NAKANO CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥55.80B
• Operating Income: ¥1.95B
• Net Income: ¥1.42B
• 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

Nakano Fudo Construction reported FY2026 Q2 consolidated results under JGAAP showing steady topline and profit growth alongside weak operating cash flow, a typical pattern for construction companies given working capital seasonality. Revenue rose 3.9% YoY to ¥55.8bn, with gross profit of ¥5.39bn and a gross margin of 9.7%, suggesting disciplined cost control amid input cost pressures. Operating income increased 9.0% YoY to ¥1.95bn, producing an operating margin of about 3.5%, which is solid for the sector. Ordinary income reached ¥2.19bn and net income ¥1.68bn (+17.8% YoY), with EPS of ¥48.97 indicating good earnings traction. DuPont metrics show a net margin of 3.01%, asset turnover of 0.639x, and financial leverage of 1.90x, yielding an ROE of 3.65% (consistent with the reported figure). Leverage appears moderate: total assets are ¥87.4bn against total equity of ¥46.1bn; the implied equity ratio is ~52.7% despite a reported equity ratio placeholder of 0.0%. Liquidity is sound with current assets of ¥54.4bn and current liabilities of ¥33.9bn, resulting in a current ratio of 160.8% and working capital of ¥20.6bn. Interest expense is minimal at ¥9m, driving a very high interest coverage ratio of 216x and reducing financial risk from debt service. Operating cash flow was negative at -¥8.46bn, resulting in an OCF/Net Income ratio of -5.03, highlighting timing effects in receivables and advances typical of the industry. EBITDA was ¥2.23bn, with a 4.0% margin, indicating moderate operating leverage from volume growth and cost discipline. The effective tax rate appears as 0.0% in the summary metrics; however, income tax expense of ¥476m against ordinary income of ¥2.19bn implies a more normal cash tax burden, and the 0% figure should be treated as a placeholder. Dividend data show Annual DPS and payout ratios as 0.00 and 0.0%, respectively; these should be interpreted as undisclosed at this stage rather than definitive policy. Several items are undisclosed or reported as zeros (e.g., inventories, cash and equivalents, investing CF, equity ratio, share count), which constrains depth of per-share and cash-based analyses. Overall, profitability trends are improving, balance sheet strength is adequate, and funding risk is low, but cash conversion in the half was weak, which warrants monitoring through the second half. Full-year outcomes will depend on order execution, backlog conversion, and working capital normalization.

Profitability Analysis

ROE decomposition: ROE 3.65% = Net margin 3.01% × Asset turnover 0.639 × Financial leverage 1.90. Net margin improved with net income of ¥1.68bn on revenue of ¥55.80bn; asset turnover reflects typical construction balance sheet intensity; leverage is moderate (Assets/Equity ≈ 1.90). margin_quality: Gross margin at 9.7% and operating margin ~3.5% indicate reasonable pricing and cost management. EBITDA margin of 4.0% points to limited but present operating leverage. Net margin benefited from low interest expense (¥9m), with taxes recorded at ¥476m. operating_leverage: Operating income grew 9.0% YoY on 3.9% revenue growth, implying positive operating leverage from fixed cost absorption and mix. Depreciation is modest at ¥287m, indicating a relatively light fixed asset base consistent with a contractor model; incremental margins appear healthy.

Growth Assessment

revenue_sustainability: Revenue grew 3.9% YoY to ¥55.8bn, consistent with steady project execution and likely supported by stable public/private demand. Sustainability hinges on order intake and backlog conversion; these are not disclosed, so growth visibility is moderate. profit_quality: Net income grew 17.8% YoY to ¥1.68bn, outpacing revenue due to margin expansion and minimal interest burden. However, OCF was -¥8.46bn, indicating weak cash conversion in the half likely driven by working capital swings; monitoring second-half normalization is key. outlook: With solid operating momentum and a moderate balance sheet, earnings trajectory appears supported by execution. Key determinants for the remainder of the fiscal year include input cost stability, subcontractor availability, and the timing of collections and advances on large projects.

Financial Health

liquidity: Current assets ¥54.43bn vs current liabilities ¥33.86bn yield a current ratio of 160.8% and working capital of ¥20.58bn. Quick ratio mirrors current ratio due to undisclosed inventories. Despite negative OCF in the half, reported near-term liquidity indicators are comfortable. solvency: Total liabilities ¥36.21bn vs equity ¥46.07bn imply an equity ratio of roughly 52.7% (derived), despite a reported placeholder of 0.0%. Interest coverage is 216.2x owing to only ¥9m in interest expense, suggesting very low debt service risk. capital_structure: Financial leverage of 1.90x (Assets/Equity) and a provided debt-to-equity ratio of 0.79x indicate moderate reliance on liabilities. The balance sheet appears conservatively structured for a contractor, with ample equity supporting operations.

Cash Flow Quality

earnings_quality: OCF/Net Income at -5.03 indicates poor cash conversion in the period; this is not uncommon mid-year for construction due to billing/certification timing and changes in advances received. Earnings quality should be reassessed after year-end when working capital normalizes. FCF_analysis: Operating CF was -¥8.46bn. Investing CF is shown as 0 (undisclosed), so Free Cash Flow cannot be reliably calculated despite a placeholder of 0. Capex is not provided, limiting FCF assessment. working_capital: Given the sector, swings in receivables, unbilled construction, and advances received likely drove OCF volatility. Inventories are shown as 0 (undisclosed), reinforcing that working capital composition details are limited.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are shown as 0.00 and 0.0%, which should be treated as undisclosed rather than definitive. With net income of ¥1.68bn and moderate leverage, capacity for dividends depends on full-year earnings and cash generation. FCF_coverage: FCF is not assessable due to undisclosed investing cash flows and capex; OCF was negative in H1, so interim coverage appears weak but may normalize on second-half collections. policy_outlook: Absent explicit guidance, dividend policy visibility is low. Any payout decisions will likely align with full-year profit realization, cash conversion, and capital needs for order execution.

Risk Assessment

Business Risks:

• Project execution risk on fixed-price contracts (schedule delays, rework, penalties).
• Input cost inflation (materials, labor) compressing margins if not passed through.
• Subcontractor availability and productivity constraints in a tight construction market.
• Order intake and backlog concentration risk across sectors and customers.
• Cyclicality in private non-residential and potential delays in public works budgets.
• Change order and claims realization risk affecting revenue recognition and cash timing.

Financial Risks:

• Negative H1 operating cash flow (-¥8.46bn) and working capital volatility.
• Potential increase in receivables/unbilled balances and slower collections.
• Dependence on advances received; reversal can pressure liquidity intra-year.
• Limited disclosure on cash and equivalents, capex, and borrowing profile.
• Tax and contingent liability uncertainties typical for long-duration projects.

Key Concerns:

• Weak cash conversion in the half despite profit growth (OCF/NI -5.03).
• Margin resilience if cost pressures re-accelerate.
• Visibility on order backlog and new order quality not disclosed.

Investment Implications

Key Takeaways:

• Stable revenue growth (+3.9% YoY) with improving operating income (+9.0% YoY).
• Healthy operating margins for the sector (operating ~3.5%, EBITDA 4.0%).
• Moderate leverage (Assets/Equity ~1.90; implied equity ratio ~52.7%).
• Very strong interest coverage (216x) due to minimal interest expense.
• Negative operating cash flow (-¥8.46bn) highlights working capital drag in H1.
• ROE at 3.65% constrained by modest margins and asset intensity.
• Disclosure gaps (cash, inventories, investing CF, shares) limit per-share and FCF analysis.

Metrics to Watch:

• Order intake, backlog size, and gross margin on new orders.
• Receivables, unbilled construction, and advances received balances.
• Operating cash flow recovery and working capital days in H2.
• Operating margin progression and cost pass-through effectiveness.
• Capex and investing cash flows to refine FCF outlook.
• Leverage metrics (net debt/EBITDA if cash disclosed) and interest coverage.
• Progress versus full-year guidance (if/when disclosed).

Relative Positioning: Within Japanese general contractors, Nakano Fudo exhibits sector-typical low-to-mid single-digit margins, moderate leverage, and very low interest burden; profitability is improving, but cash conversion underperformed in the half, placing it as operationally steady yet cash-flow-volatile relative to peers.

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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