OSAKA Titanium technologies Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥26.92B
• Operating Income: ¥4.03B
• Net Income: ¥2.52B
• EPS: ¥68.35

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: Mixed quarter with resilient topline but sharp margin compression leading to materially lower profit. Revenue rose 2.7% YoY to 269.24, while operating income fell 35.8% YoY to 40.26 and net income declined 28.6% YoY to 25.15. Gross profit was 93.21, implying a 34.6% gross margin; operating margin was approximately 15.0%. Back-solving from reported growth rates suggests last year’s operating margin was roughly 23.9%, indicating about 890 bps of operating margin compression YoY. Ordinary income was 42.00 (-16.3% YoY) and profit before tax 48.53, with a 27.4% effective tax rate. Non-operating expenses of 15.69 exceeded non-operating income of 3.12, indicating a net drag; yet ordinary income exceeded operating income, suggesting classification differences and/or other items not disclosed in the breakdown. Interest coverage remains strong at 29.8x, reflecting manageable interest burden despite notable borrowings. Balance sheet liquidity is solid with a 221% current ratio and 160% quick ratio; working capital is 338.81. Leverage sits at a reported D/E of 1.31x and financial leverage of 2.37x; solvency appears reasonable. ROE is 5.7% via DuPont (NPM 9.3% × AT 0.256 × Leverage 2.37), while ROIC at 3.5% flags sub-par capital efficiency versus typical 7–8% targets in heavy industry. Earnings quality cannot be fully assessed due to unreported cash flow data; OCF/NI and FCF are unavailable. Dividend payout ratio is calculated at 73.2%, above the 60% benchmark for comfort, raising sustainability questions absent FCF confirmation. Forward-looking, the key issues are input cost inflation, energy costs, product mix, and potential FX/derivative effects reflected in non-operating items. Without cash flow disclosure and segment detail, it is difficult to determine if the margin pressure is transient or structural; monitoring pricing, utilization, and inventory trends will be critical.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.7% = Net profit margin 9.3% × Asset turnover 0.256 × Financial leverage 2.37x. The component that appears to have changed most YoY is the margin element: operating income fell 35.8% while revenue rose 2.7%, implying significant contraction in operating margin (~890 bps from ~23.9% to ~15.0%). The likely business drivers are unfavorable cost-price spread (raw materials and energy), less favorable product mix, and higher non-operating burdens (e.g., FX/hedging losses), though the latter impacts ordinary rather than operating margin. Asset turnover (0.256) is low and consistent with capital-intensive processing; no clear evidence of change YoY from available data. Financial leverage at 2.37x is moderate; no sign of a sharp shift. Sustainability: cost-driven margin compression can reverse if selling prices are repriced or energy/input costs ease, but near-term visibility is limited. Watch whether SG&A (30.45) grows faster than revenue in subsequent periods; at this snapshot, SG&A/revenue is ~11.3%, but the absence of YoY SG&A detail limits trend assessment. Overall, margin deterioration is the primary headwind to ROE, with operating leverage working in reverse given modest revenue growth.

Growth Assessment

Revenue growth of 2.7% YoY is modest and likely volume- or price-mix driven in titanium-related products; however, profit growth is negative across operating, ordinary, and net levels. Operating income decline (-35.8% YoY) versus revenue growth signals erosion in unit economics. Non-operating expenses (15.69) created an additional drag, though reported ordinary and pretax figures suggest undisclosed items. With ROIC at 3.5%, the spread over likely WACC is thin, indicating limited value creation at current margins. Near-term outlook hinges on ability to pass through costs, normalize non-operating volatility (FX/derivatives), and stabilize product mix (aerospace, industrial, electronics). The growth profile appears fragile until margins recover; absent evidence of pricing power or cost relief, profit recovery may lag revenue growth.

Financial Health

Liquidity is strong: current ratio 221% and quick ratio 159.7%, comfortably above benchmarks. Short-term loans (172.00) are well covered by current assets (618.80), with AR 225.96 and inventories 171.59 providing additional coverage beyond cash (46.19). Solvency: total liabilities 580.87 vs equity 444.33; reported D/E 1.31x is within acceptable range (<1.5x benchmark), and financial leverage is 2.37x. Long-term loans are sizable at 265.00, but maturity mismatch risk appears limited given ample current assets versus current liabilities (279.99). Interest coverage is strong at 29.8x, indicating low near-term refinancing stress. No off-balance sheet obligations are disclosed in the provided data. No explicit red flags (Current Ratio < 1.0 or D/E > 2.0).

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow are unreported, preventing direct assessment of earnings quality. Accordingly, OCF/Net Income cannot be computed; any inference on accrual quality or working capital dynamics would be speculative. Given the capital-intensive nature of the business and visible inventory and receivables balances, working capital swings can meaningfully affect OCF; thus, confirmation via cash flow statements is essential. Dividend and capex coverage by FCF cannot be assessed. No explicit signs of working capital manipulation can be identified from the limited snapshot; monitoring AR and inventory turns versus revenue will be important once data is available.

Dividend Sustainability

Calculated payout ratio is 73.2%, above the <60% comfort benchmark, suggesting limited buffer if profits or cash flows weaken. With FCF and capex undisclosed, coverage cannot be verified. Leverage and liquidity are adequate, which could support distributions in the short term, but sub-5% ROIC and margin compression raise medium-term caution on sustainability. Policy outlook depends on profit normalization; a more conservative payout may be prudent until earnings quality (OCF) is evidenced.

Risk Assessment

Business Risks:

• Commodity/input cost volatility (titanium feedstock, energy) impacting spreads
• Demand cyclicality in aerospace and industrial end-markets affecting volumes and pricing
• Product mix risk reducing average margins
• Supply chain constraints or capacity utilization swings in a capital-intensive process

Financial Risks:

• Non-operating volatility (FX/derivatives) as suggested by sizeable non-operating expenses
• Refinancing and interest-rate risk on 437.00 of loans (ST 172.00, LT 265.00), albeit mitigated by strong coverage
• Potential working capital absorption (AR and inventory) in a downturn affecting OCF and FCF
• Elevated payout ratio (73.2%) with unverified FCF coverage

Key Concerns:

• Operating margin compressed by ~890 bps YoY despite revenue growth
• ROIC at 3.5% below 5% warning threshold, signaling weak value creation
• Data gaps (cash flows, depreciation, EBITDA) limit assessment of earnings durability
• Classification differences between operating/non-operating/extraordinary items obscure underlying trends

Investment Implications

Key Takeaways:

• Topline up 2.7% YoY but profits down sharply; operating margin ~15.0% vs ~23.9% last year
• Strong liquidity (CR 221%, QR 160%) and interest coverage (29.8x) mitigate balance sheet risk
• ROE 5.7% driven primarily by modest NPM and low asset turnover; leverage only partially offsets
• ROIC 3.5% underscores capital efficiency challenge at current margin levels
• Non-operating losses weighed on results; ordinary vs pretax figures imply undisclosed items

Metrics to Watch:

• Operating margin trajectory and cost pass-through (price vs input/energy costs)
• OCF/Net income and FCF once disclosed; capex requirements vs cash generation
• Inventory and receivable turns (working capital intensity)
• FX impacts and non-operating gains/losses
• Order backlog/utilization in aerospace and industrial segments
• Debt maturity profile and interest rate sensitivity

Relative Positioning: Within Japanese specialty metals and materials peers, the company shows solid liquidity and manageable leverage but underperforms on capital efficiency (ROIC 3.5%) and recent margin trend. Recovery depends on cost normalization and improved pricing power relative to input costs.

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