Osaki Electric Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

The first quarter of the fiscal year ending March 2027 recorded increases in both revenue and earnings. The most notable feature was the significant growth in operating income and below, driven particularly by operating leverage resulting from an improvement in the gross profit margin. Revenue was ¥22.92B (¥21.97B in the prior year, YoY +4.4%), operating income was ¥1.81B (¥1.01B in the prior year, YoY +79.6%), and ordinary income was ¥2.12B (¥1.15B in the prior year, YoY +85.0%). Consolidated net income, including the portion attributable to non-controlling interests, was ¥1.43B (¥0.49B in the prior year, YoY +194.0%), of which net income attributable to owners of the parent was ¥1.18B (¥0.35B in the prior year, YoY +237.2%). The primary driver of earnings growth was the improvement in the gross profit margin to 28.3% (+4.1pt from 24.2% in the prior year), supported by improved profitability in the Domestic Measurement and Control Business and a sharp increase in profits in the Overseas Measurement and Control Business.

Factors Affecting Business Performance

【Revenue】Revenue increased to ¥22.92B, up YoY +4.4%. The Domestic Measurement and Control Business, which accounted for 62.2% of revenue, led overall performance with revenue of ¥14.26B, up YoY +6.2%. The Overseas Measurement and Control Business was nearly flat at ¥8.68B (revenue mix of 37.9%), down YoY -0.3%, while the Real Estate Business contracted to ¥0.10B, down YoY -21.9%.

【Profit and Loss】Operating income was ¥1.81B, up YoY +79.6%, and the operating margin improved to 7.9% from 4.6% in the prior year, an improvement of +3.3pt. The primary factor was the increase in the gross profit margin to 28.3% (+4.1pt from 24.2% in the prior year), as an improved product mix and higher profitability absorbed the increase in SG&A expenses to ¥4.67B (YoY +8.6%). Ordinary income was ¥2.12B (YoY +85.0%); dividend income of ¥0.25B contributed to non-operating income, while non-operating expenses were primarily foreign exchange losses of ¥0.11B. Extraordinary gains and losses comprised a gain on the sale of investment securities of ¥0.17B and business structure reform expenses of ¥0.05B, resulting in a net positive impact of +¥0.12B as a temporary factor. Consolidated net income was ¥1.43B (YoY +194.0%), while net income attributable to owners of the parent was ¥1.18B (YoY +237.2%). Revenue and earnings both increased.

Segment Analysis

The Domestic Measurement and Control Business generated revenue of ¥14.26B (YoY +6.2%), operating income of ¥1.29B (YoY +60.9%), and an operating margin of 9.1% (+3.1pt from 6.0% in the prior year). It was the primary driver of company-wide earnings, with revenue growth and improved profitability occurring simultaneously. The Overseas Measurement and Control Business was nearly flat in revenue at ¥8.68B (YoY -0.3%), but operating income improved substantially to ¥0.46B (YoY +201.3%), with the operating margin rising to 5.3% (+3.5pt from 1.8% in the prior year), achieving earnings growth without revenue growth. The Real Estate Business generated revenue of ¥0.10B (YoY -21.9%) and operating income of ¥0.06B (YoY -11.9%), maintaining a high margin of 59.0% despite its small scale. Company-wide earnings growth was driven by both the scale of the domestic business and improved profitability in the overseas business. The narrowing margin gap between the overseas business (5.3%) and the domestic business (9.1%) indicates potential for further improvement in the company-wide margin.

Key Financial Indicators

【Profitability】The operating margin improved to 7.9% from 4.6% in the prior year, an increase of +3.3pt, while the ordinary income margin improved to 9.3% from 5.2%, an increase of +4.1pt. The rise in the gross profit margin to 28.3% (24.2% in the prior year) was the starting point for the improvement in profitability.

【Cash Quality】Cash and deposits were nearly flat at ¥15.74B (¥15.92B in the prior year), while accounts receivable declined to ¥14.71B (¥19.31B in the prior year) and inventories declined to ¥8.49B (¥9.41B in the prior year). As a percentage of revenue, accounts receivable at 64.1% and inventories at 37.0% remain elevated, making progress in collections and inventory liquidation important determinants of the quality of future cash conversion.

【Investment Efficiency】ROE (quarterly, before annualization) was 2.1%, boosted by the sharp increase in net income attributable to owners of the parent to ¥1.18B. However, asset turnover against total assets of ¥96.27B remains limited, and continued earnings growth will be necessary for a full-scale improvement in capital efficiency.

【Financial Soundness】The equity ratio rose to 71.3% from 68.9% in the prior year, an increase of +2.4pt. The current ratio remained high at 273.8% (248.9% in the prior year). Although short-term borrowings increased to ¥1.12B (YoY +139.8% from ¥0.47B in the prior year), they are fully covered by cash and deposits of ¥15.74B, leaving the financial base in a conservative position.

Cash Flow Analysis

Because individual figures from the statement of cash flows are not included in the disclosed information, cash trends are assessed through changes in the balance sheet. Cash and deposits were ¥15.74B, remaining nearly flat compared with ¥15.92B in the prior year. Accounts receivable was ¥14.71B, down 23.9% from ¥19.31B in the prior year, indicating progress in collections. At the same time, accounts payable declined to ¥5.16B from ¥6.98B in the prior year, a decrease of 26.0%, potentially indicating an earlier cash outflow due to the reduction of trade payables. Inventories declined to ¥8.49B from ¥9.41B in the prior year, suggesting a modest reduction in inventory levels. Short-term borrowings increased to ¥1.12B from ¥0.47B in the prior year, an increase of 139.8%, indicating that part of working capital may have been supplemented through short-term financing. Total assets were ¥96.27B, down 3.6% from ¥99.82B in the prior year, indicating that the balance sheet is moving toward a smaller asset base accompanied by higher profitability.

Quality of Earnings

Current-period earnings were primarily driven by an improvement in recurring operating income, with limited contributions from temporary factors. Non-operating income of ¥0.45B represented approximately 2.0% of revenue and approximately 21% of ordinary income, with dividend income of ¥0.25B being the largest component. Meanwhile, non-operating expenses of ¥0.15B were primarily attributable to foreign exchange losses of ¥0.11B, indicating that foreign exchange movements have a certain impact on earnings. Extraordinary gains and losses consisted of a gain on the sale of investment securities of ¥0.17B and business structure reform expenses of ¥0.05B. The net gain of +¥0.12B was equivalent to approximately 9% of consolidated net income of ¥1.43B, indicating a high degree of dependence on core earnings. The product warranty provision was ¥1.42B, or 6.2% of revenue. Although this was slightly lower than the prior year (¥1.396B, or 6.4% of revenue), it remains high, making trends in quality-related costs an important factor in assessing future earnings quality. In addition, the high levels of accounts receivable and inventories relative to revenue require monitoring to determine the extent to which the improvement in accounting earnings is followed by cash conversion.

Earnings Forecast and Guidance

Progress against the full-year plan was 22.7% for revenue (¥22.92B/¥101.00B), 22.4% for operating income (¥1.81B/¥8.10B), 26.2% for ordinary income (¥2.12B/¥8.10B), and 24.6% for net income attributable to owners of the parent (¥1.18B/¥4.80B). These figures are broadly consistent with the 25% benchmark for even quarterly progress, with no notable upside or downside variance. The full-year operating margin plan is approximately 8.0% (¥8.10B/¥101.00B), nearly the same level as the 7.9% recorded in the first quarter, suggesting that the profitability improvement observed during the period is incorporated into the assumptions underlying the full-year plan. Neither the earnings forecast nor the dividend forecast was revised as of the end of the quarter.

Shareholder Returns

The full-year dividend forecast announced by the Company is ¥49 per share, including a special dividend of ¥10 in the interim dividend. Based on the effective share count of approximately 43,805 thousand shares, calculated by deducting 3,112 thousand treasury shares from 46,917 thousand issued shares, total annual dividends are estimated at approximately ¥2.15B. This implies a payout ratio of approximately 44.7% against the full-year net income forecast of ¥4.80B attributable to owners of the parent. Given the conservative financial base, including cash and deposits of ¥15.74B and an equity ratio of 71.3%, the Company appears to have sufficient capacity to pay its regular dividend. As the current dividend forecast includes a special dividend, its sustainability should be assessed by distinguishing between the regular and special dividends.

Risk Factors

1. Persistently high quality assurance costs: The product warranty provision was ¥1.42B, or 6.2% of revenue (¥1.396B in the prior year, or 6.4% of revenue). Although it improved slightly, it remains high, and trends in the claim incidence rate could affect the sustainability of the operating margin.

2. Foreign exchange sensitivity of the overseas business: Revenue from the Overseas Measurement and Control Business was ¥8.68B, accounting for 37.9% of total revenue, and the Company recorded a foreign exchange loss of ¥0.11B during the period. Given the high proportion of overseas revenue, fluctuations in foreign exchange rates are likely to affect earnings.

3. High working capital levels: Accounts receivable of ¥14.71B (64.1% of revenue) and inventories of ¥8.49B (37.0% of revenue) both remain high relative to revenue. If collections or inventory liquidation are delayed, the timing of cash conversion may diverge from earnings growth.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s operating margin and net income margin are both slightly below the industry median but remain within the IQR.

Growth and Capital Efficiency

Although the revenue growth rate is below the industry median, it falls within the IQR and is not extremely low relative to peers.

※Source: Company compilation

Key Takeaways from the Earnings Results

1. The improvement in the gross profit margin to 28.3% (+4.1pt from 24.2% in the prior year) was the starting point for the earnings growth, while the margin of the Domestic Measurement and Control Business also increased to 9.1% (+3.1pt from 6.0% in the prior year). It will be important to determine in subsequent quarters whether this profitability improvement reflects structural changes arising from the product mix and pricing initiatives or temporary factors.

2. Although revenue in the Overseas Measurement and Control Business was nearly flat (YoY -0.3%), operating income increased YoY +201.3% and the margin improved sharply to 5.3% (1.8% in the prior year). The margin gap with the domestic business (9.1%) remains substantial, and the sustainability of improved overseas profitability will be an indicator of the potential upside in the company-wide margin.

3. Full-year progress was 22.7% for revenue, 22.4% for operating income, 26.2% for ordinary income, and 24.6% for net income, broadly consistent with even quarterly progress (25% benchmark). The fact that the first-quarter improvement in profitability is consistent with the full-year operating margin assumption of approximately 8.0% indicates that the plan’s underlying assumptions are not materially divergent from actual performance.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥1,433–¥1,515 at ±1% in the cost of equity, and ¥1,470–¥1,475 at ω±0.1.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / 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 release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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