OVAL Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.37B
• Operating Income: ¥919M
• Net Income: ¥412M
• 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

For FY2026 Q2, Oval (77270) delivered solid top-line growth and pronounced operating leverage. Revenue rose 3.4% YoY to ¥7.373bn, while operating income increased 33.3% YoY to ¥919m and net income grew 42.2% YoY to ¥600m, indicating meaningful margin expansion. Gross profit of ¥2.959bn implies a gross margin of 40.1%, supportive of pricing discipline and/or favorable product mix. The operating margin of roughly 12.5% and ordinary margin of about 13.0% reflect cost control and modest non-operating tailwinds. Interest expense remains low at ¥26.6m, with interest coverage of 34.6x, underscoring a conservative financial profile. On the balance sheet, total assets are ¥23.82bn and equity is ¥16.116bn; this implies an equity ratio of roughly 67.7%, even though the reported equity ratio field shows 0.0% (undisclosed in that tag). Liquidity is strong with current and quick ratios of 295% and 276%, respectively, and working capital of approximately ¥8.90bn. The DuPont breakdown shows a net profit margin of 8.14%, asset turnover of 0.310x, and financial leverage of 1.48x, yielding an ROE of 3.72%. This ROE level is modest, driven more by margin improvements than by asset efficiency or leverage. Cash conversion was weaker in the half: operating cash flow was ¥273m, implying OCF/Net Income of 0.46x, likely reflecting working capital investment. Tax expense of ¥210m against an implied pre-tax of roughly ¥810m suggests an effective tax rate around 25.9%, broadly in line with Japan’s statutory range. No investing cash flow or cash balance amounts were disclosed in the provided tags, limiting free cash flow assessment for the period. Dividend per share is reported as ¥0.00 (likely no interim dividend), consistent with a 0% payout ratio given the disclosed fields. Overall, results indicate improving profitability and resilient demand with prudent balance sheet management. Key watchpoints include cash conversion, sustainability of margin gains, and working capital trends into H2. Data limitations exist around cash and capex disclosures, so conclusions on free cash flow and dividend-paying capacity are necessarily provisional.

Profitability Analysis

ROE of 3.72% decomposes into a net margin of 8.14%, asset turnover of 0.310x, and financial leverage of 1.48x. Profitability improvements are chiefly margin-led: operating income grew 33.3% on revenue growth of 3.4%, lifting the operating margin to about 12.5%. Gross margin is 40.1%, indicating sound pricing power or favorable mix; operating to gross spread (~27.6pp) reflects disciplined SG&A. Ordinary income (¥957m) exceeds operating income modestly, implying supportive non-operating items and limited interest drag. EBITDA of ¥1.183bn implies a 16.0% margin, providing a buffer for ongoing investment. Interest coverage at 34.6x confirms that interest burden is not a material constraint on profitability. Operating leverage is evident in the disproportionate growth of operating profit vs. sales; sustaining this will depend on volumes, pricing, and SG&A efficiency. Net margin at 8.14% and an implied tax rate of ~25.9% suggest bottom-line conversion is healthy, though below potential if asset turnover can be improved.

Growth Assessment

Revenue expanded 3.4% YoY to ¥7.373bn, while operating income rose 33.3% and net income 42.2%, indicating both positive demand and cost/mix benefits. The improvement in operating margin to ~12.5% signals effective execution. Profit growth quality appears solid at the P&L level (gross and operating margins strengthened), but cash conversion lagged (OCF/NI 0.46x), signaling working capital investment or timing effects. With inventories at ~¥879m against H1 cost of sales of ~¥4.169bn, implied inventory days are moderate on a simple point-in-time basis, though full turnover metrics are not available. Outlook hinges on sustaining order momentum and margin discipline into H2; if pricing holds and input costs remain stable, incremental operating leverage could continue. Given the modest asset turnover (0.310x), revenue scalability without large asset additions could lift ROE, but requires improved utilization and faster cycle times. Absent disclosure on backlog, orders, or segment mix, revenue sustainability is cautiously positive but not fully verifiable.

Financial Health

Balance sheet strength is a key support: equity of ¥16.116bn versus assets of ¥23.82bn implies an equity ratio around 67.7%. Leverage is modest with a debt-to-equity ratio of 0.51x per provided metric, consistent with strong solvency. Liquidity is ample: current ratio 295.3% and quick ratio 276.0%, and working capital ~¥8.90bn. Interest expense is low (¥26.6m), and interest coverage is 34.6x, indicating ample service capacity. The capital structure is conservative, leaving room for investment or shareholder returns, subject to cash generation. While cash and investing CF figures were not disclosed, there is no indication of near-term liquidity strain based on current assets and liabilities. The implied tax burden (~25.9%) appears manageable.

Cash Flow Quality

Operating cash flow of ¥273m versus net income of ¥600m yields OCF/NI of 0.46x, indicating weaker cash conversion in H1. Likely drivers include working capital outflows (e.g., receivables growth or inventory build) and timing effects, though detailed working capital movements are not disclosed here. Depreciation and amortization of ¥264m aligns with EBITDA reconciliation and suggests a moderate non-cash component to earnings. Free cash flow cannot be reliably determined due to undisclosed investing cash flows/capex; the reported FCF figure of 0 in the summary reflects non-disclosure rather than an actual zero. Without capex detail, it is unclear whether the business is in an investment phase or benefiting from maintenance-level spend. Monitoring OCF rebound in H2 and the cadence of receivables/inventory will be key to validating earnings quality.

Dividend Sustainability

Annual DPS is disclosed as ¥0.00, implying no dividend for the reported period (likely no interim). With positive earnings and low interest burden, capacity to pay exists in principle, but sustainability assessment requires free cash flow, which is not determinable here due to undisclosed capex and cash balances. The payout ratio is 0.0% by disclosure, but a structural dividend policy is not inferable. If OCF normalizes closer to net income and capex remains moderate, future distributions could be supported by the strong balance sheet; however, policy direction and capital allocation priorities are not provided. FCF coverage cannot be assessed from the disclosed data.

Risk Assessment

Business Risks:

• Demand cyclicality in industrial equipment and capital goods end-markets impacting order intake and utilization
• Pricing pressure from competitors and customer consolidation
• Input cost volatility and supply chain constraints affecting margins
• Foreign exchange fluctuations if export exposure or imported components are material
• Product mix shifts that could dilute margins if higher-value lines slow
• Execution risk in sustaining SG&A efficiency and operating leverage

Financial Risks:

• Working capital swings leading to weak cash conversion despite earnings growth
• Potential increase in capex (undisclosed) that could compress free cash flow
• Credit risk from receivables concentration if key customers dominate sales
• Exposure to interest rate changes is limited currently, but leverage metrics should be monitored

Key Concerns:

• OCF/NI at 0.46x suggests near-term cash conversion weakness
• Lack of disclosed capex/investing CF limits visibility into free cash flow and capital intensity
• Sustainability of margin expansion given modest top-line growth (+3.4% YoY)

Investment Implications

Key Takeaways:

• Margin-led earnings outperformance in H1 with operating income +33% YoY on +3% revenue
• Strong balance sheet with implied equity ratio ~68% and high liquidity
• Interest burden minimal; coverage 34.6x supports resilience
• ROE at 3.72% remains modest; improving asset turnover is a lever for upside
• Cash conversion soft (OCF/NI 0.46x); H2 recovery is important to validate earnings quality

Metrics to Watch:

• Order intake/backlog and book-to-bill to gauge revenue sustainability
• Operating cash flow, receivables days, and inventory days for conversion and working capital discipline
• Capex and investing cash flows to assess true free cash flow
• Gross and operating margins to monitor mix and pricing durability
• Asset turnover and utilization rates to track ROE improvement
• FX impacts on sales and COGS if relevant

Relative Positioning: Within Japan small/mid-cap industrial instrumentation peers, Oval exhibits stronger-than-average balance sheet conservatism and recent margin momentum, but trails best-in-class names on ROE and cash conversion in the current half.

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