TOEI COMPANY,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Despite virtually flat Revenue, Operating Income increased at a double-digit rate, resulting in a high-quality earnings performance supported by improved cost efficiency. Revenue was ¥420.8B (+0.6% YoY), Operating Income was ¥84.9B (+9.9%), and Ordinary Income was ¥103.8B (+4.9%). Net Income attributable to owners of the parent was ¥38.3B (¥38.6B in the same period last year, -0.8% YoY), remaining virtually flat, with profit attributable to non-controlling interests (¥34.3B) acting as a downward factor. The primary drivers of earnings growth were contributions from high-margin projects in the Video-related Business and improved absorption efficiency for selling, general and administrative expenses, with the gross profit margin improving substantially to 46.3% (42.2% in the same period last year).

Factors Affecting Performance

【Revenue】Revenue was ¥420.8B, virtually flat at +0.6% YoY. While the core Video-related Business led growth at ¥296.3B (+3.9%), the Architectural and Interior Business posted a substantial decline in Revenue to ¥22.8B (-29.5%), restraining overall growth. The Theatrical Exhibition-related Business (¥58.6B, +0.9%) and Events-related Business (¥32.8B, -1.7%) were broadly flat, while the Tourism Real Estate Business recorded solid Revenue growth at ¥19.5B (+9.8%).

【Profit and Loss】Operating Income increased 9.9% YoY to ¥84.9B, substantially exceeding the Revenue growth rate. Operating Income in the Video-related Business was ¥76.2B (+9.9%), maintaining a high margin of 25.7% and accounting for approximately 9割 of total company profit. The Theatrical Exhibition-related Business reported a decline in Operating Income to ¥3.8B (-11.8%, margin of 6.5%), highlighting the clear profitability disparity among segments. Against Ordinary Income of ¥103.8B (+4.9%) and Profit Before Tax of ¥104.8B, the deduction of income taxes of ¥32.3B (effective tax rate of approximately 30.8%) and profit attributable to non-controlling interests of ¥34.3B resulted in Net Income attributable to owners of the parent of ¥38.3B (-0.8%), which was virtually flat. Net extraordinary gains and losses were a minor +¥1.1B, limiting their impact on performance. In summary, the company achieved Revenue and Operating Income growth, while Net Income attributable to owners of the parent remained at the previous-year level. A notable feature was that improved profitability at the operating level was offset at the net income level by the increase in the portion attributable to non-controlling interests.

Segment Analysis

The Video-related Business is the core business, accounting for 70.5% of the Revenue mix and approximately 89.8% of the Operating Income mix. It led company-wide growth with Revenue of ¥296.3B (+3.9%), Operating Income of ¥76.2B (+9.9%), and a margin of 25.7%. The Tourism Real Estate Business had the highest margin among all segments at 31.7%, but Operating Income declined slightly to ¥6.2B (-1.8%). The Theatrical Exhibition-related Business had a relatively low margin of 6.5% and was the only segment to post a double-digit decline in Operating Income, at ¥3.8B (-11.8%). The Events-related Business (Operating Income of ¥4.95B, +24.7%) and Architectural and Interior Business (Operating Income of ¥3.04B, +28.3%; however, Revenue was -29.5%) contributed to earnings growth, with non-core areas supporting company-wide profit. The business portfolio remains highly dependent on the Video-related Business, meaning that the content mix and production progress of that business have a significant impact on overall company performance.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 20.2% (18.5% in the same period last year), while the gross profit margin also increased to 46.3% (42.2% in the same period last year). The consolidated Net Income margin was high at approximately 17.2%, but it was only 9.1% based on Net Income attributable to owners of the parent, compressed by the impact of profit attributable to non-controlling interests.【Cash Flow Quality】Cash and deposits were substantial at ¥1,211.4B, while current assets of ¥1,899.3B substantially exceeded current liabilities of ¥537.7B, indicating no concerns regarding short-term liquidity. 【Investment Efficiency】ROE was low at 1.9%, attributable to the low asset turnover ratio relative to total assets of ¥4,964.9B. The substantial financial asset base, including investment securities of ¥1,527.7B, is diluting asset efficiency.【Financial Soundness】The Equity Ratio was exceptionally high at 78.3%. Net assets of ¥3,886.8B were secured against long-term borrowings of ¥159.6B, indicating a conservative capital structure.

Cash Flow Analysis

Although the company does not disclose a statement of cash flows, an analysis of cash trends based on changes in the balance sheet indicates that Cash and deposits decreased to ¥1,211.4B from ¥1,266.1B in the previous year, while investment securities increased to ¥1,527.7B (¥1,502.2B in the previous year), suggesting that a portion of surplus funds may have been allocated to investment securities. Accounts payable and notes payable decreased to ¥276.8B (¥308.4B in the previous year), potentially indicating that a shortening of payment terms was accompanied by cash outflows. Work in progress increased to ¥183.9B (¥161.1B in the previous year), indicating that the accumulation of projects in production is placing pressure on working capital. Cash levels remain substantial, and sufficient short-term liquidity continues to be secured.

Earnings Quality

The earnings growth during the quarter was primarily driven by recurring improvements in operating profitability, with limited impact from temporary factors. Non-operating income was ¥20.1B, or approximately 4.8% of Revenue, which is somewhat significant; however, it consisted of dividend income of ¥7.9B (stable income from investment securities) and equity-method investment gains, among other items. As ancillary cash income from the core business, its quality is high. Extraordinary income was ¥2.7B (gain on sales of investment securities), while extraordinary losses were ¥1.6B, resulting in a net gain of only +¥1.1B, an amount insufficient to distort performance. The substantial decline from Ordinary Income of ¥103.8B to Net Income attributable to owners of the parent of ¥38.3B was primarily due to the deduction of income taxes of ¥32.3B (effective tax rate of approximately 30.8%) and profit attributable to non-controlling interests of ¥34.3B. The share attributable to minority shareholders of consolidated subsidiaries is therefore a structural factor determining Net Income quality. The accumulation of working capital, as reflected in the increase in work in progress, suggests a potential time lag between the recognition of profit and its conversion into cash and requires monitoring when assessing earnings quality.

Earnings Forecasts and Guidance

Progress against the full-year plan was somewhat delayed for Revenue at 22.3% (full-year plan of ¥1,890.0B), while progress on the profit side was ahead of the quarterly benchmark of 25%, with Operating Income at 29.6%, Ordinary Income at 31.1%, and Net Income at 30.4%. The company has made no revisions to either its earnings forecast or dividend forecast and has maintained its full-year outlook of Operating Income of ¥287.0B (-20.5% YoY) and Ordinary Income of ¥334.0B (-23.3% YoY). The previous fiscal year appears to have included substantial temporary earnings growth, including a special dividend, and the full-year earnings decline plan is understood to reflect the subsequent reaction. While Revenue is ramping up gradually, profit progress is ahead, suggesting the possibility that Revenue recognition may be pushed back to the second half.

Shareholder Returns

The annual dividend forecast announced by the company is ¥12.00, and the Payout Ratio against the company’s forecast EPS of ¥201.64 remains low at approximately 6.0%. Because the year-end dividend for the previous fiscal year included a special dividend of ¥24, the full-year dividend level is close to the underlying level excluding the temporary increase from the previous fiscal year. No revision has been made to the dividend forecast, and there has been no change to the dividend policy for the current quarter. Supported by ample retained earnings, including Cash and deposits of ¥1,211.4B, the company is considered to have sufficient capacity to fund dividends.

Risk Factors

1. Dependence on the Video-related Business: Accounting for 70.5% of the Revenue mix and approximately 89.8% of the Operating Income mix, the company has a structure in which the content mix and delays in production progress directly affect overall performance.

2. Working Capital Tied Up: Work in progress increased to ¥183.9B (+14.1% from ¥161.1B in the previous year), creating a risk that the timing of cash conversion may be pushed back depending on the progress of production projects.

3. Profitability of the Theatrical Exhibition-related Business: With an Operating Income margin of 6.5%, profitability is low compared with other segments. Operating Income declined 11.8% during the quarter, leaving the business vulnerable to content demand and attendance trends.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Return

Profitability significantly exceeds the industry median, with both the Operating Income margin and Net Income margin positioned in the upper group.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median, placing the company at a relative disadvantage in terms of growth.

※Source: Company compilation

Key Takeaways from the Earnings Results

1. Despite virtually flat Revenue, the Operating Income margin improved to 20.2% (18.5% in the same period last year), making earnings growth accompanied by improved cost efficiency the central feature of the results.

2. The substantial decline from Ordinary Income to Net Income attributable to owners of the parent, and the impact of profit attributable to non-controlling interests of ¥34.3B on the presentation of Net Income, require a distinction between consolidated Net Income and Net Income attributable to owners of the parent.

3. The accumulation of working capital, as reflected in the increase in work in progress, may create a timing gap before the improvement in Operating Income translates directly into cash generation. Trends in the coming quarters will provide insight into whether a structural change is occurring.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥4,986–¥5,281 at ±1% for the cost of equity, and ¥5,094–¥5,154 at ±0.1 for ω.

Notes:

• Net Income is substantially compressed relative to Operating Income due to tax burdens, acquisition-related expenses, non-controlling interests, and other factors (Net Income ÷ Operating Income 44%). This value reflects that compression at face value; if the factors are temporary, the underlying earning power may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a time lag relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market stock price or a recommendation of any specific investment action, and does not predict or guarantee the future stock price.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary 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 a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2027 Q1 was a solid operating quarter for Toei, with modest top-line growth translating into materially faster operating-profit growth. Revenue increased 0.6% YoY to JPY42.08bn. Operating income rose 9.9% to JPY8.49bn, outperforming the revenue trend. The operating margin expanded by 170bp to 20.2% from 18.5% in the prior-year quarter. Gross profit increased 10.4% to JPY19.48bn despite broadly flat sales. The gross margin improved by 410bp to 46.3%, indicating a favorable content and project profitability mix. SG&A rose 10.1% to JPY10.99bn, broadly in line with the increase in gross profit and slightly exceeding sales growth. Ordinary income increased 4.9% to JPY10.38bn. Non-operating income of JPY2.01bn included JPY0.79bn of dividend income and JPY0.68bn of equity-method earnings. Profit before tax rose 6.3% to JPY10.49bn, aided by a JPY0.27bn gain on sales of investment securities. Profit attributable to owners of the parent was broadly flat, declining 0.8% to JPY3.83bn, equivalent to EPS of JPY61.25. The divergence between stronger operating income and flat parent-attributable earnings reflects the tax and non-controlling-interest allocation effects. Consolidated net income increased 5.5% to JPY7.25bn, while non-controlling-interest profit rose to JPY3.43bn from JPY3.02bn. The video-related business remained the core earnings driver and was the principal contributor to segment-profit growth. Full-year company guidance implies a substantial decline in operating and ordinary income despite 2.0% revenue growth, making the durability of the Q1 margin improvement and content-release mix central to the outlook.

Profitability Analysis

Annualized DuPont ROE is 3.9%, decomposed into a 9.1% net profit margin, 0.339x asset turnover, and 1.28x financial leverage. The low annualized ROE is primarily a consequence of low asset turnover against a large asset base, rather than excessive leverage. Financial leverage is conservative and does not meaningfully amplify shareholder returns. The Q1 EBIT margin was 20.2%, an improvement from 18.5% a year earlier, and is above the 15% threshold generally associated with excellent operating profitability. Gross margin improved to 46.3% from 42.2%, a 410bp expansion, while the operating-margin increase was 170bp because SG&A increased 10.1% YoY to JPY10.99bn. Video-related operations were the core business, generating JPY29.63bn of segment revenue and JPY7.62bn of segment profit; its segment margin rose to 25.7% from 24.3%. Event operations improved materially, with segment profit rising 24.7% to JPY0.50bn and margin expanding to 15.1% from 11.9%, despite a 1.7% revenue decline. Construction/interior segment profit increased 28.3% to JPY0.30bn, with margin rising to 13.3% from 7.3%, although segment revenue fell 29.5%. Theater operations saw segment profit decline 11.8% to JPY0.38bn and margin fall to 6.5% from 7.4%. Tourism/real-estate revenue increased 9.8% to JPY1.95bn, but segment profit decreased 1.8% to JPY0.62bn and margin compressed to 31.7% from 35.4%. The tax burden in the five-factor DuPont calculation was 0.365, which weighs heavily on returns attributable to parent shareholders, while the consolidated effective tax rate based on income tax expense and profit before tax was 30.8%.

Growth Assessment

Q1 revenue growth of 0.6% was modest, but operating income growth of 9.9% demonstrates strong operating leverage from gross-margin expansion. Video-related external revenue rose 4.0% YoY to JPY29.16bn and remains the principal source of revenue and earnings momentum. Theater external revenue was broadly flat at JPY5.79bn, while event revenue declined 2.0% to JPY3.14bn. Tourism/real-estate external revenue increased 8.1% to JPY1.71bn. Construction/interior external revenue declined 29.7% to JPY2.27bn, indicating uneven demand across the portfolio. The higher-margin video mix and improvement in event profitability supported group earnings growth. Ordinary-income growth of 4.9% lagged operating-income growth because non-operating income declined from JPY2.26bn to JPY2.01bn, including lower equity-method earnings of JPY0.68bn versus JPY1.24bn. Full-year guidance calls for revenue of JPY189.0bn, up 2.0% YoY, operating income of JPY28.7bn, down 20.5%, ordinary income of JPY33.4bn, down 23.3%, and parent-attributable profit of JPY12.6bn. Q1 progress versus full-year guidance is 22.3% for revenue, 29.6% for operating income, 31.1% for ordinary income, and 30.4% for parent-attributable profit. Operating-income progress is 4.6 percentage points above the standard 25% first-quarter run rate, but is not more than 10 percentage points above it. The guidance profile consequently embeds lower profitability over the remaining quarters than achieved in Q1.

Financial Health

Financial health is strong. The current ratio is 353.2% and the quick ratio is 347.6%, supported by JPY121.14bn of cash and deposits against JPY53.77bn of current liabilities. Working capital totals JPY136.16bn. Interest-bearing debt is JPY20.84bn, consisting of JPY4.88bn of short-term loans and JPY15.96bn of long-term loans. Cash is 24.81x short-term debt, indicating no apparent short-term refinancing pressure. The short-term debt ratio is 23.4%, limiting maturity-mismatch risk because current assets substantially exceed both current liabilities and near-term borrowings. Debt-to-equity is a conservative 0.28x, debt-to-capital is 5.1%, and neither leverage metric signals balance-sheet stress. Interest coverage is exceptionally high at 97.59x, with interest expense of only JPY0.87bn relative to EBIT of JPY8.49bn. Total equity of JPY388.68bn represents 78.3% of total assets, and the capital adequacy ratio is 59.5%. Investment securities of JPY152.77bn represent 30.8% of total assets, creating meaningful exposure to market-value movements and dividend income, but also providing a substantial financial asset base. Property, plant and equipment totals JPY105.66bn, including land of JPY53.37bn, which supports the real-estate and operating asset base.

Cash Flow Quality

Working-capital indicators warrant close monitoring. Receivables were JPY39.47bn and the reported DSO was 86 days, above the 60-day alert threshold; this can delay cash conversion and raises the importance of timely collection from distribution, exhibition, and project customers. Inventories were JPY30.38bn, with reported DIO of 90 days at the alert threshold. Work in process was JPY18.39bn, representing 82.1% of inventory and exceeding the 40% alert threshold. The high WIP mix is consistent with a content-production and project-based business model, where expenditure is incurred before release, delivery, or monetization, but it increases risk around project timing, cost overruns, and recoverability. Work in process increased 14.1% YoY, faster than group revenue, reinforcing the need to monitor conversion into revenue and gross profit. Accounts receivable declined 7.0% YoY, which partially mitigates the elevated DSO signal. Accounts payable declined 10.2% YoY to JPY27.68bn, reducing supplier financing relative to the prior-year quarter. Earnings included JPY0.27bn of gains on sales of investment securities, partly offset by JPY0.16bn of extraordinary losses, for a net extraordinary gain of JPY0.11bn. This net extraordinary contribution was small relative to JPY8.49bn of operating income, so Q1 operating profitability was principally generated by the underlying businesses.

Dividend Sustainability

The full-year dividend forecast is JPY12.00 per share, compared with forecast EPS of JPY201.64. The implied dividend payout ratio is approximately 6.0%, which is highly conservative relative to the 60% sustainability benchmark. Retained earnings were JPY204.61bn and cash and deposits were JPY121.14bn, providing substantial balance-sheet capacity for the indicated dividend. The prior fiscal-year final dividend of JPY30.00 included a JPY24.00 special dividend, so it should not be treated as a recurring base-dividend run rate. The forecast DPS indicates a materially lower ordinary cash distribution than the prior special-dividend-inclusive amount. Dividend sustainability is underpinned by low leverage, strong liquidity, and the low forecast payout ratio. The future distribution profile will depend principally on earnings delivery against a full-year forecast that anticipates lower operating profit.

Risk Assessment

Business risks include Content and release-performance risk: the video-related segment generates the largest revenue and segment-profit contribution, so title performance, release timing, licensing demand, and audience engagement can materially affect group earnings., Theater profitability risk: theater segment profit declined 11.8% YoY and segment margin compressed by 90bp to 6.5%, leaving this business sensitive to attendance, film slate quality, and operating-cost inflation., Project execution risk: construction/interior revenue declined 29.5% YoY while WIP remained high, increasing sensitivity to project completion timing, cost control, and revenue recognition., Inventory recoverability risk: WIP accounts for 82.1% of inventories, above the quality-alert threshold, and may require reassessment if content, events, or projects underperform commercially., Financial-market exposure: investment securities equal 30.8% of total assets, exposing comprehensive income and equity value to equity-market valuation movements..

Financial risks include Tax burden risk: the 0.365 parent-attributable tax-burden factor is below the 0.60 benchmark. On a parent-attributable basis, the gap between JPY10.49bn of profit before tax and JPY3.83bn of profit attributable to owners is influenced by JPY3.23bn of tax expense and JPY3.43bn allocated to non-controlling interests. This constrains conversion of pre-tax profit into parent EPS, although the consolidated effective tax rate is 30.8%., Receivable-collection risk: DSO of 86 days exceeds the 60-day alert threshold. Although receivables declined YoY, sustained elevated collection days could weaken cash conversion., Working-capital funding risk: DIO of 90 days and a high WIP concentration can increase cash requirements before monetization, even though current liquidity is ample..

Key concerns include The principal near-term issue is the contrast between Q1 operating-margin expansion and full-year guidance for a 20.5% decline in operating income., SG&A increased 10.1% YoY against revenue growth of 0.6%; continued cost growth without further gross-margin gains would pressure operating margins., Annualized ROE of 3.9% remains below the 8% benchmark because the large asset and investment-security base produces low asset turnover., Non-operating income accounted for 4.8% of revenue and includes dividend and equity-method income; variation in investee earnings and investment returns can affect ordinary income..

Investment Implications

Key takeaways include Q1 operating income grew 9.9% YoY and the operating margin expanded 170bp to 20.2%, led by video-related profitability., The video-related segment is the core business, contributing JPY7.62bn of JPY9.42bn total segment profit before corporate costs., The balance sheet is highly liquid and conservatively financed, with a 353.2% current ratio, 0.28x debt-to-equity, and 97.59x interest coverage., Parent-attributable earnings were flat despite stronger operations, reflecting tax and non-controlling-interest effects., The full-year outlook embeds a marked profit decline, requiring close assessment of whether Q1's favorable gross-margin performance can persist..

Metrics to watch include Video-related revenue growth and segment margin, Theater attendance, revenue, and segment-profit recovery, Work-in-process balance, WIP-to-inventory ratio, and inventory days, Receivable days and collection trends, SG&A growth relative to revenue growth, Progress against full-year operating-income guidance, Equity-method earnings, dividend income, and valuation movements in investment securities.

Regarding relative positioning, Toei combines high Q1 operating profitability and an exceptionally conservative balance sheet with comparatively low annualized ROE due to low asset turnover and a substantial investment-security base. Its earnings profile is anchored by video-related content operations, while theater, event, real-estate, and project businesses add diversification but exhibit differing margin trajectories.