ORIENTAL CHAIN MFG. CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.04B
• Operating Income: ¥-50M
• Net Income: ¥40M
• EPS: ¥70.94

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

Oriental Chain Mfg. Co., Ltd. (63800) reported FY2026 Q2 consolidated results under JGAAP with modest top-line growth but weak core earnings quality. Revenue was ¥2,045 million, up 2.2% year over year, with gross profit of ¥400.9 million and a gross margin of 19.6%, indicating modest value-add relative to cost of sales. Operating income remained in the red at ¥-50 million (flat YoY), signaling that core profitability has yet to recover despite revenue growth. Ordinary income was ¥-55 million, implying that non-operating items did not offset the operating shortfall. Net income, however, rose sharply to ¥98 million (+145.7% YoY), which, given the ordinary loss and reported income tax expense of ¥34.8 million, implies a sizable extraordinary gain of roughly ¥188 million (pre-tax), a non-recurring driver of the bottom line. EBITDA was positive at ¥43.4 million, supported by depreciation and amortization of ¥93.4 million, yet the operating loss and negative interest coverage (-9.1x) underscore pressure at the EBIT level. The DuPont profile shows an ROE of 5.43% (net margin 4.79% × asset turnover 0.411 × leverage 2.76), but this ROE is flattered by the extraordinary gain rather than sustained operating performance. Liquidity appears adequate with a current ratio of 139.9% and quick ratio of 127.7%, supported by ¥760.6 million of working capital. The capital structure is relatively levered for a small manufacturer, with total liabilities-to-equity around 1.82x; solvency resilience will depend on restoring operating profitability. Operating cash flow was ¥50.0 million, only about half of net income (OCF/NI 0.51), which is consistent with the one-off nature of earnings and/or working capital absorption this period. Investing cash flow and cash balances are not disclosed in the dataset provided (zeros indicate unreported), limiting free cash flow assessment beyond noting that reported FCF is shown as zero due to missing investing figures. Dividend information (DPS and payout) is also not disclosed; thus, dividend capacity must be inferred from earnings quality and leverage rather than explicit policy signals. Inventory stood at ¥232.9 million, while asset turnover of 0.411x suggests subdued efficiency typical of capital goods suppliers in a soft demand phase. Overall, the quarter shows incremental sales growth, weak core margins, reliance on extraordinary income to deliver positive net earnings, and adequate near-term liquidity but constrained interest coverage. The key to improving the investment case will be restoring positive operating income, stabilizing gross margins, and converting earnings into cash. Data limitations around cash and investing flows as well as dividend specifics should be noted when interpreting coverage ratios and capital allocation.

Profitability Analysis

ROE decomposes to 5.43% = 4.79% net margin × 0.411x asset turnover × 2.76x financial leverage. The net margin (4.79%) is not reflective of core profitability given the operating loss (¥-50m) and an implied extraordinary gain of ~¥188m that lifted pre-tax income. Gross margin of 19.6% (¥400.9m GP) suggests limited pricing power or cost pressure; maintaining or expanding this spread will be essential for a return to positive operating income. EBITDA of ¥43.4m indicates positive contribution pre-D&A, but operating income remained negative, highlighting relatively high depreciation load versus gross profit and constrained operating leverage at current volumes. Interest coverage is -9.1x (EBIT/interest ≈ -¥50m/¥5.5m), underscoring insufficient operating earnings to service debt from operations. Ordinary income of ¥-55m confirms that non-operating results did not offset the core loss; bottom-line profitability was driven by non-recurring items. Operating leverage appears unfavorable near current scale: a ~20% gross margin leaves limited cushion after SG&A and D&A; further volume growth and/or cost actions are required to push EBIT positive. Overall profitability quality is weak this period, with ROE elevated by non-recurring gains rather than sustainable operations.

Growth Assessment

Revenue grew 2.2% YoY to ¥2,045m, pointing to modest demand resilience in core products. However, operating income was flat at a loss (¥-50m), suggesting that incremental revenue did not translate into operating profit due to margin pressure or higher fixed costs/SG&A. The sharp increase in net income (+145.7% YoY to ¥98m) is predominantly explained by an implied extraordinary gain (~¥188m pre-tax), not by improved underlying performance. Asset turnover of 0.411x is subdued, indicating capacity underutilization and/or longer production cycles typical for industrial components; this constrains growth in ROE absent margin improvement. Given the cost structure indicated by EBITDA vs. EBIT, additional volume without margin expansion may not meaningfully improve profitability; mix and pricing actions are likely needed. Near-term outlook hinges on order flow normalization, input cost trends (steel and energy), and execution on cost control to restore positive operating margins. Sustainability of the top line appears reasonable, but profit quality is low until core operations turn positive and reliance on one-offs diminishes.

Financial Health

Liquidity is adequate: current ratio 139.9%, quick ratio 127.7%, and working capital of ¥760.6m suggest the company can meet short-term obligations. Total assets are ¥4,973m against total liabilities of ¥3,274m and equity of ¥1,804m, implying liabilities-to-equity of ~1.82x; leverage is meaningful for a small-cap industrial. Interest expense is modest at ¥5.5m, but the negative EBIT produces strained coverage. Ordinary and operating losses raise questions about medium-term debt service if extraordinary gains do not recur. The reported equity ratio is shown as 0% in the dataset, but this is not disclosed rather than actually zero; using the provided balance sheet, the equity ratio approximates 36% (¥1,804m/¥4,973m), which is moderate. Overall solvency is acceptable at present leverage levels, but hinges on restoring positive operating profit and maintaining access to financing (noting a ¥126.4m financing cash inflow this period).

Cash Flow Quality

Operating cash flow was ¥50.0m versus net income of ¥98.0m (OCF/NI 0.51), indicating weak earnings-to-cash conversion consistent with the presence of non-cash extraordinary gains and/or working capital outflows. EBITDA of ¥43.4m is positive, but the gap to NI underscores that bottom-line strength is not cash-backed this period. Investing cash flow is not disclosed (reported as zero), so free cash flow cannot be reliably computed; the displayed FCF of zero reflects missing investing data rather than true zero capex. Financing cash flow was an inflow of ¥126.4m, suggesting reliance on external funding (likely borrowings) to support liquidity and investment needs. Working capital dynamics are not fully disclosed, but inventories of ¥232.9m and the positive OCF suggest some discipline; however, without details on receivables/payables changes, the sustainability of OCF is uncertain. Overall, cash flow quality is modest: positive OCF despite an operating loss is encouraging, but low OCF/NI and reliance on non-recurring gains reduce confidence.

Dividend Sustainability

Dividend per share is shown as ¥0.00 and payout ratio as 0.0%, but zeros indicate non-disclosure rather than actual zero; therefore, dividend status for the period is not confirmed by the dataset. With EPS of ¥70.94 driven by a large extraordinary gain and core operating loss, sustainable distributable capacity should be evaluated cautiously. Free cash flow is not ascertainable due to missing investing cash flow data, so FCF coverage of dividends cannot be assessed for this period. Leverage of ~1.82x liabilities-to-equity and negative interest coverage argue for prioritizing balance sheet and operating recovery over distributions until core profitability improves. Policy outlook is uncertain without explicit guidance; a conservative stance would hinge on restoring positive operating income and consistent OCF before committing to payouts.

Risk Assessment

Business Risks:

• Cyclical demand in capital goods and industrial supply chains affecting order timing and utilization
• Raw material cost volatility (steel) and energy prices pressuring gross margins
• Pricing power constraints in a competitive, standardized components market
• Operating leverage at sub-scale volumes leading to EBIT sensitivity to revenue fluctuations
• Potential delays or cancellations in customer capex plans
• Supply chain disruptions and lead-time variability impacting deliveries and inventory
• Foreign exchange exposure on exports/imported materials (if applicable)

Financial Risks:

• Negative operating income and ordinary loss leading to weak interest coverage (-9.1x)
• Dependence on extraordinary gains to achieve positive net income in the period
• Moderate-to-high leverage with liabilities-to-equity ~1.82x
• Uncertain free cash flow due to undisclosed investing cash flows
• Reliance on financing inflows (¥126.4m) to support liquidity

Key Concerns:

• Sustainability of profitability given core operating loss
• Earnings quality: one-off gains inflating ROE and EPS
• Cash conversion: OCF/NI of 0.51 and incomplete FCF visibility
• Margin resilience at a 19.6% gross margin amid cost inflation
• Path to restoring positive EBIT and adequate interest coverage

Investment Implications

Key Takeaways:

• Revenue grew 2.2% YoY to ¥2,045m but core operations remained loss-making (operating income ¥-50m).
• Net income of ¥98m was achieved via an implied extraordinary gain (~¥188m pre-tax), not through operating improvement.
• ROE of 5.43% is non-recurring in nature given the earnings mix; asset turnover is low at 0.411x.
• Liquidity is adequate (current ratio 140%, quick 128%), but interest coverage is negative and leverage is material (~1.82x liabilities-to-equity).
• OCF of ¥50m versus NI of ¥98m signals weak cash conversion; investing cash flows are undisclosed, limiting FCF assessment.

Metrics to Watch:

• Operating margin and return to positive EBIT
• Gross margin trend and input cost pass-through
• Order backlog/book-to-bill and capacity utilization
• OCF/NI ratio and working capital turns (inventory days, receivable days)
• Interest coverage and net debt (once cash and debt disclosures are available)
• Frequency and magnitude of extraordinary items
• Capex and investing cash flows to gauge true FCF

Relative Positioning: Within Japan small-cap industrial components/machinery peers, the company shows weaker core profitability and interest coverage, moderate liquidity, and higher reliance on extraordinary items to support ROE; asset efficiency is on the low side, suggesting room for operational improvement to close the gap with more profitable, cash-generative peers.

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
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