SONEC CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.81B
• Operating Income: ¥740M
• Net Income: ¥546M
• EPS: ¥74.69

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 strong rebound quarter for SONEC, marked by sharp top-line growth and a step-change in profitability. Revenue rose 36.9% YoY to 88.07, while operating income surged 613.7% YoY to 7.40, lifting operating margin to approximately 8.4%. Gross profit reached 11.46 with a 13.0% gross margin, and ordinary income increased to 7.93 aided by 0.58 of non-operating income, mainly dividends and interest. Net income climbed to 5.45, translating to a 6.2% net margin and basic EPS of 74.69 yen. SG&A was contained at 4.06 (about 4.6% of revenue), indicating strong operating leverage as revenue scaled. Non-operating items were modestly positive (net +0.53), not the primary driver of the earnings jump, which underscores the quality of the operating rebound. Operating cash flow was exceptionally strong at 43.55, roughly 8.0x net income, pointing to very robust earnings-to-cash conversion this quarter. Liquidity remains conservative with a current ratio of 271.9% and cash and deposits of 54.01, while balance sheet leverage is low with total liabilities/equity of 0.46x. ROE calculated via DuPont is 5.7%, driven mainly by improved margins; asset turnover (0.637) and modest financial leverage (1.46x) reflect a prudent capital structure. The effective tax rate was 31.2%, in line with statutory norms, suggesting no unusual tax items. While absolute capex was minimal at 0.05, the strength in OCF suggests capacity to fund growth initiatives and shareholder returns. Dividend payout ratio is reported at 41.3%, implying room to sustain distributions given current cash generation. Basis-point comparisons for margins versus prior year are not computable due to missing historical margin data, but the magnitude of YoY profit growth implies significant margin expansion. Forward-looking, the key questions are sustainability of the margin improvement, order-book visibility, and whether the large working-capital inflow is repeatable. Overall, the quarter signals a solid operational turnaround with healthy liquidity, though greater disclosure on backlog, receivables, and cost dynamics would strengthen confidence in durability.

Profitability Analysis

ROE decomposition (DuPont): ROE 5.7% = Net Profit Margin (6.2%) × Asset Turnover (0.637) × Financial Leverage (1.46x). The margin component is the clear driver in the quarter, given operating income growth (+613.7% YoY) far outpaced revenue (+36.9% YoY), pushing operating margin to ~8.4% and net margin to 6.2%. Business explanation: improved project mix and/or cost pass-through in construction contracts boosted gross profit (13.0% margin), while SG&A discipline (4.6% of revenue) amplified operating leverage. Non-operating support was modest (non-operating income ratio ~10.6% of operating income), so the core driver was operating efficiency rather than one-time gains. Sustainability: some margin gains could persist if pricing discipline and execution quality hold, but construction margins are inherently cyclical and sensitive to input costs and site productivity; the very large OCF suggests working-capital release, which is likely one-time or periodic rather than recurring. Potential concerns: if SG&A grows faster than revenue in subsequent quarters, the operating leverage could reverse; monitor SG&A growth trajectory versus topline. With asset turnover at 0.637 and leverage at 1.46x, future ROE upside will primarily depend on maintaining the improved margin profile rather than financial engineering.

Growth Assessment

Topline growth was strong at +36.9% YoY to 88.07, indicating robust order execution and/or improved order intake conversion. Operating profit growth of +613.7% YoY reflects a mix of improved pricing, favorable project mix, and tight cost control. Net income rose to 5.45 with a 6.2% margin, suggesting the profit recovery is not solely due to non-operating items. Ordinary income of 7.93 benefited from 0.58 in non-operating income, but the operating engine is the primary contributor. EBITDA of 7.89 implies an EBITDA margin of 9.0%, aligned with the operating margin profile and modest depreciation (0.49). ROIC (reported) at 12.4% is above typical 7–8% targets, implying value-accretive deployment of capital during the period. Sustainability: construction growth often hinges on backlog quality and bidding discipline; missing disclosure on backlog and segment mix constrains visibility. Near-term outlook depends on maintaining gross margin near low-teens and controlling SG&A at ~4–5% of sales. Watch for normalization of working capital in H2, which could temper reported cash flow even if earnings hold steady.

Financial Health

Liquidity is strong: current ratio 271.9% and quick ratio 271.9%, supported by cash and deposits of 54.01. No warning triggers: Current Ratio > 1.0 and D/E (liabilities/equity) at 0.46x well below 2.0. Solvency appears conservative with total liabilities of 43.31 versus equity of 94.94; interest-bearing debt details are unreported, limiting precision on net debt and interest coverage. Maturity mismatch risk appears low with current assets (111.04) comfortably exceeding current liabilities (40.84). Off-balance sheet obligations: none disclosed in provided data. Equity base is solid with retained earnings of 79.29 supporting future investments or distributions.

Cash Flow Quality

Earnings quality is high this quarter: OCF/Net Income = 7.99x, far above the >1.0 benchmark. The magnitude suggests a substantial working-capital inflow (e.g., collections/advance receipts and/or reduced WIP), which may not repeat at the same scale. Free cash flow cannot be fully assessed due to missing investing CF; however, reported capex was minimal at 0.05, implying positive FCF if other investing flows were limited. Financing CF was -2.21, indicating net outflows (likely dividends and/or debt repayment), consistent with a cash-generative quarter. Sustainability: if working capital normalizes in H2, OCF could decline even if earnings remain solid; monitor receivables and contract assets/liabilities. No signs of aggressive working-capital manipulation are evident from the limited data, but the scale of OCF vs NI warrants tracking reversals.

Dividend Sustainability

The calculated payout ratio is 41.3%, within the <60% benchmark for sustainability. DPS and total dividends paid were unreported, but with strong OCF and minimal capex, coverage appears adequate for the period. FCF coverage cannot be precisely calculated due to missing investing cash flows; nonetheless, the balance sheet’s low leverage and large cash balance add a buffer. Policy outlook: absent explicit guidance, a stable-to-modestly rising dividend trajectory looks supportable if margins hold and working capital remains disciplined. Key swing factors are order intake quality, cost inflation pass-through, and the stickiness of the current margin gains.

Risk Assessment

Business Risks:

• Project execution risk in construction (schedule delays, cost overruns impacting margins).
• Input cost volatility (materials and subcontracting costs) affecting gross margins.
• Labor availability and wage inflation potentially pressuring SG&A and site costs.
• Order backlog visibility unreported; potential revenue volatility if order intake slows.
• Customer concentration risk if large projects dominate (not disclosed).
• Weather and disaster-related disruptions impacting site productivity and costs.

Financial Risks:

• Working-capital volatility: large OCF influx could reverse with receivable buildup.
• Interest rate risk on any unreported floating-rate debt (interest expense not disclosed).
• Limited visibility into investment cash flows and contingent liabilities.
• Potential impairment risk on investment securities (9.28) under adverse market conditions.

Key Concerns:

• Durability of margin expansion absent detailed backlog/segment disclosure.
• OCF significantly above net income suggests timing benefits that may normalize.
• Non-operating income contribution (0.58) is helpful but not core and can fluctuate.
• Data gaps (receivables, payables, debt, DPS) constrain precise coverage and leverage analysis.

Investment Implications

Key Takeaways:

• Sharp profit recovery with operating margin ~8.4% and net margin 6.2%.
• Revenue growth +36.9% YoY indicates strong execution and/or order conversion.
• High cash generation (OCF 43.55; OCF/NI ~8x) supports balance sheet strength.
• Lean SG&A (4.6% of revenue) delivered strong operating leverage.
• Low leverage (liabilities/equity 0.46x) and ample liquidity (current ratio ~2.72x).
• ROE at 5.7% and ROIC at 12.4% suggest improved capital efficiency.
• Margin sustainability and working-capital normalization are the main watch points.

Metrics to Watch:

• Order backlog and new orders (book-to-bill).
• Gross margin trend and cost pass-through on new bids.
• SG&A growth vs revenue growth.
• Working capital components (receivables, contract assets/liabilities, WIP).
• Investing cash flows and capex pipeline.
• Dividend announcement and payout policy clarity.
• Interest-bearing debt levels and interest coverage once disclosed.

Relative Positioning: Compared to domestic mid-cap construction peers, SONEC currently shows above-peer growth and margin recovery with a conservative balance sheet and strong cash generation; visibility is somewhat tempered by limited disclosure on backlog and working-capital details.

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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