SONEC CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥8.81B
• Operating Income: ¥740M
• Net Income: ¥81M
• 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

Sonec Co., Ltd. (TSE: 17680) reported strong FY2026 Q2 consolidated results under JGAAP, highlighted by a sharp top-line expansion and a step-change in profitability. Revenue grew 36.9% year over year to ¥8.807 billion, reflecting solid execution and/or favorable project progress in the core construction-related business. Operating income surged to ¥740 million (+613.7% YoY), implying significant operating leverage and improved cost control versus the prior-year period. Net income rose to ¥545 million (+571.7% YoY), translating to EPS of ¥74.69 based on the reported figure. DuPont decomposition shows an ROE of 5.74%, built on a net margin of 6.19%, asset turnover of 0.637x, and financial leverage of 1.46x. Liquidity appears robust, with current assets of ¥10.295 billion versus current liabilities of ¥3.616 billion (current ratio 284.7%), underscoring a comfortable working capital buffer. The balance sheet is conservatively positioned, with total liabilities of ¥3.838 billion against equity of ¥9.494 billion (debt-to-equity of 0.40x), and implied assets-to-equity leverage aligns with the DuPont input. Operating cash flow of ¥695 million outpaced net income (OCF/NI 1.28x), signaling good earnings-to-cash conversion for the period. The gross margin is reported at 5.2%, while operating margin, implied from reported revenue and operating income, is approximately 8.4%, suggesting either atypical line-item classifications (e.g., other operating income) or data presentation differences common in construction accounting under JGAAP. There is a notable discrepancy between reported cost of sales and gross profit: the ¥459 million gross profit on ¥8.807 billion revenue implies cost of sales near ¥8.348 billion, not the ¥5.976 billion shown; we therefore rely on the provided gross margin metric rather than the line-item arithmetic. Similarly, the equity ratio is listed as 0.0% despite equity of ¥9.494 billion on assets of ¥13.825 billion (implied ~68.7%), indicating it was not disclosed in XBRL rather than truly zero. Interest expense is reported as zero and the interest coverage is displayed as 0.0x; given low leverage, the absence of interest expense is plausible, but the coverage ratio appears non-informative. Investing cash flows and cash/equivalents are shown as zero, likely reflecting undisclosed items rather than actual zero; as a result, free cash flow cannot be reliably computed despite a positive OCF. Dividend per share is shown as zero; we treat this as not disclosed rather than no dividend. Overall, the period exhibits strong YoY improvement in revenue and profitability, good cash conversion, and solid liquidity, though several reported fields appear incomplete or inconsistently mapped.

Profitability Analysis

ROE_decomposition: ROE 5.74% = Net Margin 6.19% × Asset Turnover 0.637 × Financial Leverage 1.46. This indicates moderate profitability primarily driven by adequate margin and balanced asset utilization with modest leverage. margin_quality: Reported gross margin of 5.2% (gross profit ¥459 million on revenue ¥8.807 billion) is thin but typical for general contractors; however, operating income of ¥740 million implies an operating margin ~8.4%, which exceeds the gross margin and suggests the presence of other operating income or classification nuances under JGAAP. Net margin of 6.19% reflects strong period profitability relative to historical construction cycles. operating_leverage: Operating income rose +613.7% on +36.9% revenue growth, implying significant operating leverage and improved SG&A efficiency and/or favorable project mix. Depreciation is modest at ¥25 million, indicating a relatively light fixed-asset base and that margin expansion is more tied to project execution than depreciation swings.

Growth Assessment

revenue_sustainability: Revenue expanded 36.9% YoY to ¥8.807 billion for H1. Such growth is robust for the sector and likely reflects timing of construction progress recognition and/or successful order backlog conversion. Sustainability will depend on order intake, backlog quality, and cadence of project completions in H2. profit_quality: Net margin of 6.19% and OCF/NI of 1.28x indicate decent earnings quality. The discrepancy between gross and operating margins suggests reliance on other operating items or accounting presentation, which bears monitoring for repeatability. outlook: With solid H1 momentum and strong liquidity, the company appears well positioned to execute the remaining fiscal year. Key determinants of H2 will be backlog execution, cost pass-through on materials/labor, and avoidance of large project cost overruns. Given leverage is modest, financial flexibility should support ongoing operations even if activity normalizes.

Financial Health

liquidity: Current assets ¥10.295 billion vs current liabilities ¥3.616 billion yield a current ratio of 284.7% and quick ratio of 284.7% (inventories undisclosed). Working capital stands at ¥6.679 billion, indicating strong short-term solvency. solvency: Total liabilities ¥3.838 billion vs equity ¥9.494 billion (debt-to-equity 0.40x). Assets-to-equity ~1.46x aligns with DuPont leverage. Interest expense is reported as zero, consistent with low financial risk from debt. capital_structure: The balance sheet is equity-heavy with modest liabilities, affording capacity to absorb project variability. The reported equity ratio of 0.0% is clearly non-informative; the implied equity ratio is approximately 68.7%.

Cash Flow Quality

earnings_quality: Operating cash flow of ¥695 million exceeds net income of ¥545 million (OCF/NI 1.28x), a favorable sign that earnings are supported by cash generation in the period. FCF_analysis: Investing cash flows are undisclosed (shown as zero), preventing a reliable free cash flow calculation even though OCF is positive. Financing CF is -¥217 million, indicating net cash outflow likely tied to debt repayment or shareholder returns, but details are not provided. working_capital: Given the strong current ratio and positive OCF, working capital management appears supportive in H1. However, project-based swings in receivables and advances are common in the sector and should be monitored for reversals in H2.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are both shown as zero, likely reflecting non-disclosure for the interim period rather than a definitive no-dividend stance. With net income positive and balance sheet strong, capacity exists, but policy details are not provided here. FCF_coverage: FCF coverage cannot be assessed due to missing investing cash flows. OCF is positive, which is encouraging, but dividend coverage analysis requires full-year cash data and capital expenditure visibility. policy_outlook: Absent explicit guidance, we assume a conservative capital allocation bias consistent with the sector, prioritizing balance sheet strength and project execution. Any dividend decision will likely hinge on full-year profitability and cash conversion.

Risk Assessment

Business Risks:

• Project cost overrun risk due to labor and materials inflation
• Revenue recognition timing risk inherent in construction contracts
• Backlog conversion risk and potential order slowdown
• Customer concentration and credit risk on receivables
• Competitive bidding pressure compressing margins

Financial Risks:

• Working capital volatility impacting operating cash flow
• Potential off-balance-sheet commitments (e.g., performance guarantees) typical for the sector
• Limited visibility on investing cash flows and capex timing
• Sensitivity to interest rate changes if new debt is incurred despite currently low leverage

Key Concerns:

• Inconsistency between reported cost of sales and gross profit, complicating margin analysis
• Equity ratio shown as 0.0% despite substantial equity, indicating disclosure/mapping gaps
• Interest coverage displayed as 0.0x despite zero interest expense, limiting interpretability

Investment Implications

Key Takeaways:

• Strong H1 revenue growth (+36.9% YoY) and sharp operating profit expansion (+613.7% YoY)
• ROE of 5.74% supported by a 6.19% net margin and moderate leverage (assets/equity 1.46x)
• Robust liquidity with current ratio ~2.85x and working capital of ~¥6.68 billion
• OCF outpaced net income (1.28x), pointing to solid earnings quality this period
• Data limitations on gross profit, equity ratio, and cash flow items necessitate cautious interpretation

Metrics to Watch:

• Order intake and backlog level/mix for H2 visibility
• Gross and operating margin reconciliation (impact of other operating income and project mix)
• Receivables and advances trends to assess working capital sustainability
• Investing cash flows and capex to gauge true free cash flow
• Full-year tax rate normalization and any non-recurring items

Relative Positioning: Within Japanese general contractors of comparable size, Sonec currently appears to exhibit above-trend H1 growth, strong liquidity, and conservative leverage, though reported line-item inconsistencies reduce transparency 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