HAZAMA ANDO CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥201.02B
• Operating Income: ¥12.08B
• Net Income: ¥7.75B
• EPS: ¥49.45

Income Statement

Balance Sheet

Cash Flow Statement

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 a solid beat operationally for Ando Hazama, with double‑digit profit growth outpacing revenue and clear margin expansion. Revenue rose 7.6% YoY to 2,010.23, while operating income climbed 24.2% YoY to 120.76 and ordinary income increased 19.5% to 113.21. Net income advanced 18.3% YoY to 77.52, lifting the net margin to 3.9%. Operating margin improved to roughly 6.0% (120.76/2,010.23), up about 81 bps versus the implied prior-year 5.2%. Net margin expanded by about 39 bps from an implied 3.5% in the prior period, reflecting better cost execution and favorable mix. Gross profit reached 270.97 with a gross margin of 13.5%, indicating stable job profitability in the quarter. SG&A of 150.21 grew slower than operating income, supporting operating leverage. Non-operating items were modestly negative on balance (income 7.48, expenses 15.02), though dividend income of 3.87 provided a cushion. Cash generation was healthy: operating cash flow was 107.84, 1.39x net income, signaling good earnings quality. The balance sheet remains strong with equity of 1,843.13 (equity ratio ~52%) and ample liquidity (current ratio 167%). Interest coverage is robust at ~43x, and net cash comfortably exceeds short-term borrowings (cash 610.07 vs short-term loans 214.07). ROE is 4.2% per DuPont, still subdued for a general contractor despite the margin improvements. Total comprehensive income of 184.68 notably exceeded net income, implying sizable, likely non-cash OCI gains (e.g., valuation gains on investment securities of 436.81). Forward-looking, order execution discipline and cost control appear to be improving, but sustaining ROIC above the 7–8% benchmark will require further margin enhancement and asset efficiency gains from here. Dividend sustainability needs monitoring: a calculated payout ratio of 163.5% would be high if accurate; however, DPS is unreported and OCF coverage looks comfortable near term.

Profitability Analysis

ROE (4.2%) = Net Profit Margin (3.9%) × Asset Turnover (0.568x) × Financial Leverage (1.92x). The biggest contributor to the YoY improvement appears to be net margin, given operating income growth (+24.2%) far outpaced revenue (+7.6%). Operating margin expanded from an implied ~5.2% to 6.0% (+81 bps), with net margin improving ~39 bps, likely due to better cost of sales execution and operating leverage from SG&A discipline. Asset turnover at 0.568x is typical for a contractor with sizable work-in-process and receivables; no direct evidence of a material change YoY is available. Financial leverage at ~1.92x (Assets/Equity) is moderate and stable, not the primary driver of ROE change. These margin gains seem sustainable if cost inflation remains contained and project selection remains disciplined; however, the construction cycle and project mix can create volatility. Watch for any reversal if material and labor costs re-accelerate or if fixed-price projects experience slippage. A potential concern is that SG&A details are unreported; while total SG&A appears contained versus revenue, we cannot confirm if certain components (e.g., personnel costs) are rising faster beneath the surface.

Growth Assessment

Top-line growth of 7.6% suggests healthy execution and steady backlog conversion. Profit growth was stronger, with operating income up 24.2% and net income up 18.3%, indicating positive operating leverage. The gross margin of 13.5% and operating margin of ~6.0% point to improved project profitability and cost control. Non-operating impact was slightly negative overall, but dividend income (3.87) provided a partial offset; the core growth is thus primarily operational. Total comprehensive income of 184.68 materially above net income signals market-driven valuation gains that are not recurring earnings drivers. ROIC at 5.2% is below the 7–8% benchmark, implying further efficiency and margin improvements are needed to create stronger value through the cycle. Outlook hinges on maintaining bid discipline and managing input costs; absent visibility on order intake/backlog, we assume mid-single-digit revenue growth with a bias to margin stability. Near-term catalysts include public works demand and private non-residential investment, but execution risk on large projects remains a swing factor.

Financial Health

Liquidity is strong with a current ratio of 167% and quick ratio of 167%, well above benchmark thresholds. No warning on current ratio (<1.0) or excessive leverage (D/E > 2.0); D/E of 0.92x is moderate for the sector. Equity ratio is approximately 52% (1,843.13/3,539.06), indicating a solid capital base. Maturity mismatch risk appears low: cash and deposits of 610.07 exceed short-term loans of 214.07, and current assets (2,585.51) comfortably cover current liabilities (1,548.14). Long-term loans are modest at 82.14. Interest coverage is very strong at ~43x, reducing refinancing risk. Investment securities of 436.81 introduce some market valuation sensitivity but also provide liquidity if needed. No off-balance sheet obligations are disclosed in the provided data; absence of disclosure does not imply absence of such commitments (e.g., guarantees on JV projects).

Cash Flow Quality

OCF/Net income is 1.39x, indicating high earnings quality and good cash conversion. Operating cash flow of 107.84 comfortably supports modest capital expenditures of 5.22, implying approximate core FCF (OCF − CapEx) of ~102.6. Investing CF is unreported, so we cannot assess asset sale proceeds or strategic investments that could alter FCF. Financing CF of -51.27 likely reflects dividends and/or debt repayment, which appear well covered by OCF in the period. Working capital detail (AR/AP/inventories) is unreported; however, positive OCF alongside higher profits suggests no obvious working-capital-driven earnings inflation. No signs of aggressive working capital management can be concluded or ruled out given data limitations.

Dividend Sustainability

The calculated payout ratio of 163.5% suggests potential overdistribution relative to net income, but DPS is unreported, and the basis of this calculation is unclear. From a cash perspective, OCF of 107.84 and low CapEx (5.22) indicate that ordinary dividends are likely serviceable near term, assuming dividends are materially below OCF. Without total dividend paid and DPS, FCF coverage cannot be precisely calculated. Given ROE of 4.2% and ROIC of 5.2%, a high payout would constrain reinvestment that could lift returns; a balanced policy would be preferable. Policy outlook: expect a stable-to-prudent dividend stance unless profits normalize higher; any special distributions should be tied to realized investment gains or excess cash. Key watchpoints are absolute dividend outflow, DOE policy (if any), and linkage to earnings/OCF.

Risk Assessment

Business Risks:

• Project execution risk on fixed-price contracts (cost overruns, delays)
• Input cost inflation (materials and labor) compressing margins
• Order intake/backlog volatility tied to public works and private capex cycles
• Subcontractor capacity and quality control risks
• Safety and compliance incidents impacting costs and reputation

Financial Risks:

• Market valuation risk on investment securities (436.81) affecting OCI and equity
• Potential payout above earnings if calculated payout ratio (~163.5%) is accurate
• Currency/interest rate exposure on borrowings and financial assets (limited given coverage)
• Working capital swings typical in construction affecting OCF timing

Key Concerns:

• ROIC at 5.2% below the 7–8% benchmark, limiting value creation
• Reliance on margin expansion to drive ROE from a low 4.2% base
• Visibility: lack of disclosed backlog/order data and SG&A breakdown
• Large gap between total comprehensive income and net income, indicating non-cash OCI gains that may reverse

Investment Implications

Key Takeaways:

• Strong quarter operationally with OP up 24% YoY on 8% sales growth
• Operating margin expanded ~81 bps to ~6.0%; net margin up ~39 bps to 3.9%
• Earnings quality solid (OCF/NI 1.39x) with core FCF ~102.6 after modest CapEx
• Balance sheet conservative: equity ratio ~52%, current ratio 167%, coverage ~43x
• ROE 4.2% and ROIC 5.2% remain subdued; further efficiency gains needed
• Total comprehensive income inflated by OCI; core profitability should anchor valuation
• Dividend affordability looks fine on cash, but payout ratio data suggests caution pending confirmation

Metrics to Watch:

• Order backlog and new orders (book-to-bill)
• Gross margin and operating margin by project/segment
• OCF/Net income and working capital movements (AR, unbilled, AP)
• CapEx and strategic investment outflows/inflows
• Dividend outflow and payout/DOE policy clarity
• ROIC trajectory and asset turnover improvements
• Exposure to materials/labor cost inflation and contract pricing pass-through

Relative Positioning: Within Japanese general contractors, Ando Hazama shows improving execution and solid liquidity, but profitability and ROIC still trail top-tier peers with mid-to-high single-digit operating margins and ROIC nearer or above 7–8%; continued margin discipline and asset efficiency improvements are needed to close the gap.

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