TAISEI CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥907.87B
• Operating Income: ¥81.28B
• Net Income: ¥65.77B
• EPS: ¥378.30

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: Strong margin-led recovery in FY2026 Q2 with operating profit more than doubling despite lower revenue. Revenue declined 4.7% YoY to 9,078.7, but operating income surged 100.5% YoY to 812.9, lifting ordinary income 68.7% to 839.1 and net income 41.9% to 636.4. Gross profit reached 1,390.4, with a gross margin of 15.3% and operating margin of 8.95%. Using reported YoY deltas, we estimate operating margin expanded by roughly 469 bps YoY (from ~4.26% to 8.95%). Net margin likely expanded by ~230 bps YoY (from ~4.71% to 7.01%). Ordinary margin is 9.24%, supported by non-operating income of 50.7 (notably dividend income 30.3 and interest income 7.9) and modest non-operating expenses of 24.5. Earnings quality is solid: operating cash flow of 694.3 is 1.09x net income, indicating cash-backed earnings. Liquidity is adequate but not robust (current ratio 121%), while leverage looks elevated (D/E 1.72x; Debt/EBITDA ~4.19x) though interest coverage is very strong at 60.4x. ROE stands at 6.9% via DuPont (NPM 7.0% × Asset Turnover 0.361 × Leverage 2.72x), reflecting improved profitability but still shy of an 8–10% quality threshold. ROIC is 5.3%, below typical 7–8% construction targets, implying ongoing efficiency improvement is needed. Shareholder returns were active via share repurchases of 625.4; the calculated payout ratio is 60.4%, near the upper end of sustainability norms. Strategic implication: profitability recovery appears driven by project mix/pricing and cost discipline; sustaining current margins and improving ROIC will be key as orders and input costs normalize. The balance sheet shows meaningful financial flexibility (cash 2,526 vs short-term loans 1,650), but the maturity profile warrants monitoring given current liabilities of 12,687 vs current assets of 15,403. Forward-looking, continued execution discipline, order intake quality, and cost control will determine whether ROE/ROIC can move toward management targets while maintaining healthy cash conversion.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.9% = Net Profit Margin 7.0% × Asset Turnover 0.361 × Financial Leverage 2.72x. The component with the largest improvement YoY is the Net Profit Margin, inferred from operating income +100.5% YoY against a 4.7% revenue decline, yielding an estimated operating margin expansion of ~469 bps and a net margin expansion of ~230 bps. Business drivers: (1) stronger project economics/mix and improved cost pass-through in domestic building and civil segments; (2) disciplined SG&A (577.5) relative to gross profit (1,390.4), enabling operating leverage despite lower top line; and (3) supportive non-operating income (dividends/interest) boosting ordinary margin. Sustainability: margin gains look partly structural (pricing discipline, cost control) but may include one-time tailwinds (favorable job completions or claim settlements not disclosed). With asset turnover at 0.361 and revenue down, turnover likely fell YoY, offsetting some ROE benefit; leverage at 2.72x supported ROE but leaves less room for further leverage-driven gains. Watch for any concerning trends: no explicit SG&A line-item surge reported; however, revenue contracted while SG&A absolute level is sizable, so if topline softness persists, margin leverage could reverse.

Growth Assessment

Top line declined 4.7% YoY to 9,078.7, indicating order delivery timing softness or a tougher comparable, but profit growth was strong: operating income +100.5%, ordinary income +68.7%, and net income +41.9%. The quality of growth is margin-driven rather than volume-driven, with operating margin at 8.95% and net margin at 7.01%. Non-operating income (50.7; dividends 30.3, interest 7.9) contributed but did not dominate profitability. EBITDA was 888.7 (9.8% margin), indicating healthier underlying operations. Outlook considerations: sustaining elevated margins requires continued cost inflation management (materials/labor), disciplined bidding, and a robust high-margin order backlog. With ROIC at 5.3% (below target levels), further capital efficiency improvements (asset turn, project WIP cycles) are needed. Given the revenue contraction and leverage metrics, growth should prioritize quality over scale—focus on risk-adjusted returns rather than volume chasing.

Financial Health

Liquidity: Current ratio 121.4% (adequate but below 150% benchmark); quick ratio 121.4% (given limited inventory disclosure) is acceptable. No explicit warning threshold breach, but cushion is modest; monitor working capital swings common in construction. Solvency: D/E 1.72x exceeds the 1.5x benchmark—flag as elevated leverage. Debt/EBITDA ~4.19x (3,722.4 loans / 888.7 EBITDA) is moderate-to-high for the sector but mitigated by interest coverage of 60.4x (EBIT/interest 812.9/13.45). Maturity mismatch: short-term loans 1,650.3 vs cash 2,526.4 suggests manageable near-term refinancing risk; current assets (15,403.2) exceed current liabilities (12,687.2) by 2,716. Off-balance sheet: not disclosed; construction typically carries guarantees/PPP commitments and performance bonds—no data provided here. Equity base totals 9,253.9 (owners' equity 8,597.7), supporting resilience but limited by ROE of 6.9%.

Cash Flow Quality

OCF/Net Income is 1.09x, indicating cash-backed earnings this period. Free cash flow cannot be computed due to unreported investing CF and capex, but EBITDA-to-OCF conversion looks healthy given the scale of OCF relative to net income and D&A (75.8). Financing CF of 130.7 alongside share repurchases of 625.4 implies a mix of debt draw/repayment and shareholder returns; without investing CF, we cannot fully assess net cash burn. No clear signs of working capital manipulation from disclosed data; however, construction cash flows can be volatile due to advance receipts and progress billings—monitor receivables and unbilled revenue when available. Overall, earnings quality is acceptable with no red flags (OCF/NI > 0.8 threshold).

Dividend Sustainability

The calculated payout ratio is 60.4%, at the upper edge of typical sustainability ranges (<60% benchmark). Dividends paid and FCF are unreported, limiting precision. With OCF of 694.3 versus net income of 636.4, cash support for dividends appears adequate near term, but large buybacks (625.4) materially consume cash. Sustainability hinges on maintaining current margins and positive OCF after working capital and capex; given ROIC at 5.3% and leverage at 1.72x D/E, management may balance dividends/buybacks with deleveraging and investment needs. Policy outlook: expect a focus on stable dividends with opportunistic buybacks, contingent on order intake and cash conversion.

Risk Assessment

Business Risks:

• Project execution risk on fixed-price contracts (cost overruns, delays impacting margins).
• Input cost inflation (materials/labor) potentially compressing margins if not fully passed through.
• Order intake cyclicality tied to domestic construction demand and private/non-residential capex.
• Backlog quality and timing risk affecting revenue recognition and cash flow.
• Regulatory and safety compliance in construction sites increasing cost base.

Financial Risks:

• Elevated leverage: D/E 1.72x and Debt/EBITDA ~4.19x despite strong interest coverage.
• Liquidity cushion only moderate (current ratio 1.21x), sensitive to working capital swings.
• Dividend and buyback outflows (625.4 buybacks) could pressure balance sheet if OCF weakens.
• Exposure to investment securities (4,685.4) introduces market valuation risk.

Key Concerns:

• ROIC at 5.3% is below sector targets (7–8%), suggesting room for efficiency gains.
• Revenue decline (-4.7% YoY) could challenge operating leverage if sustained.
• Dependence on non-operating income (dividends/interest 50.7) for ordinary margin support.
• Data limitations: unreported breakdowns (receivables, inventories, investing CF, capex, dividend cash) obscure full risk view.

Investment Implications

Key Takeaways:

• Strong profit recovery driven by margin expansion: operating income +100.5% on -4.7% revenue.
• Operating margin improved to 8.95%; net margin 7.01%; estimated YoY expansion ~469 bps and ~230 bps respectively.
• Cash earnings quality is solid (OCF/NI 1.09x), supporting near-term distributions.
• Leverage elevated (D/E 1.72x; Debt/EBITDA ~4.19x) though interest burden is light (coverage 60x).
• ROE 6.9% and ROIC 5.3% indicate improving but still sub-target capital efficiency.
• Active shareholder returns via 625.4 in buybacks; sustainability hinges on maintaining OCF and managing capex.
• Balance sheet liquidity adequate but not robust (current ratio 1.21x); monitor working capital needs.

Metrics to Watch:

• Order intake/backlog growth and margin (bid discipline, mix).
• Gross and operating margin trajectory versus input cost indices.
• Working capital components (receivables, unbilled revenue, advance receipts) and OCF consistency.
• Net debt and Debt/EBITDA trend; refinancing mix of short-term vs long-term loans.
• ROIC progression toward 7–8% target range.
• Non-operating income reliance (dividend/interest income) and investment securities exposure.

Relative Positioning: Within Japan’s major general contractors, Taisei’s Q2 shows sharper margin recovery than implied by revenue, yielding strong EBIT growth and cash conversion. However, ROE (6.9%) and ROIC (5.3%) remain below best-in-class peers, and leverage is somewhat higher than conservative benchmarks. Execution on backlog quality and capital efficiency will be key to narrowing the gap with leaders.

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