NAKANO CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥55.80B
• Operating Income: ¥1.95B
• Net Income: ¥1.64B
• EPS: ¥48.97

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

FY2026 Q2 was a solid quarter with modest topline growth and faster profit expansion, underpinned by margin improvement and exceptionally strong operating cash flow. Revenue rose 3.9% YoY to 557.95, while operating income increased 9.0% YoY to 19.46 and ordinary income rose 13.9% to 21.85. Net income advanced 17.8% YoY to 16.82, with EPS of 48.97 yen. Gross profit reached 58.80, implying a gross margin of 10.5%. Operating margin improved to 3.49%, up approximately 17 bps from about 3.32% in the prior-year period (based on reported growth rates). Non-operating income of 2.56 (notably interest income of 1.76 and dividends of 0.52) contributed roughly 15% of ordinary profit, but the earnings mix remained predominantly operating-driven. Cash generation was very strong: operating cash flow of 138.54 was 8.24x net income, suggesting favorable working capital movements and robust collections/progress billings. The balance sheet is healthy with a current ratio of 156% and net cash position effectively intact given very low interest-bearing debt (short/long-term loans totaling ~6.0). Financial leverage (Assets/Equity) stands at 1.90x, and interest coverage is extremely high at 243x, reflecting minimal financing burden. ROE calculated at 3.6% remains subdued for the sector, indicating that the improvement in profitability has yet to translate into higher returns on equity. ROIC is reported at 11.7%, suggesting efficient deployment of invested capital on current projects. Capex is modest at 0.72, implying limited capital intensity and supporting free cash flow, although full investing cash flows were not disclosed. The effective tax rate was 24.9%, within a normal range. With payout ratio calculated at 45.1%, dividend capacity appears supported by cash flow, although DPS disclosure was not available. Going forward, sustaining the margin gains and cash conversion will depend on order mix, cost control, and execution discipline amid construction cost inflation risks.

Profitability Analysis

ROE (3.6%) = Net Profit Margin (3.0%) × Asset Turnover (0.639) × Financial Leverage (1.90x). The primary constraint on ROE is the low net margin inherent to the general contractor business, while asset turnover is moderate and leverage is conservative to moderate. Period-over-period, operating margin expanded by roughly 17 bps (to 3.49%), indicating better cost pass-through or favorable project mix; gross margin of 10.5% supports this narrative. The component that improved most is margin (net and operating), given revenue grew 3.9% while operating income grew 9.0%. Business drivers likely include improved construction profitability on executed projects and lower SG&A intensity (SG&A at 39.34 equates to ~7.0% of sales); non-operating interest income also aided ordinary income. The sustainability of margin improvement depends on backlog quality and input cost stability; current signs are constructive but sensitive to materials/labor inflation. No evidence of cost slippage this quarter, but given cyclicality, gains should be treated as cautiously sustainable rather than one-off. Watch for any period ahead where SG&A growth exceeds revenue growth, as that would pressure operating leverage; current data on YoY SG&A is not disclosed, limiting deeper attribution.

Growth Assessment

Revenue growth of 3.9% YoY was steady, with operating profit growing faster at 9.0% and net income up 17.8%, indicating positive operating leverage. Profit quality appears solid: operating profit accounted for the bulk of ordinary profit, with non-operating income (2.56) providing a supplementary tailwind. Interest expense is de minimis (0.08), and interest coverage is exceptionally strong. The non-operating contribution is not outsized, suggesting earnings are mostly recurring from core operations. Outlook hinges on order intake, backlog margin, and ability to manage construction costs; macro construction demand and public/private sector capex will be key. Near term, stable margins and disciplined SG&A point to manageable cost dynamics, but sustaining growth above mid-single digits likely requires a healthy order pipeline. ROIC at 11.7% is strong relative to typical sector benchmarks, implying current project returns exceed the cost of capital.

Financial Health

Liquidity is healthy: current ratio 156.1% and quick ratio 156.1% (suggesting low inventory intensity) with working capital of 217.17. No warning on current ratio (<1.0) or excessive leverage (D/E > 2.0); reported D/E of 0.90x appears moderate when viewed as total liabilities to equity, while interest-bearing debt is minimal (short-term 5.75, long-term 0.25). Equity/Assets is approximately 52.8% (460.70/873.66), denoting a solid equity cushion. Maturity mismatch risk appears low: current assets (604.21) comfortably exceed current liabilities (387.04). Cash and deposits of 341.87 cover 88% of current liabilities, enhancing liquidity resilience. No off-balance sheet obligations were disclosed in the data; however, construction contracts can involve performance guarantees and JV commitments that are not fully visible here.

Cash Flow Quality

OCF/Net Income at 8.24x signals very high cash conversion, likely driven by favorable working capital (collections/progress billings exceeding costs during the period). Free cash flow is likely strong given low capex (0.72), though full investing cash flow was not reported; thus, FCF cannot be precisely calculated but is likely positive in substance. With operating cash flow far exceeding profit, earnings quality screens high this quarter. Potential working capital timing effects should be monitored, as construction cash flows can be lumpy and reverse in subsequent periods. No signs of aggressive working capital manipulation are evident from the limited data, but absent details on receivables/payables, a definitive view is constrained.

Dividend Sustainability

The calculated payout ratio is 45.1%, within the generally sustainable range (<60%). While DPS and total dividends paid were not disclosed, cash coverage appears ample given OCF of 138.54 and modest capex needs. With low interest burden and strong liquidity, the company has capacity to maintain or cautiously grow dividends, pending full-year profitability and order visibility. Policy clarity is limited due to missing DPS/XBRL data; monitor the year-end dividend announcement and any stated payout policy.

Risk Assessment

Business Risks:

• Project margin risk from materials and labor cost inflation affecting fixed-price contracts
• Order intake and backlog visibility risk in a competitive domestic construction market
• Execution risk on large or technically complex projects leading to potential cost overruns
• Client concentration or sector mix risk if orders skew to cyclical private demand

Financial Risks:

• Working capital volatility inherent to construction, which can swing OCF between periods
• Potential off-balance sheet guarantees/JV commitments typical for the sector (not disclosed here)
• Moderate overall leverage when measured as total liabilities/equity (0.90x), though interest-bearing debt is low

Key Concerns:

• Low ROE at 3.6% despite profit growth, indicating limited equity efficiency
• Dependence on sustaining current margin improvements amid cost pressures
• Data gaps (investing CF, DPS, receivables/payables) limit full cash and dividend assessment

Investment Implications

Key Takeaways:

• Margin expansion (~+17 bps) and 9% YoY operating profit growth outpaced revenue growth (+3.9%)
• Earnings quality is strong with OCF 8.24x net income; liquidity robust with current ratio 156%
• ROE at 3.6% remains a structural headwind; ROIC reported at 11.7% indicates healthy project returns
• Non-operating income is supportive but not dominant (~15% of ordinary profit), keeping the earnings mix sound

Metrics to Watch:

• Order intake and backlog margin to gauge sustainability of revenue and profitability
• Gross margin and SG&A ratio trends for cost discipline
• Working capital components (receivables, unbilled revenue, advances) to confirm cash conversion durability
• Capex and investing CF for a clearer FCF picture
• Dividend policy updates and payout trajectory at year-end

Relative Positioning: Within domestic general contractors, the company exhibits conservative balance sheet, strong cash conversion this period, and improving margins, but ROE remains on the low side. Execution on higher-margin backlog and disciplined cost control will be key to closing the return gap.

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