OILES CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥33.46B
• Operating Income: ¥3.23B
• Net Income: ¥2.75B
• EPS: ¥78.66

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Oiles Corporation (TSE: 6282) delivered modest topline growth in FY2026 Q2 with revenue of ¥33.461bn (+0.8% YoY), but profitability compressed, as operating income declined 10.7% YoY to ¥3.229bn and net income fell 16.2% YoY to ¥2.293bn. The gross margin remained healthy at 34.7%, yet the operating margin slipped to 9.7%, indicating SG&A and/or mixed headwinds offsetting stable manufacturing economics. Ordinary income at ¥3.293bn slightly exceeded operating income, supported by minimal interest expense (¥4m), underscoring a very light financial burden. The effective tax expense was ¥1.129bn; using ordinary income as a proxy for pre-tax profit implies a tax rate near 34.3%, despite the reported “0.0%” placeholder. The DuPont breakdown shows a net margin of 6.85%, asset turnover of 0.353x, and financial leverage of 1.23x, yielding an ROE of 2.97%, consistent with the reported figure. Asset intensity remains relatively high for a niche industrial, which, combined with subdued margins this quarter, keeps ROE sub-3%. Liquidity is exceptionally strong: current ratio 4.40x, quick ratio 4.05x, and working capital of ¥45.8bn, reflecting a robust buffer against cyclical swings. Solvency risk appears low with a debt-to-equity ratio of 0.21x and interest coverage of over 800x. Operating cash flow of ¥5.237bn outpaced net income (OCF/NI 2.28x), signaling good earnings quality and likely positive working-capital dynamics. However, investing cash flow and cash balances were not disclosed (zeros represent unreported, not actual zero), limiting free cash flow and balance-sheet cash assessments. The slight revenue gain alongside double-digit EBIT contraction points to negative operating leverage this period, likely from cost inflation, product mix, or project timing in the bearings/seismic-related businesses. While short-term profitability softened, the company’s conservative balance sheet and strong OCF suggest capacity to absorb near-term headwinds. Dividend details were not disclosed this quarter; financing cash outflow (−¥2.861bn) may include dividends or buybacks, but cannot be confirmed without full breakdown. Overall, Oiles posts resilient cash generation and a fortress-like balance sheet, but margin pressure and low asset turnover result in modest ROE, framing the key focus on restoring operating margin and improving capital efficiency. Data limitations around investing CF, cash, and dividends constrain the completeness of the assessment, but the core picture remains of a financially solid, cash-generative niche machinery player experiencing near-term profitability pressure.

Profitability Analysis

ROE decomposition: Net margin 6.85% × asset turnover 0.353 × financial leverage 1.23 = ROE 2.97%. The gross margin of 34.7% is solid, but operating margin of 9.7% (¥3.229bn/¥33.461bn) indicates elevated operating costs relative to sales. SG&A and other operating costs are inferred at ~¥8.38bn (gross profit ¥11.61bn minus operating income ¥3.23bn), or ~25.1% of sales, up versus prior-year implied levels given EBIT decline despite slightly higher revenue. Ordinary income (¥3.293bn) marginally above EBIT and negligible interest expense (¥4m) imply minimal financial drag. The implied effective tax rate is ~34.3% (¥1.129bn/¥3.293bn), which pressured net margin to 6.85%. Operating leverage was negative this quarter: revenue +0.8% YoY contrasted with EBIT −10.7% YoY, suggesting cost inflation, sales mix shift toward lower-margin products, or timing of large projects (e.g., infrastructure/seismic units). EBITDA of ¥4.877bn (14.6% margin) provides a cushion, but the compression from gross to operating margin is the key driver of lower profitability. Overall, profitability remains adequate for an industrial niche player, but current ROE is muted due to modest margins and low asset turnover.

Growth Assessment

Revenue grew 0.8% YoY to ¥33.461bn, indicating stable demand but limited expansion. Profit growth lagged due to margin compression: operating income fell 10.7% YoY and net income declined 16.2% YoY, pointing to weaker operating leverage and potentially unfavorable mix or cost pressures. Given Oiles’ exposure to industrial bearings and seismic isolation/building products, project timing and geographic mix can cause quarter-to-quarter volatility. The strong gross margin suggests pricing and cost pass-through remain workable, but rising SG&A or fixed-cost absorption is weighing on EBIT. With minimal financial costs and a normalized tax rate (~34%), earnings are predominantly driven by operating performance. Sustainability of revenue will hinge on order intake in infrastructure/seismic systems and steady automotive/industrial demand. Profit quality remains reasonable given OCF/NI of 2.28x, implying non-cash or working-capital tailwinds supporting earnings. Near-term outlook is cautious: to re-accelerate profit growth, the company likely needs a margin recovery via cost control, product mix improvement, and utilization gains, along with steady topline growth. The strong balance sheet provides flexibility to invest for growth (capex, R&D) once project visibility improves.

Financial Health

Liquidity is very strong: current ratio 439.5% and quick ratio 405.4%, supported by ¥59.3bn in current assets against ¥13.5bn in current liabilities. Working capital stands at ¥45.8bn, offering ample buffer for cycle and project timing. Solvency appears robust with total liabilities of ¥16.5bn versus equity of ¥77.2bn, translating to a debt-to-equity ratio of 0.21x and financial leverage of ~1.23x (assets/equity). Interest burden is negligible (¥4m), and interest coverage exceeds 800x, indicating very low refinancing risk. The reported equity ratio of 0.0% is an undisclosed placeholder; the balance sheet indicates a high equity ratio in reality (equity/asset ≈ 81.4%). Cash and equivalents were not disclosed in this dataset, but the conservative liability structure suggests a net-cash or low-debt profile. Overall, the company has substantial financial flexibility and low balance-sheet risk.

Cash Flow Quality

Operating cash flow of ¥5.237bn versus net income of ¥2.293bn yields an OCF/NI ratio of 2.28x, indicating strong earnings quality and likely favorable working-capital movements. EBITDA of ¥4.877bn provides healthy non-cash add-backs (D&A ¥1.648bn), consistent with OCF strength. Investing cash flow is undisclosed (reported as zero), so free cash flow cannot be reliably calculated; the reported FCF of zero reflects missing ICf data rather than actual performance. Without cash balance disclosure, we cannot assess cash conversion cycle duration or net cash. Working capital appears ample, and inventories of ¥4.6bn are modest relative to sales and current assets, suggesting limited inventory risk. Overall, cash generation looks solid relative to earnings, but full FCF assessment awaits investing cash flow and capex details.

Dividend Sustainability

Dividend per share and payout ratio were not disclosed in this dataset (zeros are placeholders). Financing cash outflow of −¥2.861bn likely includes shareholder returns (dividends and/or buybacks), but the split is not provided. With H1 EPS at ¥78.66 and net income of ¥2.293bn, implied shares outstanding are roughly ~29.2 million (for reference only), suggesting capacity for ordinary dividends if historical policy is maintained. Coverage metrics: due to missing investing CF, FCF coverage of dividends cannot be assessed. Balance sheet strength (D/E 0.21x) and strong OCF support the capacity to sustain typical payout levels, but confirmation requires the company’s stated dividend policy and full-year cash flow. Near-term, dividend sustainability appears supported by cash generation and low leverage, but visibility is constrained by the lack of investing CF and DPS disclosure.

Risk Assessment

Business Risks:

• Cyclical demand in automotive/industrial bearings impacting order volumes and pricing.
• Project timing risk in seismic isolation and infrastructure-related products causing revenue and margin volatility.
• Raw material cost fluctuations (e.g., steel, polymers/PTFE) pressuring gross-to-operating margins.
• Product mix shifts toward lower-margin items reducing EBIT margin.
• Geopolitical and macroeconomic slowdowns in key overseas markets affecting export demand.
• Execution risk on cost control and SG&A discipline amid modest sales growth.

Financial Risks:

• Potential working-capital swings tied to project deliveries and receivable timing.
• Currency fluctuations (JPY) affecting translation and competitiveness.
• Limited visibility on capex/investing CF, obscuring free cash flow and future capacity expansion needs.
• Tax rate variability around the implied ~34% level affecting net margins.

Key Concerns:

• Negative operating leverage: EBIT down despite stable revenue, indicating cost/mix pressures.
• Low asset turnover (0.353x) constraining ROE at 2.97%.
• Incomplete disclosures (investing CF, cash, dividends) limiting assessment of FCF and payout capacity.

Investment Implications

Key Takeaways:

• Topline resilient (+0.8% YoY) but profitability compressed (EBIT −10.7% YoY; NI −16.2% YoY).
• Healthy gross margin (34.7%) offset by elevated operating costs; operating margin at 9.7%.
• ROE at 2.97% driven by modest net margin and low asset turnover; leverage remains conservative.
• Exceptional liquidity (current ratio 4.40x, quick ratio 4.05x) and negligible interest burden.
• Strong OCF (¥5.24bn) relative to net income (2.28x), implying solid earnings quality.
• Data gaps (investing CF, cash, DPS) limit FCF and dividend analysis; financing CF suggests shareholder returns.

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio for signs of cost normalization.
• Order backlog and project pipeline in seismic/infrastructure segments.
• Gross margin trend vs. raw material costs and pricing actions.
• Asset turnover and capital efficiency (capex, utilization) to lift ROE.
• OCF/NI ratio and working-capital movements; inventory turns.
• FX sensitivity and overseas demand indicators.

Relative Positioning: Versus TSE machinery peers, Oiles exhibits stronger liquidity, low leverage, and solid gross margins, but slower growth and low asset turnover drive a below-peer ROE profile; the company’s balance-sheet strength provides resilience while management focus on margin restoration and capital efficiency will be key to narrowing the profitability gap.

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