OPTEX GROUP Company,Limited FY2026 Q2 Earnings Report

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Executive Summary

FY2026 Q2 resulted in higher revenue and higher earnings, representing a high-quality quarter accompanied by improved margins. Revenue was ¥36.65B (+20.8% YoY), Operating Income was ¥5.50B (+50.7%), Ordinary Income was ¥5.82B (+82.4%), and Net Income was ¥4.20B (+39.8%), securing double-digit growth across all indicators. The primary drivers of earnings growth were higher revenue in both the Sensing Solution and Industrial Automation businesses, together with the emergence of operating leverage due to a decline in the SG&A ratio (39.0%, versus 40.9% in the previous year); foreign exchange gains of ¥0.22B also boosted income at the ordinary income level.

Factors Affecting Performance

【Revenue】Revenue was ¥36.65B, up +20.8% YoY. By segment, the core Industrial Automation business generated ¥18.81B (+23.2%), Sensing Solution generated ¥17.52B (+17.8%), and ElectronicsManufacturingService generated ¥3.22B (+16.6%), with all segments recording revenue growth. IA benefited from a recovery in demand related to inspection lighting and factory automation, while SS was driven by growth in security-related and automatic door-related businesses.

【Profit and Loss】Operating Income was ¥5.50B (+50.7%), with the gross margin improving to 54.0% (approximately 53.0% in the previous year) and the SG&A ratio declining to 39.0% (40.9% in the previous year), allowing the effect of higher revenue to flow directly through to earnings. By segment, IA recovered sharply to ¥2.61B (+98.2%, margin of 13.9%), while SS made the largest contribution to earnings at ¥3.22B (+21.6%, margin of 18.4%). Ordinary Income was ¥5.82B (+82.4%), supported by non-operating income including foreign exchange gains of ¥0.22B. Net Income was ¥4.20B (+39.8%) despite the recognition of ¥0.09B in extraordinary losses (including impairment losses on investment securities). The period was characterized by higher revenue and higher earnings.

Segment Analysis

Sensing Solution generated the largest segment profit contribution at ¥3.22B (margin of 18.4%, +21.6% YoY), while Industrial Automation stood out for the magnitude of its improvement at ¥2.61B (margin of 13.9%, +98.2%). IA recovered substantially from the low profitability of the previous year (margin of approximately 7.0%), aided by increased demand for inspection lighting and factory automation as well as improved profitability. ElectronicsManufacturingService remained low-profit at ¥0.01B (margin of 0.3%), but improved from the loss-making range of the previous year (△¥0.19B). Overall, the two pillars of SS and IA are driving earnings growth, and the sustainability of IA’s margin improvement will be a key focus going forward.

Key Financial Indicators

【Profitability】The Operating Income margin improved by +3.0pt to 15.0% (12.0% in the previous year), while the Net Income margin expanded by +1.5pt to 11.4% (9.9% in the previous year). Profitability improved through both revenue growth and a lower SG&A ratio.【Cash Quality】Operating Cash Flow (OCF) was ¥5.19B, exceeding Net Income of ¥4.20B. From an accrual perspective, the company’s ability to generate cash supporting earnings remains intact; however, inventories increased by +¥0.92B, indicating that some working capital remains tied up.【Investment Efficiency】ROE was 7.0% under a conservative capital structure with an Equity Ratio of 75.4%, primarily due to an improvement in total asset turnover resulting from higher revenue.【Financial Soundness】The company maintained a high level of financial soundness in terms of both liquidity and capital, with an Equity Ratio of 75.4% (72.4% in the previous year) and cash and deposits of ¥24.46B.

Cash Flow Analysis

Operating Cash Flow was ¥5.19B, up +2.8% YoY and essentially flat, while Net Income increased by +39.8%; consequently, cash flow growth has not kept pace with earnings growth. In terms of working capital, inventories increased by ¥0.92B, while trade receivables decreased by ¥0.60B and trade payables increased by ¥0.19B. The resulting change in working capital constrained OCF growth. Investing Cash Flow represented an outflow of ¥0.68B, of which capital expenditures were ¥0.61B, below depreciation and amortization of ¥0.94B, indicating selective investment. Financing Cash Flow represented an outflow of ¥3.30B, primarily attributable to reductions in short-term borrowings and dividend payments. Free Cash Flow of ¥4.51B (OCF of ¥5.19B + Investing Cash Flow of △¥0.68B) was secured, representing a level sufficient to cover dividends and capital expenditures.

Quality of Earnings

Of Ordinary Income of ¥5.82B, non-operating income of ¥0.38B consisted primarily of foreign exchange gains of ¥0.22B. The fact that core earnings, namely Operating Income of ¥5.50B, were central to the improvement in performance is favorable from an earnings-quality perspective. Extraordinary income was ¥0.00B, versus extraordinary losses of ¥0.09B (including ¥0.02B in losses on disposal or sale of fixed assets and ¥0.02B in impairment losses on investment securities, among others). Compared with the previous year’s extraordinary income, which included gains on the sale of investment securities, dependence on one-time factors has declined. Comprehensive Income was ¥4.83B, exceeding Net Income of ¥4.20B. The main reason for the difference was a positive ¥0.55B in foreign currency translation adjustments, meaning that the valuation of overseas business assets boosted comprehensive income. OCF exceeded Net Income, and earnings support is generally confirmed from an accrual perspective, namely the difference between accounting earnings and cash.

Earnings Forecast and Guidance

The first-half progress rates against the full-year earnings forecasts (Revenue of ¥73.30B, Operating Income of ¥10.50B, and Ordinary Income of ¥10.80B) were 50.0% for Revenue, 52.3% for Operating Income, and 53.9% for Ordinary Income. All are progressing at a pace exceeding the simple half-year benchmark of 50% for the full-year forecasts. The company has not revised either its earnings forecast or dividend forecast; however, given the pace of first-half earnings growth, progress toward achieving the second-half plan can be regarded as favorable.

Shareholder Returns

The first-half dividend was ¥38 per share (¥25 in the same period of the previous year), while the full-year dividend forecast is ¥76 (an increase YoY). Based on first-half Net Income, the Payout Ratio is estimated at approximately 32%, calculated using the average number of shares outstanding during the period of 35,630 thousand shares and total dividends of approximately ¥1.35B (¥38 × number of shares). As no share repurchases have been confirmed, shareholder returns currently consist primarily of dividends. Given cash on hand of ¥24.46B and Free Cash Flow of ¥4.51B, there is little concern regarding dividend sustainability.

Risk Factors

1. Business Environment Dependence Risk: The performance of both the Industrial Automation and Sensing Solution businesses is susceptible to the FA investment cycle and economic conditions affecting public and non-residential investment. Particular attention is required regarding the risk of a backlash following IA’s sharp recovery, with earnings up 98.2% in the previous year.

2. Working Capital Efficiency Risk: Inventories stood at ¥7.41B (an increase YoY), while trade receivables were ¥13.44B, both at high levels. OCF growth (+2.8%) has not kept pace with Net Income growth (+39.8%). If inventory and accounts receivable reductions do not progress, cash generation capacity in the second half may be constrained.

3. Investment Curtailment Risk: Capital expenditures of ¥0.61B were below depreciation and amortization of ¥0.94B, leaving CapEx/depreciation and amortization at approximately 0.65x. If restrained investment continues, it could affect medium-term production capacity and the ability to launch new products.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s Operating Income margin and Net Income margin both substantially exceed the industry median, placing the company in the upper range of the industry.

Growth and Capital Efficiency

Revenue growth was also approximately twice the industry median, placing the company in the upper tier of the industry in terms of growth speed.

※Source: Company analysis

Key Takeaways from the Earnings Results

1. The key feature of these earnings results was that both the gross margin and Operating Income margin improved, while higher revenue in both the SS and IA businesses and positive operating leverage from a lower SG&A ratio lifted core earnings power.

2. The company’s financial position is conservative, with an Equity Ratio of 75.4%, cash and deposits of ¥24.46B, and reductions in short-term borrowings. Full-year progress was also solid, with both revenue and earnings exceeding 50%.

3. On the other hand, the high levels of inventories and trade receivables, together with OCF growth failing to keep pace with Net Income growth, require monitoring when assessing cash generation capacity in the second half.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,853–¥1,962 at Cost of Equity ±1%, and ¥1,901–¥1,915 at ω±0.1.

Notes:

• Goodwill amortization of ¥7.9 per share is added back to earnings (due to its nature as a non-cash expense and to enhance comparability with IFRS companies).
• Net assets as of the quarter-end are used (there is a timing difference versus the full-year forecast).
• As 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 using publicly disclosed data only; 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 responsibility, after consulting with professionals as necessary.

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