TOKYO OHKA KOGYO CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

In addition to higher revenue and earnings, the improvement in gross margin and operating leverage resulting from more efficient selling, general and administrative expenses caused the earnings growth rate to exceed the revenue growth rate, clearly improving profitability. Revenue was ¥139.67B (+25.1% YoY), Operating Income was ¥28.85B (+45.4%), Ordinary Income was ¥30.27B (+48.5%), and Net Income attributable to owners of the parent was ¥20.41B (+49.9%). The Operating Income margin expanded to 20.7%, up approximately +2.9pt from 17.8% in the previous year, supported by the revenue increase as well as gross-margin improvement and fixed-cost absorption. Consolidated Net Income for the period, including the portion attributable to non-controlling interests, was ¥23.61B (+44.4%).

Factors Affecting Performance

【Revenue】Revenue increased to ¥139.67B, representing a +25.1% YoY increase. Although the company discloses a single segment and the breakdown by business cannot be confirmed, the revenue growth rate significantly exceeded the industry median of 10.6%, suggesting that expanding demand and improvements in pricing and product mix drove revenue growth.

【Profit and Loss】Gross profit expanded at a faster pace than the ¥85.72B increase in cost of sales, and the gross margin improved to 38.6%, approximately +1.8pt from 36.9% in the previous year. The SG&A expense ratio declined to 18.0% (19.1% in the previous year), reflecting progress in fixed-cost absorption accompanying higher revenue; consequently, the Operating Income margin improved by approximately +2.9pt to 20.7% (17.8% in the previous year). Ordinary Income was ¥30.27B (+48.5%), with non-operating income of ¥1.79B, including ¥0.36B in dividend income, exceeding non-operating expenses of ¥0.38B, including ¥0.18B in interest expense and ¥0.16B in foreign exchange losses, and contributing to the increase. Extraordinary income of ¥1.30B, consisting of ¥0.94B in gains on sales of investment securities and ¥0.36B in gains on sales of fixed assets, was a temporary factor and accounted for approximately 4.1% of Profit Before Tax of ¥31.53B. After deducting income taxes of ¥7.92B, representing an effective tax rate of 25.1%, and Net Income attributable to non-controlling interests of ¥3.20B, Net Income attributable to owners of the parent was ¥20.41B (+49.9%). This was a strong earnings result characterized by operating leverage, with the earnings growth rate exceeding the revenue growth rate.

Key Financial Indicators

【Profitability】The Operating Income margin was 20.7% (17.8% in the previous year), while the Net Profit margin, based on Net Income attributable to owners of the parent, improved by +2.4pt to 14.6% (12.2% in the previous year), and ROE was 9.0%. 【Cash Flow Quality】Operating Cash Flow (OCF) of ¥21.64B was 1.06 times Net Income attributable to owners of the parent of ¥20.41B, indicating generally sound cash conversion. 【Investment Efficiency】Against Revenue of ¥139.67B, total assets were ¥359.91B, resulting in a total asset turnover ratio of only 0.39x. Capital expenditures of ¥17.28B, equivalent to 12.4% of revenue, were 3.2 times depreciation and amortization expense of ¥5.34B, indicating continued proactive investment. 【Financial Soundness】The Equity Ratio was 68.9% (67.9% in the previous year). Current assets of ¥184.97B versus current liabilities of ¥64.14B resulted in a high current ratio of approximately 288%. Interest-bearing debt, comprising short-term borrowings of ¥0.07B, long-term borrowings of ¥16.10B, and bonds of ¥10.00B, totaled approximately ¥26.17B, while cash and deposits of ¥70.79B exceeded this amount, placing the company in a net cash position on a net basis.

Cash Flow Analysis

Operating Cash Flow was ¥21.64B, an increase of +36.6% from ¥15.84B in the previous year, primarily due to the increase in Profit Before Tax. Meanwhile, increases in trade receivables (-¥6.58B) and inventories (-¥4.07B) absorbed cash through working capital, and the cash inflow from the increase in trade payables (+¥3.45B) was insufficient to offset these outflows. Investing Cash Flow was -¥16.71B, of which capital expenditures accounted for ¥17.28B, indicating continued investment aimed at expanding production capacity. Financing Cash Flow was -¥8.34B, with dividend payments—¥4.43B to owners of the parent and ¥3.39B to non-controlling interests—being the primary source of cash outflow. As a result, Free Cash Flow (Operating Cash Flow + Investing Cash Flow) remained positive at ¥4.93B, demonstrating that the company continues to generate cash autonomously despite proactive capital investment.

Quality of Earnings

The earnings increase for the period was led by expansion in the Operating Income margin. Extraordinary income of ¥1.30B, comprising ¥0.94B in gains on sales of investment securities and ¥0.36B in gains on sales of fixed assets, represented only approximately 4.1% of Profit Before Tax of ¥31.53B, indicating limited temporary distortion in earnings. Non-operating income of ¥1.79B consisted of largely recurring items, including dividend income of ¥0.36B, interest income of ¥0.25B, and equity in earnings of affiliates of ¥0.26B, and exceeded non-operating expenses of ¥0.38B, including interest expense of ¥0.18B and foreign exchange losses of ¥0.16B. Comprehensive Income of ¥27.26B, including ¥23.92B attributable to owners of the parent, exceeded Net Income attributable to owners of the parent of ¥20.41B by ¥3.51B, primarily due to a ¥3.63B increase in valuation difference on other securities. Although OCF was 1.06 times Net Income attributable to owners of the parent, indicating sound cash conversion, the increase in accruals resulting from higher trade receivables and inventories will be a monitoring point for cash-conversion efficiency in subsequent periods.

Earnings Forecast and Guidance

Against the Full-Year earnings forecast—Revenue of ¥291.00B, Operating Income of ¥60.60B, Ordinary Income of ¥63.00B, and forecast Net Income attributable to owners of the parent of ¥42.60B—the cumulative Q2 progress rates were 48.0% for Revenue, 47.6% for Operating Income, 48.1% for Ordinary Income, and 47.9% for Net Income, broadly in line with the standard first-half level of 50%. Neither the earnings forecast nor the dividend forecast has been revised. Compared with the Full-Year forecast of +22.8% YoY Revenue growth and +27.9% YoY Operating Income growth, first-half results were tracking above plan at +25.1% and +45.4%, respectively. The plan therefore appears to be based on somewhat conservative assumptions for the second half relative to the first half.

Shareholder Returns

The interim dividend is ¥40, and the Full-Year forecast is ¥80, including a forecast year-end dividend of ¥40, representing an increase from the interim dividend of ¥35 in the year-ago period. Based on forecast Full-Year EPS of ¥355.21, the Payout Ratio is approximately 22.5%, remaining at a conservative level. Given the ample financial base reflected in an Equity Ratio of 68.9% and cash and deposits of ¥70.79B, dividend sustainability is considered high.

Risk Factors

1. Delayed cash conversion due to increased working capital: Trade receivables increased by ¥6.58B and inventories by ¥4.07B, respectively, causing OCF growth (+36.6%) to trail Net Income growth (+49.9%). Trade payables increased by only ¥3.45B, making the normalization of working capital a key focus for future cash flow improvement.

2. Free Cash Flow volatility from continued proactive investment: Capital expenditures of ¥17.28B were 3.2 times depreciation and amortization expense of ¥5.34B. Free Cash Flow may become more volatile during periods of expanding investment scale.

3. Partial dependence on extraordinary and non-operating income: Extraordinary income of ¥1.30B, including ¥0.94B in gains on sales of investment securities, was recorded as a factor lifting Net Income from Ordinary Income. These are temporary factors with low recurrence.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Profit margin significantly exceeded the industry median, placing the company’s profitability in the upper tier of the industry.

Growth and Capital Efficiency

The Revenue growth rate was at a high level, close to the upper end of the industry range (IQR upper limit: 25.4%).

※Source: Compiled by the Company

Key Earnings Highlights

1. In addition to higher revenue and earnings, improvements in both the gross margin (+1.8pt) and SG&A expense ratio (-1.1pt) expanded the Operating Income margin to 20.7%. Profitability is improving through both pricing and product-mix improvements and fixed-cost absorption.

2. While OCF was maintained at 1.06 times Net Income attributable to owners of the parent, increases in trade receivables and inventories absorbed cash through working capital. Trends in cash-conversion efficiency will therefore be a key point of focus going forward.

3. The company continues capital investment, equivalent to 12.4% of revenue, on the basis of a financial structure characterized by an Equity Ratio of 68.9% and a net cash position. The timing of earnings contributions from capacity-expansion investment will be a factor influencing the company’s medium-term earnings structure.

Theoretical Share Price (For Reference)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade period). It does not represent a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥2,664–¥2,827 at ±1% for the cost of equity, and ¥2,729–¥2,766 at ±0.1 for ω.

Notes:

• Amortization of goodwill of ¥1.9 per share has been added back to earnings, as it is a non-cash expense and improves comparability with IFRS companies.
• Net assets as of the quarter-end have been used, resulting in a timing gap relative to the Full-Year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest-rate reference month: 2026-07 / This value does not forecast or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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 responsibility, and, where necessary, after consulting with a professional advisor.

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