OKAMOTO INDUSTRIES,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥52.90B
• Operating Income: ¥2.50B
• Net Income: ¥1.96B
• EPS: ¥112.83

Income Statement

Balance Sheet

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: Weak FY2026 Q2 performance with sharp margin compression and low capital efficiency, partially cushioned by sizable non-operating income and strong balance sheet liquidity. Revenue declined 2.9% YoY to 528.99, while operating income halved to 25.03 (-49.1% YoY), driving operating margin down to 4.7%. Net income fell 34.8% YoY to 19.43, implying a net margin of 3.7%. Ordinary income of 33.84 (-32.5% YoY) benefited from 11.43 of non-operating income (notably 6.77 dividend income and 0.70 interest income), offset by 2.62 in non-operating expenses. We estimate prior-period operating margin at ~9.0% (op income ~49.2 on revenue ~544.8), implying ~430 bps compression to 4.7%. Net margin likely compressed by ~180 bps (from ~5.5% to 3.7%), while ordinary margin compressed by ~280 bps (from ~9.2% to 6.4%). Gross margin stands at 19.2%, but prior-year gross margin is unreported, limiting full bridge analysis. ROE is a subdued 2.0% (DuPont: NPM 3.7% × asset turnover 0.35 × leverage 1.53x), highlighting weak profitability and slow asset turns. ROIC is 2.6%, well below a 5% warning threshold, signaling inadequate returns versus capital employed. Earnings quality is difficult to assess due to unreported operating cash flow; however, high reliance on non-operating income (notably dividends) to support ordinary profit is a caution point. Total comprehensive income of 66.20 far exceeds net income, likely reflecting valuation gains in investment securities (427.86 balance), which inflate equity but are non-cash and volatile. Liquidity is strong with a current ratio of 241% and cash of 370.88 against short-term loans of 22.24, mitigating near-term financing risk. Leverage is conservative (reported D/E 0.53x using total liabilities), and interest coverage is very strong at ~81x. Dividend sustainability is unclear given an indicated payout ratio of 109.3% and missing OCF/FCF data; if accurate, payout exceeds earnings and would be unsustainable absent strong cash generation or balance sheet draw. Forward-looking, recovery hinges on restoring gross/operating margins through cost pass-through or mix improvement, stabilizing core demand, and reducing dependency on non-operating gains. Key watchpoints include raw material/input cost trends (petrochemical-linked), FX sensitivity on imports, and market volatility impacting dividend and OCI from securities holdings.

Profitability Analysis

ROE (2.0%) = Net Profit Margin (3.7%) × Asset Turnover (0.350) × Financial Leverage (1.53x). The largest deterioration appears in margin performance: operating income -49.1% on -2.9% revenue implies severe negative operating leverage and cost pressure, compressing operating margin by an estimated ~430 bps YoY (from ~9.0% to 4.7%). Asset turnover of 0.35 is modest, reflecting a sizable asset base (1,511.51) relative to sales; no clear YoY comparison is available, but slower sales with stable assets would naturally pressure turns. Financial leverage is low-to-moderate at 1.53x, indicating ROE is not being amplified by debt. Business drivers likely include higher input costs (petrochemical-derived materials), weaker demand or mix, and limited SG&A flexibility amid revenue softness. The non-operating income contribution (notably dividends of 6.77) softened the hit to ordinary profit, underscoring reliance on financial income. Sustainability: core margin weakness should normalize only if cost pass-through improves or mix shifts; dividend income is recurring but market-dependent and not a substitute for operating earnings. A concerning trend is that profit declined far faster than revenue, indicating unfavorable operating leverage and potential gross margin pressure; SG&A growth cannot be precisely assessed due to missing breakdown, but the scale of OP decline suggests inefficiencies or lack of cost absorption.

Growth Assessment

Top-line declined 2.9% YoY to 528.99, suggesting soft demand or pricing pressure. Profitability contracted materially: operating income -49.1% YoY to 25.03, ordinary income -32.5% to 33.84, and net income -34.8% to 19.43. Growth quality is weak as ordinary profit relied on 11.43 of non-operating income, predominantly dividends (6.77), with core operations underperforming. The non-operating income ratio is elevated (58.8% per provided metric), highlighting a shift of profit composition away from operations. Without OCF/FCF disclosures, sustainability of earnings momentum is uncertain; reliance on financial income and OCI raises volatility. Near-term outlook depends on input cost normalization, ability to pass through prices, and stabilization of domestic and export demand. If margin recapture occurs, earnings can rebound given operating leverage; absent that, FY earnings risk persists.

Financial Health

Liquidity is strong: current ratio 241.4% and quick ratio 209.6%, with working capital of 489.60. No warning on current ratio (<1.0) or high leverage (D/E >2.0); reported D/E is a conservative 0.53x (using total liabilities/equity), and interest coverage is robust at 80.74x. Cash and deposits of 370.88 comfortably exceed short-term loans (22.24) and long-term loans (11.02), minimizing maturity mismatch risk; current assets 835.92 exceed current liabilities 346.32 by a wide margin. Accounts payable (221.03) exceed inventories (109.97), indicating favorable supplier terms; no signs of liquidity strain. Off-balance sheet obligations are not disclosed in the provided data; none identified.

Cash Flow Quality

Operating cash flow is unreported; thus OCF/Net Income and FCF cannot be calculated, limiting earnings quality assessment. Given non-operating income’s sizable role in ordinary profit and comprehensive income boosted by valuation gains, a larger portion of reported earnings and equity movement may be non-cash or market-dependent. The balance sheet suggests efficient working capital management: estimated days sales outstanding ~58 days, inventory days ~47, days payable ~94, yielding a short cash conversion cycle (~11 days), supportive of cash generation under normal conditions. Dividend sustainability and capex coverage cannot be assessed without OCF/FCF; no clear signs of working capital manipulation from the point-in-time data.

Dividend Sustainability

The calculated payout ratio is 109.3%, implying dividends exceed earnings if accurate; however, DPS and total dividends paid are unreported, so this figure may reflect interim assumptions/policy rather than actual cash out. With OCF and FCF unreported, coverage of dividends by free cash flow cannot be evaluated. The balance sheet can support dividends in the short term (cash 370.88, low debt), but structurally paying above earnings is unsustainable if operating profits remain weak. We would monitor management’s dividend policy guidance, full-year earnings trajectory, and any revisions to payout to align with cash generation.

Risk Assessment

Business Risks:

• Margin pressure from raw material (petrochemical) cost inflation and limited price pass-through.
• Demand softness or adverse product mix leading to negative operating leverage.
• Operational dependence on non-operating income (dividends) to support ordinary profit.
• Supply chain and procurement risks affecting cost and availability of inputs.

Financial Risks:

• Volatility in investment securities affecting dividend income and OCI (comprehensive income).
• Low ROE (2.0%) and ROIC (2.6%) indicate capital inefficiency, risking value erosion if prolonged.
• Potential payout above earnings (payout ratio 109.3%) stressing cash if maintained without earnings recovery.
• FX exposure on imported materials, potentially impacting COGS and margins.

Key Concerns:

• Severe operating margin compression (~430 bps YoY) on modest sales decline.
• Earnings quality opacity due to missing OCF/FCF and SG&A breakdown.
• High reliance on non-operating income to bridge ordinary profit.
• Comprehensive income heavily influenced by market valuation gains, introducing volatility.

Investment Implications

Key Takeaways:

• Core operations weakened materially; operating income -49% on -3% revenue shows negative operating leverage.
• Net margin compressed to 3.7%; ROE stuck at a low 2.0% with weak asset turns (0.35).
• ROIC at 2.6% is below the 5% warning threshold, indicating subpar capital efficiency.
• Liquidity and solvency are strengths (current ratio 241%, cash 371 vs ST loans 22), mitigating downside risk.
• Profit mix skewed toward non-operating income (notably dividends), raising sustainability questions.
• Total comprehensive income is elevated due to securities valuation gains; non-cash and volatile.

Metrics to Watch:

• Gross and operating margin trajectory (price pass-through vs input costs).
• Operating cash flow and free cash flow once disclosed (OCF/NI >1.0 target).
• Payout policy vs cash generation (payout ratio normalization toward <60%).
• ROIC improvement toward ≥5% near term and ≥7–8% medium term.
• Non-operating income (dividends) sustainability and exposure to market volatility.
• Working capital days (DSO, inventory, DPO) and any sign of deterioration.

Relative Positioning: Within Japan’s rubber/plastics and functional materials peers, Okamoto shows stronger liquidity and low leverage but lags on profitability and capital efficiency; recovery depends on margin repair and reducing reliance on financial income.

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