Obara Group Incorporated FY2025 Q4 Earnings Report

Financial Highlights

• Net Sales: ¥61.68B
• Operating Income: ¥9.70B
• Net Income: ¥6.98B
• EPS: ¥424.90

Income Statement

Balance Sheet

Cash Flow Statement

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

OBARA GROUP Co., Ltd. (TSE: 6877) delivered a solid FY2025 performance with revenue of ¥61.7bn, up 9.4% YoY, supported by healthy operating leverage that lifted operating income by 5.5% to ¥9.7bn. Gross profit reached ¥17.9bn, implying a gross margin of 29.1%, while operating margin remained strong at 15.7%, indicative of disciplined cost control despite input cost and FX volatility typical in capital goods. Ordinary income was ¥10.2bn and net income was ¥6.76bn, up 0.6% YoY, suggesting some pressure below the operating line, possibly from non-operating items or a normalized tax burden. DuPont decomposition indicates ROE of 9.05%, driven primarily by a healthy 10.96% net margin and modest asset turnover of 0.594x, with conservative financial leverage of 1.39x. Liquidity is robust: current assets of ¥79.8bn versus current liabilities of ¥15.7bn produce a current ratio of 510% and a quick ratio of 463%, underscoring strong short-term coverage. The balance sheet is conservative with total liabilities of ¥27.0bn against equity of ¥74.7bn (liabilities/equity of 0.36x), implying an equity ratio around 72% based on available figures, despite the reported equity ratio being unreported in XBRL. Operating cash flow was ¥5.11bn, below net income (OCF/NI of 0.76), indicating a working capital build or timing effects that dampened cash conversion this year. Investing cash outflows were significant at ¥18.5bn, likely reflecting elevated capex or strategic investments/M&A, resulting in negative free cash flow of ¥13.4bn. Financing outflows of ¥6.10bn point to shareholder returns or debt reduction, though dividends per share were not disclosed in the dataset. Interest expense is de minimis at ¥23m, yielding interest coverage of about 422x, consistent with the low-risk balance sheet. Based on net income of ¥6.76bn and income tax of ¥3.07bn, the implied effective tax rate is roughly 31%, even though an effective tax rate is not reported in the summary metrics. Overall profitability remains resilient, but the weaker cash conversion and heavy investment outlays are key watch points for near-term free cash flow. The company’s end-market exposure likely includes autos and precision manufacturing, implying cyclical order patterns; nevertheless, the strong liquidity and low leverage provide ample buffer. Data limitations exist—several items such as depreciation, cash balances, and dividends are unreported—so conclusions rely on available non-zero data points and inferred ratios.

Profitability Analysis

ROE of 9.05% reflects: Net margin 10.96% × Asset turnover 0.594 × Financial leverage 1.39. Gross margin is 29.1%, operating margin is about 15.7% (¥9.70bn/¥61.68bn), and ordinary margin about 16.5% (¥10.18bn/¥61.68bn). Margin structure indicates solid pricing and cost pass-through, consistent with specialized capital goods. Operating leverage appears positive YoY, with revenue up 9.4% and operating income up 5.5%; the smaller delta suggests some cost inflation or mix effects that constrained incremental margins. Net income grew 0.6% YoY, lagging operating income, indicating pressure from non-operating items, FX, or tax normalization. Interest expense is negligible (¥23m), so financing costs do not materially affect profitability. The implied effective tax rate is ~31% (tax ¥3.07bn on pre-tax ~¥9.84bn), suggesting normalized taxation versus prior periods. Low financial leverage (assets/equity 1.39x) limits ROE expansion from gearing; ROE is mainly margin- and turnover-driven. Asset turnover at 0.594x is typical for equipment suppliers but leaves room for improvement via faster inventory turns or asset-light growth. Absence of reported depreciation means EBITDA-based metrics are not available; analysis centers on operating and net margins.

Growth Assessment

Top-line growth of 9.4% YoY to ¥61.7bn implies healthy demand across core end-markets. Operating income growth of 5.5% indicates positive but moderating operating leverage, possibly due to product mix, input costs, or incremental SG&A to support growth. Net income growth of 0.6% suggests normalization below the operating line, potentially from FX swings or higher tax burden. Revenue sustainability will depend on order intake/book-to-bill and capex cycles in automotive and industrial customers; no order data is provided, so visibility is limited. Gross margin at 29.1% remains supportive of profit quality, but the OCF/NI ratio of 0.76 hints at working capital absorption accompanying growth. Ordinary income outpacing operating income suggests benign non-operating items this year; however, this may not be recurring. Outlook hinges on the pace of customer capex, FX (USD/JPY, EUR/JPY), and the timing of large projects; investments seen in the substantial investing outflows could support medium-term growth capacity and product competitiveness. Near term, watch for normalization of working capital and the conversion of earnings to cash.

Financial Health

Total assets are ¥103.83bn and equity is ¥74.68bn, implying an equity ratio around 72% (computed from available figures), despite the reported figure being unreported. Total liabilities of ¥27.01bn yield a liabilities/equity ratio of 0.36x, indicating low balance sheet risk. Liquidity is strong: current assets of ¥79.81bn versus current liabilities of ¥15.65bn produce a current ratio of 509.9% and a quick ratio of 463.4%. Inventories are ¥7.29bn, modest relative to total current assets, supporting the high quick ratio. Working capital is ample at ¥64.16bn, providing capacity to absorb operating volatility. Interest expense is only ¥23m, and interest coverage is ~422x, underscoring minimal refinancing risk. While cash and equivalents are not disclosed in the dataset, the scale of current assets suggests a healthy liquidity cushion. Overall solvency and liquidity positions are very strong.

Cash Flow Quality

Operating cash flow of ¥5.11bn versus net income of ¥6.76bn yields OCF/NI of 0.76, indicating weaker cash conversion likely due to working capital build (e.g., higher receivables or project WIP) or timing of collections. Free cash flow is negative at ¥-13.41bn, driven by substantial investing outflows of ¥-18.52bn; this likely reflects elevated capex or strategic investments/M&A rather than operational deterioration. Financing cash flow is ¥-6.10bn, consistent with shareholder returns and/or debt repayment; precise breakdown is not provided. The quality of earnings remains acceptable given strong operating margins, but sustained improvement requires normalization of working capital and moderation of investment cash outflows. Absence of depreciation disclosure limits assessment of non-cash earnings components; EBITDA-related diagnostics cannot be performed. Monitoring cash conversion cycles (DSO/DIO/DPO) and capex discipline will be key to validating earnings quality.

Dividend Sustainability

Dividend data (DPS and payout ratio) are not disclosed in the dataset, so payout analysis cannot be determined from XBRL. EPS is ¥424.90, which would support capacity for dividends in a normal year; however, FY2025 free cash flow is negative (¥-13.41bn) due to heavy investing outflows, implying that any dividends would need to be funded by existing liquidity. Operating cash flow of ¥5.11bn provides partial coverage of potential distributions but not of elevated capex levels. Financing outflows of ¥-6.10bn may include dividends or buybacks, but the split is unknown. With a strong balance sheet and low leverage, the company appears to have flexibility, yet sustaining higher payouts amid negative FCF would hinge on near-term recovery of cash conversion and normalization of investment spend. Policy clarity (target payout ratio and flexibility across cycles) is a key watch point.

Risk Assessment

Business Risks:

• Exposure to cyclical capex in automotive and industrial end-markets, impacting order intake and utilization
• FX volatility (USD/JPY, EUR/JPY) affecting both revenue translation and cost base
• Raw material and component cost inflation potentially pressuring gross margins
• Project timing and acceptance risk, which can drive working capital swings
• Competitive pressure in welding/equipment niches leading to pricing concessions
• Supply chain constraints that can delay deliveries and revenue recognition

Financial Risks:

• Weaker cash conversion (OCF/NI 0.76) indicating working capital absorption
• Negative free cash flow (¥-13.41bn) due to elevated investing outflows; reliance on liquidity for shareholder returns
• Potential capex or M&A execution risk if large investments do not translate into returns
• Tax rate variability (implied ~31%) impacting net income predictability

Key Concerns:

• Sustainability of cash generation given working capital build
• Scale and returns of current investment program driving negative FCF
• Sensitivity of orders to macro and auto cycle

Investment Implications

Key Takeaways:

• Solid top-line growth (+9.4% YoY) with resilient operating margin (~15.7%) and net margin (10.96%)
• ROE of 9.05% primarily margin- and turnover-driven; low leverage limits gearing upside
• Exceptional liquidity (current ratio ~510%, quick ratio ~463%) and low liabilities/equity (0.36x)
• Cash conversion softer (OCF/NI 0.76) with significant investing outflows driving negative FCF
• Interest burden de minimis (coverage ~422x), reducing solvency risk
• Implied effective tax rate ~31%, normalizing below-the-line effects

Metrics to Watch:

• Order intake and book-to-bill to gauge revenue visibility
• OCF/NI ratio and working capital turns (DSO, DIO, DPO)
• Capex intensity and investing cash flow trajectory
• Gross and operating margin trends amid input cost and FX moves
• Inventory levels and inventory turnover
• Shareholder return policy (payout ratio, buyback cadence) and its linkage to FCF

Relative Positioning: Within Japanese capital goods/equipment peers, OBARA GROUP exhibits above-average margins and very strong liquidity with low leverage; the current differentiator is elevated investment outflows and softer cash conversion, making near-term FCF a focal point versus peers with steadier cash yields.

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