FUJITA ENGINEERING CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.46B
• Operating Income: ¥826M
• Net Income: ¥502M
• EPS: ¥54.74

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Soft quarter with notable margin compression and a sharp earnings drop amid revenue contraction, though the balance sheet remains robust. Revenue fell 26.7% YoY to 114.55, while operating income declined 38.7% YoY to 8.26 and net income dropped 49.1% YoY to 5.02. Gross profit was 21.23, yielding a gross margin of 18.5%. Operating margin stood at 7.2% and net margin at 4.4%. Using reported growth rates to back-solve last year’s figures, operating margin compressed by roughly 142 bps YoY (from ~8.6% to 7.2%). Net margin compressed by about 193 bps YoY (from ~6.3% to 4.4%). Ordinary income was 9.34, supported by net non-operating gains of about 1.09 (non-op income 1.27 less non-op expenses 0.18), indicating some reliance on non-core items. The effective tax rate was elevated at 41.1%, further pressuring bottom line. ROE printed at a modest 2.6%, reflecting a combination of low asset turnover (0.415) and thin net margins (4.4%), with limited leverage (1.42x). ROIC was 3.5%, below the 5% warning threshold, signaling subpar capital efficiency. Liquidity is a strength: current ratio is 266% with cash and receivables covering current liabilities. Interest coverage is extremely strong at ~290x, and D/E is conservative at 0.42x. Earnings quality cannot be verified due to unreported cash flows; OCF/NI and FCF are unavailable. The calculated payout ratio of 121.9% appears stretched against H1 earnings, raising sustainability questions absent clear FCF support. Forward-looking, management needs to stabilize volumes and project margins, lower tax friction, and lift ROIC above cost of capital to re-rate.

Profitability Analysis

DuPont ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 4.4% × 0.415 × 1.42 = ~2.6%. The largest adverse change is most likely in Net Profit Margin, given net income fell 49.1% vs revenue down 26.7%, implying negative operating leverage and higher tax drag. Business drivers include weaker volumes, tighter project margins, and an elevated effective tax rate (41.1%) that further compressed net margin; non-operating gains partly cushioned ordinary income, but not enough to offset core margin pressure. Asset turnover also weakened as sales contracted on a relatively stable asset base, while leverage remained low and unchanged in direction (D/E 0.42x). The margin compression (operating margin down ~142 bps YoY to 7.2%; net margin down ~193 bps to 4.4%) appears cyclical/operational rather than one-off, tied to demand softness and cost structure absorption; sustainability depends on order intake recovery and cost control. Watch for SG&A ratio creep: current SG&A-to-sales is 11.3%; without the prior period, we cannot quantify YoY growth vs revenue, but the steeper operating profit decline signals SG&A and/or gross margin pressure outpacing sales.

Growth Assessment

Top-line contracted 26.7% YoY to 114.55, indicating weaker demand or slower project progress. Gross margin is 18.5%, but operating margin fell to 7.2%, evidencing negative operating leverage. Ordinary income (9.34) benefited from net non-operating gains (~1.09), highlighting partial reliance on non-core items. Net income fell 49.1% to 5.02, amplified by a 41.1% effective tax rate. Revenue visibility and sustainability are unclear given lack of backlog disclosure; current asset turnover at 0.415 suggests slower throughput. Outlook hinges on order recovery, execution discipline on fixed-price contracts, and stabilization of material and subcontracting costs. Non-operating income (interest 0.33, dividends 0.27) is supportive but not a structural growth driver.

Financial Health

Liquidity is strong: current ratio 265.8% and quick ratio 265.8% (no inventories reported), with working capital of 104.09. No warning on Current Ratio (<1.0) or D/E (>2.0); D/E is conservative at 0.42x. Cash and deposits (56.89) plus receivables (21.74) total 78.63, comfortably exceeding current liabilities (62.79), limiting near-term refinancing risk. Short-term loans are modest at 3.55; long-term debt not disclosed. Interest coverage is robust at 290.33x (vs >5x benchmark). Maturity mismatch risk appears low given liquid assets cover short-term obligations. No off-balance sheet obligations were disclosed in the data provided.

Cash Flow Quality

OCF, FCF, and working capital movements are unreported; thus OCF/NI, FCF coverage, and accruals cannot be assessed. We cannot test OCF/NI < 0.8 threshold or evaluate whether working capital shifts drove earnings. Given elevated payout ratio (121.9%) and lower earnings, dividend affordability depends on cash generation, which is not disclosed. No apparent signs of working capital manipulation can be identified without cash flow detail; note that high cash balance (56.89) supports liquidity but not necessarily recurring OCF quality.

Dividend Sustainability

Calculated payout ratio is 121.9%, above the <60% benchmark, implying potential stress if this reflects the annual policy against current earnings run-rate. FCF coverage is not calculable due to unreported OCF and capex. With ROE at 2.6% and ROIC at 3.5%, reinvestment returns are low; continuing a high payout would likely depend on stable cash inflows and balance sheet capacity rather than earnings growth. Until cash flow data is available, sustainability is uncertain; any commitment to maintain dividends should be weighed against the weaker H1 profitability.

Risk Assessment

Business Risks:

• Project execution and fixed-price contract risk leading to margin slippage
• Order backlog and pipeline uncertainty amid a 26.7% revenue decline
• Input cost volatility (materials, subcontracting) impacting gross margin
• Labor availability and wage inflation pressures on SG&A and COGS
• Customer concentration or public sector budget timing (sector typical)

Financial Risks:

• Earnings variability with high effective tax rate (41.1%) pressuring net income
• Dividend payout (121.9%) potentially exceeding earnings capacity
• Capital efficiency risk with ROIC at 3.5% (<5% warning)
• Reliance on non-operating gains to support ordinary income in a weak quarter

Key Concerns:

• Margin compression: operating margin down ~142 bps YoY; net margin down ~193 bps
• ROE at 2.6% and asset turnover at 0.415 indicate subdued profitability and throughput
• Cash flow opacity: OCF/FCF unreported limits earnings quality validation
• Potential further downside if order intake and utilization do not recover

Investment Implications

Key Takeaways:

• Core profitability weakened: operating income down 38.7% on a 26.7% revenue drop
• Margins compressed with net margin at 4.4% and high tax rate weighing on EPS
• Balance sheet is strong (current ratio 266%, D/E 0.42x, interest cover ~290x)
• ROIC at 3.5% flags capital efficiency below threshold
• Dividend sustainability uncertain with payout ratio at 121.9% and cash flows undisclosed

Metrics to Watch:

• Order backlog and new orders (book-to-bill)
• Gross margin and SG&A-to-sales trend
• Effective tax rate normalization
• OCF/Net Income and FCF after capex
• Project pipeline mix (public vs private; fixed-price vs cost-plus)

Relative Positioning: Within domestic engineering/construction peers, the company exhibits above-average liquidity and low leverage but currently weaker profitability (ROE 2.6%, ROIC 3.5%) and softer operating leverage. Visibility is hampered by absent cash flow disclosure, placing it at a disadvantage versus peers with clearer FCF support for dividends.

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