OKADA AIYON CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

FY2027 Q1 resulted in lower revenue and lower profits, with deteriorating profitability in the domestic business and higher expenses weighing on earnings. Revenue was ¥5.98B (¥6.16B in the same period last year, -3.0%), Operating Income was ¥0.34B (¥0.52B, -34.4%), Ordinary Income was ¥0.38B (¥0.51B, -26.3%), and Net Income attributable to owners of the parent was ¥0.22B (¥0.33B, -33.9%). Although the gross margin was broadly flat at 30.7%, the increase in SG&A expenses caused the operating margin to decline to 5.7% (8.4% in the same period last year), exposing structural weaknesses in profitability.

Factors Affecting Performance

【Revenue】Revenue was ¥5.98B, representing a 3.0% year-on-year decline. By segment, the domestic business generated ¥4.50B (75.3% of total, YoY -2.9%), while the overseas business generated ¥1.73B (28.9% of total, YoY +5.6%; intersegment transactions are included in the combined segment figures, which therefore do not match the consolidated total). The slowdown in demand in the core domestic business pushed down total company revenue. The overseas business maintained growth and helped mitigate the decline in revenue.

【Profit and Loss】The gross margin was broadly flat at 30.7% (30.8% in the same period last year), while SG&A expenses increased to ¥1.49B (¥1.38B), causing the operating margin to decline by -2.7pt to 5.7% (8.4%). By segment, domestic segment profit declined sharply to ¥0.25B (YoY -41.1%), whereas overseas segment profit held steady at ¥0.09B (YoY +2.2%). The main factor behind the decline in company-wide profits was deteriorating profitability in the domestic business. At the Ordinary Income level, foreign exchange gains of ¥0.03B provided support; however, interest expenses of ¥0.05B and the high effective tax rate of 42.3% resulted in a substantial reduction from Ordinary Income to Net Income. In conclusion, the company recorded lower revenue and lower profits.

Segment Analysis

The core domestic segment recorded revenue of ¥4.50B (75.3% of total, YoY -2.9%), Operating Income of ¥0.25B (YoY -41.1%), and a profit margin of 5.6%, resulting in a significant decline in profits. The overseas segment achieved higher revenue and higher profits, with revenue of ¥1.73B (28.9% of total, YoY +5.6%), Operating Income of ¥0.09B (YoY +2.2%), and a profit margin of 5.5%, maintaining a margin broadly equivalent to that of the domestic segment. Although the two segments had broadly similar profit margins, the decline in the larger domestic segment led the deterioration in the company-wide margin.

Key Financial Indicators

【Profitability】The operating margin declined by -2.7pt to 5.7% from 8.4% in the same period last year, while the net margin also deteriorated by -1.7pt, from 5.3% to 3.6%. ROE was low at 1.2%, attributable to the deterioration in the net margin and the low total asset turnover ratio of approximately 0.15x. 【Cash Quality】Interest and dividend income, together with foreign exchange gains of ¥0.03B, constituted major components of non-operating income of ¥0.09B. While non-core income provided a certain degree of support, interest expenses of ¥0.05B weighed on Ordinary Income. 【Investment Efficiency】Against Profit Before Tax of ¥0.38B, corporate income taxes and other taxes amounted to ¥0.16B, resulting in a high effective tax rate of approximately 42.3% and a substantial reduction from Ordinary Income to Net Income. 【Financial Soundness】The Equity Ratio was 45.3%, broadly unchanged from 45.2% in the same period last year. Total assets of ¥39.46B and net assets of ¥17.88B showed no significant changes. Cash and deposits increased to ¥6.03B from ¥5.52B in the same period last year.

Cash Flow Analysis

As data from the statement of cash flows was not provided, cash trends are analyzed based on changes in the balance sheet. Accounts receivable and notes receivable declined to ¥3.81B (¥4.89B in the same period last year), suggesting progress in collections, while inventories increased to ¥8.37B (¥8.02B), putting pressure on cash through inventory accumulation. Accounts payable increased to ¥1.53B (¥1.37B), indicating some adjustment on the payment side. Cash and deposits increased year on year to ¥6.03B; however, short-term borrowings of ¥11.29B account for the majority of interest-bearing debt, and the cash-to-short-term liabilities ratio is low, indicating a capital structure highly dependent on short-term funding. For evaluating the sustainability of capital expenditures and dividends, improvements in inventory and receivables turnover will determine the company’s future cash-generation capacity.

Earnings Quality

Recurring earnings are primarily driven by the core business; however, non-operating income included foreign exchange gains of ¥0.03B and dividend income of ¥0.01B, with non-operating income amounting to approximately 1.6% of revenue, a limited scale. As an extraordinary item, a gain on the sale of property, plant and equipment of ¥0.02B was recorded, representing approximately 9% of Net Income of ¥0.22B, indicating limited dependence on this item. The reduction from Ordinary Income of ¥0.38B to Net Income of ¥0.22B was substantial at -43%, mainly due to the high tax burden reflected in the effective tax rate of 42.3%. Balance-sheet movements, including the increase in inventories and decrease in accounts receivable, indicate a structure in which converting earnings into cash requires a certain amount of time. This point should be considered when evaluating earnings quality.

Earnings Forecast and Guidance

The full-year plan calls for Revenue of ¥28.50B (YoY +5.6%), Operating Income of ¥2.50B (YoY +10.6%), and Ordinary Income of ¥2.50B (YoY +6.7%), with no revision to the forecast during the current quarter. As of Q1, progress rates were 21.0% for Revenue, 13.6% for Operating Income, 15.0% for Ordinary Income, and 12.7% for Net Income, all below the simple one-quarter benchmark of 25%. Achieving the full-year plan will depend on a recovery in domestic segment profitability during the second half and improved monetization through reductions in inventories and accounts receivable.

Shareholder Returns

The annual dividend forecast is ¥76.00, implying a Payout Ratio of approximately 36.0% based on full-year forecast EPS of ¥210.99. Although the per-share dividend for the same period last year is displayed as ¥0, there has been no revision to the full-year dividend plan, and the policy remains unchanged. Interest coverage is at a sound level, and there is currently no situation that materially undermines dividend safety. However, the high dependence on short-term borrowings should be noted as a factor that could affect the allocation of surplus funds going forward.

Risk Factors

1. Deteriorating profitability in the domestic business: Operating Income in the domestic segment declined sharply by -41.1% year on year to ¥0.25B, and the decline in profitability of the core business, which accounts for 75.3% of revenue, increases its impact on company-wide performance.

2. Dependence on short-term funding and refinancing structure: Cash and deposits of ¥6.03B versus short-term borrowings of ¥11.29B indicate a structure in which most interest-bearing debt is financed through short-term funding, resulting in relatively high sensitivity to changes in interest rates.

3. Inventory increase and collection structure: Inventories increased to ¥8.37B (¥8.02B in the same period last year), while accounts receivable declined to ¥3.81B (¥4.89B), indicating changes in the composition of working capital. Inventory accumulation may affect capital efficiency.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability was below the industry median, with both the operating margin and net margin positioned in the lower group within the industry.

Growth and Capital Efficiency

The revenue growth rate was significantly below the industry median, placing the company among the declining-revenue companies in the industry.

※Source: Compiled by the Company

Key Points in the Financial Results

1. The operating margin declined by -2.7pt to 5.7% (8.4% in the same period last year), with the main factors behind the decline in profits being higher SG&A expenses and deteriorating profitability in the domestic segment. Recovery in the domestic margin will be a key monitoring point going forward.

2. The reduction from Ordinary Income to Net Income was substantial at -43%, with the high tax burden reflected in the effective tax rate of 42.3% suppressing Net Income. Whether this tax burden normalizes will determine the future trend in Net Income.

3. Q1 progress toward the full-year plan was 13.6% for Operating Income and 12.7% for Net Income, below the one-quarter benchmark. Recovery in the profitability of the domestic business is a prerequisite for achieving the back-end-loaded full-year plan.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type model with an explicit five-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,123–¥2,245 at a ±1% change in the cost of equity, and ¥2,182–¥2,183 at a ±0.1 change in ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end were used (there is a timing difference from the full-year forecast).

(Model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast 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. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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