TOKYU CONSTRUCTION CO., LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥150.07B
• Operating Income: ¥5.15B
• Net Income: ¥4.14B
• EPS: ¥38.75

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: Solid top-line-driven quarter with improving profitability and strong cash conversion, but capital efficiency remains subpar and leverage is slightly above our conservative comfort range. Revenue rose 26.5% YoY to 1,500.73, lifting gross profit to 154.22 and operating income to 51.46 (+31.2% YoY). Net income increased 37.2% YoY to 41.08 as non-operating income (7.46) outpaced non-operating expenses (3.32) and interest costs remained modest (1.66). Gross margin printed at 10.3% and operating margin at roughly 3.4%, both consistent with low-margin construction norms. Directionally, operating income growth outpacing revenue implies slight operating margin expansion YoY, though exact basis-point change cannot be quantified from available data. Net margin was 2.7%, supported in part by non-operating tailwinds (non-operating income ratio 18.2%). Cash generation was a highlight: operating cash flow of 81.85 was 1.99x net income, indicating strong earnings quality and healthy working capital conversion in the period. Liquidity is adequate with a current ratio of 142.6% and cash of 397.58 against short-term loans of 115.81, though current ratio is a notch below the >150% comfort benchmark. Debt-to-equity stands at 1.52x, marginally above our conservative threshold (1.5x), but interest coverage is robust at 31x. Capital efficiency remains weak with ROE at 3.9% (DuPont: 2.7% NPM × 0.572x ATO × 2.52x leverage) and ROIC flagged at 3.8% (<5% warning), underscoring limited value creation versus typical cost of capital. The effective tax rate is elevated at 35.9%, a mild headwind to bottom-line leverage. Dividend sustainability is unclear: payout ratio is reported at 98.8% but DPS/total dividend data are unreported, so we cannot validate coverage or cadence; OCF strength is a positive offset. Balance sheet quality is acceptable with positive working capital (606.77) and ample cash coverage for near-term obligations. Non-operating contributions were supportive this quarter but should not be extrapolated as structural. Absent order-intake/backlog and segment detail, visibility on the durability of the revenue surge is limited. Forward-looking, the company needs to lift ROIC above 5% via mix upgrade, disciplined bidding, and tighter SG&A to sustain value creation while keeping leverage from drifting higher.

Profitability Analysis

ROE decomposition: ROE 3.9% = Net Profit Margin (2.7%) × Asset Turnover (0.572x) × Financial Leverage (2.52x). The primary headwind to ROE remains the thin net margin typical of general contractors, compounded by moderate asset turnover and only moderate leverage. Relative changes: operating income grew faster than revenue (+31.2% vs +26.5%), indicating a modest improvement in operating margin, suggesting net margin likely improved slightly YoY; we lack prior-period components to quantify bps or isolate turnover/leverage changes. Business drivers: margin improvement likely reflects better project mix and/or cost pass-through, and stable financing costs; non-operating income also added to ordinary income. Sustainability: structural margin gains require disciplined bidding and inflation pass-through; one-off non-operating gains/dividends (7.46 total non-op income) are less repeatable. Watch for SG&A discipline: SG&A was 102.75; growth vs revenue is not disclosed, but if SG&A growth outpaces revenue in subsequent quarters, operating leverage would reverse. Given ROIC at 3.8% and ROE at 3.9%, profitability remains below ideal thresholds; improving gross margin on new orders and raising asset turnover (faster project cycle, better WIP management) are key for sustained ROE lift.

Growth Assessment

Revenue expansion of 26.5% YoY drove most of the earnings growth, with operating income up 31.2% and net income up 37.2%. This indicates positive operating leverage in the quarter. Gross margin at 10.3% and operating margin around 3.4% remain low, consistent with industry norms, but directionally improved YoY. Non-operating income (7.46) provided an incremental boost; reliance should be monitored as it may be less recurring. Without order intake/backlog and segment mix data, sustainability of the revenue step-up is uncertain; construction cycles and project phasing can cause lumpiness. Effective tax rate at 35.9% is a drag on after-tax growth. Depreciation at 7.04 and EBITDA margin at 3.9% signal limited buffer to absorb input cost inflation; maintaining procurement discipline is essential. The reported ROIC at 3.8% underscores that despite growth, returns are below the 5% warning threshold; growth must be margin-accretive to improve value creation. Outlook hinges on backlog quality, timing of large projects, and cost environment; current momentum is constructive, but repeatability needs evidence in Q3–Q4.

Financial Health

Liquidity: Current ratio 142.6% (healthy but slightly below the >150% comfort benchmark); quick ratio 142.6% implies limited inventory intensity or rapid turnover of WIP/receivables (detail unreported). Working capital stands at 606.77, supporting near-term project funding. Cash and deposits of 397.58 comfortably exceed short-term loans of 115.81, mitigating near-term refinancing risk. Solvency: Debt-to-equity is 1.52x, marginally above the conservative benchmark (1.5x), but interest coverage is strong at 31x, indicating ample servicing capacity. Total liabilities of 1,580.75 vs total assets of 2,622.90 yield equity of 1,042.14 (leverage 2.52x on a DuPont basis). Maturity mismatch risk appears contained given the current asset surplus over current liabilities (2,032.73 vs 1,425.96). Off-balance sheet obligations (e.g., guarantees, JV commitments) are not reported and could be material for a contractor; absence of disclosure limits our view. No explicit warnings triggered: Current ratio >1.0 and D/E ≤2.0, though both are near thresholds to monitor.

Cash Flow Quality

OCF/Net Income at 1.99x signals strong cash realization from earnings and benign working capital movements this quarter. With operating CF at 81.85 versus net income of 41.08, cash conversion is robust. Investing CF and capex are unreported, so free cash flow cannot be calculated; hence dividend and capex coverage assessment is limited. No overt signs of working capital stress given positive OCF alongside earnings growth, but receivables and inventories data are unreported, preventing deeper diagnostics on construction-specific WIP movements or potential revenue cut-offs. Interest paid is modest relative to EBITDA, supporting cash interest coverage. Sustainably maintaining OCF > NI will depend on order billing schedules and project milestone collections.

Dividend Sustainability

The calculated payout ratio is high at 98.8%, which would be a concern if sustained; however, DPS, total dividends, and FCF are unreported, preventing verification of timing effects (e.g., interim vs full-year). With OCF comfortably exceeding NI this quarter, near-term cash headroom looks adequate, but sustainability requires multi-quarter FCF evidence. ROIC at 3.8% suggests limited reinvestment returns; management could be balancing between shareholder returns and reinvestment, but a near-100% payout would not be prudent if capex/working capital needs rise with growth. Until FCF and capex data are available, we treat payout sustainability as uncertain and sensitive to project cash timing. Policy outlook is unclear due to lack of guidance in the dataset.

Risk Assessment

Business Risks:

• Project execution risk: cost overruns and penalties can quickly erode 3–4% operating margins.
• Input cost inflation (materials, labor) risking gross margin compression from the current 10.3%.
• Order intake/backlog visibility: sustainability of +26.5% revenue growth is uncertain without disclosed backlog.
• Timing risk on public and private sector projects leading to revenue and OCF lumpiness.
• Subcontractor capacity and quality risk in a tight labor market.
• Non-operating income reliance (18.2% of ordinary income) may be less recurring.

Financial Risks:

• Leverage: D/E at 1.52x marginally above conservative benchmark; sensitivity to working capital swings.
• Current ratio at 1.43x below the >1.5x comfort level, though still >1.0x.
• ROIC at 3.8% below 5% warning threshold, indicating potential value dilution if growth is not margin-accretive.
• High effective tax rate (35.9%) reduces net earnings resilience.
• Interest rate risk on floating-rate short-term loans (115.81) if rates rise.

Key Concerns:

• Low structural margins and weak ROIC constrain value creation despite growth.
• Dividend payout ratio at 98.8% appears high; sustainability unverified without FCF data.
• Data gaps on receivables/WIP and capex limit assessment of working capital and FCF risks.
• Non-operating contributions supported profit; durability uncertain.

Investment Implications

Key Takeaways:

• Strong top-line and operating leverage drove double-digit profit growth.
• Cash conversion is robust (OCF 1.99x NI), a key positive in a project-heavy business.
• Leverage is manageable with high interest coverage, but D/E is just above conservative comfort.
• Capital efficiency is the main weakness: ROIC 3.8% and ROE 3.9% signal limited value creation.
• Margin improvements are directional but need confirmation with backlog and order quality data.
• Dividend sustainability cannot be confirmed; headline payout appears high.

Metrics to Watch:

• Order intake and backlog growth/mix (public vs private; building vs civil).
• Gross margin on new orders and project variance trends.
• Working capital metrics: receivables, contract assets/liabilities, and OCF consistency.
• Capex and investing CF to derive FCF and dividend coverage.
• Leverage trajectory (D/E) and interest rate sensitivity.
• Non-operating income composition and recurrence.
• ROIC vs WACC gap and progress toward >5%.

Relative Positioning: Within Japanese general contractors, the company shows respectable growth momentum and superior cash coverage of interest obligations, but trails best-in-class peers on capital efficiency (ROIC <5%) and maintains only moderate liquidity relative to conservative benchmarks; confirmation of sustained margin gains and improved ROIC would be needed to narrow 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