Q1: Weak Earnings As Expected; Bottoming Out in Q2; Asset Sales Positive

Research evidence excerpt

Q1: Weak Earnings As Expected; Bottoming Out in Q2; Asset Sales Positive

Japan | Materials (Steel)

Tokyo Steel EquityJulyResearch17, 2026

FLASH NOTEQ1: Weak Earnings As Expected; Bottoming

RATING BUYOut in Q2; Asset Sales Positive

PRICE ¥1,737^

Tokyo Steel announced Q1 FY3/27 earnings today at 14:00 JST. Earnings

were weak as expected with quarterly OP at -¥2.3bn, but this was expected PRICE TARGET | % TO PT ¥2,000 | +15%

with rising scrap steel weighing on profits in ST, but ASP hikes takes 52W HIGH-LOW ¥1,973 - ¥1,328

several months to recoup cost inflation. We expect earnings to recover from FLOAT (%) | ADV MM (USD) 43.8% | 493.97

Q2. The company sold cross-shareholdings and revised up its FY3/27 NP MARKET CAP ¥181.0B | $1.1B

guidance booking gains in the process. Reiterate Buy. Prefer EAFs vs. BFs TICKER 5423 JP ^Prior trading day's closing price unless otherwise

within steelmakers. noted.

Q1: Scrap steel cost rally weighed on P/L. Scrap steel costs rallied to ¥55.2k/t in the Apr-

Jun quarter vs. ¥47.0k/t in Jan-Mar '26. On the other hand, ASP in Q1 (¥96.8k/t) increased

only marginally from the previous quarter (¥92.7k/t). Management explained that the -¥4.1k/t

margin erosion was the biggest factor for weak earnings in Q1 (lowering OP by -¥3.0bn), while

other issues, such as lower than anticipated costs (+¥1.6bn), and latent gains/losses (+¥1.0bn)

were a positive. Net-net, we think that Q1 earnings were largely in-line with anticipations and

guidance (-¥2.3bn losses vs. -¥2.0bn company guidance). Domestic sales volumes (629kt in

Q1) slightly improved vs. a year ago (608kt), but remain at low levels.

Q2 anticipating better QoQ earnings. Revised up FY3/27 NP guidance. The company is

expecting improving QoQ P/L in Q2 (-¥1.7bn OP) vs. Q1 (-¥2.3bn).