OKABE (5959) FY2026 Q2 Earnings Report

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Executive Summary

The cumulative results for Q2 of the fiscal year ending December 2026 showed higher revenue but lower profit, with rising costs and increased SG&A expenses weighing on profitability as the key development. Revenue was ¥345.6B (+4.5% YoY), Operating Income was ¥18.1B (-20.5%), Ordinary Income was ¥19.8B (-18.8%), and Net Income was ¥14.8B (-15.2%). Cost of sales increased 9.2%, outpacing revenue growth, causing the gross margin to decline to 30.4%, while the SG&A ratio also expanded to 25.1%; these were the primary factors behind the decline in profit.

Factors Affecting Results

【Revenue】Revenue increased 4.5% YoY to ¥345.6B. The Company operates as a single segment, the Construction-Related Products Business, and does not disclose a breakdown by business; however, demand expansion can be confirmed on a company-wide basis.

【Profit and Loss】Cost of sales increased 9.2% YoY to ¥240.7B, exceeding the revenue growth rate. Consequently, the gross margin declined by approximately 1.4pt, from 31.7% to 30.4%. SG&A expenses also increased 5.6% to ¥86.8B, resulting in Operating Income of ¥18.1B (-20.5%) and a contraction in the Operating Income margin from 6.9% to 5.2%. Ordinary Income remained at ¥19.8B (-18.8%), as non-operating income and expenses—primarily dividend income of ¥1.4B—were insufficient to offset the decline. Net Income was supported by extraordinary income, including a gain on the sale of investment securities of ¥2.9B, and amounted to ¥14.8B (-15.2%). Higher revenue but lower profit.

Key Financial Indicators

【Profitability】The Operating Income margin was 5.2%, down approximately 1.6pt from 6.9% in the same period of the previous year, while the Net Income margin also contracted from 5.3% to 4.3%. The gross margin was 30.4%, down from 31.7% in the same period of the previous year, highlighting weak cost absorption capacity.【Cash Flow Quality】Extraordinary income of ¥2.9B, primarily a ¥2.9B gain on the sale of investment securities, contributed to Pre-Tax Income of ¥22.6B. Accordingly, a portion of Net Income depends on non-recurring factors.【Investment Efficiency】Annualized ROE was 4.7% and the Equity Ratio was 71.8%. Low total asset turnover and working capital requirements—accounts receivable of ¥127.9B and inventories of ¥130.6B—are constraining asset efficiency.【Financial Soundness】The Equity Ratio was 71.8% and interest-bearing debt was ¥48.6B, indicating a low level of debt. Cash and deposits of ¥86.2B substantially exceeded short-term borrowings of ¥17.2B. However, short-term borrowings increased 53.3% YoY, warranting monitoring of working capital trends.

Cash Flow Analysis

Although the cash flow statement has not been explicitly disclosed, an analysis of funding trends based on changes in the balance sheet indicates that cash and deposits decreased to ¥86.2B from ¥90.2B in the same period of the previous year. Meanwhile, accounts receivable and notes receivable decreased to ¥127.9B, while inventories—finished products of ¥130.6B, raw materials of ¥41.3B, and work in process of ¥16.9B—continued to increase from the same period of the previous year, indicating greater funds tied up in inventory. Short-term borrowings increased from ¥11.2B to ¥17.2B, apparently helping to cover rising working capital requirements. Treasury stock increased from ¥12.7B to ¥27.3B, confirming cash outflows associated with shareholder returns and capital policies.

Quality of Earnings

Of Net Income of ¥14.8B, extraordinary income of ¥2.9B, consisting of a ¥2.9B gain on the sale of investment securities, accounted for approximately 13% of Pre-Tax Income of ¥22.6B. This indicates that non-recurring factors exceeding ordinary earnings power supported Net Income. Non-operating income of ¥2.7B consisted primarily of dividend income of ¥1.4B and should be distinguished from the Company’s core business earnings. Comprehensive Income was ¥35.2B, substantially exceeding Net Income of ¥14.8B. The difference was mainly attributable to foreign currency translation adjustments of ¥15.2B and valuation differences on securities of ¥5.2B, indicating that the divergence between Net Income and Comprehensive Income resulted from changes in the valuation of held assets. Given that Operating Income, the Company’s recurring earnings base, declined 20.5% YoY, the quality of Net Income should be assessed more cautiously than the headline figure suggests.

Earnings Forecast and Guidance

The full-year forecast is Revenue of ¥725.0B (+3.9% YoY), Operating Income of ¥51.5B (+8.1%), and Ordinary Income of ¥53.0B (+4.3%). Progress rates for the cumulative Q2 results were 47.7% for Revenue, 35.1% for Operating Income, 37.4% for Ordinary Income, and 40.1% for Net Income. Operating Income and Ordinary Income were more than 10pt below the standard 50% progress level. In the second half, the Company needs to secure Operating Income of ¥31.4B, equivalent to a second-half Operating Income margin of 8.3%. Reversing the decline in the gross margin and the increase in SG&A expenses recorded in the first half will be necessary to achieve the plan. The earnings forecast has not been revised.

Shareholder Returns

The dividend for the end of Q2 was ¥21.00 per share, consisting of an ordinary dividend of ¥16 and a special dividend of ¥5. The full-year dividend forecast is ¥42.00, including an ordinary dividend of ¥16 and a special dividend of ¥5 also scheduled for the year-end payment, an increase from ¥20 in the previous year. The Payout Ratio, calculated based on the annual dividend total using the number of shares outstanding against the full-year Net Income forecast of ¥37.0B, is approximately 54%. The Payout Ratio calculated solely using the first-half dividend against first-half Net Income of ¥14.8B is relatively high at 66.9%; however, it should be noted that the plan assumes a recovery in second-half earnings. The high Equity Ratio of 71.8% provides support for the dividend.

Risk Factors

1. Profitability pressure: The gross margin declined approximately 1.4pt YoY, and the Operating Income margin also narrowed to 5.2%. If increases in raw material and procurement costs cannot be passed on to selling prices in a timely manner, profit margins may continue to decline even amid revenue growth.

2. Working capital efficiency: Finished product inventories of ¥130.6B account for 14.9% of total assets, while accounts receivable and notes receivable also remain high at ¥127.9B. Continued inventory accumulation or delays in collection could affect capital efficiency and the risk of valuation losses.

3. Delayed progress toward the full-year plan: Progress rates for Operating Income and Ordinary Income were 35.1% and 37.4%, respectively, below the standard 50% level. If profitability does not improve in the second half as planned, earnings coverage of the shareholder return policy may decline.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Compared with the industry median, both the Operating Income margin and Net Income margin are positioned in the lower range.

Growth and Capital Efficiency

The Revenue growth rate also falls below the industry median, placing the Company in the lower group within the industry in terms of both growth and profitability.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Despite higher revenue, Operating Income decreased 20.5% due to the decline in the gross margin and increased SG&A expenses. Improving the cost and expense structure will be key to achieving the full-year plan.

2. Net Income includes a ¥2.9B gain on the sale of investment securities, causing Net Income to exceed the Company’s underlying operating performance. The trend in recurring earnings power excluding this non-recurring factor will be a key monitoring point.

3. The full-year dividend forecast of ¥42 is planned to increase from ¥20 in the previous year; however, first-half Net Income progress was only 40.1%, making a recovery in second-half earnings a prerequisite for achieving the dividend plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,260–¥1,332 at Cost of Equity ±1%, and ¥1,291–¥1,298 at ω ±0.1.

Notes:

• As forecast ROE is below the Cost of Equity, the theoretical value will be below Book Value per Share.
• Net assets at the end of the quarter are used, resulting in a timing mismatch with the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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