O'will Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥21.61B
• Operating Income: ¥1.06B
• Net Income: ¥629M
• EPS: ¥70.09

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Strong Q2 with robust earnings momentum and healthy cash conversion, but leverage and a high implied payout ratio warrant caution. Revenue rose 5.1% YoY to 216.06, while operating income outpaced at 10.58 (+33.2% YoY), driving operating leverage. Gross profit reached 27.25, implying a gross margin of 12.6% and confirming improved spread management. Operating margin stands at 4.9% (10.58/216.06), with expansion implied given operating income growth exceeding revenue growth; exact basis-point change cannot be computed due to lack of prior-period margins. Ordinary income increased 21.8% YoY to 9.85 despite net non-operating expenses of 0.72 (0.09 income vs 0.81 expenses), showing core operations were the primary driver. Net income was 6.30 (+14.7% YoY), with an effective tax rate of 34.3%. Earnings quality is solid: operating cash flow of 8.23 exceeded net income (OCF/NI 1.31x), and proxy FCF (OCF minus capex of 0.13) approximates 8.10, indicating cash-backed profits. Liquidity is sound with a current ratio of 171.6% and quick ratio of 118.7%, supported by cash of 26.63, receivables of 70.37, and inventories of 53.33 against current liabilities of 100.73. However, leverage is elevated: debt-to-equity of 2.25x and total interest-bearing debt of at least 32.28 (short- and long-term loans) increase sensitivity to rates and lender covenants. Interest coverage is strong at 34.09x, mitigating near-term financing stress. Profitability remains thin (net margin 2.9%), typical for trading/wholesale models, making disciplined SG&A control (16.67) and working capital efficiency critical. Equity expanded to 58.42, with retained earnings of 49.61, supporting book value per share of 647.67 yen (calculated). ROE at 10.8% is respectable, driven by modest margin, decent asset turnover (1.14x), and high financial leverage (3.25x). The reported payout ratio of 90% appears high versus typical sustainability benchmarks (<60%), though current cash generation could cover near-term distributions; visibility is limited with DPS unreported. Forward-looking, continued mix improvement and disciplined costs can sustain margin gains, but leverage normalization and prudent payout policy will be key to de-risking the profile, especially if non-operating drag or tax rates remain elevated.

Profitability Analysis

ROE decomposition (DuPont): 10.8% ROE = 2.9% net profit margin × 1.140 asset turnover × 3.25x financial leverage. The largest positive delta in the period is implied at the margin level since operating income grew 33.2% vs revenue +5.1%; asset turnover is solid at 1.14x, while leverage remains high and broadly stable. Business driver: better gross spread capture (gross margin 12.6%) and SG&A discipline (SG&A 16.67) expanded operating margin to 4.9%, though non-operating expenses (0.81) partly offset at the ordinary level. Sustainability: improvements appear operational (pricing/mix, cost control) rather than one-time gains; however, thin net margins leave little buffer against commodity or FX shocks, and non-operating drag could persist if borrowing costs rise. Watchpoints: if SG&A growth outpaces revenue, operating leverage will reverse; current data show operating leverage positive this quarter, but prior-period SG&A/revenue not disclosed to confirm trend.

Growth Assessment

Top-line growth of 5.1% suggests steady demand and/or pricing power in core categories. Operating income growth of 33.2% indicates mix improvement and cost control, with core operations the main contributor as non-operating items were a net expense. Net income growth of 14.7% was moderated by higher taxes and non-operating costs. Revenue sustainability hinges on maintaining customer retention while managing commodity pass-through; current gross margin of 12.6% suggests some pricing traction. Profit quality is favorable: EBITDA of 10.85 (margin 5.0%) and strong interest coverage provide cushion. Outlook: modest revenue growth with focus on spread management should sustain mid-single-digit top line and support mid- to high-single-digit profit growth if costs remain contained; risks include input cost volatility and FX. No material equity-method income or one-time gains reported, indicating earnings are largely recurring.

Financial Health

Liquidity: current ratio 171.6% and quick ratio 118.7% indicate healthy short-term coverage; working capital is 72.15. Maturity/mismatch: current assets of 172.88 comfortably cover current liabilities of 100.73; short-term loans are 4.37, small relative to current assets. Solvency: debt-to-equity is elevated at 2.25x (warning threshold >2.0), implying reliance on leverage to drive ROE; long-term loans of 27.91 dominate debt structure. Interest coverage at 34.09x is strong, reducing near-term default risk despite leverage. Equity base totals 58.42 with retained earnings of 49.61, providing loss-absorption capacity. No off-balance sheet obligations disclosed in the provided data; absence of disclosure does not rule them out.

Cash Flow Quality

OCF/Net income at 1.31x indicates solid cash realization of earnings. Proxy FCF (OCF 8.23 minus capex 0.13) is approximately 8.10, suggesting ample internal funding for maintenance investment and potential dividends; full investing CF details are unreported, so acquisition or financial asset flows may alter true FCF. Working capital: receivables (70.37), inventories (53.33), and payables (70.82) are sizable; without period-over-period changes, we cannot identify timing effects or manipulation. No red flags such as OCF/NI <0.8. Financing CF of -4.93 indicates net outflows, likely debt service or shareholder returns; dividend and buyback details are unreported.

Dividend Sustainability

The calculated payout ratio of 90% appears high relative to typical sustainable ranges (<60%), implying limited buffer if earnings soften. With proxy FCF around 8.10, near-term coverage of dividends could be adequate, but the lack of disclosed DPS and total dividends constrains precision. Leverage at 2.25x D/E argues for retaining cash to delever unless strong visibility in cash generation persists. Policy outlook: management may prioritize stable dividends but a high payout alongside elevated leverage increases risk of adjustment if operating conditions tighten.

Risk Assessment

Business Risks:

• Commodity/input price volatility potentially compressing gross spreads (gross margin currently 12.6%)
• FX fluctuations affecting import costs and pricing competitiveness
• Customer concentration and contract repricing risk typical in trading/wholesale models
• Supply chain disruptions impacting inventory and delivery schedules

Financial Risks:

• Elevated leverage (D/E 2.25x) increasing sensitivity to interest rates and covenant constraints
• Non-operating expense burden (0.81) vs limited non-operating income (0.09)
• Goodwill/intangibles of 5.03/5.42 introduce impairment risk if performance deteriorates
• Thin net margin (2.9%) leaves limited shock absorption

Key Concerns:

• High implied payout ratio (~90%) may not be sustainable through cycles
• Reliance on operating leverage for profit growth; reversal possible if SG&A rises faster than sales
• Data gaps on investing cash flows, dividend amounts, and equity-method income obscure full cash return capacity

Investment Implications

Key Takeaways:

• Core earnings momentum strong: operating income +33.2% on revenue +5.1%, implying margin expansion
• Cash conversion healthy with OCF/NI at 1.31x and proxy FCF ~8.10
• Leverage high (D/E 2.25x) despite strong interest coverage (34.09x)
• ROE of 10.8% supported by operating improvement and leverage; sustainability depends on maintaining spreads and deleveraging
• Payout ratio ~90% looks elevated versus typical sustainability benchmarks

Metrics to Watch:

• Operating margin trend (currently 4.9%) and gross margin stability (12.6%)
• Working capital efficiency (AR 70.37, inventory 53.33, AP 70.82) and OCF trajectory
• Net debt and D/E ratio progression; interest expense vs coverage
• Any disclosure of DPS and total dividends paid to validate payout sustainability
• Non-operating items (interest expense 0.31) and effective tax rate behavior (~34.3%)

Relative Positioning: Within the trading/wholesale peer set, the company exhibits above-average cash conversion and ROE supported by leverage, but carries higher-than-desired balance sheet risk and an elevated payout stance; ongoing margin discipline and deleveraging would improve resilience.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis