OHBA CO.,LTD. FY2026 FY Earnings Report

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Executive Summary

The fiscal year ended May 2026 posted Revenue of ¥170.1B (¥-10.9B YoY -6.0%), a decline, while Operating Income was ¥19.6B (¥+0.2B YoY +1.5%), Ordinary Income was ¥21.4B (¥+1.4B YoY +7.2%), and Net Income was ¥14.2B (¥+1.4B YoY +10.4%), maintaining a profit-increasing trend. Despite lower Revenue, gross margin improved by 2.5pt from 31.7% to 34.2%, cost of sales ratio declined to 65.8%, and SG&A ratio rose only marginally to 22.7%, resulting in an improvement in Operating Margin from 10.7% to 11.6% (+0.9pt). Non-operating items produced a net inflow of ¥2.1B, including Dividend Income of ¥0.6B, delivering additional upside at the ordinary-income level. After tax burden, Net Margin improved to 8.3% from 7.1% (+1.2pt). Operating Cash Flow was ¥20.6B (significant improvement from ¥-5.1B prior year, +504.9% YoY), Free Cash Flow was ¥19.8B, 1.39x Net Income of ¥14.2B, showing a result that balances financial soundness and cash generation.

Drivers of Performance

[Revenue] Revenue was ¥170.1B (prior year ¥181.0B, -6.0%), a decline. The company operates a single-segment business providing integrated geospatial information, environment, urban development, design, and business solutions, and Revenue fluctuates due to timing of orders and acceptance/inspection mainly for domestic public-sector projects. This period likely saw timing shifts in project progress and acceptance compared with the prior year. Cost of sales declined to ¥111.9B (prior year ¥123.6B, -9.4%), exceeding the Revenue decline (-6.0%), and improvements in project mix and cost efficiency led to gross margin improvement to 34.2% (prior year 31.7%, +2.5pt).

[Profitability] Gross profit expanded to ¥58.2B (prior year ¥57.4B, +1.4%), which formed the basis for higher Operating Income. SG&A was restrained at ¥38.6B (prior year ¥38.0B, +1.3%), and SG&A ratio rose slightly to 22.7% (prior year 21.0%, +1.7pt), but the improvement in gross margin outweighed this, resulting in Operating Income of ¥19.6B (prior year ¥19.4B, +1.5%). Operating Margin improved to 11.6% (prior year 10.7%, +0.9pt), staying in double digits. Non-operating items consisted of Non-operating Income of ¥2.1B, including Dividend Income ¥0.6B and Interest Income ¥0.0B, while Non-operating Expenses were limited to ¥0.3B, including Interest Expense ¥0.3B, yielding a net positive contribution of ¥1.8B (prior year ¥0.6B). As a result, Ordinary Income reached ¥21.4B (prior year ¥20.0B, +7.2%), exceeding the operating-stage increase. Extraordinary gains/losses were both immaterial at ¥0.0B (extraordinary gains such as gains on sales of fixed assets) and ¥0.0B (extraordinary losses such as loss on retirement of fixed assets), leaving Ordinary Income / Profit Before Tax at ¥21.4B (prior year ¥20.0B). Income taxes were ¥6.7B (effective tax rate 31.4%), producing Net Income ¥14.2B (prior year ¥12.8B, +10.4%) and Net Margin 8.3% (prior year 7.1%, +1.2pt). Comprehensive Income was ¥23.5B (prior year ¥12.8B, +83.9%), aided by a ¥8.9B positive adjustment related to retirement benefits. In summary, despite lower Revenue, improvements in gross margin and cost control delivered higher profits.

Key Financial Metrics

[Profitability] Operating Margin was 11.6% (prior year 10.7%, +0.9pt), Net Margin was 8.3% (prior year 7.1%, +1.2pt), driven primarily by Gross Margin of 34.2% (prior year 31.7%, +2.5pt). ROE was 9.6% (prior year 10.7%; calculated from Net Income ¥14.2B ÷ Equity ¥147.4B ≈ 9.6%, prior year ¥12.8B ÷ ¥131.7B ≈ 9.7%), remaining roughly flat in a healthy range. ROA (on an Ordinary Income basis) was 11.1% (prior year 11.1%), indicating stable asset efficiency. EBIT was ¥19.6B, with an EBIT margin of 11.6%, showing improvement in operating earning power. [Cash Quality] Operating Cash Flow ¥20.6B is 1.45x Net Income ¥14.2B; Operating CF/EBITDA (approximate EBITDA adding Depreciation ¥2.1B to get EBITDA ≈ ¥21.7B) is 0.95x; Accrual ratio ((Net Income ¥14.2B - Operating CF ¥20.6B) ÷ Total Assets ¥207.2B) = -3.1%, negative, indicating good cash backing for earnings. Prior year Operating CF was ¥-5.1B, but this year improved significantly due to working capital improvements (increases in Advances received and timing of tax payments, etc.). [Investment Efficiency] Total Asset Turnover was 0.82x (Revenue ¥170.1B ÷ Total Assets ¥207.2B), slightly down from 0.84x prior year; Accounts Receivable ¥76.2B remains high and stagnant, presenting a collection-period elongation issue. Capital expenditures were ¥2.5B versus Depreciation ¥2.1B (1.2x), indicating a range from asset maintenance to selective growth. [Financial Soundness] Equity Ratio was 71.2% (prior year 71.0%), remaining high and stable; interest-bearing debt is limited, near effectively debt-free management. Current Ratio was 267.5% (Current Assets ¥106.2B ÷ Current Liabilities ¥39.7B), and Quick Ratio was 267.5%, both very high with no short-term payment concerns. Interest coverage (Operating CF ¥20.6B ÷ Interest Expense ¥0.3B) ≈ 64x, showing trivial interest burden and ample financial capacity.

Cash Flow Analysis

Operating Cash Flow was ¥20.6B (prior year ¥-5.1B), a substantial improvement, +504.9% YoY. Operating CF subtotal (pre-tax cash flow) was ¥25.0B (prior year ¥0.5B), including Depreciation ¥2.1B, increases in provisions ¥0.5B, and increases in retirement benefit-related assets -¥17.5B, among others. Working capital movements included increases in Accounts Receivable -¥0.7B, decreases in Inventory +¥0.4B, decreases in Accounts Payable -¥1.4B, and increases in Advances Received +¥4.0B, contributing net inflows. After payment of Income Taxes -¥4.7B, Operating CF totaled ¥20.6B. In the prior year, large increases in Accounts Receivable -¥13.5B and decreases in Advances Received -¥8.4B weighed on CF and turned Operating CF negative; this period reversed those trends and improved materially. Investing CF was -¥0.9B: Capital Expenditures -¥2.5B and Intangible Asset Acquisitions -¥0.1B were offset by proceeds from sales of tangible fixed assets +¥0.0B, resulting in modest outflow. Free Cash Flow was ¥19.8B (Operating CF ¥20.6B + Investing CF -¥0.9B), ample and equivalent to 1.39x Net Income ¥14.2B. Financing CF was -¥8.6B, reflecting Dividend Payments -¥6.8B and Share Repurchases -¥1.7B; proceeds from disposal of treasury stock were +¥0.0B, indicating a focus on returns rather than new financing. Consequently, Cash and Deposits rose to ¥28.1B, +¥11.2B (prior year ¥16.9B, +66.5%), strengthening liquidity. Operating CF/Net Income ratio 1.45x, OCF/EBITDA ≈ 0.95x, and Accrual ratio -3.1% are solid indicators of cash quality, but Accounts Receivable balance of ¥76.2B and elongated collection terms (DSO ≈ 163 days) remain structural issues. The increase in Advances Received has boosted Operating CF but could lead to a reversal when those amounts are recognized as Revenue in subsequent periods; sustainable working-capital improvement will be a key focus going forward.

Quality of Earnings

The gap between Ordinary Income ¥21.4B and Net Income ¥14.2B is mainly attributable to Income Taxes ¥6.7B (effective tax rate 31.4%); non-operating items and extraordinary items are very limited. Of Non-operating Income ¥2.1B, Dividend Income ¥0.6B and Interest Income ¥0.0B are the core recurring items, and Non-operating Expenses ¥0.3B are primarily Interest Expense ¥0.3B with no evident one-off causes. Extraordinary gains/losses were immaterial at ¥0.0B each, indicating a highly recurring earnings structure. Comprehensive Income ¥23.5B far exceeded Net Income ¥14.2B, driven by a ¥8.9B positive adjustment related to retirement benefits (a remeasurement gain on pension assets), which is recorded in Accumulated Other Comprehensive Income in equity and represents a temporary valuation gain. Operating Cash Flow ¥20.6B exceeding Net Income ¥14.2B and an Accrual ratio of -3.1% place earnings quality in a healthy range. However, because the prior year had Operating CF of ¥-5.1B, the current CF improvement was significantly influenced by working-capital fluctuations such as increases in Advances Received and timing of tax payments, so the sustainability should be monitored in subsequent periods. Overall, on an Ordinary Income basis profitability is high, non-recurring factors are very limited, and quality of earnings is assessed as good.

Forecasts & Guidance

Full-year guidance was Revenue ¥175.0B, Operating Income ¥20.5B, Ordinary Income ¥21.0B, Net Income ¥14.5B (EPS forecast ¥91.64), Dividend forecast ¥22.00. Actual results were Revenue ¥170.1B (achievement 97.2%), Operating Income ¥19.6B (95.6%)—slightly short at the revenue and operating stages—but Ordinary Income ¥21.4B (102.0%) and Net Income ¥14.2B (97.9%; however actual EPS ¥92.41 exceeded forecast EPS ¥91.64) were maintained due to non-operating items and tax effects. The shortfall in Revenue is attributed to timing and progress shifts in public-sector project acceptances, with some projects likely carried into the next fiscal year. Versus company guidance, Operating Income missed by ¥0.9B, but higher non-operating income led to Ordinary Income exceeding guidance by ¥0.4B, and Net Income on an EPS basis exceeded the forecast due to a reduction in average shares outstanding. Regarding outlook, the company states that "forward-looking statements are based on information available and reasonable assumptions," and given dependence on public investment trends and project mix, short-term variability remains. However, if gross margin improvements and cost containment effects take hold, maintaining high profit margins in subsequent periods is feasible.

Shareholder Returns

Annual dividend is ¥44 (interim ¥21, year-end ¥23), a large increase from ¥20 in the prior year. Payout Ratio is 50.2% (Dividend ¥44 ÷ EPS ¥92.41), a level oriented toward stable dividends. Total dividends of ¥6.8B relative to Free Cash Flow ¥19.8B yields an FCF coverage of 2.91x, indicating sustainability. Share repurchases of ¥1.7B were executed, and combined with dividends totaling ¥8.5B, the Total Return was ¥8.5B and Total Return Ratio was 59.9% (Total Return ¥8.5B ÷ Net Income ¥14.2B). Total returns were executed within Free Cash Flow ¥19.8B, strengthening shareholder returns without impairing financial soundness. Payout Ratio in the 50% range and Total Return Ratio just under 60% are around industry averages, and with continued profit growth and cash generation, further dividend increases are possible. With Equity Ratio 71.2% and Cash & Deposits ¥28.1B, financial capacity is robust and the risk of dividend cuts is low.

Risk Factors

1. Accounts Receivable collection elongation risk: Accounts Receivable ¥76.2B (equivalent to roughly 163 days DSO against Revenue ¥170.1B) is high and stagnant, and prolonged collection terms pressure working capital. This is likely due to payment cycles and acceptance conditions specific to public-sector projects, but if major receivables become delinquent or uncollectible it could affect liquidity and profitability. Accounts Receivable was ¥75.5B in the prior year at a similar level, indicating structural improvement is required.

2. Operating CF volatility due to Advances Received: The large improvement in Operating CF to ¥20.6B benefited from an increase in Advances Received (approximately ¥4.0B inflow effect). However, Advances Received are prepayments for future Revenue; when recognized as Revenue in subsequent periods, Advances Received will decline and Operating CF could experience a reversal. The prior year saw Operating CF turn negative due to a decrease in Advances Received, so working-capital volatility can lead to large quarter-to-quarter cash-flow swings.

3. Dependence on public investment and project concentration risk: As a single-segment operator primarily serving domestic public-related projects, performance is highly dependent on government/local-government budget execution and timing of large project orders and acceptances. This fiscal year saw Revenue decline -6.0%, largely due to timing shifts in project progress, and without disclosure of backlog or contract liabilities the predictability of future Revenue is limited. Loss of large project awards or delays in acceptance could cause Revenue and profit volatility; smoothing period performance is a challenge.

Industry Benchmark (Reference, Company Survey)

Profitability & Returns

Profitability exceeds the industry median, with Operating Margin and Net Margin at upper levels, reflecting advantaged cost management and gross margin improvements.

Growth & Capital Efficiency

Revenue growth lags industry median significantly, with decline driven by timing of public-sector project acceptances and order environment, making growth recovery an ongoing challenge.

※Source: Company compilation

Key Takeaways from the Financial Results

1. Sustainability of gross margin improvement and maintaining double-digit Operating Margin: Gross Margin improved from 31.7% to 34.2% (+2.5pt) and Operating Margin remained at 11.6% (double digits). Higher-value project mix and cost efficiency contributed, and if this trend continues, ROE around 10% can be maintained and serve as a source for stable dividends. Going forward, controlling SG&A growth and preserving gross margin are focal points.

2. Large improvement in Operating CF and sustainability of working-capital movements: Operating CF improved from ¥-5.1B to ¥20.6B, but this was mainly driven by increases in Advances Received and tax-payment timing, calling for vigilance on potential reversals. High Accounts Receivable of ¥76.2B (DSO ≈ 163 days) is a structural issue; shortening collection periods and improving working capital would enhance stable FCF generation and sustainability of shareholder returns.

3. Financial capacity with Equity Ratio 71.2% and Cash & Deposits ¥28.1B: Interest-bearing debt is very limited and management is near effectively debt-free, with Interest Coverage ≈ 64x indicating minimal interest burden. This financial soundness provides resilience in downturns and room for selective investment such as M&A or CAPEX. With Payout Ratio 50.2% and Total Return Ratio 59.9%, shareholder returns are in a healthy range, and continuation of stable dividends and buybacks is expected.

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This report is an AI-generated financial analysis document produced by analyzing XBRL financial statement data. It is not a recommendation to invest in specific securities. Industry benchmarks are compiled by the company based on public financial statements and are provided as reference only. Investment decisions should be made at your own responsibility and, if necessary, after consulting a professional.