DAISUE CONSTRUCTION CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥47.02B
• Operating Income: ¥2.44B
• Net Income: ¥1.67B
• EPS: ¥159.86

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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

FY2026 Q2 was a strong profitability inflection for Daisue Construction (1814), with sharp margin expansion driving a more than doubling of earnings. Revenue grew 14.5% YoY to 470.22, while operating income rose 118.5% YoY to 24.42 and net income increased 120.5% YoY to 16.70. Gross profit reached 49.23 (gross margin 10.5%), and SG&A was held to 24.81, enabling operating margin to lift to 5.2%. Using implied prior-period figures, operating margin expanded by roughly 247 bps YoY (from ~2.7% to ~5.2%), reflecting meaningful operating leverage in the quarter. Ordinary income was 24.92 (+118.8% YoY), benefiting slightly from net non-operating income of 0.51 (non-operating income 1.14 vs. expenses 0.63), including 0.53 of dividend income. Net margin improved to 3.6% (16.70/470.22), with an effective tax rate of 32.9%. ROE, calculated via DuPont, was 7.0% (net margin 3.5% × asset turnover 0.871 × financial leverage 2.25x), marking an improvement consistent with the profit surge. Liquidity remains solid: current ratio 182% and working capital of 211.23; equity ratio is healthy at about 44.4% (239.64/539.96). Leverage is conservative on an interest-bearing basis (loans of 25.79 vs. equity 239.64 ≈ 0.11x), and interest coverage is strong at 58.1x. Comprehensive income of 17.12 modestly exceeded net income due to positive OCI. Cash flow details were unreported, so earnings quality via OCF conversion cannot be assessed this quarter. The calculated payout ratio is 62.9%, slightly above a typical 60% sustainability benchmark, making future cash flow generation important to watch given margin cyclicality in construction. The large delta between basic EPS (159.86 JPY) and diluted EPS (72.71 JPY) indicates potential dilution overhang to monitor. Overall, results signal improved project execution and cost discipline; sustaining the higher margin will hinge on backlog quality, input cost control, and stable site productivity. Forward-looking, management’s ability to maintain gross margin around double digits while keeping SG&A growth below revenue growth would support ROE trending above the current 7% level. With liquidity and solvency in good shape, the key near-term question is cash conversion and whether the payout level is supported by free cash flow.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.0% = Net Profit Margin 3.5% × Asset Turnover 0.871 × Financial Leverage 2.25x. The largest driver of YoY change is net profit margin expansion, inferred from operating income rising 118.5% vs. revenue +14.5%, lifting operating margin from ~2.7% to ~5.2% (≈+247 bps). Business drivers likely include improved project mix, tighter site cost control, and SG&A discipline (SG&A/revenue 5.3%), allowing operating leverage on higher volume. Non-operating effects were modestly positive (net +0.51), but the core improvement is operational. Sustainability: while some gains appear cyclical (favorable project phasing and input costs), maintaining gross margin ~10% with SG&A discipline could preserve part of the step-up; however, construction margins are inherently volatile. Watch for signs of cost pressure or schedule slippage that could compress margins. No red flag on cost structure this quarter, but monitor if SG&A growth begins to exceed revenue growth, which would erode operating leverage.

Growth Assessment

Top-line growth of 14.5% YoY indicates solid execution and likely healthy backlog conversion. Profit growth (operating +118.5%, net +120.5%) far outpaced sales, evidencing strong operating leverage and better project profitability. Non-operating income contributed only ~0.1% points to ordinary income margin, so growth quality is primarily operating. The ordinary income margin at 5.3% and net margin at 3.6% are within a healthy range for a general contractor in a favorable phase. Without order intake/backlog data, revenue sustainability beyond Q2 is uncertain; maintaining double-digit gross margin will be key. Outlook hinges on input cost trends (materials/labor), subcontractor availability, and change-order recovery; current balance sheet strength positions the company well to bid selectively and manage working capital. EPS optics are complicated by potential dilution (diluted EPS 72.71 vs. basic 159.86), which could temper per-share growth if securities convert. Overall, near-term growth quality is good, but visibility beyond the quarter is limited by absent backlog metrics.

Financial Health

Liquidity is strong: current ratio 182.4%, quick ratio reported at the same level (inventory not disclosed), and working capital of 211.23. Cash and deposits of 47.69 provide a cushion relative to short-term loans of 1.00. Solvency is sound: equity ratio ≈44.4% (239.64/539.96) and interest-bearing debt is modest (short-term 1.00, long-term 24.79; ≈0.11x of equity). The reported D/E of 1.25x appears to reflect total liabilities/equity, not financial debt; on a net-debt basis leverage is conservative. Interest coverage is very strong at 58.14x, indicating low refinancing risk. No explicit off-balance sheet obligations were reported. Maturity mismatch risk appears low given minimal short-term borrowing and substantial current assets; however, typical construction receivables/payables cycles are not disclosed and should be monitored.

Cash Flow Quality

Operating cash flow was unreported, so OCF/Net Income cannot be assessed this quarter. As a result, cash conversion quality and the sustainability of free cash flow are indeterminate. Working capital movements (receivables, unbilled revenue, payables, advances from customers) can materially swing OCF in construction; absent data, there is a risk that earnings outpaced cash generation due to project timing. Capex and dividends were also unreported, preventing a clear view on free cash flow after shareholder returns. No signs of working capital manipulation can be inferred from the disclosed data, but monitoring days sales outstanding, unbilled contract assets, and advance payments is recommended when available.

Dividend Sustainability

The calculated payout ratio is 62.9%, slightly above the 60% benchmark for comfort. Without OCF/FCF data and DPS disclosure, coverage by free cash flow cannot be determined. Balance sheet strength (low net debt, ample liquidity) provides some buffer, but construction earnings volatility suggests caution if margins normalize. If operating margin holds near 5% and interest coverage remains robust, maintaining the payout appears feasible; if gross margin reverts or working capital absorbs cash, payout pressure could emerge. Policy outlook is unclear due to lack of guidance; watch for management commentary on dividend policy alignment with medium-term profit and cash flow targets.

Risk Assessment

Business Risks:

• Project execution risk leading to cost overruns or penalties
• Input cost inflation (materials and skilled labor) compressing margins
• Order intake/backlog volatility affecting revenue visibility
• Subcontractor capacity constraints impacting schedules and costs
• Change-order and claims recovery risk

Financial Risks:

• Potential earnings-to-cash divergence (OCF unreported)
• Dilution risk indicated by large gap between basic and diluted EPS
• Working capital swings typical in construction affecting liquidity
• Tax rate variability (effective tax 32.9%) impacting net earnings

Key Concerns:

• Sustainability of the ~247 bps operating margin expansion
• Lack of cash flow disclosure limits assessment of dividend coverage
• Limited visibility on receivables/unbilled balances and backlog health
• Reliance on favorable project mix in the period

Investment Implications

Key Takeaways:

• Earnings inflected strongly with operating margin rising to ~5.2% on 14.5% sales growth
• ROE improved to 7.0%, driven mainly by margin gains rather than leverage
• Balance sheet is conservative with interest-bearing debt ≈0.11x equity and interest coverage 58x
• Cash flow disclosure is absent; cash conversion is the key missing link
• Payout ratio at ~63% is slightly elevated versus typical sustainability thresholds

Metrics to Watch:

• Order intake and backlog to gauge revenue sustainability
• Gross margin and SG&A/revenue for signs of operating leverage persistence
• OCF/Net income and FCF after dividends for payout coverage
• Working capital metrics (DSO, unbilled, advances) to assess cash cycle health
• Diluted share count mechanics underlying EPS gap
• Effective tax rate trends and non-operating income contribution

Relative Positioning: Within Japanese general contractors, Daisue currently shows above-trend margin momentum and robust balance sheet defensiveness. Its leverage is lower than many peers, supporting resilience, while profitability remains mid-pack and sensitive to project mix and cost conditions.

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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