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

Okano Valve Mfg. Co., Ltd. reported solid FY2025 Q4 (full-year) consolidated results under JGAAP, with clear margin expansion and healthy profitability. Revenue rose 10.3% year over year to ¥7,006 million, while operating income grew 46.0% to ¥864 million, indicating strong operating leverage. Net income advanced 57.9% to ¥825 million, lifting the net margin to 11.78%. Gross profit of ¥2,632 million implies a gross margin of 37.6%, suggesting improved pricing and/or favorable mix versus cost inflation. Ordinary income of ¥979 million exceeded operating income, pointing to positive non-operating contributions (e.g., financial or FX gains). ROE calculated via DuPont is 6.87%, driven by an 11.78% net margin, 0.482x asset turnover, and modest leverage of 1.21x. Liquidity is very strong, with a current ratio of 447% and ample working capital of ¥7,179 million. Balance sheet strength is also notable, with total liabilities of ¥3,030 million against total equity of ¥12,001 million, implying low leverage. Operating cash flow of ¥698 million represents an OCF/Net Income ratio of 0.85, which is reasonable though slightly below 1.0. Reported free cash flow of ¥894 million benefited from positive investing cash flow of ¥196 million, signaling potential asset sales or low capex in the period. Interest expense remains minimal at ¥3 million, and interest coverage is extremely comfortable at roughly 288x using operating income. Effective tax outflow was ¥181 million; based on net and ordinary income, the implied effective tax rate is approximately 18–19% despite the provided metric showing 0.0%, which appears to be an undisclosed item. Dividend data are not disclosed (DPS reported as 0.00 likely indicates non-disclosure in XBRL), so payout assessment requires caution. Several items are reported as zero due to non-disclosure, including inventories, cash and equivalents, and equity ratio; therefore, certain ratios (e.g., quick ratio, equity ratio) may be distorted. Overall, the company demonstrates improving profitability, strong balance sheet resilience, and good cash generation, albeit with some uncertainty around working capital trends and the sustainability of positive investing cash flow.

Profitability Analysis

ROE of 6.87% reflects: Net margin 11.78% × asset turnover 0.482 × financial leverage 1.21. Operating margin was approximately 12.3% (¥864m/¥7,006m), up sharply as operating income grew +46% on +10.3% revenue, evidencing operating leverage from fixed-cost absorption and/or pricing discipline. Gross margin at 37.6% indicates solid value-add and likely mix or pricing tailwinds versus cost of sales. Ordinary income exceeded operating income (¥979m vs. ¥864m), implying net non-operating gains (~¥115m), which lifted profit quality at the ordinary level. Net margin at 11.78% benefited from low interest burden (¥3m) and a moderate effective tax rate (~18–19% inferred from ¥181m tax). EBITDA of ¥1,227m implies an EBITDA margin of 17.5%, offering further cushion for fixed charges and reinvestment. The gap between gross margin (37.6%) and operating margin (~12.3%) suggests SG&A intensity remains material, but the year’s leverage indicates improving cost efficiency. Overall, margin quality appears robust, with risk that part of the ordinary-to-operating spread may not be recurring.

Growth Assessment

Revenue grew 10.3% YoY to ¥7,006m, a healthy pace for a specialized valve manufacturer. The outsized increase in operating income (+46%) relative to revenue indicates strong incremental margins and suggests improved product mix, price increases, and/or cost containment. Net income growth (+57.9%) further reflects non-operating support and low financing costs. Sustainability of revenue growth depends on end-market demand in energy, industrial, and infrastructure segments; current data don’t provide backlog or segment detail, so visibility is limited. The improved gross and operating margins indicate competitive positioning and potential pricing power, but sustainability will hinge on input cost trends and FX. Asset turnover of 0.482x is moderate, typical of capital-intensive or engineered product firms; further revenue scale could lift ROE if turnover improves. With OCF/NI at 0.85, growth was accompanied by some cash conversion drag, possibly from working capital; persistence of this trend could temper cash-backed growth. Investing cash inflow suggests low net capex or asset disposals—growth outlook should consider whether maintenance and growth capex requirements will normalize upward. Overall, the outlook is constructive given earnings momentum and balance sheet capacity, but confirmation via order trends and capex plans is needed.

Financial Health

Total assets are ¥14,547m against total equity of ¥12,001m and total liabilities of ¥3,030m, indicating a conservative capital structure. The reported debt-to-equity ratio of 0.25x is low, and interest expense is minimal at ¥3m, pointing to low interest-bearing debt. Liquidity is strong with current assets of ¥9,245m and current liabilities of ¥2,066m for a current ratio of 447% and working capital of ¥7,179m. Inventories and cash were shown as 0 due to non-disclosure; thus, the quick ratio equal to the current ratio likely overstates true immediate liquidity. Interest coverage is extremely strong at ~288x (operating income/interest), leaving ample buffer against rate or earnings shocks. The equity ratio was reported as 0.0% (undisclosed), but the balance sheet values imply a high equity ratio given equity size, reinforcing solvency strength. Overall financial health is robust, with low leverage and high liquidity, though precise cash composition is not available.

Cash Flow Quality

Operating cash flow was ¥698m versus net income of ¥825m, yielding an OCF/NI ratio of 0.85, a decent but slightly sub-1.0 conversion likely reflecting working capital investment or timing effects. Depreciation and amortization were ¥363m, highlighting a meaningful non-cash component supporting EBITDA of ¥1,227m. Investing cash flow was positive at ¥196m, implying asset sales, subsidies, or reduced capex; this inflow boosted reported free cash flow to ¥894m (OCF + Investing CF). The sustainability of FCF at this level is uncertain if capex normalizes to or above depreciation in future periods. Financing cash flow was an outflow of ¥392m, suggesting debt reduction, dividends, or share-related cash uses; dividends are not disclosed, so the uses are unclear. Working capital specifics (inventories, receivables, payables) are not disclosed; given strong growth and margin expansion, some increase in receivables or WIP could have constrained OCF. Overall, earnings quality appears good with positive OCF and limited interest burden, but the positive investing cash flow warrants caution in extrapolating FCF.

Dividend Sustainability

Dividend information is not disclosed (DPS reported as 0.00 and payout ratio 0.0% likely reflect non-disclosure rather than actual zero). With net income of ¥825m and FCF of ¥894m this period, coverage capacity appears ample in principle. The strong balance sheet and minimal interest burden also support potential distributions. However, without actual DPS, historical policy, or guidance, payout sustainability and policy direction cannot be assessed. If investing cash flow normalizes negative (capex), FCF available for dividends could be lower than this year’s level. In the absence of disclosure, we assume a conservative stance regarding payouts and recommend monitoring board policy updates and capex plans.

Risk Assessment

Business Risks:

• End-market cyclicality in energy, petrochemical, and industrial infrastructure demand
• Input cost volatility (steel and specialty alloys) affecting gross margins
• FX fluctuations impacting export competitiveness and non-operating income
• Project timing and backlog conversion risks affecting revenue recognition and working capital
• Competitive pricing pressure in valves and flow control components

Financial Risks:

• Working capital swings potentially compressing OCF versus earnings
• Positive investing cash flow non-recurring; capex normalization could reduce FCF
• Customer concentration risk (not disclosed) could elevate credit and cash collection risk
• Limited disclosure on cash composition and inventories complicates liquidity assessment

Key Concerns:

• Sustainability of margin expansion given potential input cost and pricing pressures
• Durability of non-operating gains that lifted ordinary income
• Visibility on capex trajectory and its impact on future free cash flow

Investment Implications

Key Takeaways:

• Double-digit revenue growth with outsized operating income growth indicates strong operating leverage
• High gross margin (37.6%) and improved operating margin (~12.3%) underscore solid price/mix and cost control
• ROE of 6.87% supported primarily by margin strength rather than leverage
• Balance sheet is conservatively financed with low liabilities and minimal interest burden
• OCF is positive but trails net income (0.85x), suggesting some working capital drag
• Reported FCF benefited from positive investing cash flow, which may be non-recurring
• Dividend policy not disclosed; payout capacity exists but policy visibility is low

Metrics to Watch:

• Order backlog and book-to-bill for demand visibility
• Gross and operating margins for pricing and cost dynamics
• OCF/Net income and working capital days (DSO/DPO/DIO) for cash conversion
• Capex versus depreciation to gauge sustainable FCF
• Non-operating income components and FX sensitivity
• Leverage and interest coverage to confirm continued balance sheet strength

Relative Positioning: The company appears operationally efficient with margin-led ROE and a strong balance sheet, positioning it favorably versus more leveraged industrial peers; however, cash conversion and the sustainability of investing inflows are key differentiators to monitor.

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