OILES CORPORATION Q2 FY2026 earnings call

• Overall Business Context & Long-Term Strategy

  • The firm is in the second year of its medium-term management plan, launched after the 2021 announcement of the long-term "OILES 2030 VISION", which aims to achieve sustainable growth and higher enterprise value by contributing to sustainable society through core tribology and damping technology + new technology/new business creation (the " + X" initiative).
  • Medium-term plan priorities include focusing on growth markets, improving productivity through business reform and production technology development, and capital efficiency-focused financial management. The 2026 (final medium-term plan year) targets of 75 billion yen revenue, 7.35 billion yen operating profit, and ROE of 8%+ are unchanged; 2030 VISION targets are 15%+ operating margin and 10%+ ROE.

• Segment Level Operational Progress

  • General Bearing Equipment: Focusing on growth in electronics and renewable energy markets. Mass production of air spindles for semiconductor manufacturing equipment has been secured, and high value-added unitized product integration is delivering results; specification-in activities are ongoing in India and China for renewable energy projects, alongside new product launches and capturing North American maintenance demand. 2026 medium-term target: 16.7 billion yen revenue, 1.7 billion yen operating profit.
  • Automotive Bearing Equipment: Expanding sales in high-growth China and India markets. India's second plant construction is progressing on schedule, and sales expansion targeting non-Japanese local manufacturers is accelerating. Sales of air suspension bearings for new energy vehicles are growing faster than planned, and development of high-load, high-durability products for increased battery weight is ongoing. 2026 medium-term target: 36.3 billion yen revenue, 3.8 billion yen operating profit.
  • Structural Equipment: Expanding product lines to target growing infrastructure renewal seismic reinforcement demand; actively promoting specification-in for urban redevelopment, data center, and logistics center projects. 2026 medium-term target: 13.5 billion yen revenue, 1.2 billion yen operating profit.
  • Construction Equipment: Maintaining share in the new construction market while prioritizing expansion into the growing renewal and maintenance market driven by demand for longer building lifespans. 2026 medium-term target: 6.5 billion yen revenue, 560 million yen operating profit.

• Corporate Infrastructure & Capital Strategy

  • New business creation: Advancing internal proof-of-concept for employee-selected candidate projects based on the firm's existing intellectual property.
  • Operational improvement: Promoting digitalization at all plants, with generative AI training becoming established; proactive capital investment for aging equipment replacement and productivity improvement, with all projects (including R&D investments) on track to meet plan.
  • Human capital management: Improving internal culture and organizational capability through expanded training and new business participation, with results reflected in ongoing employee engagement surveys.
  • Capital efficiency and shareholder focus: ROE improved from 7.6% to 8.4% in 2024; targets 8%+ by 2026 and 10%+ by 2030. The 3-year medium-term cash flow plan projects 16 billion yen in cumulative net income and 12 billion yen in cumulative depreciation, with 20 billion yen in cumulative planned capital expenditure (including large test equipment for structural equipment, new shipping facilities, and India's second automotive plant). The firm is considering continued appropriate use of debt and reduction of cross-held policy shares.

1. General Bearing Equipment (non-automotive): Revenue of 7.738 billion yen, operating profit of 847 million yen. Revenue grew +5% YoY, operating profit grew +49.8% YoY, contributing 23.1% of total consolidated revenue. 2. Automotive Bearing Equipment: Revenue of 16.381 billion yen, operating profit of 1.552 billion yen. Revenue decreased -2.1% YoY, operating profit decreased -18% YoY, contributing 49.0% of total consolidated revenue. 3. Structural Equipment (seismic isolation/damping): Revenue of 5.991 billion yen, operating profit of 781 million yen. Revenue grew +6.5% YoY, operating profit decreased -26.1% YoY, contributing 17.9% of total consolidated revenue. 4. Construction Equipment (OILES ECO subsidiary): Revenue of 2.436 billion yen, operating loss of 70 million yen, contributing 7.3% of total consolidated revenue. Total consolidated revenue: 33.461 billion yen, with an overall 0.8% YoY revenue increase.

• Full-year 2026 March consolidated guidance: Revenue of 67.5 billion yen (down 5.2% from prior guidance, down 0.2% YoY), operating profit of 5.6 billion yen (down 12.5% from prior guidance, down 19.3% YoY), net income attributable to parent shareholders of 4.1 billion yen (down 12.8% from prior guidance, down 35% YoY). Full-year annual dividend guidance is maintained at 85 yen per share (42 yen interim, 43 yen year-end), with a projected payout ratio of 60.4%.
• General Bearing Equipment: Full-year guidance maintained at 15.6 billion yen revenue (+5% YoY) and 1.3 billion yen operating profit (+15% YoY). Weak domestic demand for molding/machine tools is expected to be offset by large water turbine projects and projected H2 growth in semiconductor and hydropower projects in China.
• Automotive Bearing Equipment: Full-year revenue guidance cut by 0.7 billion yen to 34 billion yen (flat YoY), while operating profit guidance is raised by 0.1 billion yen to 3.2 billion yen (-5% YoY). The downward revenue revision reflects weak Japanese OEM sales, offset partially by favorable forex impact; the upward profit revision reflects lower than expected North American tariff impact from tariff rate cuts, pricing actions, and distribution adjustments. Global auto production is projected to be nearly 2% higher than prior guidance, led by China, though North America and Japan are still expected to see year-over-year declines.
• Structural Equipment: Full-year guidance cut by 2.4 billion yen revenue (to 10.2 billion yen) and 0.8 billion yen operating profit (to 0.6 billion yen), due to the Ashikiga facility performance test equipment issue. Order backlog remains sufficient to meet full-year targets, and sales activity continues focused on seismic reinforcement, urban redevelopment, and logistics center projects.
• Construction Equipment: Full-year guidance cut by 0.46 billion yen revenue (to 6.0 billion yen) and 90 million yen operating profit (to 450 million yen), reflecting weak H1 market conditions, though order backlog exceeds last year's level and the firm still expects a H2 recovery. The firm will continue expanding activity in the growing renovation and remodeling market.

• A performance test equipment malfunction at the Ashikiga plant (which manufactures seismic isolation/damping devices) forced a temporary shutdown of the equipment. While alternative testing capacity at internal and external facilities is being utilized, the issue is expected to negatively impact Structural Equipment segment profitability, and has driven the full-year consolidated guidance downgrade. Products that require this specific test for certification face potential shipment delays.
• Persistent inflation concerns continue, and the global economic outlook remains uncertain due to US trade policy and slowing Chinese economic growth.
• Weak construction market conditions (declining building start floor space, rising labor and material costs) are pressuring Construction Equipment segment performance.
• Auto production remains depressed in North America and Europe, pressuring Automotive Bearing segment results, while slowing demand in China's general machinery sector weighed on H1 general bearing performance.

Q: With a very high 80%+ equity ratio, what is the priority ranking for future capital allocation between share buybacks, growth investments, and other uses? / A: Management prioritizes growth investment as the top use of capital. The firm will continue to evaluate additional capital return actions (such as share buybacks) after accounting for the required level of internal retention to support medium and long-term growth, and will respond flexibly based on market conditions while balancing the need to maintain an appropriate level of internal capital to meet ROE targets.