Ashot in the First Quarter: Defense Carries Profit While Aerospace Still Waits for Pace
Ashot opened 2026 with record quarterly profitability, but the segment split is sharp: nearly all operating profit came from defense, while aerospace and Reliance Gear have not yet proved a stronger run rate. The cash improvement is real, but it came from collections, working-capital release, and an equity raise, so the next quarters need to show recurring conversion of backlog into revenue and cash.
Ashot opened 2026 with a quarter that looks strong on almost every headline line: revenue of NIS 126.7 million, operating profit of NIS 21.2 million, net profit of NIS 18.2 million, EBITDA of NIS 25.9 million, and firm backlog that rose to NIS 1.38 billion. The internal split matters more than the headline. This quarter mainly proves that the defense segment can convert part of the order wave into revenue, profitability, and collections, while aerospace and Reliance Gear have not yet provided the same proof. That continues the checkpoint flagged in the prior annual analysis: demand is no longer the central issue, but the pace at which work turns into sales, cash, and repeatable profit is still the key. The good news is that trade receivables fell by NIS 38.2 million and total inventory fell by NIS 18.4 million versus year-end 2025, meaning part of the working-capital pressure was released. The less clean part is that the cash balance jumped mainly after an equity raise of about NIS 120 million, and that new capital still needs to prove that it buys capacity, acquisitions, or additional profitability rather than just a balance-sheet cushion. The current read is better than it was at the end of 2025, but it is still a one-engine read: defense is carrying the quarter, and aerospace still needs to show renewed sales and margin pace.
Company Map
The company is not just a metal manufacturer. Its economics are built around production, development, and maintenance of propulsion systems, transmissions, final drives, armored-vehicle assemblies, missile components, and critical aerospace and semiconductor-customer components. In Israel, it benefits from a strategic position with the Ministry of Defense and from domestic manufacturing capabilities that became more important during the war. In the US, Reliance Gear is supposed to provide proximity to American customers and help use US military aid flows, but it is still too small in profit contribution to change the group profile by itself.
The economic machine is a mix of margin, backlog, and working capital. An industrial company like this is not measured only by the size of its orders. It is measured by whether it can move them through production lines, buy long-lead raw materials on time, collect from large customers, and preserve margin while activity requires inventory, labor, and equipment before cash arrives. That is why the first quarter is worth a closer read: revenue rose by only 4.3%, but net profit increased by 23.6% and working capital improved. This was not broad growth across every engine. It was a quarter in which the defense segment did nearly all the work.
The Quarter Belongs to Defense
The consolidated sales figure almost hides what happened inside the group. Revenue rose from NIS 121.5 million to NIS 126.7 million, but the defense segment alone rose from NIS 79.5 million to NIS 112.6 million. Aerospace and complex assemblies fell from NIS 38.7 million to NIS 12.9 million, while Reliance Gear fell in external sales from NIS 3.3 million to NIS 1.3 million.
The profit split is even sharper. Defense operating profit rose to NIS 20.2 million, almost the entire consolidated operating profit. Aerospace contributed only NIS 0.2 million of operating profit in the quarter, and Reliance Gear contributed NIS 0.7 million. The record quarter therefore does not mean all of the group growth engines matured at once. It means defense moved up a level, while the other engines still need to join.
There is a business explanation that softens the aerospace decline, but it does not erase it. Management frames the decline as unrepresentative of the annual sales pace, given the spread of backlog and expected orders. In the investor presentation, management also says significant aerospace contracts were signed in 2025 on improved terms, that it is negotiating additional deals likely to be signed during 2026, and that complex products in this area carry roughly two-year lead times, so sales under the new agreements are expected to begin only in late 2027 or early 2028. That makes 2026 a bridge year for aerospace: the commercial story exists, but the profit and run rate are not yet visible in the quarterly numbers.
Backlog Is Firmer, But Much of the Depth Is Long Dated
Firm backlog rose to NIS 1.38 billion, compared with NIS 1.19 billion at the end of 2025. That is an important change because these are orders with absolute customer commitments, not only customer estimates under framework agreements. Alongside that backlog, the group has NIS 1.25 billion of expected orders, including NIS 566 million in defense and NIS 683 million in aerospace. Together, firm backlog and expected orders total NIS 2.63 billion.
That large number is not all near-term. Based on the company's schedule, NIS 378.9 million is assigned to 2026, NIS 550.1 million to 2027, NIS 509.8 million to 2028, and NIS 1.19 billion to 2029 and later. This is strong business visibility, but also a reminder that a large part of the economic depth will be tested over years, not in a single quarter.
The early-year events strengthen that read. In January, the company received NIS 61 million of orders for transmission MRO work scheduled for 2026-2027 and NIS 64 million of orders for spare parts, suspension systems, final drives, and kits scheduled for 2026-2028. In February, it received another NIS 131 million order for transmission MRO work scheduled for 2027-2032. Within the ten-year NIS 560 million MRO framework, NIS 253 million of actual orders have already been received. That is real progress from framework into committed work, but it also shows why backlog is not enough by itself: the company still needs deliveries, collections, and margin discipline while it expands production lines and builds infrastructure.
Cash Improved, But the New Capital Still Needs to Work
Liquidity looks very different from year-end 2025. Cash rose from NIS 5.8 million to NIS 141.5 million, equity rose to NIS 700.4 million, and the equity-to-assets ratio reached 63.2%, far above the bank covenant of 20% or NIS 60 million, whichever is higher. Short-term credit also fell to NIS 43.3 million after NIS 8.6 million of net repayment during the quarter.
Still, the improvement has two separate sources. The first is operating: operating cash flow was NIS 24.9 million, even though it declined from NIS 28.5 million in the comparable quarter. Its quality looks better than at year-end because receivables fell by NIS 38.2 million and total inventory fell by NIS 18.4 million compared with the end of 2025. The company attributes the receivables decline mainly to repayment of 2025 overdue debts by the Ministry of Defense, and the inventory decline to use of inventory purchased in prior periods and the start of revenue recognition in projects that had not previously met recognition conditions.
The second source is capital: a net equity raise of NIS 119.3 million. On an all-in cash-flexibility basis after the period's actual cash uses, before the new equity, the quarter was positive but much smaller than the cash-balance jump: NIS 24.9 million of operating cash flow plus NIS 2.0 million net inflow from investing activities, against about NIS 10.2 million of short-term credit repayment, lease principal, and interest. In other words, operations started releasing cash, but most of the new cash balance came from the share issue. The next question is not just whether the balance sheet is full of cash. It is what the company does with that capital: machinery, automation, production infrastructure, or acquisitions that can add profit rather than only balance-sheet scale.
What Decides the Next Quarters
2026 currently looks like a positive proof year, not a year in which every question has been answered. Defense is already showing revenue, profitability, and collections, and firm backlog has increased. For the read to improve further, 2026-2028 deliveries need to continue without a renewed build-up of receivables and inventory, the new serial agreement with the Ministry of Defense needs to advance, and the new capital needs to become capacity or acquisitions with real contribution.
The counter-thesis is straightforward: the market may give too much weight to a record quarter that rests on one segment. The sharp aerospace decline, Reliance Gear's low contribution, labor actions at the Ashkelon plant, and US tariffs that are currently immaterial but depend on customer contract terms all keep the story from being broad and clean. The positive turning point would be another quarter in which defense keeps delivering and collecting, aerospace shows signs of returning to pace, and the new cash starts working for the business rather than merely sitting on the balance sheet.
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