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

Osaka Titanium Technologies (single-entity, JGAAP) delivered FY2026 Q2 cumulative revenue of ¥26.9bn, up 2.7% YoY, but profitability weakened at the operating level. Gross profit was ¥9.32bn, implying a solid gross margin of 34.6%, yet operating income fell 35.8% YoY to ¥4.03bn as operating margin compressed to roughly 15.0%. Ordinary income was ¥4.20bn (ordinary margin ~15.6%), indicating limited non-operating drag and a low interest burden in the period. Net income declined 28.6% YoY to ¥2.52bn, yielding a net margin of 9.34%. The drop in operating profit despite higher sales suggests adverse mix, cost inflation (energy and raw materials), or temporary inefficiencies, partly cushioned by non-operating items. DuPont metrics indicate ROE of 5.66%, driven by net margin of 9.34%, low asset turnover of 0.256, and financial leverage of 2.37x. The low turnover reflects capital intensity and the use of cumulative half-year revenue versus period-end assets; on a full-year basis turnover should improve. Liquidity appears strong: current ratio 221% and quick ratio 160%, supported by ¥61.9bn of current assets and ¥28.0bn of current liabilities. Working capital is ample at ¥33.9bn, with inventories of ¥17.2bn (about 28% of current assets), which warrants monitoring for cycle turns. Solvency is moderate with total liabilities of ¥58.1bn and equity of ¥44.4bn (debt-to-equity 1.31x); implied equity ratio is approximately 42% (equity/assets), although the reported equity ratio line item was not disclosed. Interest coverage is comfortable at ~29.8x based on operating income versus interest expense of ¥135m. The implied effective tax rate is around the mid-30% range based on tax expense of ¥1.33bn and inferred pre-tax profit, though detailed tax reconciliation is not disclosed. Cash flow statements were not disclosed in the provided data, so operating cash conversion and free cash flow cannot be assessed this quarter. No dividends are indicated for the period (DPS shown as zero), resulting in a payout ratio of 0%, but this likely reflects non-disclosure rather than a definitive policy signal. Overall, the company remains profitable with solid liquidity and manageable leverage, but the marked YoY decline in operating income highlights sensitivity to cost/mix dynamics within a cyclical titanium market. Data gaps (notably cash flows and D&A) limit the depth of earnings quality diagnostics, so forthcoming disclosures will be important for confirming trends.

Profitability Analysis

ROE is 5.66% via DuPont: net margin 9.34% × asset turnover 0.256 × financial leverage 2.37x. Operating margin is ~15.0% (¥4.03bn / ¥26.92bn), down meaningfully YoY given operating income declined 35.8% on modest sales growth. Gross margin is 34.6%, indicating substantial value-add but also signaling that SG&A and other operating factors absorbed a larger share vs. last year. Ordinary margin is ~15.6%, slightly above operating margin, implying net non-operating income or low financing drag. Interest burden is light with interest expense of ¥135m and interest coverage ~29.8x. The net-to-operating spread (9.34% vs. ~15.0%) reflects taxes and possible extraordinary items. Operating leverage appears unfavorable this period: revenue grew 2.7% while operating income fell sharply, suggesting cost inflation (energy, raw materials) and/or product mix (e.g., lower-margin industrial vs. aerospace) outweighed pricing. Asset turnover of 0.256 (based on cumulative H1 revenue vs. period-end assets) is low but consistent with capital-intensive metals processing; turnover should normalize higher on a full-year basis.

Growth Assessment

Top-line growth of 2.7% YoY is modest, likely supported by steady demand in core titanium applications, but it was insufficient to offset cost/mix pressures at the operating line. The decline in operating income (-35.8% YoY) indicates revenue quality issues (pricing/mix) or cost headwinds rather than volume expansion. Ordinary income broadly tracked operating trends with limited financing drag, but the gap between ordinary and net suggests non-recurring factors and taxes also weighed. With net margin at 9.34% and ordinary margin at ~15.6%, underlying profitability remains positive; however, sustainability depends on cost normalization (power, feedstock) and pricing discipline. Inventories at ¥17.2bn could support future shipments, but carry risk if pricing weakens. Given the cyclical nature of titanium end-markets (aerospace, industrial, chemical), near-term growth visibility is moderate; the slight revenue increase suggests stable demand, but the earnings trajectory hinges on margin recovery. Outlook: Stable-to-cautious near term, with focus on cost pass-through, product mix toward higher-spec materials, and potential aerospace-led recovery; data limitations (no order backlog or ASP disclosure) temper conviction.

Financial Health

Liquidity is strong: current ratio 221% (¥61.88bn / ¥27.999bn) and quick ratio ~160% (¥44.72bn / ¥27.999bn), indicating ample near-term coverage. Working capital stands at ¥33.88bn, with inventories of ¥17.16bn (about 28% of current assets), adequate for operations but a source of potential volatility. Solvency is moderate: total liabilities ¥58.09bn and equity ¥44.43bn imply debt-to-equity of 1.31x. The implied equity ratio (equity/assets) is ~42.3% (¥44.43bn / ¥105.12bn), suggesting a reasonably balanced capital structure despite the equity ratio line not being disclosed. Interest expense is modest at ¥135m, and operating income covers interest ~29.8x, pointing to low refinancing stress under current operations. Overall, the balance sheet appears resilient with sufficient buffer to absorb cyclicality.

Cash Flow Quality

Cash flow statements were not disclosed in the provided data (zeros indicate non-disclosure), so OCF, capex, and FCF cannot be evaluated. Earnings quality assessment is therefore constrained: we cannot compare OCF to net income, nor can we assess working capital consumption or capital intensity via capex. The decline in operating income alongside modest sales growth raises questions on cash conversion if costs are inflating or if inventories have built, but this cannot be confirmed without OCF and working capital flow details. Depreciation and amortization were not disclosed, preventing EBITDA and non-cash expense analysis. Key watchpoints once disclosed: OCF/NI, inventory turns, receivables days, capex versus maintenance levels, and FCF coverage of any prospective dividends or debt service.

Dividend Sustainability

The period shows DPS of ¥0 and a payout ratio of 0%, which likely reflects lack of disclosure rather than a confirmed policy change. With net income of ¥2.52bn and manageable leverage, dividends could be sustainable in principle, contingent on positive free cash flow; however, FCF is not disclosed, so coverage cannot be assessed. Absent OCF and capex data, we cannot determine FCF coverage or the prudence of distributions. Policy outlook will depend on margin recovery, cash generation stability, and capital needs (maintenance, potential upgrades for higher-grade products). Until cash flows are provided, dividend sustainability assessment remains preliminary.

Risk Assessment

Business Risks:

• Cyclical demand in aerospace, industrial, and chemical markets for titanium products
• Raw material and energy cost volatility (e.g., ilmenite/rutile/magnesium, electricity)
• Pricing pressure and product mix shifts toward lower-margin grades
• FX exposure (JPY/USD) affecting export competitiveness and input costs
• Capacity utilization and operating efficiency swings in a capital-intensive process
• Customer concentration risk in aerospace and large industrial accounts
• Inventory valuation risk amid commodity price fluctuations

Financial Risks:

• Margin compression evidenced by operating income down 35.8% YoY
• Potential working capital build (inventories ¥17.2bn) if demand slows
• Exposure to extraordinary items affecting net income vs. ordinary income
• Refinancing and interest rate risk is currently low but not negligible
• Limited visibility due to non-disclosure of cash flow statements and D&A

Key Concerns:

• Operating margin compression despite 2.7% revenue growth
• Lack of disclosed cash flow data, limiting earnings quality assessment
• Gap between ordinary income and net income suggesting non-recurring impacts and taxes
• Low asset turnover (0.256) highlighting capital intensity and cyclical utilization risk

Investment Implications

Key Takeaways:

• Revenue grew modestly (+2.7% YoY) but operating income fell sharply (-35.8% YoY), indicating cost/mix pressure
• Gross margin remains healthy at 34.6%, but operating margin compressed to ~15.0%
• ROE at 5.66% reflects solid margins but low asset turnover and moderate leverage
• Liquidity is strong (current ratio 221%, quick ratio ~160%), providing buffer against cyclicality
• Interest coverage is comfortable at ~29.8x, suggesting low near-term financing risk
• Cash flow and D&A were not disclosed, constraining FCF and earnings quality analysis

Metrics to Watch:

• Operating cash flow and OCF/Net Income conversion once disclosed
• Inventory levels and turns; working capital changes
• Realized ASPs vs. raw material and energy costs (margin pass-through)
• Order trends/backlog in aerospace and high-spec products
• Capex plans vs. maintenance needs; implications for FCF
• FX rates (USD/JPY) and hedging policy impacts on margins

Relative Positioning: Within the domestic titanium producers, Osaka Titanium exhibits solid liquidity and manageable leverage with mid-single-digit ROE and currently compressed operating profitability; competitive positioning will hinge on mix toward higher-grade products and effective cost pass-through relative to peers.

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