ONEX (5987) FY2026 Q2 Earnings Report

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Executive Summary

For the cumulative Q2 of the fiscal year ending March 2026, revenue and earnings increased, with a significant improvement in profitability being the key highlight. Revenue was ¥2.65B (+5.0% year on year), Operating Income was ¥0.22B (+308.4%), Ordinary Income was ¥0.23B (+247.7%), and Net Income was ¥0.23B (approximately break-even in the same period of the previous year). Improved profitability in the core Metal Heat Treatment Processing Business lifted the gross profit margin, resulting in earnings growth that outpaced revenue growth.

Factors Affecting Performance

【Revenue】Revenue was ¥2.65B, an increase of +5.0% year on year. The Metal Heat Treatment Processing Business drove growth with revenue of ¥2.36B (88.9% of total revenue, +6.0% year on year), while the Transportation Business recorded a decline in revenue to ¥0.43B (11.1% of total revenue, -2.3% year on year).

【Profit and Loss】Cost of sales declined by -3.3% year on year to ¥1.93B, and the gross profit margin improved significantly to 27.1% (20.9% in the previous year). Selling, general and administrative expenses were ¥0.49B, with a growth rate of +4.6%, below the revenue growth rate, and the Operating Income margin increased to 8.5% (2.2% in the previous year). Ordinary Income and Net Income also increased significantly; however, it should be noted that the extremely low effective tax rate of 0.3% boosted Net Income. Special gains included ¥0.002B in gains on the sale of fixed assets, while special losses included ¥0.004B in losses on the disposal of fixed assets, resulting in a limited net loss of ¥0.002B, indicating a minimal impact from temporary factors. Overall, the company achieved higher revenue and earnings, with earnings growth driven primarily by improved profitability rather than volume expansion.

Segment Analysis

The Metal Heat Treatment Processing Business recorded external revenue of ¥2.36B (+6.0% year on year) and segment profit of ¥0.20B (a significant increase from ¥0.02B in the previous year). Its profit margin improved by approximately 744bp, from 1.0% to 8.5%, and accounted for 92.5% of total reported segment profit. The Transportation Business recorded external revenue of ¥0.43B (-2.3% year on year) and segment profit of ¥0.02B (-26.9% year on year), with its profit margin declining by approximately 183bp, from 7.3% to 5.4%. The improvement in consolidated earnings is almost entirely dependent on the recovery in profitability of the Metal Heat Treatment Processing Business, while the Transportation Business has weakened in the opposite direction.

Key Financial Indicators

【Profitability】The Operating Income margin improved significantly to 8.5% (2.2% in the previous year), while the Net Profit margin was 8.7%. Annualized ROE was 8.3% and annualized ROA was approximately 5.4%. Although profitability indicators improved, ROE remained below the 10% level generally considered favorable.【Cash Flow Quality】The net contribution of special gains and losses to Net Income was limited to -¥0.002B. The extremely low tax burden, reflected in an effective tax rate of 0.3%, boosted Net Income and should be distinguished when evaluating earnings quality.【Investment Efficiency】Total asset turnover was approximately 0.63x, indicating a capital-intensive asset structure reflecting holdings of heat treatment equipment and land.【Financial Soundness】An Equity Ratio of 65.4%, a current ratio of 264.7%, a Debt/Capital ratio of 12.8%, and interest coverage of 31.99x all indicate a high level of financial safety.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is not available, funding trends can be assessed based on changes in the balance sheet. Cash and deposits decreased by ¥0.43B, from ¥2.94B in the same period of the previous year to ¥2.51B, while long-term borrowings were reduced by ¥0.27B, from ¥1.09B to ¥0.81B, suggesting that the company proceeded with debt repayment during a period of improving profitability. Investment securities increased by ¥0.13B, from ¥0.29B to ¥0.42B, indicating that a portion of surplus funds was likely allocated to securities investments. Retained earnings increased from ¥3.58B to ¥3.78B, indicating the accumulation of internal reserves through operating activities. Overall, the company appears to have sufficient financial capacity to reduce borrowings while simultaneously increasing its holdings of investment securities.

Earnings Quality

Ordinary Income was ¥0.23B compared with Operating Income of ¥0.22B, indicating that the net positive contribution from non-operating income and expenses was less than ¥0.01B and that dependence on non-operating income was low. Special gains consisted of ¥0.002B in gains on the sale of fixed assets, while special losses consisted of ¥0.004B in losses on the disposal of fixed assets, resulting in net special losses of ¥0.002B; no boost to Net Income from temporary items was identified. Although the gap between Ordinary Income and Net Income was small, this reflected a very low tax burden, with income taxes and other taxes amounting to only ¥0.001B and an effective tax rate of 0.3%. Accordingly, the improvement in operating-level earnings can be assessed as high quality; however, when evaluating Net Income and ROE, it is necessary to distinguish whether this low tax burden is sustainable.

Earnings Forecast and Guidance

The first-half progress rates against the full-year company forecasts (Revenue of ¥5.14B, Operating Income of ¥0.11B, Ordinary Income of ¥0.10B, and Net Income of ¥0.065B) were 51.7% for Revenue, 210.3% for Operating Income, 240.2% for Ordinary Income, and 353.8% for Net Income, substantially exceeding the forecasts in the earnings categories. Neither the earnings forecast nor the dividend forecast has been revised, suggesting that the company may be conservatively factoring in a slowdown in demand, rising costs, or normalization of the tax burden in the second half. The significant gap between first-half results and the full-year forecasts is a key focus in evaluating the outlook for second-half performance.

Shareholder Returns

The dividend at the end of Q2 was ¥0 per share, while the full-year company forecast is an annual dividend of ¥20 per share (unchanged). The forecast Payout Ratio, calculated using forecast EPS of ¥39.83 on a Net Income basis for both the numerator and denominator, is approximately 50.2%. First-half actual EPS was ¥139.06, substantially exceeding the forecast. Even if second-half earnings slow to approximately the level assumed in the company forecast, the forecast Payout Ratio would remain around 50%. In light of substantial retained earnings of ¥3.78B, the current dividend forecast appears sustainable based on both earnings and shareholders’ equity.

Risk Factors

1. Concentration of earnings in the core business: The Metal Heat Treatment Processing Business accounts for 92.5% of total reported segment profit, meaning that changes in its capacity utilization and order mix could have a significant impact on consolidated earnings.

2. Cost pass-through risk: Although the gross profit margin improved to 27.1% in the first half, this level could decline if increases in electricity and fuel costs, raw material prices, and outsourcing expenses cannot be passed on through selling prices.

3. Sustainability of the low tax burden: The effective tax rate of 0.3% is substantially below normal levels. If the tax burden normalizes, the Net Profit margin and ROE could decline even if Operating Income is maintained.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Growth and Capital Efficiency

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Operating Income increased by +308.4% against revenue growth of 5.0%, confirming a substantial recovery in profitability during the first half, centered on an improved gross profit margin. However, annualized ROE of 8.3% remains below the generally favorable level of 10%.

2. Although first-half results substantially exceeded the full-year earnings forecasts, the forecasts remain unchanged. Accordingly, the company’s assumptions regarding the business environment in the second half will be a key issue in assessing future performance.

3. Financial safety is high, with a current ratio of 264.7%, a Debt/Capital ratio of 12.8%, and interest coverage of 31.99x. The forecast Payout Ratio based on the annual dividend forecast of ¥20 is also approximately 50%, which does not represent an excessive shareholder-return burden in light of earnings and capital accumulation.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥2,456–¥2,593 at ±1% for the cost of equity, and ¥2,499–¥2,539 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is 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: 2026-08 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market stock price or a recommendation of any specific investment action, and does not predict or guarantee future stock prices.)

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

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