Osaki Electric Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥45.43B
• Operating Income: ¥1.88B
• Net Income: ¥913M
• EPS: ¥15.45

Income Statement

Balance Sheet

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

Verdict: Solid topline and operating profit growth with modest margin expansion, but subdued bottom-line due to a high effective tax rate and low capital efficiency. Revenue grew 2.2% YoY to 454.29, while operating income rose 8.7% YoY to 18.80, outpacing sales and lifting operating margin. Gross profit was 105.82, implying a gross margin of 23.3%, providing room to absorb SG&A of 87.01. Operating margin improved to 4.14%, up roughly 25 bps versus the prior-year period (estimated 3.89%), reflecting better operating leverage. Ordinary income increased 19.0% YoY to 18.65 despite slightly negative net non-operating impact (non-op income 3.12 vs non-op expenses 3.27), supported by dividend income of 1.96. Net income climbed 21.3% YoY to 6.93, yet the net margin remains thin at 1.5% as the effective tax rate was elevated at 49.9%. Interest coverage is healthy at 10.56x (18.80/1.78), indicating ample capacity to service debt. Balance sheet liquidity is strong with a current ratio of 211.8% and quick ratio of 163.5%, and leverage is conservative at D/E 0.52x. However, ROE is only 1.1% and ROIC is 1.6%, well below the 5% warning threshold, signaling weak capital efficiency. Non-operating income is meaningful relative to net profit (non-operating income ratio ~45%), highlighting some reliance on financial income, although net non-operating contribution this quarter was slightly negative. Working capital remains robust with 285.39, and short-term borrowings (56.17) are readily covered by cash (88.71) and receivables (163.17). Dividend sustainability is unclear as cash flow data are unreported; the calculated payout ratio of 148.9% appears elevated relative to earnings. The lack of disclosed operating cash flow, capex, and dividend cash outflows limits assessment of free cash flow coverage. Forward-looking, modest demand growth and cost discipline should support incremental margin gains, but normalization of the tax rate and ROIC improvement are needed to lift returns. Overall, the quarter shows controlled execution and financial resilience, but structural profitability and capital efficiency remain key improvement areas.

Profitability Analysis

ROE decomposition: 1) Net Profit Margin = 1.5% (Net income 6.93 / Revenue 454.29). 2) Asset Turnover = 0.479 (Revenue 454.29 / Total assets 948.78; methodology as provided). 3) Financial Leverage = 1.52x (Assets 948.78 / Equity 625.19). Multiplying yields ROE ≈ 1.1%, aligned with the reported figure. The component that improved the most appears to be margin, as operating income grew 8.7% versus revenue at 2.2%, implying operating margin expansion of roughly 25 bps YoY (to 4.14%). The business driver is better operating leverage—gross profit of 105.82 covered SG&A of 87.01, suggesting some cost containment or product mix improvement. Financial leverage is low and likely stable; asset turnover looks modest and consistent with a mid-cycle profile in equipment/solutions businesses. The high effective tax rate (49.9%) dampened net margin, offsetting some operating gains; if tax normalizes, net margin could lift without incremental operating improvements. Sustainability: modest operating margin gains look repeatable if cost discipline holds and pricing/mix remain favorable; dependence on non-operating dividend income should not be a core driver, and net non-operating was slightly negative this period. Watch for any SG&A growth re-acceleration—SG&A is 19.2% of sales (87.01/454.29); if SG&A growth outpaces revenue, operating leverage would reverse. Overall, ROE is constrained primarily by low net margin and subdued asset turnover, not by excessive leverage.

Growth Assessment

Topline growth of 2.2% YoY is steady, likely volume or small pricing gains; no segment detail reported. Operating income +8.7% YoY indicates improved efficiency and modest operating leverage. Ordinary income +19.0% YoY suggests better finance-related items vs last year, despite this quarter's slightly negative net non-operating balance; dividend income (1.96) contributed meaningfully. Net income +21.3% YoY benefited from operating improvements but was held back by a high tax rate, leaving net margin at 1.5%. The 25 bps operating margin expansion to 4.14% underscores progress but from a low base. With ROIC at 1.6%, returns remain below typical cost of capital, implying that growth without mix/pricing improvement may not create sufficient value. Revenue sustainability hinges on utility and infrastructure project timing and meter/solutions demand; backlog and order intake were not disclosed. Near-term outlook: cautious optimism for incremental margin gains via continued cost control; upside if tax rate normalizes. Risks to growth include component costs, FX, and customer delivery schedules. Absence of cash flow and capex disclosure limits visibility on growth investments and sustainability.

Financial Health

Liquidity is strong: current ratio 211.8% and quick ratio 163.5% are comfortably above benchmarks. Solvency is conservative with D/E at 0.52x; interest coverage is 10.56x, indicating low refinancing risk. Maturity mismatch appears limited: short-term loans of 56.17 are well covered by cash (88.71) and liquid current assets (receivables 163.17). Total liabilities are 323.59 against total equity 625.19, supporting balance sheet resilience. No explicit off-balance sheet obligations were reported. There is no warning trigger for current ratio (<1.0) or D/E (>2.0). Equity base remains substantial (owners’ equity 511.92), aligning with low financial risk but contributing to lower ROE.

Cash Flow Quality

Operating cash flow, investing cash flow, and capex were not reported, so OCF/Net Income and FCF cannot be assessed. Consequently, we cannot validate earnings quality via cash conversion benchmarks (OCF/NI > 1.0). Working capital levels are sizable (AR 163.17, inventories 123.14); without period change data, we cannot assess whether working capital supported or consumed cash. No clear signs of working capital manipulation can be inferred from point-in-time balances. Given the elevated payout ratio (148.9%) and lack of FCF data, dividend coverage from internally generated cash is uncertain.

Dividend Sustainability

The calculated payout ratio of 148.9% exceeds the <60% benchmark, indicating potential unsustainability if maintained, though actual DPS/FCF are unreported. With strong liquidity and low leverage, the company could fund dividends temporarily from the balance sheet, but this is not a durable strategy. Absent OCF and capex data, FCF coverage of dividends cannot be determined. Policy outlook likely prioritizes stability, but improving ROIC and cash conversion would be necessary to align payouts with earnings over the medium term. Monitoring forthcoming disclosures on interim/annual DPS guidance and cash flows is essential.

Risk Assessment

Business Risks:

• Demand cyclicality and project timing in meters and grid solutions affecting revenue visibility
• Pricing pressure from utility and municipal customers compressing margins
• Component cost inflation and supply chain constraints impacting gross margin
• High effective tax rate (49.9%) suppressing net profitability
• Dependence on non-operating dividend income relative to net profit (~45% of NI), though net non-op was slightly negative this period

Financial Risks:

• Low ROIC (1.6%) versus typical cost of capital, risking value dilution
• Potential dividend coverage gap given calculated payout ratio of 148.9% and unreported FCF
• Exposure to short-term debt (56.17) albeit currently covered by liquid assets
• Currency fluctuation risk if procurement or sales are foreign-denominated (not disclosed)

Key Concerns:

• Sustained low net margin (1.5%) despite operating improvements
• Limited disclosure of cash flows and capex impeding assessment of cash generation and investment needs
• Ordinary income sensitivity to financial items and affiliate dividends (breakdown limited)
• Potential for SG&A to re-accelerate and erode operating leverage if growth slows

Investment Implications

Key Takeaways:

• Modest revenue growth (+2.2% YoY) with better operating leverage (+25 bps operating margin to 4.14%)
• Bottom line still constrained by a high effective tax rate (49.9%), keeping net margin at 1.5%
• Strong balance sheet and liquidity (current ratio 211.8%, D/E 0.52x) reduce financial risk
• Capital efficiency remains weak (ROE 1.1%, ROIC 1.6%), a key strategic challenge
• Dividend affordability is uncertain; calculated payout ratio (148.9%) appears high without FCF support

Metrics to Watch:

• Order backlog and book-to-bill for visibility on H2 and FY growth
• Gross margin trajectory versus component costs and pricing
• SG&A as a percentage of sales to confirm operating leverage
• Effective tax rate normalization path
• Operating cash flow, capex, and FCF to validate earnings quality and dividend coverage
• ROIC improvement initiatives and asset efficiency (inventory and receivable turns)

Relative Positioning: Within Japanese electrical equipment/metering peers, the company shows healthy liquidity and conservative leverage but lags on profitability and capital efficiency. Near-term operating execution is improving, yet returns (ROE/ROIC) remain below peer averages, suggesting a need for mix enhancement, cost-downs, and better asset turns to close the 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