OKAYA ELECTRIC INDUSTRIES (6926) FY2026 Q3 Earnings Report

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Executive Summary

Despite higher revenue, the operating loss widened, with the decline in gross profit margin being the primary cause of deteriorating profitability. Revenue was ¥7.49B (+7.5% YoY), while operating income was ¥-1.31B (worsening from ¥-1.20B in the previous year), ordinary income was ¥-1.29B (compared with ¥-1.17B in the previous year), and net income attributable to owners of the parent was ¥-1.26B (compared with ¥-1.16B in the previous year). The background to the increase in revenue but decline in earnings was that cost of sales increased more than revenue, causing the gross profit margin to decline to 9.6%.

Factors Affecting Performance

【Revenue】Revenue was ¥7.49B, an increase of +7.5% YoY. By segment, Noise Products generated ¥3.31B (44.2% of total), Surge Products ¥2.58B (34.5%), Display Products ¥1.38B (18.4%), and Sensor Products ¥0.22B (2.9%). Although higher sales of capacitor-related products (Noise and Surge) drove the increase in revenue, Display Products, the only profitable business, recorded a year-on-year decline in revenue.

【Profit and Loss】The gross profit margin declined from 11.8% in the same period of the previous year to 9.6%, as the increase in cost of sales (+10.2%) exceeded the increase in revenue (+7.5%). The SG&A ratio improved from the previous year to 27.1%, but could not absorb the decline in gross profit, resulting in an operating profit margin of -17.5%. Dividend income of ¥0.09B was recorded as non-operating income, slightly reducing the ordinary loss; however, even including extraordinary gains and losses (including a ¥0.02B gain on the sale of investment securities), the net loss widened to ¥1.26B. In conclusion, the company recorded higher revenue but lower earnings.

Segment Analysis

Display Products recorded revenue of ¥1.38B (-14.9% YoY) and operating income of ¥0.16B (profit margin of 11.9%), making it the only profitable segment. However, this was down from the profit margin of 17.0% in the same period of the previous year, and the contraction of this earnings pillar is affecting company-wide profitability. Noise Products recorded revenue of ¥3.31B (+10.7% YoY) and an operating loss of ¥0.38B (profit margin of -11.6%), narrowing from the ¥0.47B loss in the previous year. Surge Products recorded revenue of ¥2.58B (corresponding to a +16.3% YoY increase) and an operating loss of ¥0.28B (profit margin of -10.9%), widening from the ¥0.21B loss in the previous year. Sensor Products recorded revenue of ¥0.22B and an operating loss of ¥0.01B (profit margin of -5.4%), representing a narrower loss than in the previous year. The combined loss of the reported segments was ¥0.51B, but company-wide common-cost adjustments amounted to ¥-0.80B, which was the primary factor driving the consolidated operating loss to ¥1.31B.

Key Financial Indicators

【Profitability】The operating profit margin was -17.5% and the net profit margin was -16.8%, both representing slight deterioration from the same period of the previous year. The gross profit margin was 9.6%, down from 11.8% in the previous year, indicating that the primary profitability issue lies on the cost side.【Cash Quality】On an annualized basis, DSO was 114 days, DIO was 93 days, and CCC was 179 days, indicating that working capital remains tied up in accounts receivable and inventories.【Investment Efficiency】Annualized ROE was -26.8% and annualized ROIC was -25.5%, with returns continuing at a level substantially below the cost of capital.【Financial Soundness】The equity ratio was 44.1% (down from 50.3% in the previous year), while the current ratio was 184.4%, indicating that liquidity itself is secured. However, short-term borrowings increased to ¥1.28B, up +114.5% YoY, and interest coverage was negative.

Cash Flow Analysis

Although detailed disclosure of the statement of cash flows is unavailable, an analysis of funding trends based on changes in the balance sheet indicates that cash and deposits declined from ¥3.30B in the same period of the previous year to ¥2.60B. Meanwhile, short-term borrowings increased from ¥0.60B to ¥1.28B, suggesting greater reliance on short-term financing amid the recording of operating losses. Long-term borrowings declined from ¥2.11B to ¥1.89B, indicating progress in the repayment of long-term funding; however, the fact that this was accompanied by an increase in short-term borrowings and a shift in the center of gravity of funding management warrants attention from the perspective of capital efficiency. Accounts receivable stood at ¥3.13B and inventories at ¥0.87B, both at elevated levels, making the reduction of working capital key to restoring cash-generation capacity.

Quality of Earnings

Dividend income accounted for ¥0.09B of the ¥0.11B in non-operating income, creating a structure that partially mitigates the operating loss; however, this does not indicate an improvement in the profitability of the core business. Non-operating expenses totaled ¥0.09B, including ¥0.06B in interest expense and ¥0.02B in foreign exchange losses, causing the ordinary loss to widen by ¥0.02B from the operating loss. Extraordinary income of ¥0.03B (including a ¥0.02B gain on the sale of investment securities and a ¥0.00B gain on the sale of fixed assets) was a temporary factor, and together with extraordinary losses of ¥0.00B (loss on disposal of fixed assets), its impact on the loss before tax was limited. The gap between the ordinary loss of ¥1.29B and the net loss of ¥1.26B was small, and the impact of income taxes was also minor; therefore, the primary cause of the net loss is judged to be the decline in gross profit margin at the operating level. Comprehensive income was ¥-0.83B, exceeding the net loss of ¥-1.26B, as foreign currency translation adjustments of +¥0.15B and valuation differences on securities of +¥0.28B boosted comprehensive income, resulting in a certain divergence from net income.

Earnings Forecasts and Guidance

Against the full-year revenue forecast of ¥11.0B, cumulative progress was 68.1%, below the standard 75% level. The full-year operating income forecast is ¥-0.97B, but the cumulative operating loss has already reached ¥-1.31B, meaning that the loss already exceeds the forecast. Similarly, against the full-year net income forecast of ¥-0.97B, the cumulative net loss is ¥-1.26B, exceeding the forecast. Achieving the forecast requires a return to profitability in Q4, with revenue of ¥3.51B, operating income of ¥0.34B, and net income of ¥0.29B, premised on rapid improvement from the cumulative operating profit margin of -17.5%.

Shareholder Returns

The Q2 dividend was ¥0 per share, and the full-year dividend forecast is also ¥0. Given the financial position of a cumulative net loss of ¥1.26B and retained earnings of ¥-0.57B, the continuation of a no-dividend policy is consistent with a policy prioritizing capital preservation. The payout ratio is not calculated because no dividend has been paid.

Risk Factors

1. Deteriorating profitability due to the decline in gross profit margin: Cost of sales increased +10.2% YoY, exceeding the +7.5% increase in revenue, and the gross profit margin declined to 9.6%. Profit is directly affected by fluctuations in raw material costs and product mix, and higher revenue has not translated into improved earnings.

2. Increasing reliance on short-term financing and interest burden: Short-term borrowings increased to ¥1.28B, up +114.5% YoY, and the short-term debt ratio exceeded 40%. Interest coverage was negative amid the recording of operating losses, making borrowing terms and funding trends key points to monitor.

3. Contraction of the core profitable business: Display Products, the only profitable segment, recorded a year-on-year decline in revenue of -14.9%, while segment profit also contracted by -40.4%, weakening the business foundation supporting company-wide earnings.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The company's profitability is substantially below the industry median, with both its operating profit margin and net profit margin ranking toward the bottom of the industry.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median, but the underperformance in profitability means that higher revenue has not translated into higher earnings.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Despite higher revenue, the gross profit margin declined by 221bp, indicating a structure in which the quality of earnings is determined more by product-level profitability and improvements in the cost ratio than by expansion in revenue scale.

2. While Display Products, the only profitable segment, recorded lower revenue and lower earnings, capacitor-related products experienced widening losses despite higher revenue, resulting in a divergence in profitability across the business portfolio.

3. Cumulative operating and net losses have already exceeded the full-year forecasts, making Q4 performance trends (revenue and gross profit margin) the determining factors for full-year results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥116–¥122 at cost of equity ±1%, and ¥115–¥121 at ω±0.1.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from 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 model with an explicit 5-year fade) / Interest rate reference month: 2026-08 / Mechanically calculated using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, nor does it 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 a professional as necessary.

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