SHIMIZU CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥897.01B
• Operating Income: ¥38.92B
• Net Income: ¥47.14B
• EPS: ¥67.93

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: A strong profit rebound in FY2026 Q2, powered by margin recovery and sizable below-ordinary items, but cash conversion was weak and ROIC remains subpar. Revenue rose 7.1% YoY to 8,970.1, while operating income surged 119.9% YoY to 389.2, lifting operating margin to 4.34%. Net income jumped 332.3% YoY to 461.6, translating to a net margin of 5.15% this quarter. We estimate operating margin expanded by roughly 223 bps YoY (from ~2.11% to 4.34%) given modest revenue growth and sharply higher operating profit. Net margin expanded by about 387 bps YoY (from ~1.28% to 5.15%), aided by both operating leverage and sizable below-ordinary items. Ordinary income increased 114.7% YoY to 401.1, and profit before tax was 714.2, implying approximately 313 of extraordinary gains/loss effects above ordinary income. Gross margin printed at 11.2%, supporting the operating margin recovery despite SG&A of 614.4. Non-operating income of 60.1 (notably dividend income 29.0 and interest income 18.0) roughly offset non-operating expenses of 48.1. Earnings quality is a clear weak spot: operating cash flow was -30.3 against net income of 461.6, yielding OCF/NI of -0.07 and indicating poor cash realization this period. Capital expenditures were 341.1, suggesting negative FCF on our calculation basis (about -371.4). Leverage is moderately elevated with D/E at 1.62x, while interest coverage is healthy at 11.6x; liquidity is adequate but not robust with a 126% current ratio. ROE calculated at 5.0% is still modest; ROIC of 2.4% underscores that capital efficiency remains below a reasonable hurdle. The step-up in profitability appears partly cyclical (project mix and cost pass-through) and partly one-time (extraordinary gains), making sustainability uncertain. Forward-looking, the key will be sustaining operating margin above 4% while normalizing cash conversion, alongside disciplined capex and tighter working capital. Overall, the quarter reads positively on P&L optics, but the divergence between earnings and cash, low ROIC, and reliance on below-ordinary items temper the quality of the beat.

Profitability Analysis

ROE decomposition (DuPont): ROE ≈ Net Profit Margin (5.2%) × Asset Turnover (0.371) × Financial Leverage (2.62x) = ~5.0%, matching reported. The largest change driver versus last year is the net profit margin, given revenue grew only 7.1% while operating income and net income rose 119.9% and 332.3%, respectively. Business drivers include improved gross profitability (11.2% GM) and operating leverage, plus meaningful contributions below operating/ordinary income (PBT well above ordinary income by ~313), likely one-time gains. Sustainability is mixed: core margin gains could persist if bidding discipline, input cost normalization, and project execution hold, but the extraordinary contribution is by definition non-recurring. Watch for SG&A discipline: SG&A grew to 614.4; without YoY SG&A we cannot confirm, but the scale requires revenue growth to absorb fixed costs. Operating leverage was favorable this quarter; however, negative OCF suggests profitability has not yet translated into cash, which can undermine sustained ROE improvement.

Growth Assessment

Revenue growth of 7.1% YoY reflects steady order execution and a recovering construction demand backdrop. Operating income growth of 119.9% highlights sizable operating margin recovery to 4.34%. Net income growth of 332.3% indicates additional boosts from non-operating and extraordinary items. EBITDA of 547.4 implies an EBITDA margin of 6.1%, improving operating efficiency. Non-operating income (60.1) and dividends received (29.0) provided ancillary support but were largely offset by non-operating expenses (48.1). The outsized gap between ordinary income (401.1) and profit before tax (714.2) suggests one-time gains significantly flattered headline growth. Absent those gains, underlying profit growth is still strong but less spectacular. With ROIC at 2.4% (below a 5% warning threshold), growth quality is constrained by low capital returns. Outlook hinges on order quality, execution of large projects, and ability to pass through costs; sustaining a >4% operating margin will be key. Given negative OCF, near-term growth may be working-capital intensive; improved cash conversion from contract assets/liabilities is required to underpin growth durability.

Financial Health

Liquidity is adequate but below conservative benchmarks: current ratio 125.9% (vs >150% preferred) and quick ratio 125.9%. No explicit warning trigger (CR <1.0) is breached. Working capital stands at 2,819.8, providing a buffer. Short-term loans are 2,590.1 against cash and deposits of 2,279.9, implying some reliance on rollover or internal cash generation; however, current assets (13,722.5) comfortably exceed current liabilities (10,902.7), tempering maturity mismatch risk. Leverage is moderately elevated: D/E 1.62x slightly above a conservative 1.5x threshold but below a high-risk 2.0x warning; long-term loans are 1,197.8. Interest coverage is strong at 11.6x, indicating manageable debt service. Total equity is 9,207.3 with retained earnings of 6,444.9, suggesting capital buffer. Off-balance sheet obligations are not disclosed; construction businesses typically carry performance guarantees and JV commitments, which remain a data gap here. Overall solvency is stable, with a watch on short-term funding vs. weak OCF this quarter.

Cash Flow Quality

OCF/Net Income is -0.07x (<0.8), a red flag for earnings quality. Based on available numbers, estimated FCF = OCF - Capex ≈ -30.27 - 341.12 = -371.39, indicating insufficient internal cash to fund investment and shareholder returns this period. Financing CF was -949.8, including share repurchases of -100.0; dividend cash was not reported, but net financing outflows suggest debt reduction and shareholder returns contributed to cash usage. The OCF shortfall likely reflects working capital build typical in construction (e.g., increases in receivables/contract assets or decreases in advances received), though specific line items are unreported. No clear signs of deliberate working capital smoothing can be confirmed without AR/inventory/contract liability disclosures; nonetheless, the divergence between profit and cash raises caution. Sustained dividend and buybacks will require improved OCF in H2 or balance sheet drawdown.

Dividend Sustainability

The calculated payout ratio is 59.0%, near the upper bound of a typical sustainability range (<60%). However, negative estimated FCF (~-371.4) implies poor coverage from internal cash this period. With interest coverage strong and equity base solid, balance sheet capacity could bridge near-term distributions, but this is not a long-term solution given ROIC at 2.4%. Dividend policy details and total dividends paid are unreported; buybacks of 100.0 occurred. Sustainability hinges on OCF normalization in H2, stable operating margins, and disciplined capex. If OCF remains weak, maintaining both dividends and repurchases would pressure leverage or cash balances.

Risk Assessment

Business Risks:

• Project execution and fixed-price contract risk leading to margin volatility
• Input cost inflation (materials, subcontracting) and labor shortages in Japan
• Order intake and backlog quality risk affecting revenue visibility and margin mix
• Reliance on extraordinary gains this quarter inflating PBT vs ordinary income
• Exposure to large-scale urban redevelopment cycles and potential project delays
• Disaster-related disruptions (earthquakes, typhoons) impacting sites and costs

Financial Risks:

• Negative OCF and estimated negative FCF, stressing internal funding
• Moderately elevated leverage (D/E 1.62x) and reliance on short-term loans vs cash
• Interest rate/credit market risk affecting refinancing of short-term borrowings
• Low ROIC (2.4%) indicating capital efficiency risk and potential value dilution
• Volatility in investment securities (3,309.6) affecting non-operating income and equity

Key Concerns:

• Earnings quality flagged by OCF/NI of -0.07
• Significant extraordinary gains implied (PBT exceeds ordinary by ~313), likely non-recurring
• Liquidity cushion only moderate (current ratio 126%) amid negative OCF
• Dividend sustainability tight if cash conversion does not improve
• Data gaps on AR, inventories, contract balances, and dividends paid obscure risk visibility

Investment Implications

Key Takeaways:

• P&L beat quality is mixed: strong margin recovery but aided by one-time items
• Operating margin improved to ~4.34% with net margin at ~5.15%
• Cash conversion is weak (OCF negative), driving estimated negative FCF
• Leverage acceptable but slightly above conservative levels (D/E 1.62x)
• ROIC at 2.4% highlights need for better capital discipline and project selection

Metrics to Watch:

• Order intake, backlog, and backlog gross margin
• Contract assets/liabilities and receivables turnover for OCF normalization
• Operating margin trajectory vs input cost trends
• Extraordinary income items and their recurrence
• ROIC progression toward >5% near term and >7% medium term
• Short-term loans vs cash and near-term debt maturities
• Dividend and buyback cadence vs FCF

Relative Positioning: Within Japan’s major general contractors, the quarter shows a credible margin recovery, yet capital efficiency (ROIC 2.4%) and cash conversion lag what is typically required to close the gap with best-in-class peers; sustainability depends on order quality and H2 cash normalization.

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