DAIHO CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥65.19B
• Operating Income: ¥895M
• Net Income: ¥103M
• EPS: ¥0.49

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: Mixed quarter with stronger core profitability but headline net income collapsed due to extraordinary losses and a very high tax charge. Revenue declined 3.6% YoY to 651.9, but operating income rose 43.0% YoY to 8.95, indicating improved project execution and cost control. Gross profit was 49.1 with a gross margin of 7.5%, supporting the rebound in operating margin to 1.37%. Non-operating income netted positively (+1.66), lifting ordinary income to 10.60 (+208.5% YoY), but profit before tax fell to 7.44, implying about 3.2 in net extraordinary losses. The effective tax rate surged to 86.0%, driving net income down 91.1% YoY to 0.43, a sharp divergence from improved ordinary income. On a margin basis, operating margin expanded by approximately 45 bps YoY to 1.37% (estimated prior-year margin ~0.93%), despite lower revenue. EBITDA rose to 13.24, and interest coverage remained strong at 18.3x, underscoring healthy core operating resilience. Balance sheet liquidity is solid with a current ratio of 185% and net cash of roughly 84.6 after offsetting interest-bearing debt (118.5) with cash (203.1). However, cash flow quality was weak: operating cash flow was -28.8 versus positive net income of 0.43, pointing to sizable working capital outflows. Total comprehensive income of 8.17 materially exceeded net income due to positive OCI, likely from valuation gains on investment securities. ROE is a very low 0.1% (DuPont: margin 0.1%, asset turnover 0.443, leverage 2.06x), highlighting capital inefficiency this half. ROIC at 0.7% is below the 5% warning threshold, reflecting the low earnings conversion on a sizable asset base. The quarter demonstrates improved operating discipline but was marred by one-off items and taxes that overwhelmed bottom-line results. Forward-looking, if extraordinary losses and tax anomalies normalize, the improved operating margin trajectory could translate into higher net earnings. Near-term focus should be on working capital management to restore positive OCF, and on clarity around the extraordinary loss drivers and tax normalization. Dividend visibility is limited given the tiny net income and negative OCF in the period; policy guidance will be key for the second half.

Profitability Analysis

ROE decomposition: ROE ~0.1% = Net Profit Margin (0.1%) × Asset Turnover (0.443) × Financial Leverage (2.06x). The most material change this quarter is the net profit margin, which collapsed due to extraordinary losses (~3.2) and an 86% effective tax rate, despite improved operating earnings. Business reason: cost control and better mix lifted operating margin to 1.37%, but extraordinary charges and tax effects (e.g., non-deductible items or deferred tax valuation impacts) suppressed net margin. Sustainability: the operating margin improvement is more likely sustainable given OI +43% YoY on lower revenue, while extraordinary losses and the outsized tax rate are more likely one-time or mean-reverting. Asset turnover of 0.443 (half-year context) remains modest for a contractor with large current assets tied in projects; improved turnover would require faster billing and collection cycles. Financial leverage at 2.06x is moderate, not the driver of ROE changes. Watch for SG&A discipline: SG&A was 40.18 (6.2% of revenue), and given revenue fell 3.6% while OI rose, SG&A growth appears contained relative to revenue—positive operating leverage. Key risk is that revenue softness persists while inflationary input costs re-accelerate, compressing gross margin.

Growth Assessment

Top-line contracted 3.6% YoY to 651.9, likely reflecting timing of project starts and recognition rather than structural demand deterioration. Operating income grew 43.0% YoY to 8.95, indicating improved project margins and overhead control. Ordinary income surged to 10.60 (+208.5% YoY) thanks to stronger core profit and net non-operating income (+1.66), but PBT fell to 7.44 due to extraordinary losses. Net income plunged 91.1% YoY to 0.43 on an 86% tax rate, masking the underlying operating improvement. EBITDA margin at 2.0% remains thin but moving in the right direction. Near-term growth hinges on order intake, backlog execution, and stabilization of extraordinary items and taxes. Outlook: if commodity/material cost inflation remains stable and project mix stays favorable, operating margin could hold near the low-1% range or better; normalization of extraordinary and tax could unlock earnings rebound. Absent backlog data and order trends, sustainability of revenue is uncertain; monitor H2 order awards and completion milestones.

Financial Health

Liquidity is healthy: current ratio 185.2% and quick ratio 185.2% (no inventory reported), with working capital of 533.6. No warning on current ratio (<1.0) or D/E (>2.0); D/E is 1.06x (total liabilities/equity), while net cash position is approximately 84.6 (cash 203.1 minus short- and long-term loans 118.5). Interest coverage is strong at 18.27x, suggesting ample buffer against financing costs. Maturity mismatch risk appears manageable: current assets (1,160.2) comfortably exceed current liabilities (626.5), and short-term loans (58.5) are well covered by cash. Off-balance sheet obligations are not disclosed in the provided data; construction guarantees, JV commitments, and performance bonds may exist but are unreported here.

Cash Flow Quality

Earnings quality is weak this period: OCF/Net Income is -66.93x (<0.8 threshold), indicating that accrual earnings did not convert into cash, likely from working capital build (receivables/unbilled) typical of construction progress. Free cash flow is not fully reported, but with capex of -2.14 and OCF of -28.78, implied FCF is negative in the period. Financing CF of +23.42 suggests reliance on external funding to bridge cash needs. Sustainability: dividends and capex would not be covered by OCF this half; normalization requires improved collections and billing progress in H2. No clear signs of deliberate working capital manipulation can be confirmed, but the magnitude of OCF shortfall versus modest profitability points to timing-related WC swings.

Dividend Sustainability

Annual DPS and total dividends are unreported; the calculated payout ratio of 30909.6% is distorted by the very small net income base and should not be used as a policy indicator. With negative OCF (-28.78) and implied negative FCF after capex, cash coverage for dividends this half is poor. Balance sheet liquidity (net cash ~84.6) could support dividends temporarily, but sustainable payouts require a rebound in operating cash generation. Outlook: unless H2 cash flow normalizes and extraordinary/tax effects abate, a conservative stance on dividend growth is prudent; monitor company guidance and full-year targets.

Risk Assessment

Business Risks:

• Project margin volatility due to input cost inflation (materials, labor) and subcontractor availability
• Execution risk on large projects (delays, penalties, rework) affecting revenue recognition and margins
• Order intake and backlog risk amid macro uncertainty and public/private capex cycles
• Extraordinary losses recurrence related to project-specific issues or asset disposals
• Tax rate volatility affecting bottom-line predictability

Financial Risks:

• Negative operating cash flow driven by working capital build requiring external funding
• Potential maturity mismatch if collection cycles lengthen versus short-term loan obligations
• Capital efficiency risk with ROIC at 0.7% well below cost of capital
• Exposure to marketable securities (120.95) leading to OCI volatility and potential mark-to-market swings

Key Concerns:

• OCF/Net Income at -66.93x indicates weak earnings cash conversion
• Effective tax rate at 86% depressed net income; normalization path unclear
• Implied extraordinary losses (~3.2) weighed on PBT; limited disclosure on nature and recurrence
• Thin operating margin (1.37%) leaves limited buffer against cost shocks

Investment Implications

Key Takeaways:

• Core operations improved: operating income +43% YoY despite revenue -3.6%
• Operating margin expanded ~45 bps YoY to 1.37%
• Net income collapsed to 0.43 on extraordinary losses and an 86% tax rate
• Cash conversion weak with OCF -28.8; funding gap bridged by financing CF +23.4
• Balance sheet liquidity solid (current ratio 185%, net cash ~84.6)
• Capital efficiency low: ROE 0.1%, ROIC 0.7%

Metrics to Watch:

• Order intake/backlog and H2 revenue visibility
• Working capital (receivables/unbilled and advances) and OCF normalization
• Extraordinary gains/losses disclosure and drivers
• Effective tax rate guidance and drivers (deferred tax movements, non-deductibles)
• Gross margin and SG&A ratio trends as cost environment evolves
• Net cash position and debt maturities

Relative Positioning: Within Japanese general contractors, the company shows improving operating discipline but remains constrained by thin margins, volatile below-the-line items, and subpar cash conversion; liquidity is adequate, but capital efficiency trails peers aiming for mid-single-digit ROE/ROIC.

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