OKUMURA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥151.30B
• Operating Income: ¥9.65B
• Net Income: ¥10.39B
• EPS: ¥277.35

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: Despite modest top-line growth, FY2026 Q2 shows an unusual earnings mix—core operating profit is weak, while bottom-line surged on non-operating/extraordinary gains, resulting in a mixed-quality quarter. Revenue rose 8.6% YoY to 1,513.0, with gross profit of 201.6 and a gross margin of 13.3%. Operating income was 96.5 (−87.7% YoY), translating to a 6.4% operating margin, indicating a sharp deterioration in core profitability. Ordinary income jumped 70.3% YoY to 129.7, lifting the ordinary margin to 8.6%, driven by higher non-operating income of 40.6 versus expenses of 7.4. Net income surged 351.7% YoY to 99.5, with a net margin of 6.6%, supported by low financing burden (interest expense 4.29) and a 29.3% effective tax rate. On margins, net margin expanded by approximately +502 bps YoY (from ~1.6% to 6.6%); ordinary margin expanded by roughly +310 bps (from ~5.5% to 8.6%). Operating margin comparison is not meaningful given the prior-year base effect implied by the −87.7% YoY change. Earnings quality is solid this quarter at the cash level: OCF of 185.5 exceeds net income by 1.86x, indicating strong cash conversion. Liquidity remains healthy with a current ratio of 163% and interest coverage of 22.5x, while D/E at 1.14x (total liabilities/equity) is manageable. However, capital efficiency is a concern: ROE is 5.5% and ROIC is just 3.4% (below the 5% warning threshold), reflecting a low-return profile on a sizable asset base. The profit mix leans heavily on non-operating/possibly one-off items (dividends 7.8, interest income 0.7, and other unreported gains), raising sustainability questions for the bottom line. Financing cash outflow of −213.1, including share repurchases of 16.0, suggests continued shareholder returns despite core margin pressure. The implied payout ratio is high at 83.9%, which looks stretched relative to typical 60% benchmarks, especially given weak operating profit. Forward-looking, focus should be on recovery in construction margins (cost control, project execution) and sustaining order intake to support asset turnover. With ROIC at 3.4%, improving project discipline and mix shift toward higher-margin work will be essential to lift returns. Overall, the quarter reads as cash-generative but reliant on non-operating/extraordinary supports, with core profitability requiring attention.

Profitability Analysis

ROE (5.5%) = Net Profit Margin (6.6%) × Asset Turnover (0.391x) × Financial Leverage (2.14x). The biggest swing driver is net profit margin, which expanded sharply YoY (+~502 bps), aided by non-operating gains and possibly extraordinary items, while operating profit declined materially. Asset turnover remains low at 0.391x, consistent with a balance-sheet-heavy contractor, and shows no evidence of improvement sufficient to drive ROE. Financial leverage at 2.14x is moderate and stable; leverage did not drive ROE change. Business reasons: core construction margins appear pressured (6.4% operating margin), likely reflecting project cost inflation, mix and timing of revenue recognition, and potential one-off project losses or lower-margin civil works. The ordinary and net margin uplift is tied to non-operating items (dividends 7.8, interest 0.7, plus unreported other gains) and an ordinary margin of 8.6%—i.e., non-core supports. Sustainability: the margin uplift at the non-operating line is less reliable; absent repeatable gains, ROE risks reverting closer to the underlying operating profile. Concerning trends: operating income fell far faster than revenue, implying negative operating leverage; SG&A disclosure is limited, but the drop in operating profit versus +8.6% revenue implies cost growth and/or margin compression outpaced sales growth.

Growth Assessment

Revenue grew 8.6% YoY to 1,513.0, a healthy pace for a general contractor. However, profit growth quality is mixed: operating income fell sharply, while ordinary and net income rose on non-operating/extraordinary gains. EBITDA of 111.8 (7.4% margin) provides some buffer but remains modest relative to the asset base. The effective tax rate of 29.3% is in a normal range, and interest expense is low, supporting after-tax results. Given the low ROIC (3.4%) and subdued operating margin (6.4%), current profit levels are unlikely to be sustainable without core margin recovery. Outlook hinges on order intake and execution quality; any rebound in construction gross margin and better SG&A efficiency would materially improve earnings durability. With non-operating income at 40.6 this quarter and a non-operating income ratio of 40.8%, future quarters face a normalization risk if such gains are not recurring.

Financial Health

Liquidity is sound: current ratio 163% and quick ratio 163% (inventory details unreported). No warning on current ratio (<1.0) or leverage (>2.0 D/E); D/E at 1.14x (total liabilities/equity) is moderate. Interest-bearing debt disclosed totals roughly 338.1 (short-term 88.0, long-term 250.1), and interest coverage is strong at 22.5x, suggesting low refinancing stress. Maturity mismatch risk appears low given current assets (2,265.6) comfortably exceed current liabilities (1,390.4). Cash and deposits are 125.2, which is modest vs current liabilities but backstopped by strong receivables/inventory (unreported) implied within current assets. Off-balance sheet obligations are not disclosed; no guarantees/commitments data provided. Equity base is solid at 1,807.0 with retained earnings of 1,064.7, supporting resilience.

Cash Flow Quality

OCF of 185.5 is 1.86x net income, indicating high-quality earnings and strong cash conversion this period. Free cash flow cannot be assessed precisely due to unreported capex, but the sizable OCF and negative financing CF (−213.1) including buybacks (−16.0) imply capacity to fund shareholder returns and some investment. No explicit signs of working capital manipulation are visible from disclosed items; however, with key working capital components unreported, visibility is limited. Given the weak operating profit but strong OCF, timing of collections/billings likely supported cash flow; sustainability depends on backlog execution and payment terms.

Dividend Sustainability

The calculated payout ratio is 83.9%, above the 60% benchmark, suggesting a tight dividend cover from earnings. With OCF comfortably exceeding net income this quarter, cash capacity appears adequate near term; however, lack of capex and total dividends data limits a full FCF coverage check. If net income normalizes lower absent non-operating gains, current payout could become stretched. Shareholder returns also included buybacks of 16.0, further increasing cash outflows. Policy outlook likely emphasizes stable dividends, but prudence would require improved operating margins and ROIC to sustain or grow payouts over time.

Risk Assessment

Business Risks:

• Construction margin pressure from input cost inflation and subcontractor shortages
• Project execution risk including potential cost overruns and penalties
• Order intake/backlog visibility not disclosed, creating revenue uncertainty
• Dependence on non-operating items to support profits this quarter

Financial Risks:

• Low ROIC at 3.4% indicating capital inefficiency
• High payout ratio (83.9%) reducing financial flexibility if earnings normalize
• Potential volatility in non-operating/extraordinary gains
• Moderate leverage (D/E 1.14x) though coverage is currently strong

Key Concerns:

• Operating income down 87.7% YoY versus revenue up 8.6%, signaling negative operating leverage
• Ordinary and net income buoyed by non-operating and possibly extraordinary items, raising sustainability questions
• Limited disclosure on SG&A and working capital components impairs diagnostics of cost drivers
• ROE only 5.5% and ROIC 3.4%, below desirable thresholds for value creation

Investment Implications

Key Takeaways:

• Core profitability weakened materially; headline EPS strength is non-core driven
• Cash generation is strong, supporting near-term balance sheet comfort
• Capital efficiency is subpar (ROIC 3.4%), requiring margin recovery or asset optimization
• Dividend/buyback outflows are meaningful against underlying earnings quality

Metrics to Watch:

• Order intake and backlog by segment
• Gross and operating margin trajectory (bps changes)
• Breakdown of non-operating/extraordinary income and repeatability
• OCF-to-NI ratio and working capital turns
• ROIC progress and asset turnover
• Payout ratio and total shareholder returns versus FCF

Relative Positioning: Within Japanese general contractors, Okumura shows healthy liquidity and low financing burden but lags on capital efficiency and core operating margin this quarter; peers with steadier operating margins and higher ROIC would screen better on quality of earnings.

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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