TOTETSU KOGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥65.69B
• Operating Income: ¥6.27B
• Net Income: ¥3.29B
• EPS: ¥129.93

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

Tōtetsu Kōgyō (1835) delivered a solid FY2026 Q2 (cumulative) performance, with revenue of ¥65.7bn (+6.0% YoY) and operating income of ¥6.27bn (+52.2% YoY), signaling strong operating leverage and disciplined cost execution. Gross profit of ¥8.40bn implies a gross margin of 12.8%, while operating margin expanded to roughly 9.5%, well above typical civil-engineering construction margins. Ordinary income reached ¥6.65bn and net income ¥4.47bn (+38.6% YoY), translating to a net margin of 6.81%. EBITDA was ¥7.60bn, an 11.6% margin, underscoring healthy cash earnings relative to sales. Operating cash flow was robust at ¥17.43bn, 3.9x net income, indicating strong cash conversion, likely supported by favorable working-capital timing in construction contracts. Liquidity is ample with a current ratio of 248.6% and working capital of ¥82.5bn, suggesting strong capacity to meet near-term obligations. The balance sheet is very conservative: total liabilities of ¥60.3bn against equity of ¥124.6bn implies a debt-to-equity ratio of 0.48x and an estimated equity ratio of about 76.5% (based on reported totals), despite an equity ratio field reading 0% due to non-disclosure formatting. Interest expense is minimal (¥9.5m), and interest coverage is extremely high at 661x, reflecting low financial risk. DuPont analysis indicates ROE of 3.59%, driven by a 6.81% net margin, asset turnover of 0.403x, and modest leverage of 1.31x; the modest ROE mostly reflects a large equity base relative to sales in a half-year period. The effective tax rate shown as 0% is not reflective of reality; income tax expense of ¥1.71bn implies a normal mid-20s tax rate, suggesting the 0% is a placeholder rather than an economic metric. Investing cash flow was shown as zero, implying capex and other investing items were not disclosed under the provided tags; as such, free cash flow is not directly inferable from the dataset. Dividend fields are also shown as zero and therefore not indicative of actual policy; historically, the company has paid dividends, so the current zero likely reflects timing or disclosure scope. Overall, fundamentals point to a steady rail-infrastructure contractor benefitting from margin improvement and favorable cash collection, with low leverage and strong liquidity. Key sensitivities include the sustainability of margin gains, the trajectory of order intake/backlog, and working-capital reversals. Data limitations (notably zeros for inventories, cash, investing cash flows, and dividends) require cautious interpretation, but the available non-zero figures suggest a favorable earnings quality profile in the period.

Profitability Analysis

ROE_decomposition: ROE 3.59% = Net margin 6.81% × Asset turnover 0.403 × Leverage (Assets/Equity) 1.31. The primary constraint on ROE is low turnover and modest leverage against a large equity base; margins improved meaningfully YoY. margin_quality: Gross margin 12.8% (¥8.40bn GP on ¥65.69bn sales) and operating margin ~9.5% (¥6.27bn OI) indicate strong cost control and favorable mix. Ordinary margin ~10.1% (¥6.65bn), net margin 6.81%. The step-up in operating income (+52.2% YoY) versus sales (+6.0%) points to operating efficiency gains rather than one-off ordinary items. operating_leverage: Operating income growth outpaced revenue by ~46ppt, implying significant operating leverage from SG&A efficiency and/or better project economics. EBITDA margin at 11.6% vs operating margin ~9.5% suggests limited D&A drag; the incremental margins appear healthy.

Growth Assessment

revenue_sustainability: Revenue grew 6.0% YoY to ¥65.7bn, consistent with steady demand in rail-related construction and maintenance. Sustainability hinges on backlog and timing of large projects, which are not disclosed here. profit_quality: Operating income +52.2% YoY with minimal interest expense and a normal tax charge supports underlying profit quality. The OCF/NI ratio of 3.90x indicates strong cash realization from earnings in this period. outlook: Near-term outlook is underpinned by stable rail infrastructure spending, but margins may normalize if mix reverts or as project timing shifts. Watch for order intake/backlog commentary, labor availability, and cost pass-through to gauge continuity of elevated margins.

Financial Health

liquidity: Current assets ¥137.95bn vs current liabilities ¥55.48bn yields a current ratio of 248.6% and ample working capital of ¥82.47bn. Quick ratio equals current ratio due to undisclosed inventories. solvency: Total liabilities ¥60.34bn vs equity ¥124.60bn implies D/E of 0.48x and an estimated equity ratio of ~76.5% (equity/total assets). Interest coverage is exceptionally strong at 661x, indicating very low financial risk. capital_structure: Leverage is modest with financial leverage at 1.31x. Ordinary income largely reflects operating performance rather than financial engineering, given negligible interest burden.

Cash Flow Quality

earnings_quality: OCF of ¥17.43bn vs NI of ¥4.47bn (OCF/NI 3.90x) indicates high earnings quality this period, likely aided by customer advances and/or efficient receivables collection typical in construction contracts. FCF_analysis: Investing CF is reported as zero (undisclosed), so true capex and thus FCF cannot be reliably derived from the dataset. Based on OCF alone, capacity to fund investment and shareholder returns appears strong, but this is provisional. working_capital: Large positive OCF suggests favorable working-capital movements; however, the lack of detail on inventories, receivables, and contract assets/liabilities limits granularity. Potential reversals in subsequent periods should be monitored.

Dividend Sustainability

payout_ratio_assessment: Payout ratio is shown as 0.0% and DPS as ¥0.00, which likely reflect non-disclosure rather than actual policy for the period. On earnings capacity (EPS ¥129.93) and low leverage alone, the company appears to have room to distribute, but confirmation requires disclosed DPS. FCF_coverage: FCF coverage is shown as 0.00x due to unreported investing CF; therefore, true dividend coverage by FCF cannot be assessed from the provided data. policy_outlook: Historically the sector favors stable dividends; given strong OCF and low leverage, sustainability would be supported if dividends are declared. Await formal guidance and year-end DPS disclosure.

Risk Assessment

Business Risks:

• Project timing and backlog visibility affecting revenue recognition and margins
• Cost inflation (materials, subcontracting, labor) and pass-through risk in fixed-price contracts
• Labor availability and productivity constraints in rail maintenance and construction
• Customer concentration with JR Group and public sector entities
• Execution risk on large projects and potential penalties/claims
• Regulatory and safety compliance in rail infrastructure operations

Financial Risks:

• Working-capital volatility inherent in construction contracts impacting cash flows
• Potential reversal of favorable advance/collection dynamics in subsequent periods
• Capex requirements not disclosed, creating uncertainty around sustained FCF
• Limited transparency on cash and liquid assets due to undisclosed cash balance

Key Concerns:

• Sustainability of elevated operating margin after a strong first half
• Lack of disclosed investing cash flows and cash balance obscuring true FCF and liquidity buffers
• Dependence on order intake and backlog not provided in the dataset

Investment Implications

Key Takeaways:

• Strong H1 performance with revenue +6% YoY and operating income +52% YoY indicates robust operating leverage
• Margins expanded to gross 12.8%, operating ~9.5%, and EBITDA 11.6%
• Cash conversion is strong with OCF/NI at 3.90x, supporting balance-sheet strength
• Low leverage (D/E 0.48x) and very high interest coverage (661x) imply minimal solvency risk
• Reported zeros for equity ratio, cash, investing CF, and DPS reflect non-disclosure; computed equity ratio is ~76.5%

Metrics to Watch:

• Order intake and backlog trajectory
• Gross and operating margin trends by project mix
• Working-capital movements (receivables, contract assets/liabilities) and OCF/NI
• Capex and investing cash flows to assess sustainable FCF
• Headcount/labor costs and subcontractor rates
• Tax rate normalization versus implied ~26% from income tax expense

Relative Positioning: Within Japan’s railway-focused construction and maintenance peers, the company exhibits above-average balance-sheet strength and currently elevated margins, with earnings quality underpinned by strong OCF; visibility on backlog and capex would further clarify competitive standing.

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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