OTANI KOGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.88B
• Operating Income: ¥186M
• Net Income: ¥125M
• EPS: ¥160.68

Income Statement

Balance Sheet

Cash Flow Statement

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

For FY2026 Q2 (non-consolidated, JGAAP), Otani Kogyo reported revenue of ¥3,876 million, down 2.6% YoY, with a sharper decline in operating income to ¥186 million (-37.9% YoY), indicating meaningful margin compression. Gross profit was ¥900 million, implying a gross margin of 23.2%, while operating margin deteriorated to roughly 4.8% (¥186m/¥3,876m). Ordinary income came in at ¥181 million and net income at ¥125 million (-40.7% YoY), translating to a net margin of 3.22%. The DuPont profile shows a calculated ROE of 2.97% driven by a modest net margin (3.22%), low asset turnover (0.499x), and moderate financial leverage (assets/equity at 1.85x). EBITDA was ¥246 million, yielding a 6.4% EBITDA margin, consistent with reported depreciation and amortization of ¥60 million. The drop in operating income far outpaced the revenue decline, pointing to negative operating leverage, likely due to a sticky cost base or adverse mix. Liquidity appears strong: current ratio 235% and quick ratio 199% suggest ample short-term coverage, supported by working capital of roughly ¥3,307 million. Solvency is comfortable with total liabilities of ¥3,487 million against equity of ¥4,206 million (implying an equity ratio around 54% based on reported totals, despite the equity ratio field showing 0.0% as undisclosed). Interest expense was minimal at ¥2.6 million, and interest coverage was a robust 70x, signaling low near-term refinancing risk. Operating cash flow was ¥363 million, representing strong earnings-to-cash conversion (OCF/NI ~2.90x), although investing cash flows were not disclosed, limiting free cash flow assessment. Tax expense was ¥91 million; while the calculated metric shows 0.0% effective tax rate as undisclosed, the implied effective tax burden is approximately 42% when inferred from reported tax and net income. Balance sheet quality looks prudent for a small industrial manufacturer, with moderate leverage (debt-to-equity 0.83x, based on liabilities/equity) and low interest burden. The revenue decline paired with a steep profit contraction implies near-term margin headwinds, potentially from input costs or lower utilization. Inventory stood at ¥880 million, which, alongside strong OCF, suggests some working capital normalization or healthy collections, though receivables/payables details are not disclosed. Dividend data (DPS and payout ratio) are not disclosed, so distribution policy cannot be assessed from this release. Overall, profitability has weakened, but liquidity, solvency, and cash conversion remain supportive; improved cost discipline and utilization will be key to stabilizing ROE.

Profitability Analysis

ROE of 2.97% reflects: net profit margin 3.22% × asset turnover 0.499× × financial leverage 1.85×. Gross margin was 23.2%, operating margin ~4.8%, and EBITDA margin 6.4%, indicating compression between gross and operating levels (elevated SG&A or other operating costs). The YoY operating income decline (-37.9%) versus a modest revenue decline (-2.6%) indicates negative operating leverage and sensitivity of profits to small top-line changes. Interest burden is negligible (interest expense ¥2.6m; coverage ~70x), so profitability pressure is operating in nature rather than financial. Tax burden appears normal-to-high (implied ~42% using reported tax and net income), further constraining net margin. Given the low asset turnover (0.499x, noting period seasonality and possible use of period-end assets), capital efficiency is a headwind to ROE alongside margin pressure.

Growth Assessment

Revenue contracted 2.6% YoY to ¥3,876 million, suggesting soft demand or project timing effects. The disproportionate decline in operating income (-37.9% YoY) highlights margin pressure, likely from unfavorable mix, cost inflation, or under-absorption. Net income fell 40.7% YoY to ¥125 million, indicating that profitability, rather than volume, is the main drag on growth. Gross profit of ¥900 million and a 23.2% gross margin imply cost of sales rigidity relative to sales. Ordinary income (¥181m) tracked close to operating income, suggesting limited non-operating offsets. Sustainability hinges on stabilizing gross margin and improving utilization; without a rebound in margin, top-line stabilization alone may not restore earnings momentum. The outlook, based on current run-rate, points to subdued earnings growth unless cost normalization or pricing actions materialize. Data limitations (e.g., lack of segment/order backlog disclosure) constrain visibility into the durability of demand.

Financial Health

Total assets were ¥7,768 million, liabilities ¥3,487 million, and equity ¥4,206 million; this implies an equity ratio of roughly 54% using reported balances (the 0.0% equity ratio field is undisclosed). Current assets were ¥5,754 million versus current liabilities of ¥2,447 million, yielding a current ratio of 235% and a quick ratio of 199%, both indicative of strong liquidity. Working capital was approximately ¥3,307 million, providing a healthy buffer for operations. Debt-to-equity (using total liabilities/equity) stands at ~0.83x, a moderate leverage profile for a small industrial manufacturer. Interest expense was ¥2.6 million with coverage of ~70x, signaling low financial risk. No cash balance was disclosed in the dataset (0 indicates undisclosed), but liquidity ratios imply adequate cash and near-cash resources embedded in current assets. Overall solvency and liquidity appear sound, supporting operational flexibility despite margin headwinds.

Cash Flow Quality

Operating cash flow of ¥362.7 million versus net income of ¥125.0 million (OCF/NI ~2.90x) indicates strong cash conversion in the period. With depreciation and amortization at ¥60.4 million, cash generation exceeds non-cash expenses, implying favorable working capital movements or advance collections; however, receivables and payables details are not disclosed. Investing cash flow is not disclosed (0 in data), so free cash flow cannot be determined from the provided information; the reported FCF of 0 should be treated as unavailable, not zero. The quality of earnings appears solid this period given high OCF relative to earnings, but sustainability depends on working capital seasonality and order timing. Inventory of ¥879.9 million seems manageable relative to current assets, though inventory turnover cannot be assessed without cost of sales timing and average balances.

Dividend Sustainability

Dividend per share and payout ratio are not disclosed (0 indicates undisclosed). Without investing cash flow and cash balance disclosure, free cash flow coverage of dividends cannot be assessed. From a capacity perspective, strong liquidity (current ratio ~235%) and solid OCF in the period suggest potential headroom for distributions, but the sharp YoY earnings decline and low ROE (2.97%) argue for prudent capital allocation until margins stabilize. The company’s dividend policy and any target payout are not provided, limiting forward assessment.

Risk Assessment

Business Risks:

• Margin compression from input cost inflation and/or adverse product mix
• Operating leverage: profits highly sensitive to small revenue changes
• Demand cyclicality and project timing in industrial/construction end-markets
• Potential customer concentration typical of niche manufacturers (not disclosed)
• Supply chain and labor constraints affecting delivery schedules and costs
• Limited pricing power against larger competitors

Financial Risks:

• Low asset turnover and declining profitability weigh on ROE
• Working capital intensity; cash generation reliant on collection timing
• Potential taxation variability (implied tax burden ~42%) impacting net income
• Information gaps around cash balances and investing cash flows

Key Concerns:

• Operating income decline (-37.9% YoY) outpacing revenue decline (-2.6%)
• Net margin compressed to 3.22% and ROE at 2.97%
• Free cash flow unassessable due to undisclosed investing cash flows
• Visibility on demand and backlog limited by disclosure scope

Investment Implications

Key Takeaways:

• Revenue down 2.6% YoY to ¥3,876m with outsized operating income decline (-37.9% YoY)
• Margins compressed: gross 23.2%, operating ~4.8%, EBITDA 6.4%
• ROE modest at 2.97% driven by low asset turnover (0.499x) and thin net margin (3.22%)
• Liquidity robust (current ratio ~235%, quick ~199%) and leverage moderate (liabilities/equity ~0.83x)
• OCF strong at ¥363m; cash conversion (OCF/NI ~2.90x) supportive, but FCF not assessable
• Interest burden minimal (coverage ~70x), limiting financial risk
• Key near-term swing factor is gross margin/operating leverage normalization

Metrics to Watch:

• Order backlog and booking-to-bill (if disclosed in future reports)
• Gross margin trajectory and SG&A ratio
• Asset turnover and inventory turns
• Operating cash flow sustainability and working capital changes
• Capex and investing cash flows to derive true free cash flow
• ROE progression (via margin, turnover, and leverage components)
• Effective tax rate normalization

Relative Positioning: Within small-cap Japanese industrial/metal-fabrication peers, Otani Kogyo exhibits stronger liquidity and conservative interest burden but currently lags on profitability and ROE due to margin compression and low asset turnover.

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