KAJIMA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.37T
• Operating Income: ¥108.67B
• Net Income: ¥78.02B
• EPS: ¥165.29

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 earnings rebound in FY2026 Q2, driven by sharp operating margin expansion, but cash flow quality and capital efficiency remain weak. Revenue grew 3.9% YoY to 13,729.22, while operating income surged 126.0% YoY to 1,086.72, lifting operating margin to 7.9%. Ordinary income rose 115.2% YoY to 1,053.77 despite a small net non-operating loss due to higher interest expenses. Net income climbed 120.0% YoY to 773.28, implying a net margin of 5.6% and EPS of 165.29 yen. Based on YoY growth rates, we estimate prior-year operating income around 480.8 and prior-year revenue around 13,214.6, suggesting operating margin expansion of roughly 427 bps (from ~3.6% to 7.9%). Gross profit reached 1,869.36 (13.6% margin), with SG&A at 782.64, implying a lean SG&A ratio of 5.7% and strong operating leverage. EBITDA was 1,241.79 and interest coverage a solid 9.27x, indicating improved earnings resilience. However, operating cash flow was negative at -61.56 despite strong profits, yielding an OCF/Net Income ratio of -0.08x, a material earnings quality red flag. Working capital absorption typical of construction appears to be the main drag, as revenue growth outpaced cash conversion. Leverage is moderate with D/E at 1.55x and current ratio at 131.1%, adequate but below the >150% benchmark for comfort in project-heavy businesses. ROE stands at 5.9% and ROIC at 4.5%, pointing to sub-par capital efficiency versus an ~7–8% target for value creation. The payout ratio is high at 71.1% against negative OCF and capex of 274.11 plus buybacks of 200.05, raising questions on near-term cash coverage. Non-operating income (interest 91.31, dividends 39.85) supported earnings but was more than offset by non-operating expenses (183.92), limiting ordinary income uplift. Total equity increased to 13,160.35 with retained earnings at 10,197.16, providing balance sheet cushion. Looking ahead, maintaining the improved margin profile while normalizing cash conversion will be crucial to sustain dividends and buybacks. If margin gains are from better project mix and cost control, they can be partly sustained; if driven by favorable one-offs, reversion risk exists. Overall, results are a clear earnings beat vs prior year, but quality-of-earnings and capital efficiency require monitoring to confirm durability.

Profitability Analysis

ROE decomposition: ROE 5.9% = Net Profit Margin 5.6% × Asset Turnover 0.409 × Financial Leverage 2.55x. The largest driver of YoY improvement is the net profit margin, given operating income rose 126% on just 3.9% revenue growth, implying substantial operating margin expansion (~427 bps by our estimate). Business drivers include improved project profitability (better bidding discipline, cost controls) and a favorable project mix; SG&A leverage also supported margins as the SG&A ratio held at 5.7%. Non-operating items were mixed: interest and dividend income were positive, but net non-operating was slightly negative due to higher interest expense, tempering ordinary income. Asset turnover at 0.409 appears relatively stable for a large general contractor; absent balance sheet history, we assume limited contribution from turnover to the ROE change. Financial leverage at 2.55x is moderate and likely not the key driver of ROE change this quarter. Sustainability: Margin gains could be partly sustainable if rooted in improved execution and procurement; however, construction margins are inherently cyclical and project-specific, and some compression risk remains as input costs and labor tightness persist. Watch for SG&A growth outpacing revenue—currently not the case, but any acceleration in overhead without revenue growth would pressure margins. Overall, ROE remains modest due to low asset turnover and leverage constraints despite the margin rebound.

Growth Assessment

Top-line growth was modest at +3.9% YoY to 13,729.22. Profit growth was outsized: operating income +126% and net income +120%, reflecting strong operating leverage and improved project economics. Gross margin at 13.6% and operating margin at 7.9% indicate a step-up versus the prior year's implied ~3.6% operating margin. Non-operating income sources (interest 91.31, dividends 39.85) are supportive but offset by non-operating expenses (183.92). The effective tax rate of 30.7% is within a normal range. Revenue sustainability will hinge on order intake/backlog (not disclosed) across building, civil, and overseas segments. Profit quality is mixed: earnings are strong, but OCF was negative (-61.56), suggesting working capital build; normalization is needed to validate earnings durability. Outlook: If bid discipline and cost management continue, mid-to-high single-digit operating margins may be defendable; however, resource inflation and wage pressures could cap upside. Currency and overseas project execution (data not disclosed) add variability. Near-term, we expect margin performance to remain the main earnings driver, with cash conversion a key swing factor.

Financial Health

Liquidity is adequate with a current ratio of 131.1% and quick ratio of 131.1% (no inventories disclosed), above 1.0 but below the 1.5x comfort benchmark for project-intensive businesses. No explicit warning for current ratio as it is not below 1.0. Working capital stands at 4,720.40, indicating a buffer against short-term obligations. Short-term loans are 4,203.93 versus cash and deposits of 3,003.21; combined with current assets of 19,897.38 versus current liabilities of 15,176.98, maturity mismatch risk is manageable. Total liabilities are 20,419.74 against equity of 13,160.35, implying a D/E ratio of 1.55x—moderate and slightly above the conservative benchmark but well below the 2.0x warning threshold; no explicit D/E red flag. Long-term loans of 2,543.54 provide terming-out of some debt, reducing refinancing risk. Interest coverage is strong at 9.27x, suggesting comfortable serviceability. No off-balance sheet obligations were disclosed in the provided data; contingent liabilities from performance guarantees and JV structures are common in the sector but not reported here.

Cash Flow Quality

Earnings quality is weak this quarter: OCF/Net Income at -0.08x (OCF -61.56 vs NI 773.28) flags a material divergence. The likely cause is working capital absorption (receivables/unbilled revenue and advances typical in construction), though detailed working capital components were unreported. Free cash flow is likely negative given negative OCF and capex of 274.11, though aggregate investing CF was unreported; qualitatively, FCF after capex appears around -335.7 absent asset sales. Financing CF at -81.54 reflects cash outflows (potential debt repayments/dividends) alongside share repurchases of 200.05. There are no clear signs of working capital manipulation in the data, but the combination of profit growth and negative OCF warrants monitoring of billing milestones, unbilled receivables, and payables timing. Sustained negative OCF would challenge dividend and buyback capacity without balance sheet draw or asset sales.

Dividend Sustainability

The calculated payout ratio is 71.1%, above the <60% benchmark for comfort. With OCF negative and capex of 274.11 plus share repurchases of 200.05, cash coverage of shareholder returns appears weak this quarter. FCF coverage is not calculable from disclosed data, but qualitatively looks insufficient in the period. Balance sheet capacity (equity 13,160.35 and liquidity buffer) can support payouts near term, but sustainability requires normalization of OCF and continued profitability. Policy outlook: we expect management to prioritize stable dividends, but the combination of high payout, sub-5% ROIC, and negative OCF increases the risk of slower buybacks or a cautious dividend stance if cash conversion does not improve.

Risk Assessment

Business Risks:

• Project execution risk leading to cost overruns and margin erosion
• Materials and labor cost inflation compressing margins
• Order intake/backlog volatility affecting revenue visibility
• Overseas project and FX exposure risk (details not disclosed)
• Competitive bidding pressure in domestic construction market

Financial Risks:

• Negative operating cash flow despite strong earnings (OCF/NI -0.08x)
• Moderate leverage (D/E 1.55x) with reliance on short-term loans (4,203.93)
• High payout ratio (71.1%) against weak cash generation
• ROIC at 4.5% below cost-of-capital benchmarks, risking value dilution
• Potential interest rate risk impacting interest expense (117.24) and refinancing

Key Concerns:

• Earnings-cash divergence and working capital absorption
• Sustainability of elevated operating margin (7.9%) post rebound
• Sub-par capital efficiency (ROE 5.9%, ROIC 4.5%)
• Dependence on project mix; margin volatility inherent to the sector
• Limited disclosure on backlog and segment mix constrains visibility

Investment Implications

Key Takeaways:

• Earnings rebound is robust with operating income +126% on +3.9% revenue growth
• Operating margin expanded to 7.9% (estimated +427 bps YoY), driven by execution and SG&A leverage
• Cash flow quality is weak (OCF negative), requiring normalization to sustain shareholder returns
• Leverage and liquidity are manageable but not pristine (current ratio 1.31x, D/E 1.55x)
• Capital efficiency remains below target (ROIC 4.5%, ROE 5.9%), limiting valuation re-rating absent improvement

Metrics to Watch:

• OCF/Net Income and working capital days (receivables/unbilled, advances, payables)
• Order backlog and new orders by segment (domestic building vs civil vs overseas)
• Operating margin trajectory and SG&A ratio
• ROIC versus 7–8% target and asset turnover
• Leverage mix (short-term vs long-term debt) and interest coverage
• Shareholder return policy execution (dividends, buybacks) versus FCF

Relative Positioning: Within Japan’s general contractors, Kajima’s Q2 shows superior YoY margin recovery versus a modest top-line, but capital efficiency (ROIC 4.5%) lags best-in-class. Liquidity and leverage are acceptable, yet weaker cash conversion and a high payout ratio constrain financial flexibility compared to peers with steadier OCF.

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