Meiho Facility Works Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.99B
• Operating Income: ¥769M
• Net Income: ¥571M
• EPS: ¥48.78

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: FY2026 Q2 was solid with double-digit topline and profit growth, albeit with slight margin compression and limited visibility on cash flows due to unreported CF data. Revenue rose 12.4% YoY to 29.87 (100M JPY), while operating income grew 10.6% YoY to 7.69 and net income increased 11.5% YoY to 5.71. Gross profit reached 15.30, implying a gross margin of 51.2%, highlighting strong fee-based economics. Operating margin was 25.8% this quarter; based on implied prior-year figures, operating margin compressed by about 39 bps (from ~26.2% to 25.8%). Net margin was 19.1%; implied YoY net margin compression was ~17 bps (from ~19.3% to 19.1%). Ordinary income of 7.71 and negligible non-operating income (0.02) indicate earnings were predominantly driven by core operations. ROE calculated at 10.0% (Net margin 19.1% × Asset turnover 0.395 × Leverage 1.32x) is healthy, underpinned by high profitability despite modest asset turns. The balance sheet is robust: equity ratio is approximately 75.5% (57.15 / 75.69), and the current ratio stands at 394%, signaling strong liquidity buffers. Receivables are sizable at 53.43 (70.8% of total assets), characteristic for a project/CM business but a watchpoint for cash conversion. Effective tax rate was 26.6%, consistent with statutory norms and no evident tax anomalies. With OCF, capex, and FCF unreported, we cannot verify cash alignment with earnings or dividend coverage. The calculated payout ratio of 95.1% appears elevated versus typical sustainability benchmarks (<60%), raising prudence flags absent FCF visibility. ROIC is noted at 11.6%, exceeding the 8% excellence benchmark, suggesting attractive value creation from invested capital. Leverage is low (D/E 0.43x using total liabilities), and interest-bearing debt is unreported, limiting visibility but implying low financial risk from debt service. Forward-looking, continued revenue growth with disciplined SG&A will be needed to defend margins; receivable management will be pivotal to sustain cash generation. Overall, the quarter reflects sound operational momentum and strong capital efficiency, tempered by slight margin compression and cash flow disclosure gaps.

Profitability Analysis

ROE decomposition: ROE 10.0% = Net Profit Margin 19.1% × Asset Turnover 0.395 × Financial Leverage 1.32x. The dominant driver is the high net margin, while asset turnover is modest for a services/project management model. YoY, operating income grew slightly slower than revenue (+10.6% vs +12.4%), implying mild negative operating leverage and small operating margin compression (~39 bps). Business reason: SG&A likely grew in support of project execution and personnel capacity (SG&A 8.34, 27.9% of sales), while gross margin remained high at 51.2%, suggesting pricing and mix remained favorable but overhead absorption softened. Sustainability: high gross margins appear structural for a fee-based CM business; the slight operating margin dip seems manageable if revenue growth persists and SG&A normalization occurs. Red flags: while SG&A YoY detail is unreported, the fact that OI growth trailed revenue indicates SG&A growth probably outpaced revenue in the period; monitor cost discipline and hiring pace.

Growth Assessment

Revenue growth of 12.4% YoY to 29.87 indicates healthy demand and project flow. Operating income up 10.6% to 7.69 and net income up 11.5% to 5.71 reflect broadly aligned profit growth with a small efficiency drag. Non-operating contributions were negligible (0.02), underscoring recurring operational quality. With asset turnover at 0.395, growth is being delivered without excessive balance sheet stretch, though receivables intensity is high. Outlook hinges on backlog conversion and client capex cycles; absent disclosed backlog, sustained double-digit growth cannot be assumed but current momentum is favorable. Maintain focus on maintaining gross margin above 50% and stabilizing operating margin near 26% through SG&A control.

Financial Health

Liquidity is strong: current ratio 394% and quick ratio effectively the same given no inventory disclosure; working capital is 47.20. Solvency is conservative: total liabilities 24.30 vs equity 57.15 implies D/E of 0.43x; equity ratio ~75.5% (calculated). No explicit interest-bearing debt was disclosed; thus, debt service risk appears low but not fully verifiable. Maturity mismatch risk: current assets of 63.25 comfortably exceed current liabilities of 16.05; however, the concentration in receivables (53.43) elevates collection-timing risk. No off-balance sheet obligations were reported; absence of disclosure limits assessment of leases/guarantees typical in service businesses. No warning triggers: Current Ratio >> 1.0; D/E well below 2.0.

Cash Flow Quality

Operating cash flow, investing, and financing cash flows were unreported, so OCF/Net Income and FCF cannot be assessed. Given receivables of 53.43 (70.8% of assets) and low payables (0.32), working capital is structurally receivable-heavy, which can cause OCF volatility even with steady profits. Non-operating items were minimal, suggesting earnings are not buoyed by one-offs. Without OCF, we cannot flag OCF/NI < 0.8, but cash conversion should be monitored closely, especially around project milestones and client billing. Capex is unreported; given the asset-light model, sustaining capex is likely modest, but this cannot be confirmed.

Dividend Sustainability

Calculated payout ratio stands at 95.1%, materially above the <60% benchmark for comfortable sustainability. With OCF and FCF unreported, coverage of dividends by free cash flow cannot be verified. Balance sheet strength (equity ratio ~75.5%, low leverage) provides cushion, but high payout amid receivables-heavy working capital could pressure cash in weaker billing quarters. Policy outlook likely targets stability or progressive dividends, but prudence suggests alignment with cash generation; monitoring interim and year-end DPS guidance versus earnings trajectory is key.

Risk Assessment

Business Risks:

• Project timing and milestone recognition risk leading to revenue and margin volatility
• Client capex cycle sensitivity affecting order intake and backlog conversion
• Labor market tightness and wage inflation pressuring SG&A and delivery capacity
• Receivables concentration and collection timing risk given 70.8% of assets in A/R
• Potential customer concentration (not disclosed) typical in CM/PM businesses

Financial Risks:

• Cash flow visibility risk due to unreported OCF/FCF
• Maturity mismatch risk from high receivables vs low payables
• Potential lease or guarantee obligations not disclosed (off-B/S uncertainty)
• Dividend coverage risk with a high calculated payout ratio (95.1%)

Key Concerns:

• Slight operating margin compression (~39 bps YoY) amid SG&A intensity
• High payout ratio despite absent FCF disclosure
• Working capital concentration in receivables could constrain cash in downturns
• Limited disclosure on debt composition and interest coverage

Investment Implications

Key Takeaways:

• Solid topline and profit growth with core operations driving earnings
• Margins remain high structurally; minor compression warrants SG&A discipline
• ROE 10% and ROIC 11.6% indicate robust capital efficiency
• Balance sheet strength (equity ratio ~75.5%, current ratio 394%) lowers financial risk
• Cash conversion and dividend coverage remain the key unknowns due to unreported CF

Metrics to Watch:

• Backlog/order intake and revenue visibility
• Operating margin trend and SG&A as a percentage of sales
• OCF/Net income and receivables turnover (DSO)
• Dividend guidance vs. earnings and prospective FCF
• Effective tax rate stability and non-operating income contributions

Relative Positioning: Within Japan’s construction/CM services space, the company exhibits above-average profitability (gross margin >50%, ROE ~10%) and a very strong balance sheet, but appears more receivable-intensive than peers, making cash conversion and dividend coverage the differentiators to monitor.

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