Oki Electric Industry Company,Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥179.40B
• Operating Income: ¥1.21B
• Net Income: ¥2.39B
• 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

Oki Electric Industry (6703) reported FY2026 Q2 consolidated results under JGAAP showing a sharp profit contraction despite a still-solid gross margin base. Revenue declined 9.2% year over year to ¥179.4bn, reflecting softer demand or project timing effects across key businesses. Gross profit of ¥50.8bn implies a gross margin of 28.3%, suggesting product and service pricing and mix remain resilient at the contribution level. Operating income fell 80.4% YoY to ¥1.2bn, compressing operating margin to 0.7%, indicating significant operating deleverage and/or higher SG&A, R&D, or one-off costs. Ordinary income was ¥0.9bn and net income ¥0.6bn, with net margin at 0.33%, pointing to thin bottom-line profitability. DuPont metrics indicate ROE of 0.40%, driven by a very low net profit margin (0.33%), modest asset turnover (0.456x), and relatively high financial leverage (2.70x). The interest coverage ratio of about 1.1x (operating income to interest expense) is tight and underscores limited headroom if earnings softness persists. Liquidity appears adequate with a current ratio of 138.9% and working capital of ¥64.9bn, though the quick ratio equals the current ratio due to undisclosed inventories, which may overstate immediate liquidity. Operating cash flow was strong at ¥15.4bn relative to net income (OCF/NI of 26.2x), suggesting earnings quality in this period benefited from favorable working-capital movements or non-cash items. Investment cash flows were not disclosed, so free cash flow cannot be determined despite a reported figure of zero. The capital structure shows liabilities of ¥265.2bn against equity of ¥145.5bn, implying a debt-to-equity ratio of 1.82x and leverage that amplifies earnings volatility. Dividend payments are not indicated for the period (DPS ¥0, payout 0%), consistent with the subdued profit base and the need to preserve balance sheet flexibility. Management’s ability to stabilize operating margins and maintain interest coverage above 1.5–2.0x will be important near-term priorities. Revenue softness coupled with margin compression signals a need for cost discipline and mix improvement in higher-margin segments. Data limitations are notable (e.g., inventories, cash and equivalents, investing cash flows, share data), so conclusions focus on the disclosed non-zero items. Overall, the company remains profitable but with a narrow cushion, and near-term focus should be on restoring operating leverage while safeguarding liquidity.

Profitability Analysis

roe_decomposition: ROE 0.40% = Net margin 0.33% × Asset turnover 0.456 × Financial leverage 2.70. The primary drag is the exceptionally low net margin; leverage provides some support but cannot compensate for margin compression. margin_quality: Gross margin of 28.3% is healthy, indicating pricing/mix at the gross level is intact. However, operating margin is only 0.7%, implying elevated SG&A/R&D or project-specific cost overruns. Ordinary margin is ~0.5% and net margin 0.33%, reflecting financing costs and below-the-line items. operating_leverage: A 9.2% revenue decline coincided with an 80.4% drop in operating income, evidencing high operating leverage and limited variable-cost flexibility in the short term. Stabilizing volumes and tighter cost control are required to rebuild margin.

Growth Assessment

revenue_sustainability: Revenue of ¥179.4bn declined 9.2% YoY, suggesting demand moderation, order delays, or a less favorable project mix. Sustainability will hinge on backlog conversion and recovery in core customers and public-sector/enterprise spending. profit_quality: Despite weak GAAP profit, OCF was ¥15.4bn with an OCF/NI ratio of 26.2x, indicating strong cash conversion this period, likely aided by working-capital release and non-cash charges (e.g., ¥7.2bn depreciation). Durability of this cash conversion is uncertain without inventory and receivables details. outlook: Near-term growth depends on stabilizing end-market demand and executing on higher-margin projects to restore operating leverage. With tight interest coverage, incremental profit improvement should prioritize cost containment and pricing discipline. Recovery potential exists if revenue normalizes, but margin sensitivity remains high.

Financial Health

liquidity: Current assets ¥231.9bn vs. current liabilities ¥167.0bn imply a current ratio of 138.9% and working capital of ¥64.9bn. Quick ratio equals current ratio due to undisclosed inventories, which may overstate true quick liquidity. Cash and equivalents are not disclosed. solvency: Total liabilities ¥265.2bn vs. equity ¥145.5bn yield a debt-to-equity ratio of 1.82x and financial leverage of 2.70x. Interest expense was ¥1.11bn against operating income of ¥1.21bn, leaving interest coverage near 1.1x, a thin cushion that heightens sensitivity to earnings volatility. capital_structure: Equity represents approximately 37% of total assets based on liabilities and equity amounts, though the reported equity ratio was not disclosed. The structure is moderately leveraged, which can enhance ROE in upcycles but increases downside risk when margins compress.

Cash Flow Quality

earnings_quality: OCF of ¥15.4bn versus net income of ¥0.6bn (26.2x) suggests high cash conversion driven by working-capital inflows and non-cash expenses (depreciation ¥7.2bn). This indicates earnings understatement relative to cash this period, but sustainability is unclear without more detail. fcf_analysis: Investing cash flows were not disclosed; therefore, true free cash flow cannot be calculated. The reported FCF of zero should be treated as ‘not available’ rather than economically zero. working_capital: Positive OCF likely reflects improvements in receivables, payables, or project advances; inventories are undisclosed, limiting a granular assessment. Monitoring receivable days, payable terms, and backlog billing will be important to validate repeatability.

Dividend Sustainability

payout_ratio_assessment: DPS is ¥0 with a payout ratio of 0%, consistent with constrained earnings (net margin 0.33%) and the need to prioritize balance sheet resilience. fcf_coverage: FCF coverage cannot be assessed due to undisclosed investing cash flows; the displayed 0.00x should not be interpreted as actual coverage. policy_outlook: With interest coverage near 1.1x and elevated leverage, a conservative dividend stance is prudent until operating margins normalize and sustainable FCF is demonstrable.

Risk Assessment

Business Risks:

• Revenue volatility from project timing and order intake in enterprise/public sectors
• High operating leverage leading to outsized profit swings on modest volume changes
• Pricing pressure and mix shifts reducing operating margin despite stable gross margin
• Supply chain or component cost variability impacting cost of sales
• Execution risk on large, complex systems or infrastructure projects

Financial Risks:

• Tight interest coverage (~1.1x) amid elevated leverage (D/E 1.82x)
• Refinancing and interest rate risk given recurring interest expense of ¥1.11bn
• Working-capital dependency to support OCF; potential reversal could weaken cash generation
• Limited visibility on cash balances and investing cash needs due to nondisclosure

Key Concerns:

• Sustained operating margin below 1% leaves minimal buffer against shocks
• Earnings dependence on favorable working-capital movements
• Data gaps (inventories, cash, investing CF) constrain full assessment of liquidity and FCF

Investment Implications

Key Takeaways:

• Revenue down 9.2% YoY with operating income down 80.4% indicates pronounced operating deleverage
• Gross margin remains solid at 28.3%, but SG&A/R&D or project costs weigh on operating margin (0.7%)
• ROE is low at 0.40% due to thin net margin (0.33%) despite leverage (2.70x)
• Interest coverage is tight at ~1.1x, increasing sensitivity to earnings volatility
• OCF strong at ¥15.4bn (26.2x net income), but sustainability uncertain without working-capital details
• Liquidity adequate by current ratio, though quick liquidity may be overstated due to undisclosed inventories

Metrics to Watch:

• Order intake/backlog and revenue run-rate to gauge recovery
• Operating margin trajectory and SG&A efficiency
• Interest coverage (EBIT/interest) and absolute interest expense trend
• Working-capital metrics (DSO, DPO, inventory turns) and OCF consistency
• Capital expenditure and investing cash flows to establish true FCF
• Leverage ratios (net debt/EBITDA if available) and equity ratio disclosure

Relative Positioning: Within Japan’s electronics and ICT equipment/solutions peers, Oki currently exhibits weaker profitability (sub-1% operating margin, low ROE) and tighter interest coverage, partially offset by acceptable short-term liquidity and a respectable gross margin base that could support recovery if operating costs are realigned.

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
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