ORO Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

The company delivered higher revenue and profit while achieving double-digit growth and improving margins. Revenue increased to ¥4.55B (¥3.89B in the same period last year, +17.0% YoY), while Operating Income rose to ¥1.41B (+17.3%), securing profit growth commensurate with revenue growth. Net Income increased by 32.3% to ¥1.00B, with the decrease in financial expenses and increase in financial income contributing to the increase. The Operating Margin remained high at 31.0%, with the high-margin CloudSolution business and improved profitability in MarketingSolutions underpinning company-wide earnings.

Factors Affecting Performance

【Revenue】Revenue increased 17.0% YoY to ¥4.55B. By segment, CloudSolution remained the core business with revenue of ¥3.04B (66.8% of total revenue, +12.7%), while MarketingSolutions achieved strong growth of 26.7% to ¥1.51B (33.2% of total revenue), driving overall growth.

【Profit and Loss】Operating Income was ¥1.41B (+17.3%), and Net Income was ¥1.00B (+32.3%). The gross margin appears to have declined from the previous year to 63.9%, suggesting the impact of higher costs and project mix; however, SG&A expenses (¥1.48B, SG&A ratio of 32.4%) were kept below the rate of revenue growth, enabling the Operating Margin to remain at 31.0%. CloudSolution continued to generate high profitability, with Operating Income of ¥1.24B (40.8% margin), while MarketingSolutions recovered sharply to ¥0.17B (11.2% margin), resulting in operating leverage across the company. Net Income expanded beyond the growth in Operating Income due to increased financial income (¥0.06B) and decreased financial expenses. Overall, the company reported higher revenue and profit.

Segment Analysis

CloudSolution generated revenue of ¥3.04B (66.8% of total revenue, +12.7%) and Operating Income of ¥1.24B (+3.1%), with a margin of 40.8%, making it the main pillar of company-wide earnings. MarketingSolutions generated revenue of ¥1.51B (33.2% of total revenue, +26.7%) and improved to a level close to a return to profitability, with Operating Income of ¥0.17B and a margin of 11.2%. The approximately 30pt difference in margins between the two segments remains substantial. While the structure in which high-margin CloudSolution drives overall profitability remains unchanged, improved profitability in MarketingSolutions is making a greater contribution to earnings growth.

Key Financial Metrics

【Profitability】The Operating Margin was 31.0% and the Net Profit Margin was 22.0%, both improving from the previous year, supported by efficient control of SG&A expenses accompanying revenue growth.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥1.41B, equivalent to 1.4 times Net Income, indicating strong cash backing for earnings. Increases in accounts receivable and decreases in accounts payable were factors weighing on working capital.【Investment Efficiency】ROE was 10.0%, while the total asset turnover ratio remained at 0.34x. The ¥9.44B in ample cash was one factor suppressing asset efficiency.【Financial Soundness】The Equity Ratio was 73.7%, and cash and deposits totaled ¥9.44B, indicating a conservative capital structure and high financial flexibility.

Cash Flow Analysis

Operating Cash Flow increased substantially by 48.0% YoY to ¥1.41B, equivalent to 1.4 times Net Income of ¥1.00B, indicating high earnings quality. Investing Cash Flow was -¥0.17B, primarily reflecting capital expenditures (-¥0.10B), with large-scale investments remaining limited. Financing Cash Flow was -¥1.90B, mainly due to dividend payments (-¥0.78B) and share repurchases (-¥0.61B). Free Cash Flow (Operating Cash Flow + Investing Cash Flow) was a robust ¥1.24B, exceeding the combined amount of shareholder returns and capital expenditures (approximately ¥0.88B), providing solid coverage and indicating that the sustainability of the funding source for shareholder returns is currently favorable. However, increases in accounts receivable and decreases in accounts payable weighed on Operating Cash Flow, and working capital management will require monitoring going forward.

Earnings Quality

The impact of extraordinary gains and losses on earnings for the current period was limited, with earnings primarily generated from recurring business activities. In non-operating items, financial income of ¥0.06B exceeded financial expenses of ¥0.01B, contributing to higher Net Income. Profit Before Tax of ¥1.46B was broadly consistent with Operating Income of ¥1.41B, with only a small gap between the two. The difference between Ordinary Income and Net Income was primarily attributable to income taxes of ¥0.46B (effective tax rate of approximately 31%), and no unusual factors were identified. Operating Cash Flow at 1.4 times Net Income suggests a low level of accruals, and earnings can be assessed as high quality from the perspective of cash backing. On the other hand, increases in accounts receivable and decreases in accounts payable have somewhat slowed the timing of cash conversion.

Earnings Forecast and Guidance

Progress against the full-year plan was 47.6% for Revenue (¥4.55B/¥9.57B), 48.1% for Operating Income (¥1.41B/¥2.93B), and 46.7% for Net Income (¥1.00B/¥2.15B). These figures are generally in line with the standard progress benchmark of 50% as of Q2, with no significant deviation observed. No revisions were made to the earnings forecast or dividend forecast during the quarter, and performance can be viewed as progressing in line with the current plan.

Shareholder Returns

The Q2 dividend was ¥25 per share, while the full-year dividend forecast is ¥50. Based on Net Income attributable to owners of the parent of ¥1.00B and actual dividend payments of ¥0.78B, the Payout Ratio is approximately 38.9%. The company also conducted share repurchases of ¥0.61B, bringing the Total Return Ratio, including dividends and share repurchases, to approximately 48%. Free Cash Flow of ¥1.24B was approximately equivalent to the combined amount of dividends and share repurchases (approximately ¥1.39B). Considering the substantial cash balance of ¥9.44B, the company has an adequate financial foundation to support the sustainability of shareholder returns.

Risk Factors

1. Segment concentration risk: CloudSolution accounts for 66.8% of revenue and the majority of Operating Income, meaning that fluctuations in demand for the business and changes in the competitive environment could have a significant impact on company-wide performance.

2. Declining gross margin and profitability pressure: The gross margin has declined from the previous year to 63.9%, and margins could come under pressure if changes in project mix and rising costs continue.

3. Working capital and investment restraint risk: Accounts receivable and notes receivable totaled ¥0.93B, a material balance, and longer collection periods could hinder cash conversion. In addition, capital expenditures of ¥0.10B were below depreciation and amortization expenses of ¥0.19B, while research and development expenses remained at only 0.5% of revenue, indicating that the level of growth investment is restrained.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Margin and Net Profit Margin are substantially above the industry median, placing the company among the high-profitability group within the IT and communications industry.

Growth and Capital Efficiency

The Revenue Growth Rate is somewhat below the industry median and close to the lower bound of the IQR. However, combined with its high profitability, the balance between growth and profitability is favorable relative to industry peers.

※Source: Compiled by the Company

Key Takeaways from the Earnings

1. The company achieved double-digit revenue growth while maintaining an Operating Margin of 31.0%, placing the balance between growth and profitability at a favorable level within the industry. In addition to maintaining CloudSolution’s high margin, the progress in improving MarketingSolutions’ profitability (Operating Income of ¥0.17B) represents a noteworthy structural change.

2. Operating Cash Flow was 1.4 times Net Income, indicating strong cash backing for earnings. However, cash conversion from working capital has slowed somewhat due to increases in accounts receivable and decreases in accounts payable. The trend in collection efficiency will be a key area to monitor going forward.

3. With a conservative financial foundation comprising cash of ¥9.44B and an Equity Ratio of 73.7%, the Total Return Ratio through dividends and share repurchases reached approximately 48%. Meanwhile, capital expenditures remained below depreciation and amortization, making the allocation of growth investments over the medium to long term a key issue going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥877–¥930 at ±1% for the Cost of Equity, and ¥897–¥913 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Valuation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly disclosed data; this does not constitute a forecast of the market share price or a recommendation of any specific investment action, and does 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 summary 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 a professional as necessary.

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