OSG (6136.T): Q2 positive – full-year guidance revision relatively large, earnings outlook likely to rise significantly

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OSG (6136.T): Q2 positive – full-year guidance revision relatively large, earnings outlook likely to rise significantly

OSG (6136.T)

10 July 2026 Citi Research

OSG

Valuation

We base our ¥3,300 target price on a fully-diluted FY11/27E PER of 15x. We use fully diluted EPS in view of the issuance of

convertible bonds (¥22bn maturing on December 20, 2030 with a conversion price of ¥2,069, representing potential dilution of

10.94%). OSG is one of the leading domestic cutting tool firms in a profitable niche market with few comparable dedicated listed

tool makers against which to benchmark. We think it reasonable that the shares should trade at a discount to the average for

global industrials (CY27E) and the average for Japanese industrials (CY27E) due to the firm’s relatively high dependence on the

auto sector and the long-term threat to cutting-tool demand from the expansion of BEVs. High margins, a robust balance sheet,

a dominant global market share in mainstay taps (c30%), and other positives are what makes OSG appealing.

Risks

We believe the key downside risks to our target price include: 1) faster-than-expected penetration for BEVs; 2) cost-saving

initiatives by key OSG customer industries that put downward pressure on prices; 3) production cuts by automaker customers;

4) yen strength (we estimate OP sensitivity on a parent basis for every ¥1 rate fluctuation of ¥60mn for the dollar and ¥35mn for

the euro); and 5) goodwill writedowns from past M&A activity. The main upside risks include: 1) higher production at key OSG

auto customers; 2) a rebound in civil aerospace demand and progress in winning of new aircraft customers (particularly in

Europe); 3) larger-than-forecast synergies with subsidiaries acquired through M&A; and 4) yen weakness. Should the impact of