OPTORUN CO.,LTD. FY2026 Q2 Earnings Report

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Executive Summary

The most important point this period is that, despite revenue growth, net income fell into the red due to higher non-operating expenses and a high effective tax rate. Revenue increased to ¥158.5B (+14.5% YoY), while Operating Income was ¥10.9B (-1.9%), Ordinary Income was ¥7.2B (-35.5%), and Net Income was ¥-1.0B, falling into the red from ¥10.3B in the same period of the previous year. Despite revenue expansion, the Operating Income Margin declined to 6.9%; moreover, excess non-operating expenses, including a foreign exchange loss of ¥3.2B, and an effective tax rate of 114.6% pushed down net income.

Factors Affecting Earnings

【Revenue】Revenue was ¥158.5B, representing a 14.5% increase YoY. As the company operates in a single thin-film deposition equipment business, the accumulation of work in progress of ¥187.6B and contract liabilities of ¥245.4B indicates progress on orders, but also suggests a significant time lag until customer acceptance and revenue recognition.

【Profit and Loss】Operating Income was ¥10.9B (-1.9% YoY), and the Operating Income Margin declined to 6.9%. Although the Gross Margin was maintained at 32.9%, the increase in the SG&A Expense Ratio to 26.0% weighed on profit. At the ordinary income level, non-operating expenses of ¥7.3B, including a foreign exchange loss of ¥3.2B and interest expense of ¥1.2B, exceeded non-operating income of ¥3.6B, causing Ordinary Income to deteriorate to ¥7.2B (-35.5% YoY). In addition, income taxes and other taxes of ¥7.9B were recorded against pretax income of ¥6.9B, resulting in an effective tax rate of 114.6% and a net loss of ¥-1.0B. A small temporary factor, a loss on disposal of fixed assets of ¥0.2B, also contributed to the move into the red. In conclusion, the company posted higher revenue but lower profit, with a final loss.

Segment Analysis

As the company operates as a single segment, the Thin-Film Deposition Equipment Business, segment-level disclosure has been omitted.

Key Financial Indicators

【Profitability】The Operating Income Margin of 6.9% declined from approximately 7.9% in the same period of the previous year, while the Net Profit Margin turned negative. ROE was -0.1%; the primary causes of the loss were excess non-operating expenses and the high effective tax rate.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥73.6B, substantially exceeding the level of profit, but much of this depended on cash received in advance from a ¥125.0B increase in contract liabilities, while inventories increased by ¥58.3B.【Investment Efficiency】Capital expenditures of ¥2.6B were below depreciation and amortization expense of ¥5.9B, leaving CapEx/depreciation and amortization at 0.4x. Investment securities of ¥470.6B accounted for 33.5% of total assets and therefore warrant monitoring from a capital efficiency perspective.【Financial Soundness】The Equity Ratio was 66.8%, cash and deposits were ¥391.0B, and the Current Ratio was approximately 219%, calculated as current assets of ¥706.3B divided by current liabilities of ¥322.4B, all representing high levels and indicating a stable financial foundation.

Cash Flow Analysis

Operating Cash Flow was ¥73.6B, up 37.9% YoY; investing cash flow was positive at ¥8.4B, including capital expenditures of ¥2.6B as a cash outflow; and financing cash flow was ¥-14.7B. As a result, Free Cash Flow was ample at ¥82.0B. However, the main factor driving OCF was the ¥125.0B increase in contract liabilities. Meanwhile, inventories increased by ¥58.3B and trade payables decreased by ¥7.4B, indicating that working capital items other than advance payments used cash. Cash and deposits accumulated to ¥391.0B, providing substantial short-term financial flexibility. Nevertheless, because the strength of OCF is structurally dependent on continued increases in advance payments, attention should be paid to fluctuations in OCF if the pace of increase in contract liabilities slows.

Quality of Earnings

The divergence between Ordinary Income and Net Income was mainly attributable to the heavy tax burden: income taxes and other taxes of ¥7.9B were recorded against pretax income of ¥6.9B, bringing the effective tax rate to 114.6%. In non-operating income and expenses, non-operating expenses of ¥7.3B, including a foreign exchange loss of ¥3.2B, exceeded non-operating income of ¥3.6B, weighing on Ordinary Income. The only extraordinary loss was a loss on disposal of fixed assets of ¥0.2B, which was limited in amount but appears relatively significant because Net Income was only slightly negative. Comprehensive income was ¥370.4B, substantially diverging from Net Income, mainly due to a valuation difference on investment securities of ¥347.1B; this does not reflect the underlying earnings power of operating activities. Accordingly, the current period’s profit and loss can be interpreted as having been strongly affected, in addition to recurring operating earnings power, by temporary fluctuations in foreign exchange movements and the tax burden.

Earnings Forecast and Guidance

Cumulative Q2 progress against the full-year plan was 41.5% for Revenue, 17.5% for Operating Income, and 9.7% for Ordinary Income, all substantially below the standard 50% benchmark. The company forecasts full-year Revenue of ¥382.0B (+12.8% YoY), Operating Income of ¥62.0B (+85.9% YoY), and Ordinary Income of ¥74.0B (+131.1% YoY), incorporating substantial earnings improvement in the second half. The company must achieve Operating Income of ¥51.1B and Ordinary Income of ¥66.8B in the second half alone, making it crucial whether projects accumulated as work in progress and contract liabilities convert into revenue and profit as planned. As of the current quarter, no revisions have been made to the earnings forecast or dividend forecast.

Shareholder Returns

The Q2 dividend was ¥28.00 per share, and the full-year company forecast is ¥56.00, with equal interim and year-end distributions. Because cumulative Q2 profit attributable to owners of the parent was slightly negative, the Payout Ratio calculated using cumulative profit for the current period as the denominator is not meaningful. Nevertheless, the annualized expected dividend payment is sufficiently covered by Free Cash Flow of ¥82.0B. Together with cash and deposits of ¥391.0B and an Equity Ratio of 66.8%, the company’s ability to pay dividends is secured from a cash flow perspective. No current-period data on share repurchases is available, and the evaluation is therefore based solely on dividends.

Risk Factors

1. Inventory and working capital accumulation risk: Work in progress was ¥187.6B, accounting for 79.0% of total inventories, and increased substantially from the previous year. If customer acceptance or collection is delayed for made-to-order projects, the risk of prolonged capital tie-up and valuation losses will increase.

2. Foreign exchange risk: The foreign exchange loss of ¥3.2B was equivalent to approximately 29% of Operating Income of ¥10.9B and represents a significant driver of fluctuations in Ordinary Income. Sensitivity to foreign-currency-denominated transactions and assets and liabilities is increasing earnings volatility.

3. Fluctuations in net income due to the tax burden and temporary factors: An effective tax rate of 114.6% caused pretax income of ¥6.9B to turn into a net loss. The small extraordinary loss of ¥0.2B from the disposal of fixed assets also appears relatively significant because Net Income was minimal.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

The company’s profitability is below the industry median, with the gap particularly large for the Net Profit Margin.

Growth and Capital Efficiency

The Revenue Growth Rate exceeds the industry median, indicating relatively strong top-line expansion.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Revenue growth was maintained at 14.5%, while the Operating Income Margin declined to 6.9%, creating a significant gap with the full-year plan of 16.2% (Operating Income of ¥62.0B / Revenue of ¥382.0B). The pace of margin recovery in the second half is a key point of focus in the earnings results.

2. The accumulation of contract liabilities of ¥245.4B and work in progress of ¥187.6B indicates potential for future conversion into revenue and profit, while also suggesting a long lead time until customer acceptance and collection. The speed at which these balances are unwound will be directly linked to the sustainability of OCF.

3. The valuation difference on investment securities of ¥347.1B is driving Comprehensive Income of ¥370.4B higher, but this should be distinguished from the earnings power of the core business. It is necessary to assess this together with the underlying trends in Net Income and Operating Income.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,077–¥2,197 at Cost of Equity ±1%, and ¥2,128–¥2,140 at ω ±0.1.

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 difference relative to 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 predict 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 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 professionals as necessary.

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AI Financial Analysis

Executive Summary

Optorun delivered a mixed FY2026 Q2 result: revenue expanded solidly, but operating profit was broadly flat and profit attributable to owners of the parent turned marginally negative. Q2 cumulative revenue rose 14.5% YoY to ¥15.85bn. Operating income declined 1.9% YoY to ¥1.09bn despite the higher sales base. The operating margin compressed by approximately 110bp to 6.9% from 8.0% in the prior-year period. Gross margin was essentially stable at 32.9%, indicating that the principal pressure was below gross profit rather than in manufacturing cost absorption. SG&A expense increased 19.4% YoY to ¥4.12bn, outpacing revenue growth by roughly 5 percentage points and absorbing the gross-profit increase. EBITDA was ¥1.68bn and the EBITDA margin was 10.6%, down from approximately 11.8% a year earlier. Ordinary income fell 35.5% YoY to ¥0.72bn, with ¥0.32bn of foreign-exchange losses contributing materially to the decline. Profit before tax was ¥0.69bn, but income tax expense of ¥0.79bn exceeded pre-tax income, resulting in a ¥0.02bn loss attributable to owners of the parent. The effective tax rate of 114.6% is unusually high and is the immediate reason a profitable operating period translated into a reported net loss. Comprehensive income was nevertheless ¥37.04bn, mainly reflecting a ¥34.71bn valuation gain on securities and positive foreign-currency translation adjustments; this is not equivalent to recurring operating earnings. Operating cash flow was strong at ¥7.36bn and free cash flow was ¥8.20bn, but cash generation was heavily supported by a ¥12.50bn increase in contract liabilities, partly offset by a ¥5.83bn inventory increase. The balance sheet remains liquid, with ¥39.10bn of cash and deposits, a 219.1% current ratio, and a conservative 0.50x debt-to-equity ratio. However, investment securities increased ¥42.88bn YoY to ¥47.06bn and now account for 33.5% of assets, increasing exposure to market-value and foreign-exchange movements. Manufacturing working capital is the principal operational issue: annualized DSO of 71 days, annualized DIO of 407 days, and an annualized cash conversion cycle of 412 days point to a long project-production and collection cycle. Management retained its full-year guidance, but Q2 progress is only 41.5% for revenue and 17.5% for operating income, below the conventional 50% first-half pace. The second half therefore requires a substantial acceleration in operating margin and conversion of contract liabilities and work in process into shipments. The investment case is consequently increasingly dependent on execution of the production backlog, control of SG&A growth, normalization of the tax burden, and containment of FX and securities-market volatility.

Profitability Analysis

The reported DuPont ROE is approximately 0.0% negative, composed of a -0.1% net profit margin, 0.225x annualized asset turnover, and 1.50x financial leverage. The dominant driver of the collapse in return on equity was the net profit margin, which moved into negative territory despite positive operating income. Financial leverage is moderate rather than aggressive, so balance-sheet leverage was not the cause of the weak ROE. Asset turnover is also modest at 0.225x annualized, reflecting a balance sheet enlarged by investment securities, cash, and long-cycle manufacturing working capital. Revenue growth of 14.5% did not translate into operating-income growth because SG&A increased 19.4%, versus stable gross margin. Gross profit rose to ¥5.21bn and gross margin held at 32.9%, demonstrating that the immediate profitability issue is operating-cost absorption and overhead growth, rather than a broad deterioration in gross profitability. Operating margin declined to 6.9%, below the 8-15% range generally considered good for industrial businesses. EBITDA margin fell to 10.6% from approximately 11.8%, corroborating operating-margin compression before non-operating items. Ordinary-income margin fell more sharply to 4.5% from approximately 8.0%, as FX losses of ¥0.32bn and higher non-operating expenses reduced the benefit of operating profit. The quality alert for a 0.64x interest burden should be interpreted carefully: the gap between EBIT of ¥1.09bn and pre-tax income of ¥0.69bn was driven predominantly by non-interest items, especially FX losses, rather than cash interest expense alone. Actual interest expense was ¥0.12bn, while EBIT interest coverage remained 9.39x and EBITDA interest coverage was 14.52x. The 114.6% effective tax rate and -2.5% tax burden are not sustainable steady-state indicators; they reflect tax expense exceeding this period's modest pre-tax profit. The ¥0.24bn loss on disposal of fixed assets is modest relative to revenue but large relative to the near-zero reported net result, making the current net-loss outcome sensitive to non-recurring items. Sustainable recovery requires SG&A growth to fall below revenue growth, completion and delivery of work in process, and a normalization in FX and tax effects.

Growth Assessment

Revenue growth of 14.5% to ¥15.85bn indicates continued demand for the group's thin-film deposition equipment business, which is its sole reported segment. The increase in contract liabilities to ¥24.54bn, up from ¥11.49bn a year earlier, provides evidence of customer advances and a meaningful order-execution base. At the same time, work in process rose 49.5% YoY to ¥18.76bn and represents 79.0% of identified inventory, consistent with a project-based production cycle but also signaling a potential production, acceptance, or delivery bottleneck. Raw materials increased 7.0% YoY to ¥4.98bn, materially slower than work in process, suggesting that the key issue is conversion of partially completed systems rather than broad raw-material accumulation. The full-year revenue forecast is ¥38.20bn, implying Q2 cumulative progress of 41.5%, 8.5 percentage points below a standard 50% first-half run rate. Full-year operating-income guidance of ¥6.20bn implies Q2 progress of only 17.5%, 32.5 percentage points below the standard pace. Full-year ordinary-income guidance of ¥7.40bn has reached only 9.7% progress, while the current loss means net-income guidance of ¥5.60bn has not yet been reached. These gaps imply that management expects a very back-end-loaded second half, with sharply stronger deliveries, operating leverage, and non-operating performance. Retained guidance indicates management confidence, but the execution threshold is high: the second half must generate approximately ¥22.35bn of revenue and ¥5.11bn of operating income. This equates to an implied second-half operating margin of roughly 22.9%, versus 6.9% in the first half. That scale of margin improvement makes shipment timing, product mix, factory throughput, customer acceptance, and FX developments particularly important. CapEx of ¥0.26bn was only 0.44x depreciation of ¥0.59bn, indicating limited current replacement or expansion investment. If sustained, this could constrain capacity modernization and production resilience even though it supports near-term free cash flow.

Financial Health

Liquidity is strong. Current assets of ¥70.63bn exceed current liabilities of ¥32.24bn, producing working capital of ¥38.39bn and a current ratio and quick ratio of 219.1%. Cash and deposits of ¥39.10bn alone exceed current liabilities, providing substantial near-term payment capacity. Total liabilities of ¥46.73bn represent 33.2% of total assets, while total equity is ¥93.90bn. Debt-to-equity of 0.50x is conservative and well below the 2.0x level associated with aggressive leverage. There is no current-ratio or debt-to-equity warning. Interest-servicing capacity is also solid, with EBIT interest coverage of 9.39x and EBITDA interest coverage of 14.52x. The structure of current liabilities nevertheless merits attention because contract liabilities are ¥24.54bn, equal to approximately 76% of current liabilities. These customer advances are a liquidity benefit today but create a substantial obligation to manufacture, deliver, and obtain customer acceptance for contracted equipment. Investment securities rose by ¥42.88bn YoY, or 1,025%, to ¥47.06bn, representing 33.5% of total assets and more than half of total equity. This large portfolio concentration is a material balance-sheet risk because equity and comprehensive income become sensitive to security valuations and currency translation. The ¥34.71bn valuation gain on securities recorded in other comprehensive income was the main driver of the increase in equity from ¥57.61bn to ¥93.90bn. Deferred tax liabilities increased to ¥8.62bn, consistent with unrealized valuation gains embedded in the securities portfolio. The capital structure is financially resilient on a cash and leverage basis, but its reported equity base is increasingly dependent on the retention of unrealized securities gains.

Notable B/S Changes

Investment securities: +¥42.88bn (+1,025.2%) YoY to ¥47.06bn, now 33.5% of total assets — securities valuation gains drove ¥34.71bn of OCI and materially increase market-price and FX sensitivity of equity. Total equity: +¥36.30bn (+63.0%) YoY to ¥93.90bn — primarily supported by accumulated valuation and translation adjustments, rather than retained earnings growth. Contract liabilities: +¥13.04bn (+113.5%) YoY to ¥24.54bn — customer advances strengthen liquidity but require timely manufacture, delivery, and acceptance of equipment. Work in process: +¥6.21bn (+49.5%) YoY to ¥18.76bn — supports future revenue potential but raises production-conversion, inventory-duration, and customer-acceptance risk.

Cash Flow Quality

Operating cash flow was ¥7.36bn, far above the ¥0.02bn loss attributable to owners of the parent, and free cash flow was ¥8.20bn. The mechanical OCF/net-income ratio of -432.69x triggers the earnings-quality alert, but the negative denominator makes that ratio economically uninformative as a standalone measure. The more important conclusion is that cash flow materially exceeded accounting earnings because of working-capital movements, not because current-period profitability was exceptionally strong. The largest cash-flow support was the ¥12.50bn increase in contract liabilities, reflecting customer advances. This was partially offset by a ¥5.83bn inventory increase, a ¥0.26bn increase in trade receivables, and a ¥0.74bn decrease in trade payables. The simultaneous increase in customer advances and work in process indicates that operating cash generation depends on converting advance-funded equipment projects into completed sales and cash collections. Annualized DSO of 71 days exceeds the 60-day warning level, pointing to a comparatively slow collection cycle. Annualized DIO of 407 days is exceptionally high, and the annualized cash conversion cycle of 412 days substantially exceeds the 120-day warning threshold. The 79.0% WIP share of inventory is the root cause of the inventory concern: capital is tied up in equipment still progressing through production or acceptance rather than in readily saleable finished goods. This may be characteristic of customized deposition-equipment projects, but the YoY increase in WIP raises execution and obsolescence risk if customer schedules slip or specifications change. The accruals ratio of -5.2% is not itself adverse and is consistent with cash flow exceeding reported earnings. Cash conversion of 4.38x OCF/EBITDA is unusually high and should not be extrapolated as a recurring run rate because contract-liability growth was the principal cash source. Investing cash flow was positive at ¥0.84bn, so reported free cash flow benefits from investment inflows as well as low PPE purchases. CapEx of ¥0.26bn represented only 0.44x depreciation, directly addressing the underinvestment alerts: prolonged spending below depreciation may defer replacement, automation, or capacity investment requirements.

Dividend Sustainability

The company declared an interim DPS of ¥28.00 and maintained full-year DPS guidance of ¥56.00. The calculated current-period payout ratio of -7,306.0% is not economically meaningful because the period recorded a small loss attributable to owners of the parent. On the full-year forecast, the planned ¥56.00 DPS corresponds to approximately 39.9% of forecast EPS of ¥140.48, which is within a generally sustainable payout range. Interim cash dividends paid were ¥1.08bn, while reported free cash flow was ¥8.20bn, yielding 6.60x FCF coverage. However, free cash flow was supported by the ¥12.50bn increase in contract liabilities and positive investing cash flow, so this coverage should not be treated as entirely recurring. Cash and deposits of ¥39.10bn provide substantial liquidity support for the dividend. The ability to sustain the full-year dividend ultimately depends on delivery conversion and realization of the forecast ¥5.60bn in profit attributable to owners. A continued gap between operating profit and net income caused by FX losses or elevated tax expense would weaken earnings-based dividend coverage even if cash balances remain high.

Risk Assessment

Business risks include Project execution and production-conversion risk: work in process of ¥18.76bn, equal to 79.0% of inventory, and annualized inventory days of 407 indicate that delayed completion, installation, or customer acceptance could defer revenue and tie up cash., Demand and capital-spending cyclicality in thin-film deposition equipment: customer investment decisions can be affected by semiconductor, display, optical-device, and broader electronics-capex cycles., Margin risk: SG&A grew 19.4% YoY against 14.5% revenue growth, while operating margin fell 110bp to 6.9%; failure to restore overhead absorption would challenge the sharp second-half margin recovery implied by guidance., Foreign-exchange risk: FX losses were ¥0.32bn, equivalent to 29.0% of operating income, exceeding the 20% warning threshold and materially reducing ordinary income., Collection and working-capital risk: annualized DSO of 71 days and a 412-day annualized cash conversion cycle increase exposure to customer acceptance timing and receivables collection..

Financial risks include Securities-portfolio concentration: investment securities of ¥47.06bn equal 33.5% of assets and increased ¥42.88bn YoY; valuation and currency changes can create substantial OCI and equity volatility., Contract-liability execution obligation: ¥24.54bn of customer advances supports liquidity but commits the company to future equipment production and delivery., Tax-rate volatility: income tax expense of ¥0.79bn exceeded ¥0.69bn of pre-tax profit, producing a 114.6% effective tax rate and a reported net loss., Capital-maintenance risk: CapEx/depreciation of 0.44x is below the 0.7x alert threshold; persistent underspending could require catch-up investment or impair operational competitiveness..

Key concerns include Likelihood: high; impact: high — full-year operating-income guidance requires an implied second-half operating margin of approximately 22.9%, making delivery timing and fixed-cost absorption decisive., Likelihood: medium; impact: high — the large accumulated securities valuation gain can reverse with financial-market or FX movements, affecting book value and comprehensive income., Likelihood: medium; impact: medium — the ¥0.24bn fixed-asset disposal loss was large relative to the near-zero net result, illustrating earnings sensitivity when pre-tax profit is modest., Likelihood: medium; impact: medium — the high WIP ratio may reflect customized equipment manufacturing, but rising WIP must convert to customer acceptance without cost overruns or inventory impairment..

Investment Implications

Key takeaways include Revenue momentum and customer advances are constructive, but first-half operating leverage was unfavorable as SG&A growth exceeded sales growth., The company has strong liquidity, conservative leverage, and interest coverage above 9x on EBIT and 14x on EBITDA., Reported net income understates operating performance because of FX losses and an abnormal tax burden, but these factors still matter for distributable earnings., Operating cash flow was strong but was principally aided by growth in contract liabilities; cash conversion should be assessed alongside delivery and WIP conversion., The securities portfolio has become a dominant balance-sheet factor, making comprehensive income and equity materially more market-sensitive., Maintained guidance implies a highly concentrated second-half recovery and therefore increases sensitivity to project completion and acceptance timing..

Metrics to watch include Quarterly revenue recognition and operating-margin progression toward the implied 22.9% second-half operating margin, Work in process, inventory days, and the WIP share of inventory, Contract-liability conversion into revenue and the pace of new customer advances, Receivable days and cash conversion cycle, SG&A growth relative to revenue growth, FX gains or losses relative to operating income, Effective tax rate and reconciliation of pre-tax income to profit attributable to owners, Investment-securities valuation changes, foreign-currency translation adjustments, and deferred tax liabilities, CapEx/depreciation and evidence of manufacturing-capacity or automation investment.

Regarding relative positioning, Relative to typical capital-equipment manufacturers, Optorun's liquidity and leverage profile are strong, while its operating margin is below the 8-15% good-range benchmark and its annualized working-capital cycle is materially longer than standard manufacturing benchmarks. Its financial profile is also unusually influenced by investment-securities valuation gains, so book-value growth and comprehensive income should be distinguished from recurring equipment-business profitability.