SHIMIZU CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥897.01B
• Operating Income: ¥38.92B
• Net Income: ¥11.81B
• 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

Shimizu Corporation (TSE: 1803) delivered a solid FY2026 Q2 performance with revenue of ¥897.0bn, up 7.1% YoY, and a strong profit recovery. Operating income surged to ¥38.9bn (+119.9% YoY), lifting the operating margin to approximately 4.3%, driven by improved project profitability and cost discipline. Net income rose to ¥46.2bn (+332.3% YoY), translating into a net margin of 5.15%, which is robust for a general contractor at mid-year. DuPont analysis indicates ROE of 5.01%, supported by moderate asset turnover of 0.371 and financial leverage of 2.62x; returns are improving but remain mid-single digit. Gross margin of 8.3% and EBITDA margin of 6.2% suggest margin normalization from prior-year pressure, with limited but positive operating leverage. Interest coverage is strong at 13.9x, reflecting manageable financing costs relative to EBIT. Liquidity appears adequate with a current ratio of 125.5% and working capital of ¥308.7bn, though the quick ratio mirrors the current ratio due to unreported inventories. The balance sheet shows total liabilities of ¥1,600.0bn against equity of ¥920.7bn (D/E 1.74x), a typical profile for major contractors managing large advance receipts and progress billings. Operating cash flow was ¥19.1bn, equating to 0.41x of net income, indicating weaker cash conversion in the period, likely due to working capital timing on projects. Financing cash outflows of ¥54.5bn suggest debt repayment and/or shareholder returns, but dividends per share were not disclosed in the dataset. The reported effective tax rate appears anomalously low given net profit dynamics; we note potential non-operating items or temporary tax effects and the limitations of interim data. Several key items are unreported (inventories, investing cash flows, cash balance, equity ratio, shares), requiring caution in ratio interpretation and per-share analysis. Despite these gaps, the available metrics point to improving profitability, resilient financial flexibility, and an improving trajectory in the core construction business. Sustainability of the recovery will depend on backlog quality, order intake, and cost pass-through in a still-inflationary environment. Overall, fundamentals show a meaningful rebound in earnings quality compared to the prior year, but cash flow conversion and capital allocation clarity warrant monitoring in the second half.

Profitability Analysis

ROE of 5.01% decomposes into a net margin of 5.15%, asset turnover of 0.371, and financial leverage of 2.62x. The step-up in operating income (+119.9% YoY) outpaced revenue growth (+7.1% YoY), evidencing positive operating leverage and improved project cost control. Operating margin is approximately 4.3% (¥38.9bn / ¥897.0bn), a notable recovery versus typical low-single-digit norms in challenging periods. Gross margin of 8.3% indicates better profitability on ongoing work, though still consistent with industry constraints on pricing power. EBITDA of ¥55.3bn (6.2% margin) highlights improved underlying earnings before non-cash charges; D&A at ¥16.4bn implies a moderate capital intensity. Interest coverage at 13.9x (operating income / interest expense) provides a cushion against rate increases. Ordinary income of ¥40.1bn marginally above operating income suggests modest non-operating gains. The reported effective tax rate appears artificially low in the calculated metrics; interim effects or non-recurring items may be at play—profitability should therefore be assessed primarily on operating metrics. Overall margin quality has improved, with evidence of cost normalization and better bid discipline.

Growth Assessment

Top-line growth of 7.1% YoY to ¥897.0bn reflects steady execution and supportive order intake, though order/backlog data were not provided. Profit growth was significantly stronger than revenue, with operating income up 119.9% YoY and net income up 332.3% YoY, indicating normalization from a weak base and better project mix. Sustainability hinges on maintaining improved gross margins (8.3%) and continued pass-through of material and labor cost inflation. The uplift in ordinary income relative to operating income implies non-operating tailwinds that may not recur. With asset turnover at 0.371, revenue productivity on the asset base is moderate; further growth would benefit from disciplined working capital turnover and efficient project delivery. Near-term outlook will depend on H2 seasonality, large project milestones, and domestic non-residential demand; overseas contributions were not disclosed. Given the cash conversion shortfall in H1 (OCF/NI 0.41x), growth quality will be better assessed if working capital inflows materialize in H2.

Financial Health

Liquidity is adequate: current ratio 125.5% and working capital of ¥308.7bn support ongoing project needs. The quick ratio matches the current ratio due to unreported inventories; thus, true liquidity could be slightly lower than reported. Capital structure shows total liabilities of ¥1,600.0bn versus equity of ¥920.7bn (D/E 1.74x), consistent with the sector’s reliance on progress billings and advances. Interest expense of ¥2.8bn is well covered by operating income (13.9x), limiting near-term refinancing risk. Total assets amount to ¥2,415.2bn, reflecting a large project portfolio and long-duration receivables typical of general contractors. The equity ratio is unreported in the dataset; based on provided totals, equity/asset would approximate ~38% if calculated mechanically, but we refrain from asserting this due to the data flag. No cash and cash equivalents were disclosed; actual liquidity should be verified against the full filing.

Cash Flow Quality

Operating cash flow of ¥19.1bn is 0.41x net income (¥46.2bn), indicating weaker cash conversion in H1, likely due to working capital outflows (e.g., receivables build or lower advances). Free cash flow cannot be assessed because investing cash flows and capex are unreported. EBITDA of ¥55.3bn versus OCF of ¥19.1bn suggests cash is lagging accrual earnings in the period; this is not unusual mid-year for contractors but bears monitoring for reversal in H2. Working capital specifics (inventories, receivables, payables) are not disclosed here, limiting diagnosis of the OCF shortfall. Financing cash outflows of ¥54.5bn suggest debt repayment and/or shareholder returns; without investing cash flows, we cannot triangulate net borrowing or capex funding. Overall, earnings quality improved at the P&L level, but cash validation is pending.

Dividend Sustainability

Annual DPS and payout ratio are unreported in the dataset, preventing per-share or payout analysis. Financing cash outflows of ¥54.5bn could include dividends; however, without DPS, share count, and investing cash flows, FCF coverage cannot be calculated. With OCF of ¥19.1bn and unknown capex, prudent assessment requires waiting for full-year cash flow details. Policy-wise, major Japanese general contractors typically target stable dividends with consideration of consolidated payout ratios and investment needs; applicability to this period cannot be confirmed from the provided data. For sustainability, we would evaluate full-year OCF, capex, and net debt movements once disclosed.

Risk Assessment

Business Risks:

• Cost inflation and labor shortages affecting project margins and schedules
• Fixed-price contract exposure with limited pass-through on legacy backlog
• Project execution risk on large-scale civil and building works
• Order intake volatility and timing of public vs. private sector demand
• Overseas project risk (FX, political, subcontractor risk) if applicable
• Competitive bidding pressure compressing gross margins

Financial Risks:

• Working capital swings leading to volatile OCF (OCF/NI 0.41x in H1)
• Leverage sensitivity to advances/billings (D/E 1.74x) and potential covenant constraints
• Interest rate risk on floating-rate debt despite current 13.9x coverage
• Potential non-recurring items impacting tax and net income
• Liquidity visibility constrained by unreported cash and inventories in this dataset

Key Concerns:

• Cash conversion lagging earnings in the half-year period
• Reliance on improved margins to sustain ROE amid moderate asset turnover
• Data limitations (unreported inventories, investing CF, cash, and DPS) obscuring full assessment

Investment Implications

Key Takeaways:

• Revenue growth of 7.1% YoY with outsized profit recovery (OP +119.9% YoY, NI +332.3% YoY)
• Operating margin improved to ~4.3% and net margin to 5.15%, lifting ROE to 5.01%
• Strong interest coverage (13.9x) and adequate liquidity (current ratio 125.5%)
• OCF/NI at 0.41x indicates H1 cash shortfall; H2 reversal is key to confirm earnings quality
• Capital structure moderate for the sector (D/E 1.74x), but cash position and equity ratio not fully disclosed

Metrics to Watch:

• Backlog quality and order intake (book-to-bill) and pricing of new wins
• Gross and operating margins by segment and project type
• Working capital movements (receivables, advances, payables) and OCF/NI trajectory
• Capex and investing cash flows to derive true FCF and coverage of shareholder returns
• Interest expense trend and debt mix amid rate environment
• Any non-recurring items affecting tax and net income

Relative Positioning: Within Japan’s major general contractors, the company’s mid-year profitability rebound and strong coverage ratios place it in an improving cohort, though sustained margin discipline and better cash conversion are required to close the gap with peers that consistently deliver higher ROE and steadier free cash flow.

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