OKANO VALVE MFG.CO.LTD. FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥7.01B
• Operating Income: ¥864M
• Net Income: ¥802M
• EPS: ¥514.99

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: A strong FY2025 Q4 finish with double‑digit topline growth and outsized profit expansion, underpinned by margin improvement and a rock-solid balance sheet. Revenue rose 10.3% YoY to 70.06, while operating income surged 46.0% YoY to 8.64 and net income climbed 57.9% to 8.25. Gross profit reached 24.55, yielding a 35.0% gross margin, and operating margin improved to 12.3%. Based on the disclosed growth rates, prior-year revenue was approximately 63.54 and operating income about 5.92, implying operating margin expansion of roughly 300 bps (from ~9.3% to 12.3%). Net margin expanded by about 355 bps to 11.8% (from ~8.2% last year), benefiting from both stronger operations and non-operating gains. Non-operating income netted roughly +1.15 (1.24 income minus 0.09 expenses), lifting ordinary income to 9.79. Profit before tax of 12.30 suggests around 2.51 of special/extraordinary gains above ordinary income, indicating a one-time boost to headline profit. Operating cash flow was 6.98, equal to 0.85x net income, a modest shortfall versus the >1.0x ideal but above the 0.8x quality flag threshold. Free cash flow printed at 8.94 as reported (helped by positive investing cash flow of 1.96), indicating non-recurring disposals likely supported aggregate FCF. Liquidity remains exceptional: current ratio of 506% and cash of 49.15 comfortably cover current liabilities of 18.78. Leverage is conservative with debt-to-equity of 0.21x and long-term loans of only 2.65; interest coverage is an ultra-strong 864x. ROE stands at 6.9%, with a DuPont profile showing improvements mainly from net margin expansion rather than leverage. ROIC at 7.9% aligns with standard manufacturing return targets and suggests disciplined capital deployment. Equity-method income was small at 0.25 (2% of profit), so affiliate dependency is minimal. Forward-looking, the company enters FY2026 with improved cost structure and ample financial flexibility, though some FY2025 profit tailwind stemmed from special gains and asset sales that may not recur. Monitoring order inflow, working capital discipline (accounts receivable at 34.39), and capex execution (capex -1.78) will be key to sustaining operating leverage and cash conversion.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 11.8% × 0.482 × 1.21 ≈ 6.9%. The largest positive change YoY came from net profit margin expansion, estimated at roughly +355 bps (to 11.8%), versus a smaller change in leverage (low and stable at 1.21x) and modest change in asset turnover (0.482, typical for project-oriented manufacturing). Business drivers: (1) higher revenue volume (+10.3%) improved absorption of fixed costs, lowering the SG&A ratio to an implied ~22.7% of sales and lifting operating margin to 12.3%; (2) net non-operating gains (+1.15) and special gains (~2.51 above ordinary income) further boosted bottom-line margin. Sustainability: operating margin gains tied to mix and fixed-cost leverage are partially sustainable if volumes hold; however, the gap between profit before tax and ordinary income indicates one-time items that will not recur. Asset turnover remains sub-0.5, reflecting the capital and working-capital intensity of the valve business; absent structural changes, material acceleration is unlikely. Watchpoints: if SG&A outpaces revenue in FY2026, the operating leverage tailwind could reverse; currently, operating income grew much faster than revenue (+46% vs +10%), suggesting favorable operating leverage this year.

Growth Assessment

Topline grew 10.3% to 70.06, reflecting solid demand and/or improved delivery timing. Operating income rose 46.0% to 8.64, indicating meaningful operating leverage from a 35.0% gross margin and tighter cost control. Net income increased 57.9% to 8.25, aided by non-operating gains and special items (~2.51 uplift from ordinary income to PBT). Equity-method contributions were modest at 0.25 (2% of profit), so growth is primarily company-driven. Revenue sustainability depends on backlog and sector demand (energy, shipbuilding, chemicals), not disclosed here; absent backlog data, we assume normalized low-double-digit growth is not guaranteed. Profit quality shows improvement at the operating level (12.3% operating margin), but headline growth overstates recurring earnings due to special gains. Outlook: if FY2026 volumes remain firm and input costs stay stable, mid-teens operating margins look achievable on a quarterly basis; however, net profit growth will likely normalize without the one-off gains. Continued discipline in pricing and project selection should support ROIC near the 7–8% range.

Financial Health

Liquidity is very strong: current ratio 506.3% and quick ratio 506.3% (cash 49.15 and receivables 34.39 vs current liabilities 18.78). No warning triggers: Current Ratio >> 1.0 and D/E at a conservative 0.21x. Interest-bearing debt is low (long-term loans 2.65) and interest expenses minimal (0.01), yielding interest coverage of 864x. Maturity mismatch risk is low: cash alone covers all current liabilities 2.6x; accounts payable are modest at 3.60. Solvency is robust with total equity of 120.01 (equity/asset ≈ 82.5% implied). No off-balance sheet obligations are disclosed in the provided data; absence of disclosure limits a full assessment of guarantees or long-term purchase commitments.

Cash Flow Quality

OCF was 6.98 versus net income of 8.25, giving OCF/NI of 0.85x—below the >1.0x ideal but above the 0.8x concern threshold. The shortfall likely reflects working capital investment, consistent with revenue growth and accounts receivable of 34.39; no direct inventory data is available. Free cash flow as presented (8.94) benefited from positive investing cash flow of 1.96, indicating asset sales or securities redemptions; on a core basis, OCF minus capex would be ~5.20, still comfortably positive. Capex was modest at -1.78, indicating disciplined investment relative to EBITDA of 11.47 (capex/EBITDA ≈ 15.5%). Financing cash outflows of -3.92 likely include dividends and debt service; dividends themselves are unreported but the calculated payout is 15.2%, implying ample FCF coverage (reported FCF coverage 7.12x). No clear signs of working capital manipulation are evident from the limited detail, but the AR build should be monitored for collection risk.

Dividend Sustainability

With net income of 8.25 and a calculated payout ratio of 15.2%, the implied dividend outlay is about 1.25, easily covered by reported FCF of 8.94 (FCF coverage 7.12x). Even on a core basis (OCF − capex ≈ 5.20), coverage remains robust at over 4x. The balance sheet carries substantial net cash and very low leverage, further underpinning dividend capacity. Although reported DOE is 0.0% and DPS is unreported, the low payout suggests room for steady or modestly higher distributions if earnings normalize slightly below FY2025’s level (given one-time gains). Policy outlook: absent a stated policy, we infer a conservative approach focused on stability; sustainability is high provided operating cash conversion remains ≥0.8–1.0x of net income.

Risk Assessment

Business Risks:

• Order timing and project concentration risk affecting quarterly revenue and margin volatility
• Input cost inflation (steel, specialty alloys) compressing gross margins if not passed through
• Supply chain delays potentially elongating receivable cycles and increasing WIP
• End-market cyclicality in energy, petrochemical, and shipbuilding capex
• Quality/liability risks inherent in industrial valves for critical applications

Financial Risks:

• Working capital build (accounts receivable 34.39) can dampen OCF if collections slow
• Headline profit in FY2025 benefited from special gains (~2.51), creating tougher YoY comps
• Positive investing cash flow (1.96) suggests asset disposals that may not recur
• Limited disclosure on short-term borrowings and interest-bearing debt composition

Key Concerns:

• Sustainability of current net margin (11.8%) without repeat of special gains
• OCF/NI below 1.0x (0.85x) indicates only moderate cash conversion
• Potential FX exposure if exports are material (not disclosed)
• Data gaps (inventories, DPS detail) constrain full assessment of working capital and shareholder returns

Investment Implications

Key Takeaways:

• Revenue +10.3% to 70.06 with operating income +46.0% to 8.64, demonstrating strong operating leverage
• Operating margin expanded ~300 bps YoY to 12.3%; net margin rose ~355 bps to 11.8%
• Non-operating and special gains boosted PBT by ~3.7 (1.15 non-op net + ~2.51 special), inflating headline NI
• OCF/NI at 0.85x is acceptable but below ideal; receivable management is a watchpoint
• Balance sheet is exceptionally strong: current ratio 506%, D/E 0.21x, interest coverage 864x
• ROE 6.9% driven mainly by margin improvement; ROIC 7.9% aligns with target range
• Dividend capacity is high with a low ~15% payout and ample FCF coverage

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue sustainability
• SG&A ratio and gross margin to confirm continued operating leverage
• OCF/NI and days sales outstanding (DSO) to track cash conversion
• Recurring ordinary income vs special gains to assess earnings quality
• Capex pipeline vs ROIC to ensure disciplined reinvestment

Relative Positioning: Within Japanese industrial components/valve peers, the company exhibits superior balance sheet strength and improving operating margins, with returns (ROE ~7% and ROIC ~8%) around sector averages; earnings quality is good at the operating level but headline FY2025 profitability is partially inflated by one-time gains, implying more normalized growth ahead.

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