OILES CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥33.46B
• Operating Income: ¥3.23B
• Net Income: ¥2.30B
• Earnings per Unit (EPU): ¥78.66

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution Information

Segment 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

Verdict: Solid top-line and cash flow resilience but margin compression and low capital efficiency weighed on profitability in FY2026 Q2. Revenue rose 0.8% YoY to 334.61, while operating income fell 10.7% YoY to 32.29, and net income declined 16.2% YoY to 22.93. Gross profit was 116.04, implying a gross margin of 34.7%, while operating margin was 9.6% (operating income/revenue). Based on last year’s comparable revenue and operating income, operating margin compressed by roughly 125 bps YoY (from about 10.9% to 9.6%). Ordinary income contracted 15.2% YoY to 32.93, with a modest non-operating net gain of 0.64 (3.40 income minus 2.76 expenses) contributing slightly. Net profit margin was 6.8%, consistent with the DuPont net margin of 6.8%. On earnings quality, operating cash flow of 53.83 was strong versus net income of 22.93 (OCF/NI 2.35x), indicating high cash conversion. Free cash flow was positive at about 19.92 (OCF 53.83 minus capex 33.91), but share repurchases of 24.62 exceeded FCF, implying reliance on the large cash balance (cash and deposits 256.49). Balance sheet strength remains a clear positive: current ratio 452.6%, quick ratio 417.9%, and low leverage (D/E 0.23x; interest coverage 1,076x). However, calculated ROE is low at 3.0% and ROIC is 4.3%, below the 5% warning line, highlighting capital efficiency challenges. The effective tax rate was 29.9%, broadly normal for the company’s profile. Profit pressure appears to stem from operating margin compression rather than revenue shortfall, consistent with a soft cost/price environment and/or higher SG&A per revenue. With limited disclosure on SG&A components and investing cash flows, visibility on structural cost actions and investment returns is partial. The reported payout ratio of 123.4% looks elevated, suggesting distributions may exceed earnings this term (subject to disclosure limitations), though near-term coverage is supported by net cash. Forward-looking, sustaining FCF while lifting ROIC above 5–7% will likely require tighter cost control, price discipline, and higher return hurdles on capex. Net cash provides flexibility to maintain shareholder returns through cycles, but improving margin mix and asset turns is critical to enhance capital efficiency.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.0% = Net Profit Margin 6.8% × Asset Turnover 0.353 × Financial Leverage 1.23x. The main driver of the YoY decline is margin compression at the operating level (operating margin down ~125 bps YoY) rather than a change in leverage (still very low) or a material shift in asset turnover (revenue +0.8% YoY with a large asset base suggests relatively flat turns). Business drivers likely include higher input costs, adverse mix, or limited price pass-through, compounded by SG&A outpacing revenue (operating income fell despite sales growth). Non-operating items were roughly neutral to slightly positive (net +0.64), so they did not offset operating softness. Sustainability: absent pricing improvement or cost normalization, the lower operating margin could persist; however, strong cash generation indicates underlying demand and collection remain healthy. Watch for any SG&A growth running above revenue growth, as it would further weigh on operating leverage.

Growth Assessment

Top-line growth of 0.8% YoY indicates stable demand across core segments, but growth quality is mixed given operating profit declined 10.7% YoY. Gross margin at 34.7% is respectable, yet operating margin at 9.6% signals cost pressure or mix headwinds. Ordinary income (-15.2% YoY) and net income (-16.2% YoY) reflect the operating compression more than financial swings. EBITDA was 48.55 (14.5% margin), supporting ongoing reinvestment and returns to shareholders. Outlook hinges on cost containment, price pass-through, and mix toward higher value-added bearings/solutions; without this, earnings growth may lag sales. With ROIC at 4.3%, incremental capex must be tightly screened to avoid diluting returns. Near-term, the strong balance sheet underpins resilience, but medium-term growth will require unlocking higher asset turns and operating margins.

Financial Health

Liquidity is very strong: current ratio 452.6%, quick ratio 417.9%, and working capital of 446.66. No warning on current ratio (<1.0) or excessive leverage (D/E 0.23x; interest coverage 1,076x). Maturity mismatch risk appears low with current assets of 573.35 comfortably exceeding current liabilities of 126.69; cash and deposits of 256.49 alone cover 2.0x current liabilities. Long-term loans are modest at 16.29, suggesting limited refinancing risk. No off-balance sheet obligations were reported in the provided data. Overall solvency and liquidity are conservative and supportive of operations and shareholder returns.

Cash Flow Quality

Earnings quality is high with OCF/Net Income at 2.35x, indicating strong cash conversion and limited accrual risk. Free cash flow approximates 19.92 (OCF 53.83 minus capex 33.91), sufficient to fund a baseline dividend but not both dividend and the full extent of buybacks if distributions are elevated. Financing CF of -10.39 includes share repurchases of -24.62; this exceeds FCF and was likely funded from cash on hand. Working capital quality signals are positive given strong OCF, but without period-over-period AR/inventory change data, we cannot definitively assess inventory or receivables buildups. No signs of aggressive working capital manipulation are apparent from the headline ratios.

Dividend Sustainability

The calculated payout ratio of 123.4% suggests distributions above earnings in this period, but dividend cash amounts are unreported, and we cannot reconcile with DPS. On FCF, 19.92 covers a modest ordinary dividend but not concurrent buybacks of 24.62; total shareholder returns exceeded FCF and relied on the strong cash balance (256.49). Near-term sustainability is supported by net cash and low debt, but medium-term sustainability requires either higher earnings/FCF or moderation of buybacks/dividends to align with cash generation. Policy outlook likely remains shareholder-friendly given cash-rich balance sheet, but improving ROIC and operating margin would be needed to sustain elevated payout levels without balance sheet drawdown.

Risk Assessment

Business Risks:

• Margin pressure from input costs and limited price pass-through, evidenced by ~125 bps operating margin compression YoY
• Demand softness or unfavorable mix in core industrial/automotive segments leading to operating deleverage
• Execution risk on capex with ROIC at 4.3% (below 5% warning), risking further capital efficiency dilution
• Competitive pricing in engineered bearings and components

Financial Risks:

• Shareholder returns (buybacks) exceeding FCF, implying reliance on cash reserves
• Potential earnings volatility if FX moves adversely (export exposure typical in sector)
• Concentration risk in accounts receivable if large OEM customers extend payment terms (data not disclosed)

Key Concerns:

• Low ROE (3.0%) and ROIC (4.3%) despite ample capital base
• Operating income down 10.7% YoY despite sales growth, pointing to cost/mix headwinds
• Limited disclosure on SG&A and investing CF restricts visibility into structural cost actions and investment returns

Investment Implications

Key Takeaways:

• Stable revenue (+0.8% YoY) but notable operating margin compression (~125 bps YoY) reduced profitability
• Strong cash generation (OCF/NI 2.35x) and net cash balance provide resilience
• Capital efficiency is the main weak point: ROE 3.0%, ROIC 4.3%
• Shareholder returns (buybacks 24.62) exceeded FCF (~19.92), funded by cash on hand
• Balance sheet conservatism (current ratio 452.6%, D/E 0.23x) limits financial risk

Metrics to Watch:

• Operating margin trajectory and SG&A growth versus revenue
• ROIC improvement toward 5–7% through pricing/mix and disciplined capex
• OCF/NI and FCF coverage of dividends and buybacks
• Inventory and receivables turns (to gauge asset turnover and working capital health)
• Pricing power and cost pass-through in key end markets

Relative Positioning: Versus domestic precision component peers, the company has superior balance sheet strength and cash conversion but lags on capital efficiency and profit growth; sustaining shareholder returns without improving ROIC and operating margins may increasingly rely on balance sheet capacity.

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