OKAMOTO MACHINE TOOL WORKS,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥20.12B
• Operating Income: ¥885M
• Net Income: ¥312M
• EPS: ¥69.39

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Okamoto Machine Tool Works reported FY2026 Q2 consolidated results under JGAAP with stable topline and mixed profitability and cash flow signals. Revenue was ¥20.12bn, up a modest 0.4% YoY, indicating broadly flat demand through the first half. Gross profit reached ¥5.72bn, translating to a gross margin of 28.4%, which is healthy for a precision machinery maker but suggests limited pricing power gains YoY given the very small revenue growth. Operating income was ¥0.89bn (-0.6% YoY), implying a 4.4% operating margin and slight negative operating leverage in the half. Ordinary income of ¥0.86bn was close to operating income, indicating immaterial non-operating swings in the period. Net income rose sharply to ¥0.46bn (+46.8% YoY), lifting EPS to ¥69.39, helped by a more benign tax burden compared with the prior year; based on the disclosed income tax expense (¥0.21bn) and ordinary income, the implied tax rate is around 24%, though we note formal effective tax rate data were not disclosed. DuPont analysis shows a net profit margin of 2.28%, asset turnover of 0.318x, and financial leverage of 1.54x, yielding a reported ROE of 1.12% for the period. EBITDA was ¥1.91bn, with a 9.5% margin, and depreciation and amortization of ¥1.02bn underlines the capital intensity of the business. Liquidity remains strong: current ratio is 238% and quick ratio is 212%, supported by ¥47.21bn of current assets and working capital of ¥27.34bn. The balance sheet appears conservatively financed with total equity of ¥40.94bn against total assets of ¥63.23bn; the implied equity ratio is about 64.8% based on these figures, despite the equity ratio field being undisclosed. Cash flow quality is a key weak spot in this half: operating cash flow was negative ¥3.00bn despite positive earnings, pointing to a significant working capital build (likely receivables and/or inventories). Financing cash flow was positive at ¥9.51bn, indicating reliance on external funding in the half, while investing cash flow was not disclosed. Interest expense was modest at ¥0.07bn, and interest coverage remains comfortable at roughly 13x on EBIT (and ~28x on EBITDA). Dividend data were not disclosed; hence payout and FCF coverage cannot be assessed, though negative OCF would mechanically tighten near-term cash coverage of any distribution. Overall, the company shows resilient margins and strong liquidity/solvency, but weak cash conversion in H1 and flat revenue suggest near-term growth and working capital management are the key swing factors into the second half. Given the machine tool sector’s cyclicality, order intake and backlog visibility will be critical to assess revenue sustainability for FY2026. Data limitations (several items showing as zero because undisclosed) constrain a full view, particularly on cash, investing flows, and dividends.

Profitability Analysis

ROE decomposition: Net margin 2.28% × asset turnover 0.318 × financial leverage 1.54 = ROE 1.12%, confirming low return on equity driven primarily by modest margins and slow asset turnover rather than leverage. Gross margin stands at 28.4% (gross profit ¥5.72bn on sales ¥20.12bn), reflecting adequate pricing/cost control but limited YoY expansion given flat sales. Operating margin is 4.4% (¥0.885bn/¥20.12bn), pressured by SG&A: implied SG&A is ~¥4.83bn (gross profit minus operating income), about 24.0% of sales, leaving little operating headroom when revenue growth is muted. Ordinary margin is 4.3%, very close to operating margin, indicating minimal non-operating drag or support this period. Net margin improved to 2.28%, aided in part by a manageable tax burden (implied ~24% vs prior-year basis not provided). EBITDA margin is 9.5%; depreciation and amortization of ¥1.02bn (about 5.1% of sales) underscores capital intensity typical of machine tools. Operating leverage was slightly negative: revenue grew +0.4% YoY while operating income declined -0.6% YoY, suggesting cost stickiness and/or an unfavorable mix in H1. Interest burden is low: interest expense ¥0.068bn; EBIT interest coverage ~13x and EBITDA coverage ~28x, leaving profitability largely a function of core operations and volume rather than financing costs. Overall margin quality appears stable but not expanding, with limited operating leverage benefits at current volumes.

Growth Assessment

Revenue growth was essentially flat at +0.4% YoY (¥20.12bn), implying subdued demand or timing effects in shipments during H1. The slight decline in operating income (-0.6% YoY) against flat sales suggests either higher fixed cost absorption pressure or mix heading less favorable, restraining incremental margins. Net income growth (+46.8% YoY) looks outsized versus operating trends, likely reflecting lower non-operating drag and normalized taxation rather than a material improvement in underlying operations. Sustainability of revenue will hinge on order intake and backlog conversion, which were not disclosed; given sector cyclicality, H2 seasonality and macro capex conditions (domestic and overseas) are key. With asset turnover at 0.318x, capital employed is high relative to current sales levels; to drive ROE higher, sustained top-line growth or mix/pricing improvements are needed. The lack of disclosed investing CF makes it difficult to assess growth capex versus maintenance, though D&A of ¥1.02bn suggests ongoing reinvestment needs. Outlook: near-term growth appears constrained without evidence of order momentum; however, healthy liquidity and balance sheet capacity provide flexibility to pursue growth initiatives or withstand softer demand. Monitor FX effects, semiconductor and auto-related capex cycles, and China/ASEAN demand trends, which often influence machine tool orders.

Financial Health

Liquidity is strong: current assets ¥47.21bn vs current liabilities ¥19.87bn yields a current ratio of 237.6% and a quick ratio of 212.2%; working capital is substantial at ¥27.34bn, providing cushion for operating needs but also indicating capital tied up in receivables/inventories. Inventories are ¥5.05bn; at ~25% of gross profit, they appear manageable, though OCF negativity implies broader working capital build beyond inventories (likely receivables and advances). Solvency is robust: total equity ¥40.94bn vs total assets ¥63.23bn implies an equity ratio of approximately 64.8% (equity/assets), even though the equity ratio field was undisclosed. Debt-to-equity is reported at 0.64x; with modest interest expense (¥0.068bn), leverage appears conservative and serviceable. Interest coverage is ample at ~13x EBIT, indicating low refinancing risk under current earnings. Capital structure thus skews equity-heavy, offering resilience through the cycle, albeit at the cost of dampened ROE absent higher turnover or margins. Cash and cash equivalents were not disclosed, limiting precision on immediate liquidity headroom; however, the strong working capital and financing inflows suggest adequate funding availability in the period.

Cash Flow Quality

Earnings quality is weak in H1 from a cash perspective: operating cash flow was -¥2.999bn against net income of ¥0.458bn, yielding an OCF/NI ratio of -6.55, indicative of significant working capital absorption. The divergence suggests increases in receivables and/or other current assets, or reductions in payables/advances; inventories alone (¥5.05bn) do not fully explain the cash draw. Free cash flow cannot be reliably assessed because investing cash flow was undisclosed; thus, reported FCF of zero should be treated as missing data rather than a true value. Financing cash inflow of ¥9.51bn covered the OCF deficit and more, implying either new borrowings or other financing sources during the half; this is not necessarily a concern given strong solvency, but repeated reliance on financing for working capital could pressure returns. D&A of ¥1.02bn vs EBITDA of ¥1.91bn suggests a sizable non-cash component in expenses, but cash conversion is currently constrained by timing and working capital. Key to watch: receivables turnover, advances from customers, and inventory turns, none of which were disclosed. Normalization of OCF in H2 will be important to validate earnings quality and reduce reliance on external funding.

Dividend Sustainability

Dividend per share and payout ratio were not disclosed for this period (fields show zero because undisclosed). With EPS at ¥69.39 for H1 and negative operating cash flow, cash coverage of any dividend (if declared) would be weaker in the interim; however, strong liquidity and an implied equity ratio near 65% provide balance sheet capacity. In the absence of investing cash flow data, free cash flow coverage cannot be determined. Historically, machinery companies often align dividends with full-year results and cash generation; thus, assessment should be deferred until FY-end when full cash flows and any dividend policy updates are available. Policy outlook: no explicit guidance provided this quarter; monitor board communications and payout policy disclosures in year-end materials.

Risk Assessment

Business Risks:

• Cyclical demand for machine tools tied to capex in autos, electronics/semiconductors, and general industry
• Order intake and backlog visibility not disclosed, increasing uncertainty on H2 sales trajectory
• Pricing pressure and mix shifts affecting gross and operating margins
• Supply chain and component availability that can impact delivery timing and working capital
• FX volatility affecting export competitiveness and translation of overseas results

Financial Risks:

• Negative operating cash flow in H1 indicating significant working capital absorption
• Reliance on financing inflows (¥9.51bn) to fund operations during the half
• Potential inventory and receivables build increasing balance sheet intensity and lowering asset turnover
• Limited disclosure on cash balances and investing cash flows, constraining liquidity and capex visibility

Key Concerns:

• Sustained OCF shortfall versus net income if working capital does not normalize in H2
• Flat revenue with slight negative operating leverage pressuring FY operating margin
• Unclear dividend trajectory due to undisclosed DPS and FCF

Investment Implications

Key Takeaways:

• Topline essentially flat (+0.4% YoY) with stable but unexpanded margin structure
• Operating leverage slightly negative; operating margin at 4.4%
• ROE low at 1.12% driven by modest net margin and slow asset turnover
• Strong liquidity and solvency (implied equity ratio ~64.8%, current ratio ~238%)
• Earnings-to-cash conversion weak: OCF -¥3.0bn vs net income ¥0.46bn
• Financing inflows of ¥9.51bn supported cash needs in H1
• Dividend details undisclosed; sustainability assessment deferred to FY-end

Metrics to Watch:

• Order intake/backlog and book-to-bill ratio
• Operating cash flow and working capital components (receivables, inventories, payables, advances)
• EBITDA margin trajectory and SG&A-to-sales ratio
• Asset turnover improvement (sales vs average assets)
• Capex versus D&A once investing CF is disclosed
• Interest coverage and net debt once cash and debt details are disclosed

Relative Positioning: Financially conservative balance sheet with solid liquidity places the company on the stronger side among domestic machine tool peers in solvency, but near-term profitability (low ROE, modest operating margin) and cash conversion currently trail best-in-class peers that exhibit higher turnover and more resilient free cash flow.

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