profit margin (from ~13.2% to 14.0%), while leverage edged down slightly (assets/equity from ~2.83x to 2.79x) and asset turnover ticked up modestly on higher revenue versus assets. The margin expansion was driven by revenue growth in Transportation and tailwinds from extraordinary income (notably gain on retirement plan revision and evaluation on facilities received) more than offsetting extraordinary losses and a higher effective tax rate (31.1% vs prior ~27.7%). Operating margin held at a high level (21.2%) but experienced slight compression (~13 bps) due to cost inflation and higher SG&A (55.3 vs 53.3). The improvement in net margin has a one-time element from extraordinary gains; operating profitability trends are resilient but face cost headwinds, so sustainability points to stable-to-slightly lower margins absent new efficiency gains. SG&A grew slower than revenue (+4% vs +3.6% revenue is roughly in line), indicating disciplined cost control but not delivering additional operating leverage this year.

Growth Assessment

Revenue grew 3.6% to 4224.1, led by Transportation (+3.8%), with Consumer & Corporate Services (+2.4%) and Real Estate (+0.2%) steady. Operating income increased 3.0% to 895.9, broadly in line with the topline, reflecting stable demand and high network utilization. Ordinary income rose 2.9% to 792.3, with non-operating line items relatively small versus revenue; equity method income was 2.11, not a material driver. Net income grew 9.8% to 590.2 on a higher net extraordinary gain (extraordinary income 202.2 vs loss 138.2). EBITDA rose to 1635.1, with strong margin at 38.7%, supported by high fixed-asset productivity. The outlook embedded in management’s forecast points to revenue growth to 4372.0 (+3.5% YoY) but operating income decline to 814.0 (-9.1% YoY), implying margin compression toward ~18.6% on expected higher maintenance, safety, and personnel costs as well as normalization of non-recurring tailwinds. Capex intensity remains elevated but trending lower YoY (cash capex 91.8 vs 116.0 prior), supporting medium-term asset quality while moderating near-term depreciation growth. Overall revenue sustainability is high given urban rail exposure, while profit growth may pause as cost investments catch up.

Financial Health

Liquidity is strong: current ratio 165.8% and quick ratio 165.8%, both comfortably above benchmarks. Working capital of 1238.2 provides ample buffer against short-term obligations; cash/short-term debt is 3.86x. Solvency metrics indicate an investment-grade profile: Debt/EBITDA 1.67x, EBITDA interest coverage 13.56x, and Debt/Capital 27.1%. The D/E ratio of 1.79x is within conservative bounds (<2.0). Maturity profile appears balanced: short-term borrowings and current portions of bonds/loans total roughly in line with on-hand cash and robust OCF, limiting refinancing risk. Pension-related liabilities are manageable with net defined benefit liability of 65.95 and AOCI movements contained. No material off-balance sheet obligations are indicated, and lease obligations are minor relative to scale. Notable balance sheet changes include higher cash and deposits (+37.5%), increased investment securities (+43.4%), and lower accounts payable (-49.7%), all consistent with stronger liquidity and tightening payables management.

Notable B/S Changes

Cash & Deposits: +145.3 (+37.5%) - Strengthened liquidity position, enhances short-term flexibility. Investment Securities: +22.8 (+43.4%) - Higher financial asset allocation, modestly increases market value sensitivity. Accounts Payable: -5.0 (-49.7%) - Tighter payables management; minor working capital release given small base.

Cash Flow Quality

Earnings quality is high: OCF/Net Income at 2.27x exceeds the >1.0 benchmark. Free cash flow of 463.6 (OCF 1337.6 minus investing CF -874.0) comfortably covered dividends and modest buybacks, with FCF coverage of dividends at 1.90x. Cash conversion from EBITDA is 0.82x, slightly below the 0.9 ‘excellent’ threshold but solid given the capital intensity and timing of working capital and tax payments. Accruals ratio of -3.6% supports conservative recognition and high-quality earnings. No signs of working capital manipulation: payables decreased alongside stable operations, taxes payable increased, and inventory movements were minimal; OCF was underpinned by depreciation (73.9) and non-cash items normal for the asset base.

Dividend Sustainability

DPS totaled 42.0 (21.0 interim, 21.0 year-end), equating to a payout ratio of approximately 41.3% based on reported net income—comfortably within the <60% sustainable benchmark. Free cash flow coverage was 1.90x, leaving room for deleveraging and reinvestment. Total cash dividends of about 234.0 were readily funded out of OCF, with residual capacity used for capex and limited buybacks (0.8). Management’s forward DPS indication of 22.0 suggests a cautious stance for the next period; given the forecast for lower operating income, maintaining dividend headroom supports policy stability over the cycle.

Risk Assessment

Business risks include Demand sensitivity to macro conditions and commuter behavior affecting Transportation revenue, Regulatory and fare-setting constraints limiting pricing flexibility, Operational disruptions (accidents, natural disasters) impacting service continuity and costs, Project execution risk on construction-in-progress and infrastructure upgrades.

Financial risks include Interest rate risk on debt refinancing despite currently strong coverage, Pension obligation volatility affecting OCI and equity, Extraordinary item volatility (asset reductions/evaluations) influencing bottom-line variability.

Key concerns include Concentration risk: Transportation accounts for 90.9% of revenue, heightening exposure to core network performance, Guided margin compression next year (operating income -9.1% YoY on +3.5% revenue) suggests cost headwinds, Tax burden at 31.1% is on the higher side, marginally weighing on net margins.

Investment Implications

Key takeaways include Core rail franchise delivered steady growth with high operating margin (~21%) and strong cash generation, Net margin improved ~80 bps on revenue growth and extraordinary gains; sustainability leans toward normalization, Balance sheet remains robust (Debt/EBITDA 1.67x; current ratio 166%), supporting investment cycle and dividends, FCF comfortably funded dividends (payout ~41%) and small buybacks with room to spare, Management guides revenue growth but lower operating income, implying cost pressures and conservative budgeting.

Metrics to watch include Operating margin trajectory vs guided ~18–19%, Capex and maintenance outlays vs depreciation (asset quality and service reliability), Wage and energy cost trends and pass-through to fares/ancillary revenue, Debt/EBITDA and interest coverage as financing conditions evolve, Extraordinary items (asset reductions/evaluations) that may create earnings volatility.

Regarding relative positioning, Within Japan’s urban rail peers, the company exhibits superior operating margins, conservative leverage, and strong FCF coverage of shareholder returns. Exposure is concentrated in metropolitan rail with high utilization, complemented by high-margin ancillary segments (real estate and services) that enhance stability.