OVAL Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.37B
• Operating Income: ¥919M
• Net Income: ¥608M
• EPS: ¥26.95

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

Verdict: Solid FY2026 Q2 with clear margin expansion and healthy cash conversion, albeit with subpar ROIC and reliance on repurchases to enhance per-share metrics. Revenue grew 3.4% YoY to 73.73, while operating income rose 33.3% YoY to 9.19, evidencing strong operating leverage. Ordinary income climbed 53.3% YoY to 9.57, supported by a positive non-operating balance (+0.38). Net income increased 42.2% YoY to 6.00, driving a net margin of 8.1%. Gross margin stood at 44.4%, and operating margin improved to 12.5%. Based on prior-year implied operating margin of about 9.7%, operating margin expanded roughly 280 bps YoY. EBITDA was 11.70 (margin 15.9%), supporting an interest coverage of 44.4x, indicative of conservative leverage. Cash generation outpaced earnings: OCF was 6.99, equating to 1.17x of net income, suggesting good earnings quality. Balance sheet strength is notable with a current ratio of 325.7% and D/E of 0.48x; equity ratio is approximately 67.6% by our calculation. However, ROIC of 4.1% is below the 5% warning threshold, implying capital efficiency remains a structural issue. Shareholder returns leaned on buybacks (4.53) amid an estimated payout ratio of 69.8%, which looks elevated vs. typical sustainability benchmarks. Implied FCF (OCF − capex) is about 2.67, insufficient to fully fund buybacks in the period, implying cash drawdown or other financing. Effective tax rate at 36.2% is elevated and a headwind to net profitability. Non-operating income contribution is modest but positive; core improvements, not one-offs, appear to be the main driver of earnings growth. Forward-looking, sustaining the improved operating margin and lifting ROIC above 5% via disciplined capital allocation and mix improvement will be key to re-rating. Overall, the quarter shows operational progress and robust liquidity, with the main watchpoints being capital efficiency and the balance between shareholder returns and FCF.

Profitability Analysis

ROE decomposition: ROE 3.7% = Net Profit Margin 8.1% × Asset Turnover 0.310 × Financial Leverage 1.48x. The biggest driver of YoY improvement is margin expansion, evidenced by operating income growth (+33.3% YoY) far exceeding revenue growth (+3.4% YoY). Operating margin rose to ~12.5% from ~9.7% (about +280 bps), likely reflecting favorable mix/pricing and SG&A discipline. Asset turnover appears broadly stable given modest top-line growth and a relatively steady asset base; leverage also remained conservative near 1.48x, contributing little to delta. The margin gains seem operationally driven (not one-time), supported by positive OCF and no outsized non-operating gains (net non-op +0.38 is modest), thus partially sustainable if pricing/mix holds and cost control continues. Watch for SG&A growth outpacing revenue in coming quarters: current SG&A of 23.55 rose at a slower pace than revenue (implied), supporting operating leverage, but detailed SG&A breakdown is unreported, limiting granularity. Gross margin at 44.4% provides headroom; maintaining it amid potential input cost and FX fluctuations is critical for sustaining the higher operating margin.

Growth Assessment

Revenue growth of 3.4% YoY is steady but modest, suggesting market conditions are stable rather than expanding rapidly. Profit growth is quality-driven: operating income +33.3% YoY and net income +42.2% YoY indicate effective cost control and/or mix improvements rather than volume-led expansion. Non-operating items provided a small tailwind (net +0.38), with core operating performance the main engine. EBITDA margin at 15.9% and operating margin at ~12.5% position the company favorably versus its own recent past. Sustainability hinges on maintaining gross margin at 44.4% and avoiding SG&A creep as growth reinvestment resumes. The elevated effective tax rate (36.2%) caps net growth conversion and could remain a headwind absent structural tax planning. With ROIC at 4.1%, incremental growth should focus on higher-return projects to improve capital efficiency. Near-term outlook is cautiously positive, with upside if end-market demand improves and the company keeps pricing discipline; downside risks include FX volatility, input cost pressures, and any normalization of operating expenses.

Financial Health

Liquidity is strong: current ratio 325.7% and quick ratio 297.5% comfortably exceed benchmarks; no warning thresholds breached. Solvency is conservative with D/E at 0.48x and interest coverage at 44.4x. Equity ratio (calculated) is ~67.6% (161.16 / 238.20), indicating a solid capital base. Maturity mismatch risk appears low: current assets of 126.13 easily cover current liabilities of 38.73; cash and deposits (36.66) nearly match short-term loans (11.04), and receivables (33.83) further bolster near-term coverage. Total loans (ST 11.04 + LT 5.99 = 17.03) imply Debt/EBITDA of ~1.46x, well within conservative territory. No off-balance sheet obligations are disclosed in the dataset; absence of disclosure does not confirm absence. No explicit red flags such as Current Ratio < 1.0 or D/E > 2.0.

Cash Flow Quality

OCF/Net Income is 1.17x, indicating earnings are backed by cash and reducing accrual risk. Estimated FCF (calculated) is ~2.67 (OCF 6.99 − capex 4.32), positive but not sufficient to fully fund share repurchases of 4.53, implying usage of on-hand cash or other financing for buybacks. Working capital appears well-managed given positive OCF alongside revenue growth; no obvious signs of aggressive working capital release (inventory 10.93 and receivables 33.83 look proportionate to sales and balance sheet scale). With cash at 36.66 and modest debt, liquidity supports ongoing operations and investment, but sustained outsized shareholder returns would require continued positive FCF or balance sheet drawdown. Investing CF and detailed components are unreported, limiting full attribution of cash movements.

Dividend Sustainability

Reported dividends are unreported; however, the calculated payout ratio is 69.8%, above the <60% benchmark, suggesting a potentially stretched payout if sustained. With estimated FCF of ~2.67 and buybacks of 4.53 this period, total shareholder returns likely exceeded internally generated cash, relying on cash balances. Absent confirmed DPS data, we cannot precisely assess FCF coverage of dividends, but current payout metrics indicate limited buffer if profitability normalizes. Policy-wise, management appears supportive of shareholder returns (notably repurchases), yet improving ROIC and safeguarding FCF should take precedence to ensure sustainability.

Risk Assessment

Business Risks:

• End-market cyclicality in industrial measurement/flow meter demand affecting order intake and utilization.
• Pricing pressure and input cost inflation risking gross margin compression from the current 44.4%.
• FX volatility impacting export competitiveness and translation of overseas revenues and costs.
• Customer capex timing and project delays potentially creating quarterly volatility.
• Product mix shifts; reliance on specific high-margin products may not be repeatable.

Financial Risks:

• ROIC at 4.1% below the 5% warning threshold, signaling capital efficiency concerns.
• Shareholder returns (buybacks) exceeding estimated FCF, implying draw on cash balances.
• Tax rate sensitivity: elevated effective tax rate (36.2%) depresses net income and cash yields.
• Limited disclosure of investing cash flows and dividend payments reduces visibility into capital allocation.

Key Concerns:

• Sustainability of the ~280 bps operating margin expansion amid potential cost and FX headwinds.
• Maintaining positive OCF/NI > 1.0 while supporting growth investments.
• Potential reversion of non-operating tailwinds; ordinary income sensitivity to financial items.
• Data gaps (SG&A breakdown, R&D, investing CF, DPS) limit granularity of analysis.

Investment Implications

Key Takeaways:

• Quality beat: operating profit +33% on +3% revenue with ~280 bps margin expansion.
• Strong balance sheet (equity ratio ~68%, D/E 0.48x) and robust interest coverage (44x).
• Cash conversion healthy (OCF/NI 1.17x), though FCF only partially covers shareholder returns.
• Capital efficiency remains the main overhang (ROIC 4.1% below threshold).
• Tax rate is a material drag on net profitability.

Metrics to Watch:

• Order backlog and book-to-bill to gauge forward revenue visibility.
• Gross and operating margin trajectory versus input costs and FX.
• SG&A ratio and operating leverage as growth investments resume.
• ROIC progression toward >5% and ideally >7%.
• OCF/NI ratio sustainability and FCF coverage of dividends/buybacks.
• Inventory turns and receivables days to validate working capital quality.

Relative Positioning: Versus domestic precision instrument peers, Oval exhibits stronger-than-average balance sheet conservatism and improved operating margins this quarter, but lags on capital efficiency (ROIC). Continued mix/pricing discipline and tighter capital allocation are needed to close the ROIC gap while preserving cash generation.

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