OKAMOTO GLASS (7746) FY2026 Q3 Earnings Report

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Executive Summary

The most important point in the current results is that the operating loss expanded significantly from the same period of the previous year as revenue declined, the gross margin decreased, and fixed costs increased concurrently. Revenue was ¥3.02B (-5.5% YoY), Operating Income was ¥-0.31B (a ¥0.20B deterioration from the previous year's ¥-0.11B), Ordinary Income was ¥-0.33B (versus ¥-0.10B in the previous year), and Net Income was ¥-0.25B (versus ¥-0.10B in the previous year). The gross margin declined to 28.0%, while the SG&A ratio rose to 38.2%, amplifying the deterioration in earnings through lower fixed-cost absorption during the revenue decline.

Factors Affecting Performance

【Revenue】Revenue was ¥3.02B, down 5.5% YoY. All three core businesses posted lower revenue: the Optical Business generated ¥1.33B (-3.5%), the Functional Thin Film and Glass Business generated ¥0.90B (-9.7%), and the Lighting Business generated ¥0.33B (-15.5%). The Other Businesses increased revenue to ¥0.47B (+6.7%), but this was insufficient to offset the decline in consolidated revenue.

【Profit and Loss】Gross profit decreased by 14.2% YoY to ¥0.84B, contracting more than revenue, and the gross margin declined from 30.8% in the same period of the previous year to 28.0%. Meanwhile, SG&A expenses increased by 5.7% to ¥1.15B, with fixed costs centered on personnel expenses (salaries and allowances of ¥0.35B, up 5.9%) increasing despite the decline in revenue. By segment, the Optical Business's profit margin fell from 14.6% to 6.6%, while the Functional Thin Film and Glass Business shifted from a ¥0.04B profit to a ¥0.05B loss. In contrast, the Lighting Business shifted from a loss to a small profit. Corporate expenses increased to ¥0.40B (+6.8%), exceeding total segment profit of ¥0.09B and directly causing the operating loss. Below operating income, interest expense of ¥0.07B exceeded foreign exchange gains and subsidy income, causing the ordinary loss to expand further from the operating loss. In conclusion, both revenue and earnings declined.

Segment Analysis

The Optical Business maintained profitability, with revenue of ¥1.33B (-3.5% YoY) and Operating Income of ¥0.09B (-56.6% YoY), but its profit margin declined substantially from 14.6% to 6.6%. The Functional Thin Film and Glass Business recorded revenue of ¥0.90B (-9.7% YoY) and an Operating Loss of ¥-0.05B, turning from a ¥0.04B profit in the same period of the previous year into a loss. The Lighting Business recorded revenue of ¥0.33B (-15.5%), while Operating Income turned profitable, improving from ¥-0.03B to ¥0.01B. The core factors behind the deterioration in consolidated earnings were the decline in profitability of the Optical Business and the shift to a loss in the Functional Thin Film and Glass Business. Corporate expenses of ¥0.40B exceeded total segment profit of ¥0.09B, directly causing the operating loss.

Key Financial Indicators

【Profitability】The operating margin deteriorated substantially to -10.3% from -3.4% in the same period of the previous year, while the net profit margin was also negative at -8.2%. ROE (annualized) was -13.0%, with the impairment of earning power being the primary cause of the deterioration in capital efficiency.【Cash Quality】Cash and deposits increased to ¥2.35B from the same period of the previous year; however, given the continued operating loss, this increase lacks sufficient support from cash-generating capacity, while temporary items such as a ¥0.01B gain on the sale of assets slightly mitigated the loss.【Investment Efficiency】Research and development expenses were ¥0.10B, equivalent to 3.2% of revenue, indicating that the company continues to invest in technology even before its earnings base has recovered.【Financial Soundness】The Equity Ratio improved to 28.3% from 20.8% in the same period of the previous year, but reliance on interest-bearing debt, including ¥3.19B in long-term borrowings, remains high, and retained earnings have declined to ¥0.04B.

Cash Flow Analysis

Although explicit data from the cash flow statement are unavailable, funding trends can be assessed from changes in the balance sheet. Cash and deposits increased by ¥0.54B to ¥2.35B from ¥1.81B in the same period of the previous year, securing a current ratio of 196.3%, with current assets of ¥4.73B exceeding current liabilities of ¥2.41B. This increase appears to have been driven by progress in collections, reflected in the decrease in accounts receivable to ¥0.72B (down ¥0.38B YoY), and the reduction of short-term borrowings to ¥0.52B (down ¥0.70B YoY). Meanwhile, inventories increased to ¥0.51B, with work in process of ¥0.73B accounting for more than half of the inventory composition, suggesting that funds are tied up in the production process. Construction in progress declined substantially to ¥0.13B, suggesting that assets subject to investment have been placed into operation. The increase in cash amid continued operating losses is considered to include the effects of asset sales and capital strengthening (increases in share capital and capital surplus); therefore, careful monitoring is required regarding the company's ability to generate cash from operating activities themselves.

Earnings Quality

The current-period earnings include a ¥0.01B gain on the sale of fixed assets as a non-recurring item included in extraordinary income; however, its scale is small and does not determine the earnings structure. Non-operating income includes foreign exchange gains of ¥0.02B and subsidy income of ¥0.02B, both of which should be distinguished from the business's intrinsic earning power. Interest expense of ¥0.07B was the largest item among non-operating expenses and represents a recurring cost reflecting reliance on long-term borrowings. The Ordinary Loss of ¥0.33B was ¥0.02B greater than the Operating Loss of ¥0.31B, demonstrating that the burden of financial expenses further depressed earnings. Comprehensive income was ¥-0.23B, approximately in line with Net Income attributable to owners of the parent of ¥-0.25B. The divergence arising from valuation differences on other securities and foreign currency translation adjustments was small, and no significant qualitative difference was observed between net income and comprehensive income.

Earnings Forecast and Guidance

The full-year company forecast is revenue of ¥4.69B (+0.1% YoY), an Operating Loss of ¥0.12B, and a Net Loss of ¥0.13B. The Q3 cumulative revenue achievement rate was 64.4%, below the standard 75%. Meanwhile, the Operating Loss has already reached ¥0.31B, substantially exceeding the full-year forecast of ¥0.12B (an achievement rate of approximately 250%), while the Net Loss of ¥0.25B also exceeds the full-year forecast of ¥0.13B. Achieving the full-year forecast would require approximately ¥1.67B in revenue in Q4 alone, as well as a return to profitability for both Operating Income and Net Income. In light of the earnings forecast revision made during the current quarter, the potential for profitability improvement in Q4 requires close monitoring.

Shareholder Returns

Both the Q2 dividend and the full-year dividend forecast are ¥0 per share, and the no-dividend policy remains in place. Given the cumulative Net Loss of ¥0.25B and the decline in retained earnings to ¥0.04B, evaluating the company based on the Payout Ratio is not meaningful. The continuation of the no-dividend policy is consistent with a capital policy that prioritizes retaining funds during a loss-making period and addressing the repayment and refinancing of borrowings.

Risk Factors

1. Deterioration in the profitability of the Functional Thin Film and Glass Business: Revenue was ¥0.90B (-9.7% YoY), and the business posted an Operating Loss of ¥0.05B, turning from a profit in the same period of the previous year into a loss. If weak demand or an unfavorable product mix persists, the impact on consolidated earnings may continue.

2. Decline in the profit margin of the Optical Business: Against revenue of ¥1.33B (-3.5%), Operating Income declined substantially to ¥0.09B (-56.6%), and the profit margin fell from 14.6% to 6.6%. The decline in profitability of this core earnings source has a significant impact on consolidated performance.

3. Financial leverage and the burden of financial expenses: The company has a high degree of reliance on interest-bearing debt, including ¥3.19B in long-term borrowings, and interest expense of ¥0.07B accounts for the majority of non-operating expenses. The Ordinary Loss has expanded further from the Operating Loss, and if operating losses continue, the burden of financial expenses could affect financial flexibility.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Profitability metrics are substantially below the industry median, placing the company in the lower tier of the industry.

Growth and Capital Efficiency

Revenue growth is also below the industry median, and the declining revenue trend is notable within the industry.

※Source: Compiled by the Company

Key Points in the Financial Results

1. The Q3 cumulative Operating Loss of ¥0.31B has already substantially exceeded the full-year forecast Operating Loss of ¥0.12B; accordingly, whether significant profitability improvement can be achieved in Q4 is the key point in the reported financial data.

2. The decline in the Optical Business's profit margin (14.6%→6.6%) and the shift of the Functional Thin Film and Glass Business into the red have been confirmed as the primary components of the deterioration in consolidated earnings. The fact that corporate expenses of ¥0.40B exceed total segment profit of ¥0.09B is also a notable characteristic of the earnings structure.

3. Although the Equity Ratio improved to 28.3% YoY, retained earnings declined to ¥0.04B, indicating that continued loss recognition structurally constrains the recovery of retained earnings in terms of the substance of the capital base.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥51–¥54 at Cost of Equity ±1%, and ¥51–¥53 at ω±0.1.

Notes:

• As forecast ROE is below the Cost of Equity, the theoretical value is below book value per share.
• Net assets at the end of the quarter are used (there is a timing difference from 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 value based solely on publicly disclosed data; it is not a forecast of the market stock price or a recommendation of any specific investment action, and does not forecast or guarantee the future stock price.)

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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 financial results. Investment decisions should be made at your own discretion and responsibility, after consulting a professional where necessary.

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