Osaki Electric Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥45.43B
• Operating Income: ¥1.88B
• Net Income: ¥807M
• 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

Osaki Electric Co., Ltd. (TSE: 6644) reported FY2026 Q2 consolidated results under JGAAP with steady top-line growth and stronger profit leverage. Revenue rose 2.2% year over year to ¥45.4bn, while operating income increased 8.7% to ¥1.88bn, indicating margin improvement from cost control and/or mix benefits. Gross profit was ¥10.53bn, implying a gross margin of 23.2%, which supports the uptick in operating profitability. Ordinary income was ¥1.87bn, broadly in line with operating income, suggesting limited non-operating gains or losses aside from interest expense. Net income increased 21.3% to ¥0.69bn, with net margin of 1.53%, reflecting improved earnings conversion despite still modest bottom-line margins. DuPont analysis shows ROE at 1.11%, driven by a low net margin (1.53%), moderate asset turnover (0.479x), and moderate financial leverage (1.52x). Operating margin improved to approximately 4.1%, indicating positive operating leverage as profit growth outpaced revenue growth. Liquidity remains strong with a current ratio of 203.6% and quick ratio of 159.5%, backed by ¥30.3bn in working capital. The capital structure appears conservative; total liabilities of ¥37.2bn versus equity of ¥62.5bn imply a debt-to-equity ratio of 0.59x and an estimated equity ratio of roughly 65.9% (equity/total assets). Interest coverage stands at a comfortable 12.2x, underpinned by ¥1.88bn operating income versus ¥0.15bn interest expense. Cash flow statements are undisclosed in the dataset (reported as zero), so operating cash flow and free cash flow cannot be assessed. Depreciation and amortization are also undisclosed, so EBITDA and non-cash earnings quality cannot be directly evaluated from the provided figures. Dividend data show DPS and payout as zero in this dataset; given mid-year timing and disclosure gaps, these should be treated as unreported rather than actual zeros. Overall, results indicate incremental revenue growth, better operating efficiency, and solid balance sheet strength, while bottom-line margins remain thin. The absence of cash flow data limits assessment of earnings quality and dividend coverage. Inventory of ¥12.9bn is a notable component of current assets, and its evolution will be important for working capital intensity. Given the company’s business profile in meters/energy management, order timing and utility capex cycles likely influence quarterly variability, reinforcing the need to monitor order backlog and delivery schedules. Data limitations (cash flows, D&A, share data) constrain a full per-share and cash-based assessment, but available metrics point to improved profitability with conservative financial risk.

Profitability Analysis

ROE is 1.11%, decomposed as Net Profit Margin 1.53% × Asset Turnover 0.479 × Financial Leverage 1.52. The primary drag on ROE is the low net margin, despite acceptable asset efficiency and moderate leverage. Gross margin is 23.2% (¥10.526bn/¥45.429bn), evidencing reasonable manufacturing/service spreads. Operating margin is approximately 4.1% (¥1.88bn/¥45.429bn), up versus revenue growth (+8.7% OI vs +2.2% sales), indicating positive operating leverage from cost discipline and/or mix improvements. Ordinary margin is about 4.1% (¥1.865bn/¥45.429bn), showing limited non-operating distortions; interest expense of ¥154m is manageable. Net margin of 1.53% remains thin, suggesting taxes and below-the-line items compress bottom-line conversion. The effective tax burden, based on non-zero items, is approximately 34.7% (¥647m tax / ¥1,865m pre-tax), despite a 0.0% placeholder in the calculated metrics. With D&A undisclosed, EBITDA-based margins cannot be assessed; however, interest coverage of 12.2x implies the operating base is resilient against financing costs. Overall, margin quality improved at the operating level, but the company still exhibits modest net profitability, keeping ROE subdued.

Growth Assessment

Revenue grew 2.2% YoY to ¥45.4bn, indicating stable demand, likely reflecting steady meter/AMI orders and service activity. Operating income grew 8.7% YoY to ¥1.88bn, outpacing sales and pointing to favorable cost control, scale benefits, or product/service mix improvement. Net income increased 21.3% to ¥0.69bn, implying better below-OP performance and/or normalized tax effects versus the prior year. The operating margin expanded to roughly 4.1%, a positive sign for structural profitability. Given the industry’s order-cycle nature, incremental growth likely hinges on utility investment timing, overseas projects, and product upgrades; quarterly variability should be expected. Sustainability of growth will depend on backlog conversion, pricing power against input inflation (e.g., metals, electronics), and supply chain stability. The thin net margin suggests that further cost optimization or higher value-added solutions are key to maintain double-digit profit growth on low single-digit sales growth. Without cash flow data, it is unclear whether profit growth is matched by cash generation; working capital requirements (notably inventories) will influence growth quality. Outlook-wise, improved operating leverage supports cautious optimism, but maintaining momentum likely requires continued mix enhancement and disciplined SG&A. Monitoring YoY order intake and book-to-bill will be critical to validate revenue sustainability into 2H.

Financial Health

Total assets are ¥94.9bn, liabilities ¥37.2bn, and equity ¥62.5bn, implying an equity ratio of ~65.9% (equity/assets) and debt-to-equity of 0.59x, indicative of a conservative balance sheet. Liquidity is strong: current assets ¥59.5bn versus current liabilities ¥29.2bn yields a current ratio of 203.6% and quick ratio of 159.5%. Working capital stands at ¥30.3bn, providing ample buffer for project execution and inventory cycles. Interest expense is ¥154m with operating income of ¥1.88bn, resulting in interest coverage of 12.2x, supporting solvency. The asset turnover of 0.479x is moderate; efficient asset use will be important to enhance returns without increasing leverage. The reported equity ratio of 0.0% in the dataset appears unreported; using disclosed balance sheet figures provides a more realistic solvency picture. Overall, liquidity and capitalization are robust, giving capacity to weather order timing swings and support investment needs.

Cash Flow Quality

Operating, investing, and financing cash flows are undisclosed in this dataset (reported as zero), so direct assessment of earnings-to-cash conversion is not possible. As a proxy, the presence of sizeable working capital (¥30.3bn) and inventories (¥12.9bn) suggests cash generation could be sensitive to order delivery timing and component procurement. Using period data, COGS is ¥33.9bn for H1; annualizing for a rough proxy implies inventory turnover on the order of ~5.3x and ~69 days on hand, but this relies on assumptions (no average inventory provided) and should be treated cautiously. With D&A not disclosed, we cannot separate cash and non-cash components of earnings, limiting EBITDA and OCF analysis. Free cash flow cannot be calculated without OCF and capex; thus, the OCF/NI ratio and FCF in the calculated metrics should be treated as not available rather than true zeros. Overall, cash flow quality is indeterminate from the provided data; future disclosures of OCF, capex, and working capital movements are essential to validate earnings quality.

Dividend Sustainability

Dividend per share and payout ratio are shown as zero in the dataset, which should be interpreted as undisclosed for the period rather than actual zero payouts. Without OCF and capex, FCF coverage of dividends cannot be evaluated. Based on earnings, interim payout capacity exists but is constrained by still modest net margin (1.53%) and low ROE (1.11%). The strong balance sheet and liquidity suggest capacity to maintain a stable dividend policy if one is in place, but confirmation requires actual DPS guidance and cash flow data. Absent cash flow disclosure, we cannot assess sustainability through FCF coverage or net income payout lenses. We recommend monitoring management guidance on annual DPS, interim distributions, and capital allocation priorities into 2H.

Risk Assessment

Business Risks:

• Order timing and backlog conversion risk tied to utility and infrastructure investment cycles
• Pricing power risk versus input cost inflation for components and raw materials
• Supply chain and lead-time disruptions affecting deliveries and inventory levels
• Project execution risk in complex AMI/solutions deployments
• Competition and commoditization risk in metering hardware impacting margins

Financial Risks:

• Earnings sensitivity to working capital swings given inventory intensity
• Foreign exchange exposure (if overseas operations) affecting costs and margins
• Tax rate variability impacting thin net margins
• Potential capex requirements not visible due to undisclosed cash flow and D&A data

Key Concerns:

• Low net profit margin (1.53%) constrains ROE despite balance sheet strength
• Lack of cash flow disclosure prevents assessment of earnings quality and dividend coverage
• Dependence on order intake/backlog to sustain growth with limited sales momentum (+2.2% YoY)

Investment Implications

Key Takeaways:

• Revenue growth was modest (+2.2% YoY) but profits leveraged positively (+8.7% OI, +21.3% NI)
• Operating margin improved to ~4.1%, while net margin remains thin at 1.53%
• ROE is low at 1.11%, constrained by net margins, not leverage or asset efficiency
• Balance sheet is strong with an estimated equity ratio ~65.9% and current ratio ~204%
• Interest coverage of 12.2x indicates low refinancing pressure and healthy solvency
• Cash flow metrics are undisclosed; FCF and OCF cannot be assessed from provided data
• Inventory and working capital levels are material, implying cash conversion sensitivity

Metrics to Watch:

• Order backlog and book-to-bill ratio to gauge revenue sustainability
• Operating cash flow, capex, and free cash flow for earnings quality
• Gross and operating margin trends versus input costs and product mix
• Inventory levels and turns; days working capital
• Net leverage and interest coverage under different rate scenarios
• Effective tax rate normalization in 2H

Relative Positioning: Financially conservative with strong liquidity and capitalization versus many industrial peers, but with structurally thinner net margins and low ROE; near-term improvement hinges on continued operating leverage and mix, while validation requires cash flow delivery.

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