Oki Electric Industry Company,Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥179.40B
• Operating Income: ¥1.21B
• Net Income: ¥596M
• EPS: ¥6.77

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: Weak quarter with sharp profit compression despite positive operating cash flow. Revenue declined 9.2% YoY to 1,793.96, while operating income fell 80.4% YoY to 12.07 and net income decreased 75.3% to 5.87. Gross profit was 434.96, implying a gross margin of 24.2%, but SG&A of 422.88 consumed nearly all gross profit, leaving operating margin at 0.7%. Non-operating income of 20.09 (notably dividend income 8.65 and interest income 5.57) was more than offset by non-operating expenses of 23.64 (including interest expense 9.37), pulling ordinary income down to 8.53. Operating margin compressed by approximately 244 bps YoY to 0.7%, ordinary margin compressed by ~178 bps to 0.5%, and net margin compressed by ~87 bps to 0.3%. EBITDA was 88.15 (margin 4.9%), but interest coverage was only 1.29x, flagging debt service stress. Earnings quality appears mixed: OCF of 31.14 exceeded net income by 5.3x, but estimated FCF after capex (-47.50) was negative at roughly -16.36, implying cash outflow after investment needs. Leverage remains elevated with D/E at 1.70x and implied Debt/EBITDA around 11x, increasing sensitivity to rate and refinancing conditions. The effective tax rate was high at 54.7% due to low pre-tax income, a headwind to bottom line that could normalize if profitability recovers. Balance sheet liquidity is adequate with a current ratio of 131.6%, but substantial short-term loans (531.01) introduce rollover risk if cash generation weakens. Total comprehensive income (37.33) materially exceeded net income, suggesting favorable OCI movements (likely securities or FX), but these are non-cash and do not alleviate operating weakness. ROE calculated at 0.4% is very low, driven mainly by margin deterioration despite financial leverage of 2.70x in the DuPont framework. ROIC at 0.3% is far below the 5% warning threshold, indicating current returns do not cover the cost of capital. Forward-looking, stabilization hinges on SG&A control, mix/pricing improvements to rebuild operating margin, and tighter capital discipline given the weak interest coverage and negative FCF after capex. Investors should monitor order trends, backlog conversion, and any restructuring or cost-down initiatives to support margin repair in 2H.

Profitability Analysis

DuPont decomposition: ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 0.3% × 0.456 × 2.70x ≈ 0.4% (matches reported). The biggest driver of ROE deterioration this quarter is the collapse in net profit margin, with operating margin dropping to ~0.7% and net margin to ~0.3% as SG&A (422.88) nearly matched gross profit (434.96). Asset turnover at 0.456 is modest and likely down slightly with the 9.2% revenue contraction, but the magnitude of change is much smaller than the margin impact. Financial leverage at 2.70x provided limited ROE support and increases risk without compensating returns. Business drivers: soft top line, unfavorable mix/pricing, and insufficient SG&A flexibility compressed operating profit; higher non-operating expenses (interest) and a high effective tax rate further weighed on net margin. Sustainability: margin compression appears cyclical and partly operational; with cost actions and improved mix, some recovery is possible, but current interest burden limits flexibility. Concerning trends: SG&A growth vs revenue is not fully disclosed, but the SG&A level consumed 97% of gross profit, indicating weak operating leverage; interest expense (9.37) nearly eroded EBIT (12.07), leaving thin coverage. Non-operating reliance is unfavorable, with net non-operating a drag despite dividend and interest income.

Growth Assessment

Revenue declined 9.2% YoY to 1,793.96, signaling demand softness or delayed projects. Operating income fell 80.4% to 12.07, indicating severe negative operating leverage. Ordinary and net income declines of 80.9% and 75.3% reinforce broad-based weakness. Current operating margin is 0.7% versus an estimated ~3.1% a year ago, confirming ~244 bps compression. Near-term revenue sustainability is uncertain without visibility on orders/backlog; the large net income drop suggests limited pricing power or execution issues. Profit quality is pressured by interest costs and a high tax rate; OCI boosted total comprehensive income to 37.33 but does not improve cash generation. Outlook: recovery requires margin repair through cost-downs and mix improvement, while maintaining capex discipline given negative FCF after capex; normalization of the effective tax rate would provide incremental net income leverage if pretax income recovers.

Financial Health

Liquidity: Current ratio 131.6% and quick ratio 131.6% indicate adequate short-term liquidity (above 1.0, below the >1.5 comfort benchmark). No warning triggers for CR < 1.0. Solvency: D/E is 1.70x (above conservative 1.5x, but below the 2.0x warning threshold); leverage is elevated. Interest-bearing debt is substantial with short-term loans 531.01 and long-term loans 460.71. Interest coverage at 1.29x is weak and close to stress territory. Maturity mismatch: Short-term loans (531.01) versus cash (289.87) and receivables (874.73) suggests coverage by current assets, but reliance on receivable collections and refinancing remains high if OCF weakens. Off-balance sheet: Not disclosed; no assessment possible based on available data.

Cash Flow Quality

OCF of 31.14 exceeds net income of 5.87 (OCF/NI = 5.30x), a positive earnings quality signal; however, absent working capital detail, this could reflect timing (receivable collections or payable builds). Estimated FCF is negative at roughly -16.36 when subtracting capex of 47.50 from OCF (other investing flows unreported), implying investment needs outpaced internal cash generation. Dividend cash outflow is unreported; payout ratio (calculated) of 668.6% suggests potential overdistribution relative to earnings, which would not be covered by estimated FCF in the period. No clear signs of manipulation can be asserted without period-to-period working capital breakdown, but the large gap between EBITDA (88.15) and OCF (31.14) indicates working capital absorption or non-cash items affecting cash conversion.

Dividend Sustainability

With net income at 5.87 and a calculated payout ratio of 668.6% (basis not disclosed), distributions appear significantly above earnings capacity. Estimated FCF after capex is negative (-16.36), indicating dividends would not be covered by internally generated cash this period. Leverage and weak interest coverage further constrain financial flexibility. Unless earnings and cash flow recover in 2H or distributions are adjusted, dividend sustainability is at risk. Policy outlook is unclear due to unreported DPS figures; near-term prudence would typically focus on balance sheet stability and debt service.

Risk Assessment

Business Risks:

• Demand softness leading to 9.2% revenue decline and operating deleverage
• Margin pressure as SG&A consumed 97% of gross profit, driving operating margin to 0.7%
• Execution and mix/pricing risk in core businesses affecting gross margin and profitability
• High effective tax rate (54.7%) depressing net income

Financial Risks:

• Weak interest coverage at 1.29x indicating debt service stress
• Elevated leverage (D/E 1.70x) with implied Debt/EBITDA ~11x
• Negative estimated FCF after capex, increasing reliance on debt or cash reserves
• Short-term loans of 531.01 create refinancing/rollover risk if cash flows deteriorate

Key Concerns:

• ROIC at 0.3% is well below cost of capital, indicating value dilution
• Net non-operating expenses offsetting operating gains despite dividend/interest income
• Earnings volatility risk if revenue does not stabilize in 2H
• Data gaps (inventories, detailed SG&A, investing CF) limit full assessment

Investment Implications

Key Takeaways:

• Severe profit compression: operating margin down ~244 bps YoY to 0.7%
• OCF positive but estimated FCF negative after capex, limiting financial flexibility
• Interest coverage at 1.29x and D/E 1.70x elevate balance sheet risk
• ROE 0.4% and ROIC 0.3% reflect inadequate returns; margin repair is essential
• Total comprehensive income uplift is OCI-driven and not a substitute for operating recovery

Metrics to Watch:

• Order intake and backlog conversion to support revenue stabilization
• Gross margin and SG&A trajectory (operating margin recovery toward >2-3%)
• Interest coverage trend and debt maturity profile/refinancing activity
• Working capital turns (AR collections, payables) and OCF-to-EBITDA conversion
• Capex discipline and FCF coverage of dividends

Relative Positioning: Within Japanese electronics/equipment peers, OKI's profitability and returns are currently at the low end, with higher leverage and weaker interest coverage than comfort benchmarks; recovery depends on executing cost controls and restoring margin while maintaining liquidity.

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