Nishimatsu Construction Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥177.32B
• Operating Income: ¥9.32B
• Net Income: ¥5.99B
• EPS: ¥163.59

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

Nishimatsu Construction (18200) reported FY2026 Q2 consolidated results under JGAAP with modest top-line and operating profit growth and a stronger bottom line, while cash flow was weak due to working capital consumption typical for the construction sector. Revenue rose 2.0% YoY to ¥177.3bn, with gross profit of ¥19.8bn and operating income of ¥9.3bn (+2.0% YoY), indicating largely stable operating margins. Net income increased 7.5% YoY to ¥6.46bn, benefitting from lower non-operating drag and a normalized tax burden relative to profits. Gross margin printed at 11.2% and operating margin at approximately 5.3%, consistent with disciplined project execution but still exposed to input-cost variability. DuPont analysis shows a net margin of 3.64%, asset turnover of 0.288x, and financial leverage of 3.32x, producing a calculated ROE of 3.49% that matches the reported figure. On the balance sheet, total assets were ¥615.4bn and equity was ¥185.2bn, implying an equity ratio of roughly 30% (our estimate using available non-zero data), despite the reported equity ratio field showing 0.0% (undisclosed). Liquidity appears adequate with a current ratio of 114.7% and working capital of ¥38.3bn, though construction companies can face sharp intra-year swings. Operating cash flow was negative at ¥-26.6bn, reflecting a working capital build (e.g., progress billing timing, receivables, and advances to subcontractors), and was funded by positive financing cash flow of ¥40.9bn. Interest expense was ¥0.63bn and EBIT/interest coverage was a healthy 14.8x, pointing to satisfactory near-term debt service capacity. The implied tax rate, using ordinary income as a proxy for pre-tax income, is about 27% (¥2.36bn/¥8.77bn), which aligns with normal effective rates for domestic contractors. EBITDA was ¥11.46bn (6.5% margin), indicating reasonable operating cash generation potential once working capital normalizes. Leverage by liabilities-to-equity is 2.22x, which is typical for the sector given advance receipts and payables structures. Dividend data were not disclosed (DPS shown as 0.00), so payout assessment relies on earnings capacity and cash conversion rather than stated policy for this period. Overall, profitability is steady, ROE is modest, liquidity is adequate, and coverage is comfortable; the main watchpoint is negative OCF and reliance on financing inflows during the half. Data limitations exist for several disclosures (e.g., cash and equivalents, inventories, investing cash flows, share count, DPS), so interpretations are based on reported non-zero items and standard sector dynamics. Outlook hinges on order intake quality, cost pass-through, and stabilization of working capital through H2.

Profitability Analysis

ROE is 3.49%, decomposed into a net margin of 3.64%, asset turnover of 0.288x, and financial leverage of 3.32x. Operating margin is approximately 5.3% (¥9.32bn OI on ¥177.3bn revenue), flat YoY given operating income growth in line with revenue (+2% each). Gross margin of 11.2% suggests disciplined cost control but leaves limited buffer against material and subcontract cost volatility. EBITDA of ¥11.46bn implies an EBITDA margin of 6.5%, indicating modest operating cushion above depreciation. Interest coverage is solid at 14.8x on an EBIT basis, meaning current profitability comfortably services interest. Ordinary income (¥8.77bn) sits below operating income, implying some non-operating expenses (e.g., interest and other) reduced profit, but not materially. The YoY net income outperformance (+7.5%) versus operating income (+2.0%) implies tailwinds from non-operating items and/or tax efficiencies. Operating leverage appears limited in the period given revenue and operating income moved in tandem; incremental margins were roughly stable rather than expanding. Margin quality is adequate but sensitive to project mix between civil engineering and building construction and the timing of change-order recognition. The low ROE largely reflects sector-normal asset intensity and conservative equity base rather than subpar profitability alone.

Growth Assessment

Revenue grew 2.0% YoY to ¥177.3bn, reflecting steady execution rather than aggressive volume expansion. Operating income rose 2.0% YoY, indicating that pricing and cost pass-through broadly offset cost inflation without margin expansion. Net income grew 7.5% YoY to ¥6.46bn, helped by improved non-operating balance and a normalized tax burden. Sustainability depends on backlog composition, cost control, and ability to secure higher-margin orders; these details were not disclosed for the period. With asset turnover at 0.288x, capital efficiency remains constrained, so future profit growth will need a combination of margin improvement and better working capital discipline. The stable EBITDA margin (6.5%) and robust interest coverage indicate room to pursue selective growth without stressing coverage. Given negative OCF this half, growth relying on working capital will be financing-dependent until collections catch up. Absent explicit guidance, a cautious near-term outlook is reasonable, with H2 seasonality typically supporting cash inflows and margin normalization if project milestones are met.

Financial Health

Total assets are ¥615.4bn and total equity is ¥185.2bn, implying an equity ratio of roughly 30% (equity/assets) based on available figures. Total liabilities are ¥410.9bn, translating to a liabilities-to-equity ratio of 2.22x, typical for general contractors due to progress-billing structures. Current assets are ¥299.1bn and current liabilities are ¥260.9bn, yielding a current ratio of 114.7% and working capital of ¥38.3bn—adequate but not excessive. Quick ratio is reported equal to current ratio because inventories were undisclosed; liquidity assessment thus relies on current assets ex-inventory. Interest expense is ¥0.63bn and EBIT/interest is 14.8x, indicating strong short-term solvency. Financing cash inflow of ¥40.9bn offset negative operating cash flow, implying reliance on debt or similar instruments during the working capital build. No cash and equivalents balance was disclosed, which limits precise liquidity evaluation. Overall, the capital structure appears balanced for the sector, with sufficient equity and coverage, but cash generation timing remains the principal risk to near-term liquidity.

Cash Flow Quality

Operating cash flow was ¥-26.56bn, resulting in an OCF/Net Income ratio of -4.11, indicating poor cash conversion for the half-year period. This is consistent with construction seasonality and project milestone timing, where receivables and unbilled work expand before collections. Investing cash flow and capital expenditures were not disclosed, preventing a robust free cash flow calculation; as such, the reported FCF field at 0 should be interpreted as undisclosed rather than actual zero. EBITDA of ¥11.46bn suggests underlying cash-generating capability once working capital normalizes. The strong reliance on financing inflows (¥+40.9bn) to fund operations underscores timing mismatches in cash receipts. Working capital movements (specific line items not provided) are the key driver of the negative OCF; monitoring trade receivables, unbilled revenue, and advances from customers is crucial. Overall, earnings quality appears reasonable at the accrual level but is currently weak on a cash basis pending H2 collections.

Dividend Sustainability

Dividend per share and payout ratio were not disclosed for the period (reported as 0.00). Without DPS and share-count data, we assess capacity qualitatively: net income is ¥6.46bn with healthy interest coverage, but OCF is negative and financed by increased borrowings in the half. In the absence of capex data and FCF, coverage of dividends by free cash flow cannot be determined. If cash conversion improves in H2, distributable capacity would be supported by earnings; if working capital remains elevated, prudence would dictate retaining more cash. Policy outlook cannot be inferred from the provided data; any updates to full-year guidance or dividend policy announcements should be monitored.

Risk Assessment

Business Risks:

• Project execution risk and cost overruns in building and civil works
• Input cost inflation for materials and subcontracting impacting gross margins
• Labor shortages and subcontractor capacity constraints causing delays
• Order intake and backlog mix risk affecting future margin profile
• Timing risk in progress billing and acceptance leading to revenue and cash volatility
• Change-order realization and claims recovery risk
• Regulatory and safety compliance in construction sites
• Competitive bidding pressure compressing margins

Financial Risks:

• Negative operating cash flow requiring higher short-term funding
• Working capital expansion (receivables/unbilled) increasing liquidity needs
• Exposure to interest rate increases on borrowings
• Potential covenant constraints if leverage rises to fund WC
• Counterparty credit risk from private-sector clients and developers

Key Concerns:

• OCF/NI of -4.11 indicates weak cash conversion in H1
• Dependence on ¥40.9bn financing inflow to fund operations
• Low ROE at 3.49% relative to sector cost of equity
• Limited operating leverage with flat operating margin despite revenue growth
• Incomplete disclosure on cash, investing cash flows, and dividends

Investment Implications

Key Takeaways:

• Stable revenue and operating income growth (+2% YoY) with steady margins
• Net income outpaced operating income (+7.5% YoY) on improved below-OP items
• ROE of 3.49% reflects modest margins, low asset turnover, and moderate leverage
• Liquidity adequate (current ratio 1.15x), but cash generation lagged (OCF negative)
• Interest coverage strong at 14.8x, supporting near-term solvency
• Working capital swings are the primary driver of cash flow volatility

Metrics to Watch:

• Order intake and backlog quality (civil vs. building) and new-order gross margins
• Quarterly OCF and receivables/unbilled balances for cash conversion
• Interest-bearing debt levels and financing cash flows
• Gross margin on newly started projects and cost pass-through progress
• ROE trajectory via margin improvement and asset turnover
• Any disclosure on DPS/payout and capital allocation policy

Relative Positioning: Within Japanese general contractors, Nishimatsu shows sector-typical margins and leverage, solid interest coverage, and modest ROE; cash flow volatility from working capital is a pronounced near-term feature, with balance-sheet equity providing a reasonable buffer.

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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