ONOKEN CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥125.12B
• Operating Income: ¥1.95B
• Net Income: ¥2.57B
• EPS: ¥49.75

Income Statement

Balance Sheet

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

Ono Ken Co., Ltd. (TSE: 74140) reported FY2026 Q2 consolidated results under JGAAP showing topline softness and pronounced margin compression. Revenue declined 9.1% YoY to ¥125.1bn, while operating income fell 47.3% YoY to ¥1.95bn, indicating significant operating leverage and/or pricing pressure. Net income decreased 51.0% YoY to ¥1.24bn, pulling net margin down to 0.99%. DuPont decomposition yields ROE of 1.26%, driven by a thin net margin (0.99%), moderate asset turnover (0.628x), and financial leverage of about 2.03x. Gross profit of ¥13.82bn translates to an 11.0% gross margin, with operating margin at roughly 1.6%, reflecting subdued profitability versus the prior year period. Ordinary income of ¥1.98bn and interest expense of ¥0.09bn imply a healthy interest coverage of about 22x, suggesting low near‑term financial strain despite weaker earnings. The balance sheet remains sound: total assets are ¥199.3bn, equity ¥98.4bn, and liabilities ¥105.3bn, implying a calculated equity ratio near 49% (reported 0% is an undisclosed placeholder). Liquidity appears adequate with a current ratio of 139% and quick ratio of 103%, supported by ¥31.6bn of working capital. Inventories are ¥29.1bn, a notable component of current assets, and merit monitoring given steel price volatility and potential valuation effects. Cash flow statement items, depreciation, EBITDA, and dividend figures are undisclosed in this dataset (zeros denote unreported), limiting cash flow quality and payout analysis. The effective tax rate shown as 0% in the summary table is not reflective of reality; using ordinary income as a proxy for pre‑tax income suggests a tax burden near the high 30% range. Overall profitability has compressed materially, likely due to a combination of lower volume/price environment and limited SG&A flexibility, typical in cyclical steel trading and processing businesses. Leverage is moderate and manageable, but subdued ROE indicates capital efficiency is currently weak versus domestic mid‑cap distribution peers. Near‑term outlook hinges on inventory discipline, gross margin stabilization, and recovery in end‑market demand. Data limitations (notably cash flows, DPS, and share data) constrain full assessment, so conclusions focus on the available non‑zero items.

Profitability Analysis

ROE_decomposition: ROE 1.26% = Net margin 0.99% × Asset turnover 0.628× × Financial leverage 2.03×. The primary drag is the slim net margin, as turnover and leverage are in a typical range for a trading/distribution model. margin_quality: Gross margin 11.0% on revenue of ¥125.1bn and gross profit of ¥13.82bn. Operating margin ≈1.6% (¥1.95bn OI), indicating substantial compression versus prior year given OI declined 47.3% on a 9.1% revenue drop. Ordinary margin ≈1.6%, and net margin 0.99%, reflecting increased cost pressure and/or pricing normalization. operating_leverage: Operating income declined 47.3% against a 9.1% revenue decline, implying high operating leverage and/or unfavorable mix and inventory valuation effects. Fixed cost absorption likely weakened, while SG&A appears relatively inflexible in the short term.

Growth Assessment

revenue_sustainability: Revenue fell 9.1% YoY to ¥125.1bn, consistent with a softer demand/price environment in steel distribution. Without segment disclosure, sustainability depends on end‑market recovery and pricing stabilization. profit_quality: Profitability deteriorated more than sales, suggesting margin pressure and potentially adverse inventory or mix effects. Interest expense remains low (¥0.09bn) relative to operating profit, indicating profit quality issues stem from operations rather than financing. outlook: Short‑term recovery requires gross margin stabilization, tighter cost control, and disciplined inventory management. A rebound in construction/manufacturing demand or more favorable steel price dynamics would support margins; absent that, earnings may remain subdued.

Financial Health

liquidity: Current ratio 139%, quick ratio 103%, and working capital of ¥31.6bn indicate adequate liquidity. Inventories at ¥29.1bn are material and a key lever for cash conversion. solvency: Calculated equity ratio ≈49% (¥98.4bn equity / ¥199.3bn assets). Debt-to-equity of 1.07x (liabilities/equity) suggests moderate leverage. Interest coverage ~22x supports comfortable debt service capacity. capital_structure: Assets ¥199.3bn funded by liabilities ¥105.3bn and equity ¥98.4bn. Leverage is prudent for a trading model, providing flexibility despite earnings volatility.

Cash Flow Quality

earnings_quality: Cash flow statement is undisclosed (OCF/FCF shown as zero placeholders). Therefore, accrual intensity and OCF conversion cannot be evaluated this quarter. The sharp decline in operating profit increases the importance of verifying cash conversion once disclosed. FCF_analysis: Free cash flow cannot be determined due to missing OCF and capex (depreciation also undisclosed). Inventory and receivables movements are likely the primary swing factors for FCF in this business model. working_capital: Current assets ¥112.6bn with inventories of ¥29.1bn; current liabilities ¥81.0bn. Effective management of inventories and trade receivables/payables will drive cash conversion amid lower sales.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio are undisclosed in this dataset (zeros are placeholders). With net income at ¥1.24bn and ROE at 1.26%, capacity for distributions depends on cash generation and policy, neither of which can be confirmed here. FCF_coverage: FCF data are not available; thus, coverage cannot be assessed. Any dividend assessment should await OCF/capex disclosure. policy_outlook: Given earnings compression and cyclical conditions, a conservative stance would be typical in the sector, but no explicit guidance is available in the provided data.

Risk Assessment

Business Risks:

• Cyclical demand in construction, machinery, and manufacturing end‑markets
• Steel price volatility impacting both revenue and gross margin
• Inventory valuation risks (write‑downs or margin squeeze on price declines)
• Supplier and customer concentration typical of regional steel distribution
• Competitive pricing pressure in a commoditized product set

Financial Risks:

• Earnings volatility reducing interest coverage buffer if downturn deepens
• Working capital swings potentially straining liquidity in weaker markets
• Potential increase in leverage if cash generation weakens and inventory builds
• Tax burden variability; estimated effective tax rate in high‑30% range

Key Concerns:

• Operating income down 47.3% vs revenue down 9.1% indicates elevated operating leverage
• Net margin compressed to 0.99%, weighing on ROE (1.26%)
• Cash flow metrics undisclosed, limiting visibility on earnings quality and dividend capacity

Investment Implications

Key Takeaways:

• Topline contracted 9.1% YoY with disproportionately larger declines in operating and net income
• ROE at 1.26% is subdued, driven by thin net margin despite moderate leverage
• Balance sheet strength is adequate (calculated equity ratio ~49%, interest coverage ~22x)
• Liquidity is acceptable (current ratio 139%, quick ratio 103%), but inventory management is critical
• Data gaps (cash flow, DPS, shares) limit full valuation and payout analysis

Metrics to Watch:

• Gross margin trajectory and operating margin recovery
• Operating cash flow and working capital movements (inventories, receivables, payables)
• Inventory turnover and any valuation adjustments
• Ordinary income vs net income to gauge effective tax rate and below‑operating items
• Leverage (liabilities/equity) and interest coverage amid earnings volatility

Relative Positioning: Relative to domestic steel trading/distribution peers, profitability and ROE appear weak in this half due to margin compression, while leverage and liquidity remain within a comfortable, middle‑of‑the‑pack range.

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