Giken Holdings Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.19B
• Operating Income: ¥362M
• Net Income: ¥224M
• 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

For FY2026 Q2, Giken Holdings (1443) delivered a strong profit rebound despite a modest top-line contraction. Revenue was JPY 2,186 million, down 3.5% YoY, but operating income surged 60.1% YoY to JPY 362 million, signaling meaningful margin recovery driven by cost control and/or improved project mix. Gross margin stood at 26.5%, and operating margin expanded to approximately 16.6%, pointing to improved execution and operating leverage. Ordinary income reached JPY 480 million, and net income was JPY 333 million (+48.8% YoY), with EPS of JPY 20.51. DuPont decomposition indicates a net margin of 15.23%, asset turnover of 0.129x, and financial leverage of 1.42x, yielding an ROE of 2.80% for the period. Liquidity appears sound with a current ratio of 180.6% and quick ratio of 157.7%, supported by working capital of JPY 1,822 million. The balance sheet is conservatively levered with a debt-to-equity ratio of 0.44x and interest coverage of 13.1x, providing financial flexibility. However, cash conversion was weak: operating cash flow was only JPY 6 million versus net income of JPY 333 million (OCF/NI = 0.02), implying substantial working capital outflows or timing effects typical of project-based businesses. Financing cash flow was an outflow of JPY 275 million, likely debt repayment; no dividends were paid (DPS = JPY 0). Several items reported as zero (e.g., cash and equivalents, investing cash flow, equity ratio, share counts, book value per share) are not disclosed rather than true zeros, limiting precision on certain ratios and per-share metrics. The effective tax rate shown as 0.0% is not meaningful given the data; reported income tax was JPY 107 million. The improved profitability against a revenue decline suggests resilient demand in core segments and disciplined cost management. Asset turnover remains low, indicating a capital-intensive model and/or early-stage revenue recognition relative to the asset base. With profitability momentum and solid solvency, the key near-term watchpoint is normalization of operating cash flow and working capital discipline. Absent dividends, capital allocation appears oriented toward balance sheet strength and potential reinvestment. Overall, earnings quality is mixed: margins and coverage improved, but cash realization lagged materially.

Profitability Analysis

ROE decomposition: Net profit margin 15.23% x Asset turnover 0.129x x Financial leverage 1.42x = ROE 2.80% for the half-year. Operating margin is approximately 16.6% (Operating income JPY 362m / Revenue JPY 2,186m), a sharp improvement vs. the prior year implied by +60.1% YoY operating income despite lower revenue. Gross margin at 26.5% indicates decent value-add after direct costs, and the spread to operating margin suggests improved SG&A efficiency. EBITDA was JPY 434.8m, yielding an EBITDA margin of 19.9%, providing an additional buffer over operating income and supporting interest coverage. Ordinary income at JPY 480m implies positive non-operating contribution, further cushioning profits. The profit mix indicates leverage to cost discipline and potential favorable project pricing/mix; however, sustainability will depend on backlog quality and execution. Operating leverage is evident: a small revenue decline accompanied by a large increase in operating income implies significant fixed-cost absorption and/or one-off cost saves. Margin quality is directionally positive but should be validated against segment-level profitability and any non-recurring items (not disclosed here).

Growth Assessment

Revenue decreased 3.5% YoY to JPY 2,186m, indicating modest top-line softness, possibly from project timing or cautious demand in certain end-markets. Despite the decline, operating income growth of 60.1% YoY evidences strong margin expansion, suggesting improved pricing, mix, or cost base optimization. Net income rose 48.8% YoY to JPY 333m, confirming broad-based profit improvement beyond operating level. Asset turnover at 0.129x remains low, consistent with a capital-intensive or early-cycle revenue recognition profile; unlocking growth will require conversion of assets (including work-in-progress and receivables) into billings. The quality of profit growth is mixed: GAAP earnings expanded strongly, but OCF was only JPY 6m, implying heavy working capital investment or timing differences. With ordinary income exceeding operating income, non-operating items supported growth, which may not be repeatable. Near-term outlook hinges on backlog execution, bid pipeline, and stabilization of input costs; if the current cost discipline persists and revenue normalizes, margins could remain above prior-year levels. Data gaps (e.g., no disclosure for investing cash flow or cash balances) limit visibility into capacity expansion or inorganic growth actions.

Financial Health

Total assets were JPY 16,932m, liabilities JPY 5,249m, and equity JPY 11,898m, implying a conservative capital structure (Assets/Equity ≈ 1.42x). Current assets were JPY 4,083m against current liabilities of JPY 2,261m, producing a current ratio of 180.6% and quick ratio of 157.7%, both healthy for a project-based business. Working capital stood at JPY 1,822m, providing a cushion for project execution and seasonal needs. Debt-to-equity of 0.44x indicates moderate leverage, and interest coverage of 13.1x (EBIT/interest) suggests ample headroom under current profitability. Financing cash flow was a net outflow of JPY 275m (likely debt amortization or lease payments) without dividend outlays, further reinforcing balance sheet prudence. The reported equity ratio at 0.0% and cash balance at 0 are non-disclosures rather than true values; based on liabilities and equity, the economic equity ratio would be strong (~70% if computed as equity/asset). Overall solvency is solid, though liquidity quality should be monitored given weak OCF.

Cash Flow Quality

Operating cash flow was JPY 6m versus net income of JPY 333m (OCF/NI = 0.02), indicating very weak cash conversion this half, likely due to working capital build (e.g., receivables, contract assets, or inventory). Free cash flow is shown as zero due to missing investing cash flow disclosure; thus, true FCF cannot be determined from the provided data. Depreciation and amortization of JPY 72.8m indicates modest non-cash expenses relative to EBITDA (D&A/EBITDA ≈ 16.8%). The gap between operating profit growth and cash generation raises questions about billing milestones and collection timing; these are common in construction/engineering but need normalization in subsequent periods. Financing outflows of JPY 275m without dividends suggest debt repayments consumed cash while OCF was constrained. Working capital management will be a key driver of cash flow quality going forward; inventories of JPY 517m are moderate relative to current assets, but receivables/contract assets (not disclosed) likely explain the OCF shortfall. Absent detailed investing cash flows and cash balances, liquidity assessment requires caution, albeit balance sheet ratios indicate adequate buffers.

Dividend Sustainability

The company paid no dividends during the period (DPS JPY 0; payout ratio 0%). With OCF at JPY 6m and FCF not determinable (investing CF undisclosed), near-term dividend capacity depends on cash flow normalization rather than accounting earnings. Balance sheet strength (low leverage, strong current and quick ratios) provides flexibility, but management appears to prioritize deleveraging/financial stability (financing CF outflow of JPY 275m). For any future dividend resumption or increase, sustained positive OCF, stable working capital, and visibility on capex needs would be prerequisites. Given profit momentum but weak cash conversion this half, a conservative distribution policy is likely prudent until cash metrics improve.

Risk Assessment

Business Risks:

• Project timing and backlog execution risk affecting revenue recognition and cash collections
• Input cost volatility (materials, labor) impacting margins
• Competitive bidding pressure compressing project margins
• Customer credit and collection risk tied to milestone-based billing
• Regulatory and permitting delays in construction/engineering projects
• Concentration risk if revenue is reliant on a limited number of large projects or clients

Financial Risks:

• Weak cash conversion (OCF/NI = 0.02) indicating working capital strain
• Potential refinancing risk if interest-bearing debt amortization continues alongside low OCF
• Non-operating income dependence (ordinary > operating) may not be recurring
• Limited disclosure on cash balances and investing cash flows constrains liquidity visibility
• Interest rate risk on floating-rate debt amid potential rate volatility

Key Concerns:

• Sustainability of elevated operating margins amid declining revenue
• Normalization of operating cash flow and reduction of receivable days
• Visibility on order backlog and book-to-bill to support revenue recovery
• Clarity on capital expenditure plans and their impact on future FCF
• Potential one-off or non-recurring items influencing current-period profitability

Investment Implications

Key Takeaways:

• Margin recovery is robust: operating margin ~16.6% with operating income +60.1% YoY despite revenue -3.5% YoY
• Balance sheet is conservatively levered (D/E 0.44x) with strong liquidity (current ratio 180.6%)
• Cash conversion is the main weakness (OCF/NI 0.02), likely due to working capital build
• Ordinary income exceeding operating income suggests some non-operating support to earnings
• Data gaps (cash, investing CF, shares) limit per-share and FCF analysis granularity

Metrics to Watch:

• OCF/Net income and working capital metrics (receivable and contract asset days, inventory days, payables days)
• Backlog and book-to-bill ratio; new order intake and win rates
• Segment-level gross and operating margins to assess mix effects
• Interest-bearing debt balance and schedule versus OCF
• Capex and investing cash flows to refine FCF outlook

Relative Positioning: Within domestic construction/engineering peers, the company currently exhibits above-peer margin momentum and solid solvency, but trails on cash conversion and asset turnover; sustained advantage depends on backlog quality and working capital discipline.

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
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