DAIHO CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥65.19B
• Operating Income: ¥895M
• Net Income: ¥538M
• 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

Daikyo Kensetsu Co., Ltd. (1822) reported FY2026 Q2 consolidated results under JGAAP showing resilient operating performance despite top-line softness and a sharp decline in bottom-line profit. Revenue declined 3.6% YoY to ¥65.2bn, reflecting a modest contraction in activity or project mix effects. Gross profit was ¥4.37bn with a gross margin of 6.7%, in line with thin civil engineering/construction margins. Operating income rose 43.0% YoY to ¥0.90bn, indicating strong cost control and favorable mix, with an operating margin of 1.37%. Ordinary income reached ¥1.06bn, implying improved non-operating balance versus the prior year. However, net income fell 91.1% YoY to ¥0.04bn, compressing net margin to 0.07%, suggesting sizable extraordinary losses and/or attribution to non-controlling interests that weighed on the bottom line under JGAAP. EPS was ¥0.49 for the period, consistent with minimal net profit. DuPont decomposition yields a calculated ROE of 0.06%, driven by very low net margin (0.07%), asset turnover of 0.443x, and financial leverage of 2.06x. The divergence between ordinary income and net income is the key profit quality issue this quarter. On the balance sheet, total assets were ¥147.2bn and total equity ¥71.3bn, implying an equity ratio around 48.4% (despite an unreported equity ratio field), indicating a conservative capital structure for the sector. Liquidity appears strong with current assets of ¥120.1bn and current liabilities of ¥63.9bn, yielding a current ratio of 188%. Operating cash flow was robust at ¥12.6bn, far exceeding net income and indicating strong cash conversion this half, though likely affected by working capital timing in construction contracts. Financing cash outflow of ¥6.51bn suggests net debt repayment and/or other financing uses, consistent with de-risking. Several line items (e.g., cash and equivalents, inventories, investing cash flows, equity ratio, share count) were unreported, limiting precision in certain assessments. Overall, operational trends are improving beneath the surface (operating and ordinary profits), but headline net income was depressed by non-recurring/extraordinary factors, and investors should focus on sustainability of margins and cash conversion into the second half.

Profitability Analysis

ROE decomposition: ROE 0.06% = Net margin 0.07% × Asset turnover 0.443 × Financial leverage 2.06. The ultra-low net margin is the main drag; efficiency (turnover) and leverage are in normal ranges for a mid-sized contractor. margin_quality: Gross margin 6.7% and operating margin 1.37% indicate typical low-margin construction dynamics but improved operating discipline YoY (operating income +43% despite revenue -3.6%). Ordinary margin is ~1.63% (¥1.06bn/¥65.19bn). The sharp gap from ordinary income to net income points to extraordinary losses or other below-the-line charges under JGAAP, masking underlying operating improvement. operating_leverage: Positive operating leverage evidenced by operating profit growth vs revenue decline, implying lower SG&A ratio and/or better project mix. EBITDA was ¥1.47bn (2.2% margin), supporting improved absorption of fixed costs. Interest burden is modest with EBIT/interest coverage ~17.5x, not constraining operations.

Growth Assessment

revenue_sustainability: Revenue -3.6% YoY to ¥65.2bn suggests cautious demand or project timing effects. Given sector seasonality and backlog-driven execution, H2 revenue could normalize with order backlog conversion, but no order data were provided. profit_quality: Operating and ordinary income trends are healthy, but net income was depressed by non-recurring items. The quality of earnings is stronger at the operating level than at the bottom line this quarter. outlook: If project mix and cost control persist, operating margin can remain near the current 1.3–1.6% range, with potential upside on normalization of extraordinary items. Revenue trajectory will depend on public works/private capex cycles and order intake, which were not disclosed.

Financial Health

liquidity: Current assets ¥120.07bn vs current liabilities ¥63.86bn yields a current ratio of 188% and working capital of ¥56.21bn. Quick ratio appears equal to current ratio due to unreported inventories; true quick ratio may be slightly lower. solvency: Total liabilities ¥76.78bn vs equity ¥71.30bn implies debt-to-equity of ~1.08x (liabilities/equity). Implied equity ratio ≈48.4% (equity/assets), indicating a solid buffer for a contractor. capital_structure: Leverage is moderate (financial leverage 2.06x). Interest expense is low at ¥51m with ample EBIT coverage (~17.5x), suggesting headroom against rate increases or earnings volatility.

Cash Flow Quality

earnings_quality: OCF of ¥12.59bn vs net income of ¥0.04bn (OCF/NI ~293x) indicates strong cash generation relative to accounting profit, driven likely by favorable working capital movements and progress billings. The gap is unusually large due to depressed net income from extraordinary items. FCF_analysis: Investing cash flow was unreported, so FCF cannot be precisely computed; using OCF alone suggests significant internal funding capacity this half. Financing outflows of ¥6.51bn indicate net repayments or other distributions, funded by OCF. working_capital: High OCF likely reflects collection of receivables and/or advances on construction contracts. With current assets at ¥120.07bn and current liabilities at ¥63.86bn, liquidity support is strong, but sustainability depends on billing milestones and order execution.

Dividend Sustainability

payout_ratio_assessment: Reported annual DPS is ¥0.00 with a 0.0% payout ratio for the period; this may reflect timing (interim stage) rather than full-year policy. With net income at ¥43m and strong OCF, the capacity to distribute depends on full-year profit normalization. FCF_coverage: FCF not derivable due to unreported investing CF. OCF of ¥12.6bn provides ample theoretical coverage for ordinary dividends, but extraordinary losses and earnings volatility caution against extrapolation. policy_outlook: Given sector norms, stable dividends typically hinge on ordinary profit rather than transient extraordinary items. Visibility will improve with full-year guidance and clarification of the extraordinary-loss driver.

Risk Assessment

Business Risks:

• Project execution risk and cost overruns impacting thin margins
• Order intake volatility and timing of public/private sector demand
• Input cost inflation (materials, labor) compressing gross margin
• Backlog mix shifts affecting operating leverage and profitability
• Regulatory and permitting delays in civil engineering projects

Financial Risks:

• Extraordinary losses under JGAAP creating earnings volatility
• Working capital swings affecting cash flow timing
• Interest rate increases raising financing costs (albeit from a low base)
• Counterparty credit risk on receivables and retentions
• Potential off-balance commitments/guarantees typical in construction

Key Concerns:

• Large divergence between ordinary income (¥1.06bn) and net income (¥43m)
• Sustainability of operating margin improvement amid revenue softness
• Limited disclosure on cash, investing flows, and inventories constrains analysis

Investment Implications

Key Takeaways:

• Operating and ordinary profits improved despite a 3.6% revenue decline, indicating better execution and cost control
• Net income was unusually weak due to non-operating/extraordinary factors, depressing ROE to 0.06%
• Liquidity and solvency are solid with an implied equity ratio around 48% and current ratio of 188%
• OCF was very strong at ¥12.6bn, suggesting healthy cash conversion from ongoing projects
• Further clarity on extraordinary losses and investing cash flows is essential to assess sustainable earnings and FCF

Metrics to Watch:

• Order intake and backlog levels/mix
• Gross and operating margin progression in H2
• Reconciliation from ordinary income to net income (nature of extraordinary items)
• Working capital components (receivables, contract assets/liabilities) and OCF sustainability
• Capital expenditure and investing CF to gauge true FCF
• Interest coverage and any changes in borrowing levels

Relative Positioning: Within Japan’s civil engineering/construction peer set, the company exhibits typical low margins but currently shows better operating trajectory and strong OCF, balanced against unusually weak bottom-line profitability due to extraordinary items; balance sheet resilience appears above average.

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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