OKAMURA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥153.78B
• Operating Income: ¥6.84B
• Net Income: ¥7.43B
• EPS: ¥78.25

Income Statement

Balance Sheet

Cash Flow Statement

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

FY2026 Q2 was solid on topline and cash generation but soft on profitability, with mild margin compression and a year-on-year decline in ordinary and bottom-line profits. Revenue grew 5.6% YoY to 1,537.76, supported by steady demand, lifting gross profit to 502.39 and a gross margin of 32.7%. Operating income rose 1.4% YoY to 68.37, but the operating margin slipped to 4.4%, reflecting cost pressures and mix. Ordinary income declined 5.6% YoY to 77.03 as non-operating balance helped but could not offset weaker core margin leverage. Net income fell 7.1% YoY to 74.07, taking the net margin to 4.8% from roughly 5.5% a year ago. Operating margin compressed by about 19 bps YoY (from ~4.63% to 4.44%), and net margin compressed by roughly 66 bps. Earnings quality was strong: operating cash flow of 185.52 was 2.5x net income, indicating robust cash conversion and likely working capital inflow. Liquidity is ample, with a current ratio of 272.8%, quick ratio of 254.3%, and cash of 353.09 against short-term loans of 63.00. Leverage remains conservative (assets/equity 1.50x; D/E reported 0.50x; interest coverage 27.35x), though ROIC at 2.9% is well below a 5% warning threshold. Non-operating income (15.58) meaningfully contributed to ordinary income; dividend income of 6.44 and interest income of 0.56 cushioned results. SG&A at 434.01 (28.2% of sales) remained heavy relative to topline growth, limiting operating leverage. The effective tax rate was 22.7%, broadly stable. Balance sheet strength is underscored by an estimated equity ratio of ~66.5% and working capital of 852.47. Capex of 33.95 was disciplined and comfortably covered by OCF, implying positive implied FCF despite unreported total investing cash flows. Looking forward, the combination of healthy liquidity and cash generation provides flexibility to invest or support shareholder returns, but low ROIC and compressed margins point to the need for sharper cost control and mix improvement. Absent acceleration in operating margin or asset turnover, ROE may remain subdued near the current 3.9%.

Profitability Analysis

ROE decomposition (DuPont): ROE 3.9% = Net Profit Margin 4.8% × Asset Turnover 0.535 × Financial Leverage 1.50x. The most notable driver YoY is the decline in net margin (approx. -66 bps), given operating income grew slower than sales and ordinary/net profits fell. Business factors likely include higher SG&A intensity (28.2% of revenue), partial pass-through of input costs, and possibly unfavorable mix (installation/services vs product). Asset turnover at 0.535 appears stable for the period and leverage at 1.50x remains conservative, so neither provided an offset. Sustainability: the margin pressure looks cyclical and partially controllable—procurement normalization and price/mix actions could stabilize operating margin, but absent structural SG&A efficiency, improvement may be gradual. Watch for SG&A growth outpacing revenue; currently, operating margin rose only 1.4% vs revenue +5.6%, signaling limited operating leverage.

Growth Assessment

Revenue expanded 5.6% YoY to 1,537.76, indicating steady demand in core categories. Operating profit growth (+1.4% YoY) lagged revenue due to cost and SG&A pressure, and ordinary/net profits declined (-5.6%/-7.1%). Non-operating income (15.58) supported ordinary income; dividend income was 6.44, suggesting a recurring, though non-core, contribution. Margin headwinds compressed operating margin by ~19 bps and net margin by ~66 bps YoY. EBITDA rose to 101.68 (6.6% margin), providing healthy interest coverage and investment capacity. Outlook hinges on execution of pricing/mix, cost containment, and demand in office/environmental equipment projects; with strong liquidity, the company can pursue selective growth initiatives, but improving ROIC from 2.9% will require better margin capture or asset efficiency. Absent a step-up in core profitability, earnings growth may track mid-single-digit sales growth with modest margin risk.

Financial Health

Liquidity is strong: current ratio 272.8% and quick ratio 254.3%; no warning (both well >1.0). Solvency conservative: reported D/E 0.50x; interest coverage 27.35x; estimated equity ratio ~66.5% (equity 1,910.95 / assets 2,872.67). Maturity mismatch risk is low with cash 353.09 and receivables 707.63 against short-term loans 63.00 and accounts payable 229.43. Long-term loans of 173.14 are manageable relative to EBITDA (Debt/EBITDA ~2.3x). No off-balance sheet obligations are disclosed in the provided data. Overall balance sheet resilience is high.

Cash Flow Quality

Earnings quality is high: OCF/Net Income = 2.50x (>1.0), indicating strong cash conversion, likely aided by working capital inflows. Implied FCF (OCF 185.52 minus Capex 33.95) is approximately 151.6 before other investing flows, suggesting ample internal funding capacity. With financing CF of -50.04, the company is net de-levering or returning capital while keeping cash robust. No clear signs of working capital manipulation are evident from the limited snapshot; however, receivables (707.63) are sizable for the half-year sales base and should be monitored for DSO normalization. Cash generation comfortably covers maintenance capex and provides headroom for growth investments or shareholder returns.

Dividend Sustainability

Reported payout ratio (calculated) is 127.7%, which, if accurate, exceeds a sustainable benchmark (<60%) and implies dividends above contemporaneous earnings. However, dividend amounts are unreported, and OCF is strong (185.52), implying cash coverage may still be adequate despite an earnings-based overhang. With implied FCF of ~151.6 before other investing uses, recurring dividends are likely serviceable if policy remains conservative; any step-up would require confidence in margin recovery. Given low ROIC (2.9%) and margin compression, a prudent stance on incremental shareholder returns is advisable until core profitability improves. Dividend policy details and DPS are not disclosed here; conclusions are subject to data limitations.

Risk Assessment

Business Risks:

• Office demand volatility and project timing risk affecting order intake and installation schedules
• Input cost inflation (steel, resin, logistics) pressuring margins if not fully passed through
• Product/service mix shifts toward lower-margin solutions limiting operating leverage
• Execution risk in SG&A efficiency and pricing strategy needed to restore margins
• Impairment risk related to goodwill (100.44) and intangibles (161.62) if acquired businesses underperform

Financial Risks:

• Low ROIC (2.9%) versus cost of capital undermines value creation
• Dependence on non-operating income (non-operating income ratio 21.0%) to support ordinary income
• Receivables concentration/collection timing risk given large AR balance (707.63)
• Potential future interest rate increases raising financing costs (though current coverage is strong)

Key Concerns:

• Margin compression: operating margin -19 bps YoY; net margin -66 bps YoY
• Ordinary and net income declines despite revenue growth (-5.6% and -7.1% YoY)
• Payout ratio (127.7%) suggests possible pressure on dividend sustainability if earnings do not recover
• ROE at 3.9% remains subdued, reflecting modest margin and asset turnover

Investment Implications

Key Takeaways:

• Topline growth (+5.6% YoY) with resilient gross margin (32.7%) but limited operating leverage
• Operating margin compression (~19 bps) and net margin compression (~66 bps) weighed on profits
• Strong cash generation (OCF/NI 2.5x) and liquidity de-risk near-term funding
• Capital efficiency is weak (ROIC 2.9%), necessitating margin and asset efficiency improvements
• Non-operating income provides a material but non-core earnings cushion

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio trajectory
• Price/mix realization versus input cost trends
• DSO/receivables turnover and order backlog visibility
• ROIC progression and capex discipline
• Dividend policy disclosures (DPS, payout targets) and FCF coverage

Relative Positioning: Within domestic office furniture and workplace solutions peers, Okamura exhibits superior balance sheet strength and cash conversion but lags on capital efficiency and margin trajectory. Its strong liquidity and low leverage provide flexibility, yet improving ROIC and restoring operating leverage are prerequisites to close the gap with best-in-class operators.

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