Tokyo Tekko Q2 FY2027: Sales rise, operating profit falls 26%

Tokyo Tekko's FY2027 first-half revenue was ¥39.472 billion, up 7.4% year on year. Operating profit fell 26.0% to ¥4.944 billion, while net income attributable to owners of the parent declined 32.4% to ¥3.044 billion. Sales grew, but profits fell sharply: higher shipments did not translate into higher earnings.

• Revenue: Increased ¥2.731 billion from a year earlier, mainly on higher shipments of products and related goods.
• Operating profit: Decreased ¥1.733 billion year on year, hurt by narrower spreads between product and raw material prices and higher power costs.
• Ordinary profit: ¥4.869 billion, down 27.7% year on year. Equity-method investment losses also weighed on earnings, rising to ¥211 million from ¥26 million a year earlier.
• Net income: Decreased ¥1.457 billion from a year earlier, reflecting lower operating profit and a broader contraction in earnings.

Higher sales volumes lifted revenue, but cost of sales rose to ¥29.980 billion from ¥25.890 billion a year earlier, reducing gross profit. Tokyo Tekko cited narrower price spreads and higher power costs as reasons for the profit decline. The operating margin fell to 12.5% from 18.2%, making a recovery in the balance between selling prices and raw material costs, not just shipment volumes, a key focus.

The core steel business posted higher revenue but a steep profit decline, while the other businesses improved both sales and earnings.

Steel business revenue rose 7.5% year on year to ¥39.038 billion, while segment profit fell 27.3% to ¥4.753 billion. Higher shipments of products and related goods lifted sales, but narrower spreads between product and raw material prices and higher power costs squeezed profit. Weaker margins in the core business were the main driver of the decline in consolidated operating profit.

Other businesses reported revenue of ¥2.610 billion, up 9.9% year on year, and segment profit of ¥171 million, up 43.1%. The business includes cargo transportation and equipment maintenance, among other activities, and delivered growth in both sales and profit, unlike the steel business. Its contribution to the group, however, is small and was not enough to offset the decline in the core business.

Including intersegment transactions, revenue increased in the steel business, but profit was below the year-earlier level. A recovery in steel segment profitability will be key to meeting the full-year plan.

Tokyo Tekko left its consolidated forecast for FY2027 unchanged from the outlook announced on May 7, 2026. First-half operating profit reached 49.4% of the full-year target, while net income reached 42.9%, meaning the company needs to generate more profit in the second half than in the first.

The company maintained its forecast even as first-half operating profit fell year on year on narrower spreads and higher power costs. Full-year operating profit is projected to decline 17.0% from the previous year. Meeting the plan will depend not only on sales growth but also on how much profitability can recover in the second half. The earnings release did not give a reason for revising the forecast, and the company has kept its previously announced outlook.

Total assets at the end of the first half stood at ¥84.459 billion, up ¥4.010 billion from the end of March 2026. The equity ratio was 76.4%, down 2.4 percentage points from the previous fiscal year-end.

Growth in cash and deposits and electronically recorded receivables contributed to the increase in assets. Short- and long-term borrowings also rose, however, and liabilities increased by ¥2.851 billion from the previous fiscal year-end. The interim earnings release did not include a cash flow statement, so cash generated from operating activities cannot be confirmed.

Tokyo Tekko split its common shares three-for-one effective April 1, 2026. The previous year's annual dividend of ¥300 per share equates to ¥100 after the split. The company forecasts an annual dividend of ¥100 this year, unchanged from the previous year on a post-split basis.

Tokyo Tekko grew revenue in the first half on higher shipments, but profitability deteriorated in its core steel business. Based on the cost factors cited by the company and the assumptions underpinning its full-year forecast, the following issues could drive earnings volatility.

• Product and raw material price spreads: Narrower spreads weighed on steel business profit. If product prices do not keep pace with fluctuations in raw material costs, higher sales volumes may not lead to earnings growth.
• Power costs: The company cited higher electricity costs as a factor behind the decline in operating profit. Continued cost increases could hamper a recovery in the core business.
• Equity-method investment losses: These non-operating expenses increased from a year earlier, weighing on ordinary profit. If losses persist, ordinary profit could take longer to recover than operating profit.
• Meeting the full-year forecast: First-half progress was 49.4% for operating profit and 42.9% for net income. Both shipment volumes and profitability in the second half will affect the outcome, so investors will need to monitor margin recovery.

The company said actual results may differ substantially from its forecast for various reasons. Investors will want to track shipments alongside price spreads, power costs and the earnings of equity-method investees.