TOTECH (9960) FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, both the Product Sales Business and Construction Business recorded revenue growth, resulting in higher revenue and earnings, with Operating Income growing faster than Revenue. Revenue was ¥1700.1B (up +9.0% YoY), Operating Income was ¥171.2B (up +16.6%), Ordinary Income was ¥179.8B (up +15.5%), and Net Income was ¥131.3B (up +17.3%). The primary factor driving the earnings growth rate was the improvement in the gross margin to 28.4% from the previous year, and the results can be characterized as reflecting effective operating leverage.

Factors Affecting Performance

【Revenue】Revenue was ¥1700.1B, up +9.0% YoY. The Construction Business posted strong growth of ¥761.9B (up +16.8%), while the Product Sales Business remained at ¥937.9B (up +3.4%). Growth in the Construction Business led consolidated revenue growth.

【Profit and Loss】The gross margin improved to 28.4% from the previous year, absorbing the increase in the SG&A expense ratio to 18.3%, and consequently expanding the Operating Margin to 10.1%. Segment profit in the Construction Business (on a gross profit basis) was ¥265.7B (up +20.0%), exceeding the ¥216.9B (up +10.0%) generated by the Product Sales Business and serving as the core driver of earnings growth. Ordinary Income was boosted by positive net non-operating income and expenses (including ¥5.0B in dividend income), while extraordinary gains and losses contributed net income of ¥1.2B, primarily due to a ¥3.2B gain on the sale of investment securities. Net Income of ¥131.3B was driven primarily by higher operating earnings, with limited dependence on extraordinary factors. In conclusion, the Company achieved higher revenue and earnings.

Segment Analysis

The reporting segments comprise the Product Sales Business and Construction Business. The Construction Business generated revenue of ¥761.9B (44.8% of the total) and a high gross margin of 34.9%, making it a high-profitability business and the largest profit-contributing segment, accounting for 55.0% of consolidated gross profit of ¥482.8B. The Product Sales Business generated revenue of ¥937.9B (55.2% of the total), making it the largest segment by scale, but its gross margin of 23.1% was 11.8pt below that of the Construction Business. Segment profit increased by double digits YoY in both businesses (Construction +20.0%, Product Sales +10.0%), contributing to higher revenue and earnings.

Key Financial Indicators

【Profitability】The Operating Margin of 10.1% (9.4% in the previous year) and Net Profit Margin of 7.7% (7.2% in the previous year) both improved from the previous year, primarily due to the increase in the gross margin to 28.4%. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥95.9B, below Net Income of ¥131.3B, resulting in OCF/Net Income of 0.73x. OCF decreased 30.9% from ¥138.8B in the previous year, primarily due to a ¥79.9B decrease in trade payables. 【Investment Efficiency】ROE was 17.8%, achieved through a combination of a Net Profit Margin of 7.7%, Total Asset Turnover of 1.48x, and Financial Leverage of 1.56x. This represents capital efficiency under a conservative capital structure with an Equity Ratio of 64.0%, rather than a structure dependent on increased borrowing. 【Financial Soundness】The Equity Ratio increased to 64.0% (58.2% in the previous year), and the Company held ¥113.0B in cash and deposits against interest-bearing debt of ¥52.9B. However, 93.7% of interest-bearing debt was concentrated in short-term borrowings, and the increasing short-term nature of the funding structure requires monitoring.

Cash Flow Analysis

Operating Cash Flow was ¥95.9B, down 30.9% from ¥138.8B in the previous year. The primary reason for the decrease was a ¥79.9B reduction in trade payables, which increased cash outflows related to working capital; decreases of ¥16.2B in accounts receivable and ¥8.6B in inventories partially offset this impact. Investing Cash Flow was an outflow of ¥85.1B, with capital expenditures of ¥57.3B reaching 3.6 times depreciation and amortization of ¥15.8B, indicating that the Company is in a phase of growth investment. Financing Cash Flow was an outflow of ¥49.7B, including ¥7.8B in share repurchases and debt repayments. As a result, free cash flow (Operating Cash Flow + Investing Cash Flow) remained at ¥10.9B, while cash and cash equivalents decreased by ¥38.4B to ¥92.1B at the end of the period. The recovery of Operating Cash Flow will depend on working capital management, particularly trends in trade payables.

Earnings Quality

The increase in Net Income to ¥131.3B was driven primarily by higher operating earnings, with limited dependence on extraordinary gains and losses (a net profit contribution of ¥1.2B, consisting of a ¥3.2B gain on the sale of investment securities and ¥2.0B in losses on the disposal of fixed assets, among other items). Dividend income of ¥5.0B was a major component of non-operating income of ¥13.4B, but it represented only 0.8% of Revenue and was not large enough to substitute for core operating earnings. Meanwhile, Operating Cash Flow was below Net Income, with OCF/Net Income at 0.73x, indicating that the conversion of accounting earnings into cash weakened from the previous year. This gap was primarily attributable to working capital cash outflows caused by the decrease in trade payables. The difference between Comprehensive Income of ¥184.2B and Net Income of ¥131.3B, mainly the ¥43.8B valuation difference on securities, reflects fluctuations in market prices and should be distinguished from recurring earning power.

Earnings Forecast and Guidance

The progress rates of current-period results against Company forecasts (Revenue of ¥1800.0B, Operating Income of ¥180.0B, and Ordinary Income of ¥185.0B) were 94.5% for Revenue, 95.1% for Operating Income, and 97.2% for Ordinary Income. Against forecast EPS of ¥334.10, actual EPS was ¥319.18, representing progress of 95.5%. The full-year forecast Revenue growth rate of +5.9% and Operating Income growth rate of +5.1% are more moderate assumptions than the current-period growth rates (+9.0%, +16.6%), indicating that the high growth pace of the current period is expected to moderate somewhat in the second half of the fiscal year.

Shareholder Returns

The annual dividend was ¥128 per share (¥35 interim and ¥93 year-end), resulting in a Payout Ratio of 40.1%. The Total Return Ratio, calculated by adding ¥7.8B in share repurchases to total dividends of ¥52.7B, was approximately 46.1%, and should be evaluated separately from the Payout Ratio. Retained earnings accumulated to ¥565.5B, providing a solid foundation for dividend payments; however, current-period free cash flow of ¥10.9B was below total dividends of ¥52.7B, indicating that dividend sustainability is currently supported by earnings levels and available liquidity. The Company’s forecast annual dividend is ¥128 per share, unchanged from the previous year’s actual dividend.

Risk Factors

1. Declining cash conversion efficiency of Operating Cash Flow: OCF/Net Income was 0.73x and OCF/EBITDA remained at 0.51x. The primary factor was the ¥79.9B decrease in trade payables, and continued working capital fluctuations could constrain funds available for investment and shareholder returns.

2. Concentration of funding in short-term borrowings: Of interest-bearing debt of ¥52.9B, short-term borrowings of ¥49.6B accounted for 93.7% and increased +65.4% YoY. Cash and deposits of ¥113.0B exceeded short-term borrowings, indicating strong repayment capacity at present; however, the increasing short-term nature of the funding structure could reduce flexibility in capital allocation.

3. Revenue concentration in the Product Sales Business: The Product Sales Business generated revenue of ¥937.9B, accounting for 55.2% of total Company revenue. Trends in demand for air-conditioning, control, and energy-saving equipment, as well as fluctuations in procurement prices, have a relatively significant impact on overall Company performance.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

Both the Operating Margin and Net Profit Margin significantly exceeded the industry median, placing the Company among the industry leaders in profitability.

Growth and Capital Efficiency

The Revenue Growth Rate also exceeded the industry median but did not reach the upper limit of the industry IQR (12.1%).

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Operating Margin of 10.1% (9.4% in the previous year) and Net Profit Margin of 7.7% (7.2% in the previous year) both improved, confirming an earnings growth structure driven by the higher gross margin. ROE of 17.8% was achieved under a conservative capital structure with an Equity Ratio of 64.0%, which is a notable feature.

2. The Construction Business, with a gross margin of 34.9% and a segment profit growth rate of +20.0%, was the core driver of overall earnings growth. The profitability gap with the Product Sales Business (gross margin of 23.1%) represents an ongoing structural characteristic.

3. OCF/Net Income of 0.73x and the 30.9% YoY decline in Operating Cash Flow indicate a divergence between the pace of earnings growth and cash generation. The primary factor was working capital fluctuation caused by the decrease in trade payables, and future trends in Operating Cash Flow will be a key point for assessing the cash conversion of earnings.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,303–¥2,439 at ±1% for the Cost of Equity, and ¥2,355–¥2,391 at ±0.1 for ω.

Notes:

• Amortization of goodwill of ¥17.9 per share has been added back to earnings (due to its non-cash nature and for comparability with IFRS companies).

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of market share prices or recommendations for specific investment actions, and do not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings report 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 with professionals as necessary.

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