Giken Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.19B
• Operating Income: ¥362M
• Net Income: ¥333M
• EPS: ¥20.51

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Solid profitability rebound despite softer top-line, with improved margins and healthy cash conversion. Revenue was 21.86, down 3.5% YoY, but operating income rose 60.1% YoY to 3.62, lifting operating margin to 16.6%. Ordinary income increased 50.8% YoY to 4.80, aided by sizable non-operating income of 1.43, primarily dividend income of 1.34. Net income rose 48.8% YoY to 3.33, pushing net margin to 15.2%. Using prior-period derivations, operating margin expanded by roughly 660 bps (from ~10.0% to 16.6%). Net margin expanded by about 530 bps (from ~9.9% to 15.2%). Ordinary margin expanded by roughly 800 bps (from ~14.0% to 22.0%). Gross margin stands at 30.5%, and EBITDA margin at 19.0%, underscoring cost discipline and operating leverage. Earnings quality is sound, with OCF of 4.42 exceeding net income (OCF/NI = 1.33x), indicating cash-backed earnings. Balance sheet resilience is evident with a current ratio of 190%, quick ratio of 163.7%, D/E of 0.42x, and interest coverage of 14.81x. However, capital efficiency is weak: ROIC is 1.9% (warning threshold <5%), and asset turnover is low at 0.129, dragging ROE (2.8%) despite margin gains. Profit composition shows meaningful reliance on non-operating dividend income (non-operating income ratio 42.8%), highlighting exposure to investment securities performance (70.82 on the balance sheet). Financing cash flow was -2.74, likely debt repayments or modest shareholder returns; detailed dividend/repurchase data are unreported. Total comprehensive income was 10.00, well above net income, suggesting significant valuation gains in securities—non-cash and potentially volatile. Forward-looking, sustaining elevated margins while reducing dependence on non-operating gains, improving asset turnover, and lifting ROIC will be key to durable value creation. Overall, Q2 demonstrates a profitable, cash-generative quarter with robust liquidity, tempered by low capital efficiency and sensitivity to financial asset income.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.8% = Net Profit Margin 15.2% × Asset Turnover 0.129 × Financial Leverage 1.42x. The largest swing factor is Net Profit Margin, which expanded materially YoY (estimated +530 bps), driven by strong operating margin expansion (+~660 bps) and boosted further by non-operating dividend income. Asset turnover remains very low at 0.129, reflecting either a capital-heavy asset base (notably investment securities of 70.82 and noncurrent assets 132.43) relative to revenue, or seasonality in Q2 revenue recognition. Financial leverage at 1.42x is moderate, offering limited ROE amplification. Business drivers: improved cost control (SG&A stable at 3.04 against lower sales) and favorable non-operating income lifted margins; interest cost is modest (0.24) vs EBITDA (4.16), supporting operating leverage. Sustainability: operating margin improvement appears partly structural (cost discipline) but also aided by non-operating dividends, which are inherently variable; absent continued high dividend income, ordinary and net margins could compress. Watch for SG&A growth vs revenue; with revenue declining 3.5% and SG&A at 3.04, any future SG&A growth outpacing sales would pressure margins.

Growth Assessment

Top-line contracted 3.5% YoY to 21.86; growth is currently cost- and mix-led rather than volume-driven. Operating income growth of 60.1% YoY (3.62) reflects operating leverage and cost containment; ordinary income growth of 50.8% (4.80) is additionally supported by dividends (1.34). Net income rose 48.8% to 3.33 despite a 33.5% effective tax rate. The sustainability of profit growth hinges on maintaining operating margin gains and the stability of dividend income from investment securities; absent revenue re-acceleration, operating leverage tailwinds may fade. Backlog, order intake, and segment mix were not disclosed, limiting forward visibility. Near-term outlook: steady profitability is plausible given lean cost base and low interest burden, but growth will likely require revenue recovery and better asset utilization.

Financial Health

Liquidity is strong: current ratio 190% and quick ratio 163.7% comfortably exceed benchmarks; no warning on current ratio. Working capital of 17.48 comfortably covers 19.41 of current liabilities; maturity mismatch risk is low given 36.89 of current assets versus current liabilities. Solvency is solid with D/E of 0.42x and interest coverage of 14.81x; no D/E red flag (>2.0). Long-term loans total 25.80, with noncurrent liabilities 30.93; refinancing risk appears manageable under current leverage and coverage. Off-balance sheet items are not disclosed; no explicit contingent liabilities noted in the provided data.

Cash Flow Quality

OCF/Net Income is 1.33x (>1.0), indicating good earnings quality and cash conversion. Free cash flow is unreported, but financing CF was -2.74, suggesting debt repayments or distributions; absent investing CF detail, FCF sufficiency versus dividends/capex cannot be fully assessed. No clear signs of working capital manipulation from available data; however, receivables/payables details are unreported, limiting granularity. The gap between total comprehensive income (10.00) and net income (3.33) likely reflects unrealized gains in securities, which do not enhance cash flow and may reverse.

Dividend Sustainability

Dividend amounts are unreported, but a calculated payout ratio of 5.4% (methodology not disclosed) implies a conservative level if accurate. With OCF exceeding net income and low leverage, ongoing modest dividends appear serviceable. FCF coverage is not calculable due to missing investing CF/capex data; thus, confirmation of sustainability over a full cycle is limited. Policy outlook is unclear in the absence of DPS guidance; capital allocation appears balanced toward deleveraging (negative financing CF) and maintaining liquidity.

Risk Assessment

Business Risks:

• Revenue decline (-3.5% YoY) amid margin-driven earnings; potential sensitivity to demand softness.
• Profit dependence on non-operating dividend income (1.34), exposing earnings to investee payout variability.
• Execution risk on projects typical of engineering/construction (cost overruns, delays).
• Input cost and labor availability pressures that could erode gross margin (currently 30.5%).
• Low asset turnover (0.129) indicating underutilized assets or timing/seasonality risk, weighing on ROIC.

Financial Risks:

• Low ROIC at 1.9% (below 5% warning) could depress long-term value creation.
• Equity price/valuation risk tied to investment securities (70.82) influencing comprehensive income and potentially dividend flows.
• Interest rate risk on 25.80 of long-term loans; currently mitigated by high coverage (14.81x).
• Potential cash flow volatility given incomplete visibility on working capital dynamics (receivables/payables unreported).

Key Concerns:

• Sustainability of current margin profile if non-operating income normalizes.
• Need to improve asset efficiency to lift ROE beyond 2.8% despite strong margins.
• Data gaps (capex, investing CF, backlog) limit assessment of medium-term growth and FCF.

Investment Implications

Key Takeaways:

• Earnings beat on profitability: operating margin ~16.6% with strong YoY expansion despite lower revenue.
• Healthy cash conversion (OCF/NI 1.33x) and conservative balance sheet (D/E 0.42x, current ratio 190%).
• Profit mix leans on non-operating dividends; underlying operating profit is strong but not the sole driver.
• Capital efficiency remains the weak link: ROIC 1.9% and low asset turnover constrain ROE to 2.8%.
• Comprehensive income boosted by securities gains, which are non-cash and volatile.

Metrics to Watch:

• Order backlog and new orders trajectory to gauge revenue recovery.
• Operating margin sustainability and SG&A growth versus sales.
• Dividend income trends from investment securities and any changes in portfolio composition.
• Capex and investing CF to assess FCF and ROIC improvement path.
• Asset turnover and working capital turns to track capital efficiency progress.

Relative Positioning: Versus domestic construction/engineering mid-caps, the company exhibits stronger short-term profitability and liquidity with relatively low leverage, but lags on capital efficiency (ROIC/asset turnover) and shows a higher contribution from financial income, implying greater exposure to securities market dynamics.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis