Oi Electric (6822) FY2026 Q3 Earnings Report

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Executive Summary

This earnings report shows that revenue growth and improved profitability in the Information and Communications Equipment Manufacturing and Sales Business absorbed the losses in the Network Construction and Maintenance Business, securing higher revenue and earnings. Revenue was ¥200.8B (+8.2% year on year), Operating Income was ¥7.5B (+22.9%), Ordinary Income was ¥6.6B (+20.3%), and net income attributable to owners of the parent was ¥5.9B (+40.4%; the corresponding benchmark growth rate of +69.9% from the GPT analysis is also referenced separately). The operating margin improved to 3.7% from 3.3% in the same period of the previous year, although it remains low in absolute terms. The primary driver of earnings growth was higher revenue and improved margins in the Information and Communications Equipment Manufacturing and Sales segment, while the progress rate of Operating Income against the full-year forecast was 50.2%, below the standard 75%.

Factors Affecting Performance

【Revenue】Revenue was ¥200.8B, representing an 8.2% year-on-year increase. The Information and Communications Equipment Manufacturing and Sales Business was the main growth driver, with revenue from external customers of ¥127.0B (+13.6% year on year), while the Network Construction and Maintenance Business was nearly flat at ¥77.9B (+0.2%). The revenue composition was approximately 63% for the Information and Communications Equipment Manufacturing and Sales Business and approximately 37% for the Network Construction and Maintenance Business.

【Profit and Loss】Operating Income increased 22.9% year on year to ¥7.5B, and the operating margin improved from 3.30% to 3.75%. Segment profit in the Information and Communications Equipment Manufacturing and Sales Business improved to ¥7.7B, with a margin of 6.1%, up from 3.9% in the same period of the previous year. In contrast, the Network Construction and Maintenance Business recorded an operating loss of ¥0.2B, deteriorating from profit of ¥1.6B in the same period of the previous year. Below Operating Income, interest expenses of ¥0.7B and foreign exchange losses of ¥0.7B were incurred, leaving Profit Before Tax at ¥6.5B. An impairment loss of ¥0.1B was recorded as an extraordinary loss, but its scale was small and temporary. Net Income rose 40.4% year on year to ¥5.9B, exceeding the growth in Operating Income, partly due to the low effective tax rate of 8.9%. In conclusion, the Company achieved higher revenue and earnings, but the increase in earnings was almost entirely dependent on a single segment, the Information and Communications Equipment Manufacturing and Sales Business.

Segment Analysis

The Information and Communications Equipment Manufacturing and Sales Business achieved both higher revenue of ¥127.0B (+13.6% year on year) and segment profit of ¥7.7B (+76.5%), together with improved profitability, with its margin rising from 3.9% to 6.1%, thereby driving consolidated earnings. The Network Construction and Maintenance Business was nearly flat in terms of revenue at ¥77.9B (+0.2%), while segment earnings deteriorated by ¥1.8B, from profit of ¥1.6B in the same period of the previous year to a loss of ¥0.2B. Considering the recording of a provision for losses on construction contracts of ¥3.9B and an impairment loss on fixed assets of ¥0.1B, the deterioration in profitability in this segment appears to have resulted from the progress and cost management of construction projects. The increasing dependence of consolidated earnings on the Information and Communications Equipment Manufacturing and Sales Business is a point to monitor in terms of the earnings structure.

Key Financial Indicators

【Profitability】The operating margin improved to 3.7% from 3.3% in the same period of the previous year, the gross margin improved to 21.4% from approximately 20.7%, and the net profit margin improved to 2.8% from 1.8%. However, the EBIT margin remained below 5% at 3.8%. 【Cash Quality】Annualized DSO was 84 days, DIO was 175 days, and CCC was 200 days, all relatively long. Work in progress accounted for 75.4%, indicating a structure in which earnings growth is unlikely to translate directly into cash generation. 【Investment Efficiency】Annualized ROE was 8.1%, with financial leverage making a significant contribution in addition to the net profit margin and total asset turnover. 【Financial Soundness】The Equity Ratio was 36.9% and the current ratio was 156.4%. Interest-bearing debt was primarily short-term borrowings, and the high proportion of short-term liabilities is a point to monitor from a refinancing perspective.

Cash Flow Analysis

Although a cash flow statement was not disclosed, an analysis of funding trends based on changes in the balance sheet shows that cash and deposits were ¥32.6B, down from ¥38.8B at the end of the previous fiscal year. Work in progress increased 86.2% from the end of the previous fiscal year to ¥76.2B, while accounts receivable decreased 22.9% to ¥61.5B. The accumulation of working capital associated with project progress appears to have contributed to the decline in cash. Meanwhile, accounts payable increased 42.1% to ¥34.0B, and short-term borrowings and long-term borrowings (+53.1%) also increased, suggesting that the expansion of working capital was being supplemented through trade liabilities and borrowings. Retained earnings increased 16.3% to ¥38.1B, indicating continued accumulation of net assets through retained earnings. However, from a capital efficiency perspective, the length of the collection cycle for work in progress and accounts receivable remains a key focus.

Quality of Earnings

In terms of recurring earnings power, non-operating expenses totaled ¥1.5B, primarily consisting of interest expenses of ¥0.7B and foreign exchange losses of ¥0.7B, against Operating Income of ¥7.5B, compressing Profit Before Tax to ¥6.5B. Extraordinary losses consisted solely of an impairment loss of ¥0.1B, with a limited impact as a temporary factor. The 40.4% growth in Net Income of ¥5.9B exceeded the 22.9% growth in Operating Income partly because of a decline in the effective tax rate, with the income tax burden reduced compared with the same period of the previous year. Accordingly, it should be noted that the increase included tax-related factors in addition to improved recurring earnings power. From an accrual perspective, the coexistence of a substantial increase in work in progress and a decrease in accounts receivable suggests a possible gap between accrual-based earnings recognition and the timing of cash collection. Comprehensive income was ¥8.1B, exceeding Net Income of ¥5.9B, partly due to the recognition of an unrealized gain of ¥2.1B on valuation differences of securities. This, however, was a factor separate from the earnings power of the core business.

Earnings Forecast and Guidance

The full-year Company forecast is revenue of ¥330.0B (+13.6% year on year), Operating Income of ¥15.0B (+1.0%), Ordinary Income of ¥14.0B (-2.1%), EPS of ¥789.95, and a dividend of ¥70.00. Progress rates for the cumulative period through the current quarter were 60.8% for revenue, 50.2% for Operating Income, and 47.0% for Ordinary Income, all substantially below the standard quarterly progress rate of 75%. The delays in progress for Operating Income and Ordinary Income are particularly notable. The forecast assumes that approximately ¥129.2B in revenue will be recorded in Q4, while Operating Income will be almost flat. The earnings forecast was revised during the current quarter. Going forward, order trends in the Information and Communications Equipment Manufacturing and Sales Business and profitability improvements in the Network Construction and Maintenance Business will be the key factors determining achievement of the full-year forecast.

Shareholder Returns

A Q2 dividend of ¥20.00 per share has already been paid, and the full-year dividend forecast is ¥70.00, implying an expected year-end dividend of ¥50.00 after deducting the interim dividend. There has been no revision to the dividend forecast. The forecast Payout Ratio against full-year forecast EPS of ¥789.95 is approximately 8.9%, a low level, and the dividend remains within the Company’s earnings capacity. While the low Payout Ratio indicates available dividend capacity, the lengthening of working capital cycles, particularly for work in progress and accounts receivable, may delay cash collection. Accordingly, dividend sustainability will depend not only on earnings levels but also on the extent to which earnings are converted into cash.

Risk Factors

1. Deterioration in profitability of the Network Construction and Maintenance Business: The segment recorded a loss of ¥0.2B against revenue of ¥74.8B (+0.2% year on year), deteriorating from profit of ¥1.6B in the same period of the previous year. A provision for losses on construction contracts of ¥3.9B was also recorded, creating a risk that the progress and cost management of construction projects will affect consolidated earnings.

2. Lengthening of the working capital cycle: Annualized DSO, DIO, and CCC were 84 days, 175 days, and 200 days, respectively, while work in progress accounted for 75.4%. The speed at which earnings growth converts into cash generation is relatively slow, making it important to monitor project acceptance and collection status.

3. Dependence on short-term borrowings and foreign exchange sensitivity: Short-term borrowings amounted to ¥55.3B, accounting for approximately 90% of interest-bearing debt. Compared with cash and deposits of ¥32.6B, the Company would have difficulty repaying this debt using cash alone. In addition, the foreign exchange loss of ¥0.7B was equivalent to approximately 8.7% of Operating Income, indicating that foreign exchange fluctuations have a relatively significant impact on Ordinary Income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Return

The Company’s profitability is below the industry median and is relatively uncompetitive within the industry in terms of profitability.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median, indicating that top-line growth is relatively favorable within the industry.

Source: Compiled by the Company

Key Earnings Highlights

1. Revenue increased 8.2%, while Operating Income increased 22.9%, resulting in a 45bp improvement in the operating margin. The primary factor was improved profitability in the Information and Communications Equipment Manufacturing and Sales Business, in contrast to the Network Construction and Maintenance Business falling into the red. This divergence is a key feature of the earnings results.

2. The progress rate of Operating Income against the full-year forecast was 50.2%, substantially below the standard progress rate. The timing of revenue recognition and project profitability in Q4 will be critical to achieving the full-year forecast.

3. The lengthening of the working capital cycle, reflected in a work-in-progress ratio of 75.4% and annualized CCC of 200 days, is a structural characteristic indicating a time lag between earnings growth and cash generation. Trends in capital efficiency going forward will therefore warrant attention.

Theoretical Share Price (Reference Value)

Sensitivity: ¥7,264–¥7,699 at ±1% for the cost of equity, and ¥7,472–¥7,484 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used; there is a timing gap relative to the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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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 discretion and responsibility, after consulting with a professional where necessary.

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