OYO Corporation FY2026 Q2 Earnings Report

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Executive Summary

Cumulative Q2 FY2026 results show a double-digit decline in profit exceeding the rate of revenue decline, as operating leverage reversed due to the rigidity of SG&A expenses in addition to the decrease in revenue. Revenue was ¥35.16B (-4.5% YoY), Operating Income was ¥1.95B (-27.2%), Ordinary Income was ¥2.24B (-26.9%), and Net Income was ¥1.67B (-36.1%). The primary reason for the particularly large decline in Net Income was the reduction in extraordinary gains, mainly gains on sales of investment securities, from ¥1.47B in the same period of the previous year to ¥0.31B in the current period.

Factors Affecting Performance

【Revenue】Revenue was ¥35.16B, down 4.5% YoY. Progress against the full-year company forecast of ¥75.00B (-1.7% YoY) was 46.9%, slightly below the standard 50% level.

【Profit and Loss】Operating Income was ¥1.95B (-27.2% YoY). While gross profit declined by ¥1.09B, SG&A expenses of ¥9.79B decreased only 0.7% YoY, and lower fixed-cost absorption amplified the decline in profit. The Operating Margin was 5.5%, down approximately 1.7pt from 7.3% in the same period of the previous year. The gross margin also declined to 33.4% from 34.1%, indicating deterioration in profitability at both the cost and SG&A levels. Ordinary Income was ¥2.24B (-26.9% YoY). The decline in Net Income to ¥1.67B (-36.1% YoY) exceeded the decline at the operating level because gains on sales of investment securities declined from ¥1.47B in the same period of the previous year to ¥0.26B in the current period, resulting in a substantial reduction in extraordinary gains from ¥1.48B to ¥0.31B. Revenue and profit both declined.

Key Financial Indicators

【Profitability】The Operating Margin was 5.5%, down approximately 1.7pt from 7.3% in the same period of the previous year, while the Net Profit Margin was 4.7%, down approximately 2.3pt from 7.1%. Annualized ROE was 4.2% and annualized ROA was approximately 3.2%, indicating limited asset and capital efficiency. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥16.58B, reaching 10.0 times Net Income. However, the primary driver was a temporary working-capital inflow from the collection of ¥17.52B in accounts receivable and other items, requiring caution when used as an indicator of recurring earnings power. 【Investment Efficiency】Capital expenditures of ¥0.77B were 0.89 times depreciation and amortization expense of ¥0.87B, remaining broadly at maintenance and replacement levels. Goodwill was ¥1.03B, only 1.3% of net assets, indicating limited impairment risk related to M&A assets. 【Financial Soundness】The Equity Ratio was 75.8%, cash and deposits were ¥37.44B, and interest-bearing debt was ¥3.04B. Debt/EBITDA was approximately 1.1 times, indicating a conservatively structured balance sheet.

Cash Flow Analysis

Operating Cash Flow was ¥16.58B, Investing Cash Flow was positive at ¥0.15B, and Financing Cash Flow was -¥2.44B, resulting in free cash flow of ¥16.73B. The primary driver of OCF was a ¥17.52B cash inflow from the decrease in accounts receivable and other items, in addition to Net Income of ¥1.67B. The contribution from the release of working capital substantially exceeded ordinary profit generation. Accounts payable decreased by ¥0.57B, and no uplift effect from the extension of payment terms was identified. Investing Cash Flow was positive because proceeds from the sale of investment securities of ¥0.30B and proceeds from the sale of fixed assets of ¥0.25B exceeded capital expenditures of ¥0.77B. Financing Cash Flow was negative due to net repayment of short-term borrowings and dividend payments of ¥1.56B. Overall, cash generation during the current period was supported by the collection of working capital and asset sales; normalization of cash flow generated by the core business will be a key focus going forward.

Earnings Quality

Pre-tax income of ¥2.52B included extraordinary gains of ¥0.31B, including ¥0.26B in gains on sales of investment securities, indicating a reasonably high proportion of temporary factors. In the same period of the previous year, extraordinary gains were even larger at ¥1.48B, with gains on sales of investment securities of ¥1.47B contributing to the increase from Ordinary Income to Net Income. Accordingly, the reduction in temporary gains was the primary reason why the decline in Net Income was greater than the decline in Ordinary Income. Non-operating income of ¥0.40B and non-operating expenses of ¥0.10B made a net positive contribution, and the structure in which interest and dividend income exceeds interest expense remains in place. OCF reaching 10.0 times Net Income indicates a significant gap between accounting profit and cash generation. However, the driver was the working-capital factor of collecting ¥17.52B in accounts receivable and other items; from an accrual perspective, the apparently high cash flow quality in the current period should not be viewed directly as recurring earnings power.

Earnings Forecasts and Guidance

The full-year forecasts remain unchanged at Revenue of ¥75.00B (-1.7% YoY), Operating Income of ¥4.20B (+2.2%), and Ordinary Income of ¥4.80B (-3.1%). First-half progress was 46.9% for Revenue, 46.4% for Operating Income, 46.8% for Ordinary Income, and 42.5% for Net Income attributable to owners of the parent, with all profit metrics below the standard 50% level. The particularly slow progress in Net Income reflects the impact of reduced extraordinary gains in the first half, making the accumulation of core-business profit the key focus for the second half. Achieving full-year Operating Income of ¥4.20B will require second-half Operating Income to increase by approximately 15% from the first half.

Shareholder Returns

The interim dividend was ¥55.00 per share. The Payout Ratio against interim Net Income attributable to owners of the parent of ¥1.66B was approximately 80.7%, a high level. However, no share repurchases were recorded during the current period, so this should be evaluated as a Payout Ratio rather than a Total Return Ratio. The full-year dividend forecast is ¥110.00, and the full-year forecast Payout Ratio based on forecast EPS of ¥171.12 is approximately 64.3%, expected to decline from the interim level. Cash and deposits of ¥37.44B provide a substantial liquidity buffer for continuing dividends. However, given that current-period FCF was supported by the collection of working capital, achievement of full-year Operating Income and normalization of core-business cash flow are important considerations in assessing dividend sustainability.

Risk Factors

1. Business environment volatility risk: The timing of public investment execution and fluctuations in private-sector construction investment may affect revenue and profit margins. In the first half, the decline in Operating Income of -27.2% compared with a Revenue decline of -4.5% highlighted lower fixed-cost absorption.

2. Cash flow structure risk: OCF of ¥16.58B depended heavily on the ¥17.52B decrease in accounts receivable and other items, and cash flow could contract substantially once the collection phase normalizes or reverses.

3. Reliance on temporary gains risk: Pre-tax income of ¥2.52B included extraordinary gains of ¥0.31B, including ¥0.26B in gains on sales of investment securities. A decline in asset-sale gains would place downward pressure on Net Income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

The company’s profitability is substantially below the industry median.

Growth and Capital Efficiency

Compared with the industry’s high-growth trend, the company is in a revenue-decline phase and is disadvantaged from a growth perspective.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Operating Margin declined approximately 1.7pt YoY to 5.5%, confirming that reduced fixed-cost absorption amid declining revenue was the primary profitability issue in these results.

2. Progress against the full-year forecast for Net Income attributable to owners of the parent was 42.5%, below the progress rate for Revenue and Operating Income, which was in the 46–47% range. Structural improvement in core-business profit will therefore be required in the second half.

3. The interim Payout Ratio was high at approximately 80.7%. However, it should be noted that the high OCF in the current period was supported by the temporary collection of working capital. When assessing dividend sustainability, it is useful to confirm normalized profit and cash flow levels.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,991–¥3,158 at Cost of Equity ±1%, and ¥3,060–¥3,081 at ω±0.1.

Notes:

• Goodwill amortization of ¥8.3 per share is added back to earnings (to account for non-cash expenses and comparability with IFRS companies).
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).
• Because 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 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an automatically generated earnings analysis document produced 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 earnings data. Investment decisions should be made at your own discretion and responsibility, with consultation with professionals as necessary.

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