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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