TANAKEN Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥6.73B
• Operating Income: ¥903M
• Net Income: ¥573M
• EPS: ¥65.93

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, TANAKEN Co., Ltd. posted strong topline growth with revenue of ¥6,734 million, up 19.4% year on year, but profitability contracted meaningfully at the operating and bottom-line levels. Gross profit was ¥1,527 million, translating to a gross margin of 22.7%. Operating income declined 17.0% YoY to ¥903 million despite the higher sales, implying significant margin compression. Ordinary income was ¥917 million and net income was ¥573 million, down 15.8% YoY, driving an EPS of ¥65.93. DuPont analysis indicates an ROE of 6.85%, driven by a net margin of 8.51%, asset turnover of 0.622x, and low financial leverage of 1.29x. Operating margin stood at 13.4% and EBITDA margin at 13.8%, suggesting limited D&A burden and an asset-light operating model. The deterioration from last year’s operating margin (implied c. 19% based on disclosed YoY changes) points to adverse operating leverage, likely from higher project-related costs and/or elevated SG&A. Liquidity is strong with a current ratio of 326.8% and working capital of approximately ¥6.9 billion, supported by sizable current assets. The balance sheet is conservatively funded with total liabilities of ¥3.16 billion against equity of ¥8.37 billion, equating to a debt-to-equity of 0.38x. Operating cash flow was robust at ¥1,169 million, more than 2.0x net income, indicating high earnings-to-cash conversion for the period. Free cash flow cannot be reliably assessed due to unreported investing cash flows and capex; the reported FCF of zero reflects non-disclosure rather than economic zero. Dividend information shows DPS and payout ratio as zero for the period, which we treat as not disclosed; financing cash outflows of ¥348 million may include dividends or debt service related to prior periods. Several line items, including cash and equivalents, interest expense, equity ratio, and investing cash flows, are shown as zero due to non-disclosure in the source and should not be interpreted as actual zero values. There is also a mismatch between reported income tax expense and the bridge from ordinary income to net income, suggesting additional below-ordinary items not disclosed in the summary. Overall, the company exhibits solid growth momentum and strong liquidity, but with notable margin compression and limited visibility on certain cash and capital allocation elements. Sustaining order quality and recovering margins will be key to improving ROE. Given data limitations, the analysis focuses on the disclosed non-zero metrics and inferred trends.

Profitability Analysis

ROE of 6.85% decomposes into 8.51% net margin × 0.622x asset turnover × 1.29x financial leverage. Gross margin is 22.7% (¥1,527m/¥6,734m), operating margin is 13.4% (¥903m/¥6,734m), and ordinary margin is 13.6% (¥917m/¥6,734m). EBITDA is ¥928m with a 13.8% margin, indicating low D&A intensity (D&A ¥24.9m). Operating income decreased 17% YoY while revenue increased 19.4% YoY, implying a sharp margin decline; prior-year operating margin is inferred at roughly 19.3% (≈¥1,088m on ≈¥5,639m sales). This suggests negative operating leverage, likely due to cost inflation in materials/subcontracting, project mix, or higher SG&A. Net margin at 8.51% remains decent but below last year's implied level given the earnings decline. With low financial leverage (1.29x), ROE is primarily a function of margin and asset turnover; improving operating efficiency and project pricing would have the most impact. Ordinary income exceeded operating income slightly, indicating net non-operating gains; however, below-the-line items and tax effects limit precise reconciliation to net income. Interest expense is shown as zero (treated as unreported), so interest coverage cannot be meaningfully interpreted; nevertheless, the liability load appears modest.

Growth Assessment

Topline growth of 19.4% YoY to ¥6.73bn reflects solid demand or increased project execution. However, profit growth lagged sharply, with operating income down 17.0% and net income down 15.8% YoY, indicating revenue growth was not accretive to margins this half. The quality of growth appears mixed: volume and/or price increased, but cost pressures and/or mix diluted profitability. EBITDA margin of 13.8% versus implied higher margins in the prior year suggests temporary execution headwinds or structural cost pressure. With OCF at ¥1.17bn (2.04x NI), cash conversion is strong for the period, supporting the view that recognized earnings are underpinned by cash receipts and/or working capital releases. Sustainability hinges on order backlog quality, pricing discipline, and input cost pass-through; these are not disclosed here. Near-term outlook: growth may normalize if cost inflation moderates and project mix improves, but without visibility on backlog, guidance, or cost trends, margin recovery timing is uncertain. The company’s low leverage provides flexibility to navigate execution risk while pursuing selective growth.

Financial Health

Total assets are ¥10.82bn, liabilities ¥3.16bn, and equity ¥8.37bn, implying a conservative capital structure (liabilities-to-equity ≈0.38x). The reported equity ratio is shown as 0.0% but should be treated as not disclosed; the balance sheet composition suggests a high true equity ratio. Liquidity is strong with current assets of ¥9.95bn versus current liabilities of ¥3.04bn, yielding a current ratio of 326.8% and working capital of ¥6.90bn. Quick ratio equals current ratio due to inventories shown as zero (treated as unreported). Interest expense is shown as zero (unreported), making interest coverage metrics non-informative; however, the modest liability base and positive ordinary income indicate low solvency risk. The asset base seems light on fixed assets given low D&A, consistent with a contractor model with off-balance human capital and subcontracting. No detail on contingent liabilities or off-balance commitments is available in this snapshot.

Cash Flow Quality

Operating cash flow of ¥1,168,899k is 2.04x net income of ¥573,000k, indicating strong cash conversion and low accrual intensity in the period. Drivers are not disclosed, but the magnitude suggests favorable working capital movements (e.g., advance receipts or receivable collections) and/or prudent cost recognition. Investing cash flow is shown as zero (treated as not disclosed), preventing robust free cash flow analysis; the reported FCF of zero is a data placeholder rather than an economic outcome. With low D&A, maintenance capex requirements may be modest, but capex data is not provided. Financing cash outflows of ¥348,251k likely reflect dividends and/or debt repayments; without cash balance disclosure (cash and equivalents shown as zero due to non-disclosure), liquidity headroom cannot be precisely quantified. Overall, earnings quality appears good this period given OCF/NI > 2x, but sustainability depends on recurring working capital behavior and project billing cycles.

Dividend Sustainability

DPS and payout ratio are shown as zero and should be treated as not disclosed for this interim period. Financing cash outflows of ¥348m may include dividend payments related to prior fiscal results, but the split is not available. Without capex and cash balance disclosure, FCF coverage of dividends cannot be reliably computed; the FCF figure of zero reflects non-disclosure of investing flows. From a capacity standpoint, strong OCF and low leverage suggest room for shareholder returns over the cycle, but near-term margin compression argues for caution until profitability stabilizes. Policy outlook cannot be inferred without management guidance; we note the company’s balance sheet conservatism supports optionality.

Risk Assessment

Business Risks:

• Project cost inflation (materials, subcontracting, labor) compressing margins
• Execution risk and timing of revenue recognition across multi-period contracts
• Project mix shifts reducing gross margin versus historical levels
• Competitive bidding pressure limiting pricing power
• Dependence on macro cycles and public/private construction demand
• Labor availability and subcontractor capacity constraints

Financial Risks:

• Working capital volatility impacting cash flows despite positive OCF this period
• Limited disclosure on cash balances and investing flows reduces visibility on liquidity headroom
• Potential concentration risk in receivables/payables not disclosed
• Tax expense variability and below-the-line items causing earnings volatility

Key Concerns:

• Sharp YoY operating margin compression despite strong revenue growth
• Inability to reconcile tax line cleanly to net income without extraordinary items disclosure
• Lack of visibility on capex and cash balances; FCF indeterminate
• Interest coverage not assessable due to unreported interest expense

Investment Implications

Key Takeaways:

• Topline growth is strong (+19.4% YoY) but not translating into profit growth; operating income down 17.0% YoY
• Margins compressed: operating margin 13.4% vs. implied ~19% in prior year
• ROE of 6.85% is primarily driven by operating performance and asset turnover given low leverage
• Liquidity is robust (current ratio ~327%, working capital ~¥6.9bn) and leverage modest (liabilities-to-equity ~0.38x)
• OCF is strong (OCF/NI 2.04x), supporting earnings quality this period
• Several disclosures (cash, investing CF, interest expense, equity ratio, DPS) are not available, limiting precision on FCF and capital allocation analysis

Metrics to Watch:

• Order backlog and book-to-bill to gauge sustainability of revenue growth
• Gross margin and SG&A ratio trends to assess margin recovery
• OCF versus NI over subsequent quarters to test durability of cash conversion
• Capex and investing cash flows to establish true free cash flow
• Tax rate normalization and below-the-line items impacting net income
• Leverage and working capital turns (receivables and payables days) for cash discipline

Relative Positioning: Within Japanese construction/contracting peers, TANAKEN exhibits conservative leverage and strong liquidity, with current period cash conversion above average, but margin compression and limited disclosure on backlog and capex constrain visibility relative to best-in-class peers.

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