OKUMA (6103) FY2026 Q3 Earnings Report

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Executive Summary

Profit growth was sluggish relative to revenue growth, and the weakness of operating leverage was the most important point this period. Revenue was ¥1,665.1B (+11.8% YoY), Operating Income was ¥104.4B (+3.1%), Ordinary Income was ¥112.2B (-0.7%), and Net Income attributable to owners of the parent was ¥85.4B (+13.9%). While SG&A expenses and cost burdens offset the benefit of higher revenue, causing the Operating Income margin to decline to 6.3%, lower corporate tax expenses enabled Net Income to exceed Ordinary Income in terms of growth rate.

Factors Affecting Performance

【Revenue】Revenue was ¥1,665.1B, representing an 11.8% YoY increase. By segment, Japan was the primary segment at ¥1,283.3B (77.1% of total), with Operating Income of ¥45.8B and a margin of 3.6%. Americas generated ¥490.9B in revenue and had a relatively high margin of 5.0%. AsiaAndPacific generated ¥176.6B (3.6% margin), while Europe was smaller in scale at ¥246.6B and had a margin of only 1.5%.

【Profit and Loss】Gross profit was ¥498.2B (gross margin 29.9%). After deducting SG&A expenses of ¥393.8B (SG&A ratio 23.7%), Operating Income was ¥104.4B (margin 6.3%), representing an approximately 53bp decline in margin compared with the same period of the previous year. Even after adding ¥17.7B in non-operating income, including ¥10.2B in dividend income, Ordinary Income declined 0.7% YoY to ¥112.2B. Net Income of ¥85.4B grew faster than Ordinary Income due to the lower effective tax rate. Overall, the Company recorded higher revenue and profit; however, Operating Income growth of +3.1% was sluggish compared with revenue growth of +11.8%, indicating that the benefit of higher revenue has not been sufficiently converted into profit.

Segment Analysis

The revenue composition was Japan 77.1%, Americas 29.5%, Europe 14.8%, and AsiaAndPacific 10.6% (including duplicate counting; aggregate regional figures), with the domestic market remaining the largest segment. The Operating Income margin was highest in Americas at 5.0%, followed by Japan and AsiaAndPacific at 3.6%, while Europe was significantly lower at 1.5%. Europe is characterized as a region with room to improve profitability, given its low margin relative to its revenue scale.

Key Financial Metrics

【Profitability】The Operating Income margin was 6.3%, the gross margin was 29.9%, and the Net Income margin was 5.2% (based on Net Income). The Operating Income margin declined by approximately 53bp YoY.【Cash Flow Quality】Inventories were ¥904.9B, accounting for 28.7% of total assets, making prolonged inventory turnover a notable feature in terms of capital efficiency. Cash and deposits were ¥423.7B, equivalent to approximately 85% of current liabilities of ¥495.7B.【Investment Efficiency】ROE was 3.4% and remained in the mid-4% range even on an annualized basis, with the low asset turnover ratio constraining capital efficiency.【Financial Soundness】The Equity Ratio was 79.5%. Interest-bearing debt consisted solely of ¥50.0B in long-term borrowings and ¥50.0B in bonds due for redemption within one year, resulting in an extremely low debt-to-equity ratio and a conservative financial structure.

Cash Flow Analysis

Although a cash flow statement was not disclosed, changes in the balance sheet provide insight into fund flows. Cash and deposits declined to ¥423.7B from ¥530.8B in the previous year, while the increase in inventories from ¥856.3B to ¥905.0B is considered one factor behind the accumulation of funds in working capital. Property, plant and equipment increased from ¥544.2B to ¥647.0B, indicating that capital investment has continued. Interest-bearing debt remained broadly flat, with no significant change in the funding structure. The high level of inventories is a factor tying up working capital and will be a key determinant of capital efficiency going forward.

Earnings Quality

Of the ¥112.2B in Ordinary Income, ¥17.7B in non-operating income included ¥10.2B in dividend income and ¥4.3B in interest income, indicating that financial income outside the core business is supporting Ordinary Income. Foreign exchange losses of ¥4.0B were recorded in non-operating expenses, meaning that currency fluctuations are affecting earnings. The ¥103.4B gap between Net Income of ¥85.4B and Comprehensive Income of ¥188.8B was attributable to ¥62.5B in valuation differences on securities and ¥41.2B in foreign currency translation adjustments; these should be evaluated separately from recurring earnings power for the current period. No temporary extraordinary gains or losses were identified in the progression from Operating Income to Ordinary Income and Net Income, while the lower tax burden was a factor boosting Net Income.

Earnings Forecast and Guidance

The full-year Company plan calls for Revenue of ¥2,200.0B (+6.4% YoY), Operating Income of ¥140.0B (-4.4%), and Ordinary Income of ¥145.0B (-6.6%). The Q3 cumulative progress rates were 75.7% for Revenue, 74.6% for Operating Income, and 77.4% for Ordinary Income, broadly tracking standard levels. To achieve the full-year plan, Q4 must generate Revenue of ¥534.9B and Operating Income of ¥35.6B (Operating Income margin of approximately 6.7%). This exceeds the Q3 cumulative Operating Income margin of 6.3%, making improved profitability in the second half a key factor in achieving the plan.

Shareholder Returns

The Q2 dividend was ¥50.0 per share, and the full-year forecast dividend is ¥100.0 per share. Based on forecast full-year EPS of ¥165.25, the forecast Payout Ratio is approximately 60.5%. The financial foundation—including Cash and deposits of ¥423.7B, an Equity Ratio of 79.5%, and low interest-bearing debt—supports the capacity to maintain dividend payments.

Risk Factors

1. Working capital accumulation: Inventories of ¥904.9B account for 28.7% of total assets, and prolonged inventory turnover is a capital-efficiency challenge. During periods of demand fluctuation, this could pressure profit margins through inventory write-downs and lower capacity utilization.

2. Decline in Operating Income margin: Against an 11.8% increase in Revenue, Operating Income rose only 3.1%, causing the Operating Income margin to decline by approximately 53bp YoY. If the absorption capacity for costs and SG&A expenses does not improve, the scope for achieving the full-year Operating Income plan will be limited.

3. Foreign exchange risk: Foreign exchange losses of ¥4.0B were recorded in non-operating expenses. Given the business structure’s high overseas sales ratio, currency fluctuations may affect Ordinary Income.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin were below the industry median, placing profitability somewhat low within the industry.

Growth and Capital Efficiency

The Revenue growth rate was significantly above the industry median, placing top-line expansion at a superior level within the industry.

※Source: Compiled by the Company

Key Points from the Results

1. While the Revenue growth rate of +11.8% was significantly above the industry median of 3.3%, the Operating Income margin of 6.3% was below the industry median of 8.6%. Whether revenue growth can be linked to improved margins will be a key point to monitor going forward.

2. Inventories account for 28.7% of total assets, and inventory trends will be an important indicator for evaluating capital efficiency and future profitability.

3. Achieving the full-year plan requires a Q4 Operating Income margin of approximately 6.7%. Improvement from the Q3 cumulative result of 6.3% will be an important point in assessing progress toward the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,455–¥3,649 at ±1% for the Cost of Equity, and ¥3,531–¥3,562 at ±0.1 for ω.

Notes:

• Because Net Income progress against the full-year forecast (85%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of forecast progress tend to outperform their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the quarter-end 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 at a somewhat high level.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a 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 predict or guarantee the future share price.)

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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. 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 a professional as necessary.

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AI Financial Analysis

Executive Summary

Okuma delivered solid top-line growth in FY2026 Q3, but profitability conversion weakened as the gross-margin decline outweighed SG&A leverage. Revenue rose 11.8% year on year to ¥166.5bn. Operating income increased only 3.1% to ¥10.4bn, materially lagging sales growth. Gross profit increased to ¥49.8bn, but the gross margin fell 249bp year on year to 29.9% from 32.4%. The operating margin contracted 53bp to 6.3% from 6.8%. SG&A expenses grew 3.2%, substantially below revenue growth, reducing the SG&A-to-sales ratio by 196bp to 23.7%. This cost discipline partly offset the gross-margin pressure but did not fully neutralize it. Ordinary income declined 0.7% to ¥11.2bn despite the operating-income increase. Dividend income of ¥1.0bn and interest income of ¥0.4bn were important contributors to non-operating income, while foreign-exchange losses were ¥0.4bn. Net income attributable to owners increased 13.9% to ¥8.5bn, aided by the absence of the prior-year net extraordinary loss and a lower effective tax rate of 23.4%. Net margin improved modestly by approximately 10bp to 5.1%. Comprehensive income rose sharply to ¥188.9bn, principally reflecting favorable valuation and foreign-currency translation movements rather than operating performance. The balance sheet remains conservatively funded, with equity representing 79.5% of total assets and debt/capital at 2.0%. Liquidity is very strong, with a 363.9% current ratio and a 181.3% quick ratio. The key operating concern is working-capital intensity: annualized DSO of 63 days, annualized DIO of 212 days, and an annualized cash conversion cycle of 239 days are elevated for a machine-tool manufacturer. Full-year guidance implies broadly in-line sales and operating-profit progress through Q3, while profit attributable to owners has already reached 85.4% of the full-year forecast. The principal forward-looking issue is whether the company can preserve demand momentum while restoring gross margin and reducing the inventory burden.

Profitability Analysis

The reported annualized ROE is 4.5%, below the 8% benchmark commonly associated with adequate capital efficiency. The DuPont decomposition is annualized net profit margin of 5.1% × annualized asset turnover of 0.704x × financial leverage of 1.26x, resulting in 4.5% ROE. The modest leverage factor reflects the company’s equity-rich balance sheet rather than financial risk. The principal constraint on ROE is therefore operating profitability and asset utilization, not financing structure. The most significant year-on-year profitability movement was the 249bp gross-margin contraction to 29.9%. Revenue growth of 11.8% translated into only 3.1% operating-income growth, demonstrating adverse gross-profit conversion. Conversely, SG&A growth was held to 3.2%, versus 11.8% sales growth, creating favorable operating leverage below gross profit. The SG&A ratio declined to 23.7% from 25.6%, but this was insufficient to offset the lower gross margin. Operating margin of 6.3% is above the 5% concern threshold but below the 8% level generally considered good. Net margin of 5.1% remains within the 5-10% acceptable range, although its improvement was supported more by tax and below-operating-line factors than by core margin expansion. The five-factor analysis shows a normal tax burden of 0.761 and an interest burden of 1.075, the latter benefiting from net non-operating financial income rather than debt-funded returns. Interest coverage of 141.1x confirms that financing costs do not constrain earnings. The quality alert for ROIC of 5.0% indicates capital returns remain at the lower end of acceptable levels; the large asset base, particularly inventory and investment securities, is not yet producing commensurate operating returns. Sustained improvement requires either gross-margin recovery, faster inventory turns, or more productive deployment of the balance sheet.

Growth Assessment

Sales growth of 11.8% to ¥166.5bn indicates favorable demand and shipment momentum through Q3. However, the 3.1% increase in operating income shows that revenue growth has not converted proportionately into operating earnings. Inventory increased 5.7% year on year to ¥90.5bn, slower than sales growth, which is a constructive directional comparison, but the absolute inventory balance remains high relative to the sales base. The annualized inventory-days measure of 212 days remains materially above the 90-day warning threshold and signals a long production, procurement, or delivery cycle. Receivable growth of 1.7% year on year to ¥38.5bn was well below revenue growth, although annualized DSO of 63 days remains above the 60-day alert threshold. FY2026 full-year revenue guidance is ¥220.0bn, and Q3 cumulative sales represent 75.7% of this target, only 0.7 percentage points ahead of the standard 75% Q3 progress rate. Operating income of ¥10.4bn represents 74.6% of the ¥14.0bn full-year target, essentially in line with normal seasonality. Ordinary income has reached 77.4% of the ¥14.5bn forecast, modestly ahead of the standard pace. Net income attributable to owners has reached 85.4% of the ¥10.0bn forecast, 10.4 percentage points ahead of the standard Q3 progress rate, reflecting favorable tax and below-operating-line comparisons. The company’s full-year guidance calls for 6.4% sales growth but a 4.4% decline in operating income, indicating management itself expects full-year margin pressure to persist. For a machine-tool manufacturer, order-cycle variability, customer capital-expenditure decisions, and inventory normalization remain central determinants of second-half earnings quality. The outlook would improve if the company converts its high inventory base into sales without further gross-margin dilution.

Financial Health

Financial health is strong, supported by a large equity base and substantial liquidity. Current assets of ¥180.4bn exceed current liabilities of ¥49.6bn by ¥130.8bn, producing working capital of ¥130.8bn. The current ratio of 363.9% is well above the 1.0x warning threshold, and the quick ratio of 181.3% also exceeds 1.0x. Accordingly, there is no apparent near-term maturity mismatch between current obligations and liquid current assets. Cash and deposits were ¥42.4bn, equivalent to 13.4% of total assets. Total equity was ¥250.9bn, or 79.5% of total assets, while total liabilities represented only 20.5%. Debt/capital of 2.0% and interest coverage of 141.1x indicate very limited balance-sheet solvency risk. Long-term loans were ¥5.0bn, and current bonds payable were also ¥5.0bn; these obligations are modest relative to liquidity and equity. Investment securities increased 26.8% year on year to ¥43.2bn and account for 13.7% of total assets. This larger securities portfolio enhances financial asset exposure, and its valuation can affect other comprehensive income and equity. Intangible assets of ¥17.2bn represent only 5.4% of total assets, well below the 20% benchmark for elevated intangible-asset concentration. Property, plant and equipment was ¥64.7bn, or 20.5% of assets, consistent with a manufacturing business that requires a meaningful but manageable production-asset base. The reported D/E ratio of 0.26x remains conservative and far below the 2.0x leverage warning threshold. The main financial-health issue is not funding capacity but the efficiency of capital tied up in inventory and receivables.

Notable B/S Changes

Investment securities: +¥9.1bn (+26.8%) to ¥43.2bn - greater financial-asset exposure and potential equity/OCI valuation sensitivity. Property, plant and equipment: +¥10.3bn (+18.9%) to ¥64.7bn - sizable expansion of the manufacturing asset base, requiring adequate utilization and returns. Cash and deposits: -¥10.7bn (-20.2%) to ¥42.4bn - liquidity remains strong, but the decline should be monitored against the high inventory and long cash conversion cycle. Total equity: +¥12.8bn (+5.4%) to ¥250.9bn - strengthened largely by earnings and accumulated valuation/translation gains, reinforcing solvency. Total assets: +¥17.3bn (+5.8%) to ¥315.5bn - asset growth was driven notably by PPE, investment securities, and inventory, increasing the importance of asset productivity.

Cash Flow Quality

Working-capital metrics point to a potentially heavy cash-conversion burden. Annualized DSO of 63 days exceeds the 60-day quality-alert threshold, indicating comparatively slow cash collection from customers. Annualized DIO of 212 days is substantially above both the 90-day manufacturing warning threshold and the stricter 60-day efficiency benchmark. The annualized cash conversion cycle of 239 days exceeds the 120-day warning threshold by a wide margin. This combination means a significant portion of operating capital is committed to inventory and receivables for an extended period before cash is collected. The quality alert on DIO is particularly material for a capital-goods manufacturer because inventory can include long-cycle work in process, specialized components, and finished machines awaiting shipment or customer acceptance. Elevated inventory may be normal to a degree in engineered machine tools, but a 212-day level increases exposure to demand changes, product-mix shifts, discounting, and potential obsolescence. The 63-day DSO alert raises the need to monitor customer acceptance timing and collections, especially in export and large-project transactions. Accounts payable were ¥15.6bn and electronically recorded obligations were ¥5.4bn, providing supplier funding but not enough to offset the long receivable-plus-inventory cycle. Inventory grew ¥4.9bn year on year while cash and deposits declined ¥10.7bn, consistent with the need to monitor the cash consequences of balance-sheet deployment. The substantial gap between 239-day cash conversion and strong accounting earnings highlights a working-capital risk to earnings-to-cash conversion. No operating, investing, or financing cash-flow figures are available for direct assessment of operating-cash-flow coverage, free cash flow, or OCF-to-net-income conversion.

Dividend Sustainability

The Q2 dividend per share was ¥50.0. Based on the disclosed calculation, this interim distribution corresponds to a 39.5% payout ratio against Q3 cumulative net income, which is within the sub-60% sustainability benchmark. The full-year dividend forecast is ¥100.0 per share. Against forecast EPS of ¥165.25, the implied full-year dividend payout ratio is approximately 60.5%, slightly above the 60% benchmark but not indicative of an unsustainable distribution given the company’s strong balance sheet. Net income attributable to owners of ¥8.5bn has already reached 85.4% of the ¥10.0bn full-year forecast, providing a buffer to the forecast payout calculation if current earnings momentum persists. Cash and deposits of ¥42.4bn, low debt/capital of 2.0%, and very high interest coverage support financial flexibility for dividends. However, the long annualized 239-day cash conversion cycle means dividend funding should be evaluated alongside actual cash collection and inventory monetization. The sustainability of the ¥100 annual dividend will therefore depend principally on conversion of inventory into cash and protection of gross margin, rather than on balance-sheet leverage. No share-buyback amount is provided, so a total return ratio cannot be assessed.

Risk Assessment

Business risks include Demand cyclicality in machine tools and customer capital-expenditure budgets could slow order intake, shipments, or customer acceptance, particularly after Q3 sales growth of 11.8%., Gross-margin risk is material: the gross margin declined 249bp year on year to 29.9%, causing operating-income growth of only 3.1% despite double-digit sales growth., Inventory risk is high: annualized DIO of 212 days materially exceeds manufacturing benchmarks and increases exposure to order deferrals, discounting, product obsolescence, and working-capital lock-up., Collection-cycle risk is elevated: annualized DSO of 63 days exceeds the 60-day quality-alert threshold and may delay cash realization from reported revenue., Foreign-exchange exposure remains relevant, with ¥0.4bn of foreign-exchange losses recorded in non-operating expenses..

Financial risks include The annualized cash conversion cycle of 239 days is the most significant financial-quality concern, as it can weaken operating cash generation even when accounting earnings rise., ROIC of 5.0% is at the quality-alert threshold, indicating that a large capital base is generating only modest operating returns., Investment securities rose 26.8% year on year to ¥43.2bn; valuation changes can introduce equity and comprehensive-income volatility., Cash and deposits declined ¥10.7bn year on year to ¥42.4bn, requiring monitoring against continued working-capital needs, although liquidity remains strong..

Key concerns include Highest priority: restoring gross margin while maintaining revenue growth, because core operating profitability is lagging sales growth., Highest priority: reducing or productively converting the ¥90.5bn inventory balance, given the 212-day annualized inventory cycle., High priority: improving receivable collections to bring annualized DSO below 60 days and shorten the 239-day cash conversion cycle., Medium priority: lifting ROIC above 5% through better asset turns and/or improved operating margins., Medium priority: determining whether the sharp rise in comprehensive income is durable, as it was driven largely by valuation and currency translation movements rather than operating profit..

Investment Implications

Key takeaways include Revenue momentum is favorable, with Q3 cumulative sales up 11.8% year on year and 75.7% progress against the full-year sales forecast., Core earnings conversion is weaker: operating margin fell 53bp to 6.3%, and operating income grew only 3.1%., Balance-sheet risk is low, with a 363.9% current ratio, 79.5% equity/assets, 2.0% debt/capital, and 141.1x interest coverage., Working-capital efficiency is the central quality issue, highlighted by annualized DSO of 63 days, DIO of 212 days, and a 239-day cash conversion cycle., Net income progress is ahead of plan at 85.4% of full-year guidance, but this outperformance is stronger than operating-income progress and should be assessed for durability., The forecast ¥100 per-share dividend implies an approximately 60.5% payout ratio based on forecast EPS, supported by the balance sheet but dependent on cash conversion..

Metrics to watch include Gross margin and operating margin versus the Q3 levels of 29.9% and 6.3%, Inventory balance and annualized inventory days versus ¥90.5bn and 212 days, Annualized DSO and cash conversion cycle versus 63 days and 239 days, Operating-income progress versus the ¥14.0bn full-year forecast, ROIC versus the 5.0% quality-alert threshold, Investment-securities valuation movements and their effect on other comprehensive income, Cash and deposits relative to working-capital requirements.

Regarding relative positioning, Okuma is financially conservative relative to leveraged industrial peers, with exceptional liquidity and negligible debt servicing pressure. Its relative weakness is capital efficiency: annualized ROE of 4.5% and ROIC of 5.0% remain below preferred return thresholds, while the 212-day inventory cycle and 239-day cash conversion cycle are demanding for a manufacturing business. The company’s positioning therefore combines balance-sheet resilience with a need for better gross-margin and working-capital execution.