OYO Corporation FY2026 Q2 Earnings Report

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Executive Summary

Both revenue and profit contracted, resulting in lower revenue and lower profit accompanied by a deterioration in the operating profit margin. Revenue was ¥35.16B (down -4.5% year on year), operating income was ¥1.95B (down -27.2%), ordinary income was ¥2.24B (down -26.9%), and net income attributable to owners of the parent was ¥1.66B (down -36.2%). In addition to selling, general and administrative expenses declining only modestly relative to the decrease in revenue, thereby increasing the fixed-cost burden, the reversal of the decline in gains on sales of investment securities from the substantial gain recorded in the previous year weighed on net income. Meanwhile, operating cash flow was secured at ¥16.58B, substantially exceeding net income, and financial flexibility remains ample.

Factors Affecting Performance

【Revenue】Revenue was ¥35.16B, down -4.5% year on year. The primary cause appears to have been a slowdown in project activity and execution, with progress toward the full-year plan of ¥75B at 46.9%, slightly below the standard progress rate of 50%.

【Profit and Loss】The cost-of-sales ratio rose to 66.6% (66.0% in the previous year), while the gross profit margin declined by -0.6pt from the previous year to 33.4%. Although SG&A expenses decreased to ¥9.79B (¥9.86B in the previous year, -0.7%), the decline was modest relative to the decrease in revenue, causing the SG&A ratio to rise to 27.9% (26.8% in the previous year) and the operating profit margin to contract to 5.5% (7.3% in the previous year). Below operating income, interest and dividend income made a stable contribution, while a foreign exchange loss of ¥0.03B was incurred, resulting in ordinary income of ¥2.24B (down -26.9% year on year). Extraordinary income totaled ¥0.31B, primarily comprising a ¥0.26B gain on sales of investment securities; however, the contribution from extraordinary gains and losses diminished due to the reversal of the substantial gain on sales recorded in the previous year (approximately ¥1.47B), resulting in net income of ¥1.66B (down -36.2% year on year). In conclusion, in the absence of revenue growth drivers, cost reductions failed to keep pace, resulting in lower revenue and lower profit.

Key Financial Indicators

【Profitability】The operating profit margin of 5.5% declined from 7.3% in the previous year, while the gross profit margin of 33.4% (34.0% in the previous year) and net profit margin of 4.7% (7.1% in the previous year) also contracted. The primary cause of the deterioration in margins was the increase in the SG&A ratio to 27.9% (26.8% in the previous year) amid declining revenue. 【Cash Flow Quality】Operating cash flow was ¥16.58B, approximately 10 times net income of ¥1.66B, supported by a temporary improvement in working capital, primarily due to a decrease in trade receivables (+¥17.52B). 【Investment Efficiency】ROE remained low at 2.1%, while asset efficiency has been diluted, with cash accounting for 36% of total assets; the low total asset turnover ratio is weighing on capital efficiency. 【Financial Soundness】The equity ratio remained high at 75.8% (72.6% in the previous year), and cash and deposits totaled ¥37.44B, providing ample liquidity relative to short-term borrowings of ¥1.896B.

Cash Flow Analysis

Operating cash flow was ¥16.58B, a slight decrease from the previous year (equivalent to ¥16.79B), but remained at a high level substantially exceeding net income of ¥1.66B. The primary factor was cash inflow from a substantial decrease in trade receivables (+¥17.52B), with an increase in advances received and related items also contributing, while a decrease in trade payables (-¥1.31B) was a source of cash outflow. Investing cash flow was a modest inflow of ¥0.15B. Capital expenditures of ¥0.77B remained approximately in line with depreciation and amortization of ¥0.87B, providing little indication of an expansionary investment stance. Financing cash flow was -¥2.44B, primarily due to dividend payments and net repayments of short-term borrowings. As a result, free cash flow was ample at ¥16.73B, and cash and cash equivalents at the end of the period had accumulated to ¥32.39B from the previous year. It should be noted that the temporary cash generation resulting from the collection of trade receivables further strengthened financial flexibility.

Quality of Earnings

The earnings structure for the current period reflected a partial offset of declining core operating profitability by non-operating income and extraordinary gains and losses. Non-operating income was primarily composed of interest income of ¥0.11B and dividend income of ¥0.03B, equivalent to approximately 1% of revenue and therefore having a limited impact. Of the ¥0.31B in extraordinary income, the ¥0.26B gain on sales of investment securities supported net income; however, its scale was smaller than the substantial gain on sales recorded in the previous year (approximately ¥1.47B), indicating that dependence on temporary factors has actually decreased. The difference between ordinary income and net income (profit before tax of ¥2.51B and income taxes and other taxes of ¥0.84B) can be explained by an effective tax rate of approximately 33.5%, with no particularly unusual divergence. Although operating cash flow reached approximately 10 times net income, this was attributable to the temporary release of working capital through a decrease in trade receivables. While the quality of cash flow itself is high, the equivalent positive effect may normalize going forward.

Earnings Forecast and Guidance

Progress in the first half toward the full-year plan (revenue of ¥75B, operating income of ¥4.2B, ordinary income of ¥4.8B, and net income of ¥3.9B) was 46.9% for revenue, 46.4% for operating income, 46.8% for ordinary income, and 42.5% for net income. All figures were below the standard progress rate of 50% for the first half, with the shortfall in net income somewhat more pronounced. There were no revisions to either the earnings forecast or the dividend forecast (“None”), and the Company appears to anticipate achieving its plan based on an improvement in activity levels and project execution during the second half.

Shareholder Returns

The interim dividend was ¥55 per share, and the full-year dividend forecast is ¥110 (an increase from the previous full-year dividend). The payout ratio calculated based on first-half net income of ¥1.66B is high; however, operating cash flow and free cash flow substantially exceed dividend payments of ¥1.56B, and there is little concern regarding dividend sustainability given the cash balance. No new share repurchases were conducted during the first half, and shareholder returns continue to be centered on dividends.

Risk Factors

1. Deterioration in profitability: The operating profit margin declined to 5.5% from 7.3% in the previous year, while the increase in the SG&A ratio to 27.9% has increased the fixed-cost burden. If the cost structure is not reviewed amid declining revenue, margins may continue to deteriorate.

2. Temporary factor supporting operating cash flow: Operating cash flow of ¥16.58B is heavily dependent on the substantial decrease in trade receivables (+¥17.52B). If this working-capital improvement effect diminishes from the next fiscal period onward, cash flow may normalize.

3. Delayed progress toward the full-year plan: Net income progress was 42.5%, below the standard rate of 50%, making an improvement in activity levels and project execution during the second half a prerequisite for achieving the plan.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Returns

The Company’s profitability is substantially below the industry median and ranks toward the lower end of the industry.

Growth and Capital Efficiency

The growth rate is also substantially below the industry median, contrasting with the majority of companies in the industry that are on a revenue growth trajectory.

Source: Company analysis

Key Takeaways from the Earnings Results

1. The Company reported lower revenue and lower profit, with revenue down -4.5% and operating income down -27.2%. The evident deterioration in margins from both the gross profit margin and SG&A ratio perspectives is a key point in the earnings results.

2. Operating cash flow reached ¥16.58B, approximately 10 times net income, with the temporary release of working capital through a decrease in trade receivables making a significant contribution. The sustainability of this positive effect will be an area to monitor going forward.

3. Financial soundness remains high, with an equity ratio of 75.8% and cash and deposits of ¥37.44B. Although progress toward the full-year plan is somewhat delayed, no revised forecast has been issued.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,991–¥3,158 at ±1% for the cost of equity, and ¥3,060–¥3,081 at ±0.1 for ω.

Notes:

• Goodwill amortization of ¥8.3 per share has been added back to earnings (to account for a non-cash expense 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 quarter-end have been used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat above the appropriate level.

(Calculation model: Residual income model (Ohlson-type, explicit five-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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, in consultation with a professional advisor as necessary.

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