SUMIKEN MITSUI ROAD CO., LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.58B
• Operating Income: ¥-90M
• Net Income: ¥-188M
• EPS: ¥-9.50

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

Mitsui-Sumitomo Construction Road Co., Ltd. (TSE: 17760) reported FY2026 Q2 consolidated results under JGAAP showing top-line growth but continued operating and net losses. Revenue rose 7.8% YoY to ¥13.584bn, indicating healthy demand or improved project execution volumes. Gross profit was ¥843m, translating to a thin gross margin of 6.2%, which remains pressured for a civil engineering/road paving business. Operating income was a loss of ¥90m, albeit a marked YoY improvement (+216.5%), reflecting some progress in cost control or mix but not yet at breakeven. Ordinary income was a loss of ¥74m, close to operating loss, suggesting limited contribution from non-operating items. Net income was a loss of ¥87m, also improved YoY by 150.1%, aided in part by a tax benefit (income tax expense of -¥60m). EBITDA was positive at ¥196m with a 1.4% margin, implying depreciation is a meaningful fixed cost component and that core cash earnings before depreciation are modestly positive despite the operating loss. The DuPont framework shows a net margin of -0.64%, asset turnover of 0.599x, and financial leverage of 1.73x, yielding a calculated ROE of -0.66% (in line with reported), highlighting that profitability (margin) is the principal drag. Liquidity appears adequate at quarter-end with a current ratio of 191% and working capital of ¥8.297bn, though zero values for cash and inventories indicate non-disclosure rather than actual zeros. Operating cash flow was significantly negative at -¥3.358bn despite a small net loss, pointing to a substantial working capital outflow typical of seasonal and project-cycle dynamics in construction. Investing cash flow was shown as zero (unreported), and financing cash flow was an outflow of ¥386m, potentially reflecting debt repayments or lease payments; dividends were not paid (DPS 0). The balance sheet shows total assets of ¥22.696bn and total equity of ¥13.112bn, implying financial leverage (assets/equity) of 1.73x and a debt-to-equity ratio of 0.84x based on total liabilities. Gross and EBITDA margins are low, indicating limited pricing power and/or elevated input and subcontracting costs; operating leverage remains unfavorable at current scale. Key data constraints include unreported line items such as cash and equivalents, inventories, interest expense, equity ratio, and share counts, which limits precision in certain ratio analyses. Overall, the company is growing revenue and improving losses YoY, but cash conversion was weak this half and profitability remains below a sustainable level for the sector.

Profitability Analysis

ROE decomposition (DuPont): Net margin -0.64% x asset turnover 0.599x x financial leverage 1.73x yields ROE of approximately -0.66%, consistent with the reported figure. The principal driver of negative ROE is margin pressure; asset utilization is reasonable for a contractor, and leverage is moderate. Gross margin at 6.2% is thin for road construction/paving and leaves little room to absorb SG&A and overhead, resulting in an operating loss of ¥90m. EBITDA margin of 1.4% shows core cash earnings before depreciation are barely positive, indicating limited pricing power or elevated materials/subcontracting costs. Non-operating items modestly improved the loss at the ordinary income line (-¥74m vs. -¥90m operating), suggesting small net financial or other income despite interest expense being unreported. Effective tax was negative (tax benefit of -¥60m), cushioning net loss. Operating leverage: the swing from losses YoY improved, but revenue growth of 7.8% did not translate into operating profitability, implying high fixed cost absorption challenges and possibly adverse mix or pass-through lags on materials (e.g., asphalt/bitumen). Margin quality appears weak; the low gross margin and minimal EBITDA suggest limited buffer against cost volatility, and further cost discipline or price/mix improvement is required to achieve sustained operating profit.

Growth Assessment

Revenue grew 7.8% YoY to ¥13.584bn, indicating stable demand in public works or private paving markets and/or better order execution. However, profit growth lags: operating loss narrowed to -¥90m and net loss to -¥87m, reflecting partial cost containment but not full recovery. The gross margin at 6.2% suggests limited pass-through of input inflation or a project mix skewed to lower-margin jobs in the half. Ordinary income close to operating income implies limited contribution from financial or equity-method items, so core operations must drive improvement ahead. Profit quality is mixed: EBITDA positive but small, and the tax benefit aided bottom line. Sustainability of revenue growth will depend on backlog conversion and tender win rates; these data were not disclosed, so forward visibility is limited. The seasonality of construction could support stronger H2 margins if higher-margin projects complete and weather improves. Outlook hinges on pricing discipline in new bids, successful cost pass-through clauses, and execution efficiency; absent these, top-line growth may not translate to profit. Given the YoY improvement trends, a path toward breakeven is plausible, but evidence of margin recovery is still tentative.

Financial Health

Liquidity: Current assets of ¥17.414bn and current liabilities of ¥9.117bn yield a current ratio of 191% and working capital of ¥8.297bn, indicating headroom to meet short-term obligations. Quick ratio is shown as 191%, but note inventories were unreported (0), so true quick liquidity cannot be confirmed; cash and equivalents are also unreported. Solvency: Total liabilities ¥10.994bn vs. equity ¥13.112bn gives a debt-to-equity ratio of 0.84x and financial leverage of 1.73x, a moderate capital structure for a contractor. The equity ratio was shown as 0.0% (unreported), but based on available figures, equity/asset ratio would be roughly 57.8%. Interest expense was unreported (0), but ordinary income near operating income suggests manageable net financial burden. Despite apparent balance sheet strength, negative OCF in the half indicates reliance on working capital funding (e.g., payables/receivables swings or unbilled construction). Overall solvency appears stable, but liquidity can be volatile intra-year due to project seasonality.

Cash Flow Quality

Earnings quality is weak this half as operating cash flow (-¥3.358bn) significantly underperformed accounting earnings (net loss -¥87m), producing an OCF/NI ratio of 38.60 that is not economically meaningful given the sign mix. The shortfall likely reflects working capital absorption typical in construction: increases in receivables/unbilled revenue, advances to subcontractors, or declines in advances received; exact drivers are not disclosed. Free cash flow is shown as 0, but investing cash flow was unreported (0), so true FCF cannot be determined; using reported OCF, pre-investment free cash flow would be deeply negative. EBITDA was positive, but cash conversion was impaired by working capital; this could normalize in H2 if billing/collections catch up. Financing cash flow was an outflow of ¥386m, suggesting repayments or lease/service of obligations; with dividends at zero, cash outflow likely relates to debt or leases. Given unreported cash balances, the near-term liquidity cushion via cash-on-hand or lines of credit cannot be assessed from disclosures provided.

Dividend Sustainability

Annual DPS is 0.00 with a payout ratio of 0.0%, consistent with loss-making status. With operating cash flow at -¥3.358bn and investing cash flow unreported, free cash flow coverage for any potential dividend is not demonstrable. Policy-wise, a conservative stance is implied given the absence of dividends and ongoing profitability recovery needs. For sustainability, the company would require sustained positive operating income, better cash conversion, and visibility on working capital normalization. Until profitability and OCF stabilize, reinstating dividends would likely depend on management's capital allocation priorities and funding capacity; current data suggest preservation of capital remains prudent.

Risk Assessment

Business Risks:

• Input cost volatility (asphalt/bitumen, aggregates, fuel) and potential lag in pass-through on fixed-price contracts
• Project execution risk and weather seasonality affecting productivity and margins
• Public works demand cyclicality and budget timing impacting order intake and revenue recognition
• Labor shortages and subcontractor availability, potentially inflating costs
• Competitive tendering pressure compressing bid margins
• Mix risk from low-margin projects reducing overall profitability

Financial Risks:

• Significant working capital swings causing negative operating cash flow intra-year
• Liquidity dependence on collection timing and potential reliance on short-term financing lines
• Thin margins providing limited buffer against cost shocks
• Potential covenant or refinancing risk if cash flow remains weak (debt details not disclosed)
• Accounting volatility from percentage-of-completion estimates affecting revenue and margin recognition

Key Concerns:

• Gross margin at 6.2% and EBITDA margin at 1.4% are insufficient to cover fixed costs sustainably
• Operating cash flow of -¥3.358bn despite modest net loss indicates stressed cash conversion
• Unreported cash, inventories, and interest expense create visibility gaps for liquidity and coverage analysis

Investment Implications

Key Takeaways:

• Revenue growth of 7.8% YoY contrasts with continued operating loss; breakeven not yet achieved
• Material YoY loss narrowing (+216.5% at operating level, +150.1% at net) suggests improving trajectory
• Gross and EBITDA margins remain thin, indicating need for better pricing and cost control
• Working capital outflow drove large negative OCF; watch for H2 normalization
• Balance sheet leverage is moderate (D/E ~0.84x; leverage 1.73x) offering solvency headroom

Metrics to Watch:

• Order backlog and new orders/bid win rates
• Gross margin and subcontract/material cost ratios on newly won projects
• Receivables, unbilled construction, and advances received (progress payments) to gauge working capital
• OCF trend and conversion of EBITDA to cash
• SG&A ratio and fixed-cost absorption vs. volume
• Capex and lease obligations (given unreported investing CF)
• Ordinary income vs. operating income gap (financing burden and non-operating effects)

Relative Positioning: Based on the reported H1 gross margin of 6.2% and EBITDA margin of 1.4%, profitability appears below what many mid-sized domestic civil engineering peers target in stable periods, implying weaker pricing power or elevated cost burden; however, seasonality and data limitations (unreported items) temper direct comparability.

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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