TOKYOTOKEIBA CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

The 2026 fiscal year Q2 results were solid, with higher revenue and earnings accompanied by improved margins. Revenue was ¥198.2B (¥193.0B in the previous year, +2.7%), operating income was ¥73.6B (¥70.8B in the previous year, +3.9%), ordinary income was ¥74.0B (¥70.8B in the previous year, +4.6%), and net income attributable to owners of the parent was ¥49.4B (¥48.3B in the previous year, +2.4%). The core Public Racing (RacingFacilities) Business drove revenue and earnings, while the high margins of the Warehousing Business and the return to earnings growth in the Commercial Services Business also contributed to improved company-wide profitability.

Factors Affecting Performance

【Revenue】Revenue increased 2.7% year on year to ¥198.2B. By segment, Public Racing was the largest growth driver at ¥149.7B (75.5% of total, +2.9% year on year). Warehousing expanded to ¥30.9B (+2.4%), and the Commercial Services Business grew to ¥11.6B (+3.4%), while the Amusement Park Business contracted to ¥6.5B (-5.5%).

【Profit and Loss】Operating income increased 3.9% year on year to ¥73.6B, growing faster than revenue, and the operating margin improved to 37.1% from 36.7% in the previous year. The gross margin also rose to 42.8% from approximately 42.3% in the previous year, while the suppression of the SG&A expense ratio also contributed. By segment, Public Racing generated ¥63.6B in segment profit (+2.5%), while Warehousing generated ¥20.7B (+3.0%) and maintained high profitability with a 66.8% margin. The Commercial Services Business posted a substantial increase in profit to ¥2.7B (+125.9%). Meanwhile, the Amusement Park Business remained loss-making at -¥5.4B, with a margin of -82.0%, partially diluting company-wide earnings. Ordinary income increased 4.6% to ¥74.0B, supported by growth in operating income as well as interest and dividend income. Net income remained at ¥49.4B (+2.4%), as the tax burden (effective tax rate of 32.9%) restrained growth from ordinary income. Extraordinary income of ¥0.2B was immaterial, and the impact of temporary factors was limited. Overall, the company achieved higher revenue and earnings, and the faster growth in profit than revenue indicates high-quality earnings growth accompanied by margin improvement.

Segment Analysis

Public Racing (RacingFacilities) is the core business, accounting for 75.5% of company-wide revenue, with revenue of ¥149.7B (+2.9% year on year), operating income of ¥63.6B (+2.5%), and a 42.5% margin. Warehousing (WarehousingFacilities) generated revenue of ¥30.9B (+2.4%) and operating income of ¥20.7B (+3.0%), maintaining the highest profitability among all segments with a 66.8% margin. Against revenue of ¥11.6B (+3.4%), the Commercial Services Business posted a substantial increase in operating income to ¥2.7B (+125.9%), improving its margin to 23.0%. The Amusement Park Business (AmusementPark) generated revenue of ¥6.5B (-5.5%) and operating income of -¥5.4B, with losses expanding by -6.7% year on year, while its margin remained at -82.0%. Its structural deficit continues to dilute the company-wide margin. There is a significant disparity in profitability among segments, and the expansion of high-margin businesses—Warehousing and Commercial Services—together with earnings improvement in the Amusement Park Business, will determine future trends in the company-wide margin.

Key Financial Indicators

【Profitability】The operating margin of 37.1% and net profit margin of 25.1% both improved from the previous year, while the gross margin also rose to 42.8%. ROE was 5.1%, primarily because the total asset turnover ratio was low at 0.157x despite the high net profit margin; leverage also remained modest at 1.28x. 【Cash Quality】Operating cash flow (OCF) was ¥49.1B, approximately 1.0x net income of ¥49.8B, but the ratio to EBITDA of ¥106.2B was only approximately 0.46x. An increase in trade receivables (-¥12.9B) and income taxes paid (-¥25.9B) constrained cash conversion. 【Investment Efficiency】Capital expenditures of ¥15.9B were below depreciation and amortization of ¥32.6B, with investment at approximately 0.49x depreciation. Trends in the pace of asset renewal will therefore require monitoring. 【Financial Soundness】The equity ratio remained high at 77.9% (77.5% in the previous year), with substantial capitalization, as net assets of ¥983.4B compared with total assets of ¥1261.8B. Although liabilities include long-term borrowings of ¥50.2B and bonds redeemable within one year of ¥100.0B, financial risk can be considered limited given the high equity ratio.

Cash Flow Analysis

Operating cash flow was ¥49.1B, a substantial decrease of -47.8% from ¥97.4B in the previous year. This reflected the absorption of working capital due to an increase in trade receivables (-¥12.9B) and higher income taxes paid (-¥25.9B). The comparison was also affected by the reversal of the previous year, when OCF had been boosted by a decrease in trade receivables and an accumulation of unpaid taxes. Investing cash flow was positive at ¥2.8B, as temporary cash recoveries, including the unwinding of short-term investment securities, offset capital expenditures of ¥15.9B. Financing cash flow was -¥27.0B, primarily due to dividend payments of ¥18.9B, while share repurchases were minimal at ¥0.1B. As a result, free cash flow was ample at ¥51.9B, providing sufficient coverage for dividends and capital expenditures. The decline in OCF was largely attributable to temporary working-capital absorption and should not be interpreted as indicating a deterioration in the underlying earnings power of the business.

Quality of Earnings

Current-period earnings were driven by the core business. Both non-operating income of ¥0.9B, primarily interest and dividend income, and non-operating expenses of ¥0.4B, primarily interest expenses, were immaterial, and their impact on ordinary income was limited. Extraordinary income of ¥0.2B was also a temporary factor and did not indicate a structural change in performance. The difference between ordinary income of ¥74.0B and net income of ¥49.8B was primarily attributable to income taxes of ¥24.4B (an effective tax rate of approximately 32.9%), and the gap between ordinary income and net income can be explained within the scope of the tax burden. From an accrual perspective, OCF was broadly in line with net income at 0.99x, which is favorable. However, the OCF-to-EBITDA ratio was low at 0.46x, as working-capital factors such as higher trade receivables and tax payments delayed cash conversion. Earnings quality is sound, with earnings derived primarily from the core business and limited contamination from temporary factors, but cash conversion requires monitoring.

Earnings Forecast and Guidance

Progress against the full-year plan was 46.5% for revenue (¥198.2B/¥426.0B), 46.5% for operating income (¥73.6B/¥158.3B), and 46.7% for ordinary income (¥74.0B/¥158.6B). Although these figures were approximately 3–4pt below the standard half-year progress rate of 50%, performance was broadly in line with the plan given the seasonality weighted toward the second half. There were no revisions to the earnings forecast or dividend forecast during the quarter, and the company indicated no significant change to its full-year outlook.

Shareholder Returns

The Q2 dividend was ¥60 per share (+¥15 year on year). The full-year dividend forecast is ¥146, implying a payout ratio of approximately 35.1% against forecast EPS of ¥415.34. Share repurchases were minimal at ¥0.1B, making dividends the primary method of shareholder returns. Dividend payments of ¥18.9B were covered approximately 2.7x by free cash flow of ¥51.9B, and dividend sustainability can be considered sound given the company’s financial capacity, including cash and deposits of ¥169.6B.

Risk Factors

1. Business concentration risk: The Public Racing Business accounts for 75.5% of revenue and the majority of segment profit, creating a structure with high sensitivity to external factors such as event schedules, weather, and regulatory trends.

2. Structural deficit in the Amusement Park Business: Operating income for the current period was -¥5.4B, with a margin of -82.0%, and losses continue to dilute company-wide operating income. The pace of loss reduction will be a key focus going forward.

3. Declining cash conversion efficiency: OCF declined to approximately 0.46x EBITDA, reflecting working-capital absorption from higher trade receivables and increased income tax payments. The pace of working-capital normalization will affect the sustainability of free cash flow.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Profitability significantly exceeds the industry median, with both the operating margin and net profit margin ranking in the upper tier.

Growth and Capital Efficiency

The revenue growth rate is substantially below the industry median, highlighting the contrasting characteristics of high profitability and low growth.

※Source: Compiled by the company

Key Takeaways from the Financial Results

1. The operating margin improved to 37.1% from the previous year, supported by a higher gross margin and cost discipline. The high margin of the Warehousing Business (66.8%) and substantial earnings growth in the Commercial Services Business (+125.9%) underpin the company-wide earnings structure.

2. OCF declined to 0.46x EBITDA, reflecting working-capital absorption from higher trade receivables and tax payments. Although free cash flow itself was ample at ¥51.9B, the trend in cash conversion efficiency requires monitoring.

3. Capital expenditures remained at approximately 0.49x depreciation and amortization, indicating continued restraint in investment. The conservative financial structure, with an equity ratio of 77.9% and Debt/EBITDA equivalent to 0.48x, preserves investment capacity. At the same time, the direction of medium-term capital allocation, together with measures to improve the structural deficit of the Amusement Park Business, will be a key area of focus.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥3,857–¥4,082 at ±1% cost of equity, and ¥3,962–¥3,973 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing mismatch with the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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 discretion and responsibility, after consulting professionals as necessary.

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