TANABE ENGINEERING CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥24.88B
• Operating Income: ¥2.08B
• Net Income: ¥1.22B
• EPS: ¥137.37

Income Statement

Balance Sheet

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

Tanabe Kogyo (18280) reported FY2026 Q2 consolidated results under JGAAP showing resilient profitability despite a slight revenue decline. Revenue was 24.88 billion yen, down 0.8% YoY, while operating income rose 10.6% to 2.078 billion yen, indicating margin expansion driven by mix and/or cost control. Gross profit was 4.215 billion yen, corresponding to a gross margin of 16.9%, which is healthy for engineering/construction services. Operating margin improved to 8.4% (operating income/revenue), a solid level relative to sector norms. Ordinary income was 2.116 billion yen, slightly above operating income, implying small net non-operating gains despite 15 million yen of interest expense. Net income grew 18.0% YoY to 1.441 billion yen, with EPS of 137.37 yen, evidencing improved operating leverage. DuPont metrics indicate a ROE of 5.65%, decomposed into a 5.79% net margin, 0.556x asset turnover, and 1.76x financial leverage. Balance sheet quality appears sound: total assets were 44.78 billion yen and total equity 25.50 billion yen, implying an equity ratio of approximately 56.9% (the reported 0.0% is an unreported placeholder), and liabilities-to-equity of 0.82x. Liquidity looks strong with a current ratio of 183%, though inventories were not disclosed, so the reported quick ratio equals the current ratio and may overstate true liquidity. Interest coverage is very high at roughly 138x, reflecting a modest interest burden. The effective tax rate, inferred from disclosed tax expense, is approximately 30%, consistent with Japan’s statutory range, despite the calculated metric listing 0.0% (unreported). Cash flow data (OCF, capex, FCF) were not disclosed, limiting assessment of earnings-to-cash conversion and free cash flow coverage. Dividend data were also not disclosed (DPS and payout ratio shown as 0.00 are placeholders), so dividend sustainability cannot be evaluated this quarter. Overall, the company demonstrated improved profitability and disciplined cost control, a conservative capital structure, and ample short-term liquidity, but absence of cash flow disclosures and certain working capital details moderates confidence in near-term cash conversion assessment. The YoY operating profit growth against flat-to-down revenue suggests better project execution and/or SG&A leverage. Outlook hinges on order intake, backlog conversion, and working capital discipline typical for engineering and construction businesses.

Profitability Analysis

ROE is 5.65%, derived from a 5.79% net margin, 0.556x asset turnover, and 1.76x financial leverage. Gross margin is 16.9% (4.215bn/24.88bn), indicating solid value-add on projects; operating margin is 8.4% (2.078bn/24.88bn), up YoY given operating income grew 10.6% while sales declined 0.8%. The spread between gross and operating margin (~8.6pp) suggests SG&A and other operating costs are well-contained. Ordinary income slightly exceeds operating income, driven by non-operating gains that offset interest expense of 15 million yen; overall interest burden is negligible (coverage ~138x). The tax burden appears normal with an inferred effective tax rate near 30% (627.6m tax on ~2.069bn pre-tax), supporting quality of bottom-line growth. Asset turnover at 0.556x is modest, reflecting the asset base relative to mid-year sales; seasonality and contract accounting may depress this ratio at Q2. Operating leverage appears favorable: profit uplift outpaced sales, implying cost efficiencies and/or higher-margin project mix. EBITDA cannot be assessed this quarter due to undisclosed depreciation and amortization; however, the high interest coverage and margin expansion indicate healthy operating profitability.

Growth Assessment

Revenue declined slightly (-0.8% YoY to 24.88bn yen), but operating income rose +10.6% to 2.078bn yen, and net income increased +18.0% to 1.441bn yen, evidencing profitable growth through margin expansion. The better profit trajectory vs. sales suggests improved execution, pricing/mix, or SG&A discipline. Ordinary income growth (not YoY provided, but above operating income) indicates minor tailwinds from non-operating items. Sustainability hinges on order backlog quality, the mix of EPC vs. maintenance/service work, and avoidance of cost overruns. Without order and backlog disclosures this quarter, visibility is limited. If the current gross margin can be maintained while converting backlog efficiently, operating leverage could continue to benefit profits even with flattish revenue. External drivers include industrial capex cycles and maintenance demand in core end-markets; macro softness could pressure new awards but support recurring maintenance. Near-term outlook appears stable given strong margins and balance sheet, but confirmation requires backlog, book-to-bill, and pipeline data.

Financial Health

Liquidity: Current assets of 35.01bn yen vs. current liabilities of 19.09bn yen yield a current ratio of 183%, indicating ample short-term coverage. Inventories were not disclosed; hence the quick ratio equaling the current ratio likely overstates true near-cash liquidity. Working capital stands at 15.92bn yen. Solvency: Total liabilities are 20.99bn yen versus equity of 25.50bn yen, implying liabilities/equity of 0.82x and an equity ratio near 56.9% (unreported), a conservative capital position. Interest expense is minimal (15m yen) and interest coverage is very strong (~138x), suggesting low financial risk. Capital structure: Financial leverage (assets/equity) is 1.76x, consistent with a prudent balance sheet for an engineering contractor that must support bonding, advances, and project working capital. Cash and equivalents were not disclosed this quarter, limiting precise liquidity assessment, but overall indicators point to solid financial health.

Cash Flow Quality

Operating cash flow, investing cash flow, and free cash flow were not disclosed this quarter (zeros are placeholders), so earnings-to-cash conversion cannot be quantified. Depreciation and amortization were also not reported, preventing EBITDA and accruals-based diagnostics. In this sector, working capital swings (receivables, unbilled construction, advances from customers) materially influence OCF; the lack of inventories and contract asset/liability details constrains analysis of cash realization risk. The strong interest coverage and modest interest expense imply limited cash leakage to financing costs. Given net income growth and margin expansion, cash conversion should be monitored in subsequent quarters via OCF/NI, changes in receivables/unbilled balances, and customer advances. Capex intensity is unknown this period; if capex remains modest, free cash flow potential could be solid, but this cannot be validated without disclosures.

Dividend Sustainability

Dividend per share and payout ratio were not disclosed this quarter (reported zeros are placeholders). With EPS of 137.37 yen for the half-year, the capacity to pay dividends would ordinarily be assessed against full-year earnings, free cash flow, and cash-on-hand; however, OCF and cash balances are not disclosed. Balance sheet leverage is conservative (liabilities/equity 0.82x), which is supportive of dividend capacity in principle. Absent explicit policy updates, historical payout patterns and management guidance (not provided here) would be necessary to evaluate sustainability. Key watchpoints: full-year EPS, OCF/NI, FCF after capex, and any stated shareholder return policy.

Risk Assessment

Business Risks:

• Project execution risk and cost overruns affecting gross margins in EPC contracts
• Order intake and backlog risk tied to industrial capex cycles
• Customer concentration and timing risk of large projects
• Labor availability and subcontractor cost inflation impacting delivery
• Regulatory/safety compliance in industrial plant engineering

Financial Risks:

• Working capital volatility (receivables, unbilled revenue, customer advances) potentially pressuring OCF
• Limited disclosure of cash and cash flows this quarter reduces visibility on liquidity buffers
• Potential margin compression if mix shifts to lower-margin projects
• Tax rate variability around ~30% impacting net margins

Key Concerns:

• Absence of cash flow statement and cash balance disclosure in Q2
• Inventories/contract asset details not disclosed, making quick ratio uncertain
• Slight top-line decline; reliance on margin gains to drive earnings
• Mid-year asset turnover is low; requires backlog conversion to improve

Investment Implications

Key Takeaways:

• Margin-led earnings growth: operating income +10.6% YoY despite sales -0.8%
• Healthy profitability: gross margin 16.9%, operating margin 8.4%, net margin 5.8%
• Strong balance sheet: estimated equity ratio ~56.9%, liabilities/equity 0.82x
• High interest coverage (~138x) indicates minimal financing risk
• ROE of 5.65% driven primarily by net margin; leverage is conservative
• Data gaps in cash flow and inventories limit assessment of cash conversion and liquidity granularity

Metrics to Watch:

• Order backlog and book-to-bill ratio
• OCF/Net income and free cash flow once disclosed
• Receivables, unbilled construction, and advances from customers
• Gross margin by project type and SG&A ratio
• Capex and maintenance mix impacting future FCF
• Effective tax rate and any changes in non-operating items

Relative Positioning: Within Japanese engineering/construction peers, the company exhibits above-average balance sheet conservatism, solid mid-teens gross margins, and strong interest coverage; ROE is mid-single digit at mid-year, suggesting room for improvement via higher asset turnover and sustained margin discipline.

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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