Kumagai Gumi Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥222.51B
• Operating Income: ¥7.38B
• Net Income: ¥4.95B
• EPS: ¥28.84

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: FY2026 Q2 was an earnings rebound quarter for Kumagai Gumi, with profit metrics sharply higher, but cash flow quality was weak and capital efficiency remains subpar. Revenue reached 2,225.14 (100M JPY), while operating income surged to 73.75 (100M JPY), up 494.9% YoY, indicating strong execution and/or improved project mix. Ordinary income rose to 75.67 (100M JPY) (+505.8% YoY), supported modestly by non-operating income of 9.30 and offset by non-operating expenses of 7.38. Net income jumped to 49.53 (100M JPY), up 841.1% YoY, driving EPS to 28.84 JPY for the period. Operating margin is 3.3% (73.75/2,225.14), ordinary income margin 3.4%, and net margin 2.2%. Basis point expansion vs last year cannot be quantified due to unreported prior-period revenue and gross profit, but the magnitude of profit growth implies material operating margin improvement. EBITDA was 83.70 (100M JPY), translating to an EBITDA margin of 3.8%, consistent with a modest-margin general contractor profile. Earnings quality is a concern: operating cash flow was -54.15 (100M JPY), yielding an OCF/Net Income ratio of -1.09x, indicating profit not supported by cash in the half. A proxy FCF after capex is approximately -87.2 (100M JPY), combining OCF (-54.15) and capex (-33.05), underscoring cash pressure despite headline profit strength. Liquidity is solid with a current ratio of 152.5% and working capital of 1,131.03 (100M JPY), and interest coverage of 17.5x is healthy. Capital structure is conservative in substance with net cash (cash 575.94 > interest-bearing debt 426.21), although total liabilities/equity is 1.41x. ROE is 2.7% and ROIC is 2.9%, both below sector cost of capital and well under management KPI benchmarks, signaling capital efficiency issues. Total comprehensive income of 86.49 (100M JPY) exceeded net income by 36.96, likely due to unrealized gains on securities; this is beneficial to equity but non-cash. Non-operating income (notably dividend income of 5.31) contributed, but at 18.8% of operating profit scale it is supportive rather than dominant. Forward-looking, the key is whether strong profit can translate into cash as projects progress and milestone billings catch up in H2; otherwise, negative OCF will constrain flexibility. With DPS unreported and a calculated payout ratio of 734.1% (likely distorted by timing/partial-period effects), dividend visibility is low pending full-year cash realization. Overall, the company delivered a sharp profit turnaround, but sustainability hinges on converting earnings to cash and lifting ROIC closer to 5–8% over time.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.7% = Net Profit Margin 2.2% × Asset Turnover 0.501 × Financial Leverage 2.41x. The dominant driver of improvement this quarter appears to be the net margin, given operating income +494.9% and ordinary income +505.8% YoY against unknown revenue growth (margin likely expanded materially). Asset turnover at 0.501 is modest for a contractor and suggests a relatively asset-heavy balance sheet or large WIP. Financial leverage at 2.41x (Assets/Equity) is moderate and not primarily debt-driven given net cash; leverage did not appear to be the key swing factor. Business reason: stronger project profitability and a favorable mix likely improved operating margin, with mild support from non-operating income (dividend and interest). Sustainability: construction margins can be cyclical and project-specific; while some improvement may sustain if cost pass-through and execution remain solid, the step-change magnitude suggests some one-off project closures and timing of profit recognition. Warning flags: ROIC of 2.9% is below the 5% caution threshold, indicating that despite better margins, overall capital efficiency is low. We cannot assess SG&A growth vs revenue growth due to missing YoY revenue and SG&A breakdown; however, SG&A at 124.24 (100M JPY) implies a SG&A-to-sales ratio of about 5.6%, reasonable but no trend conclusion can be drawn.

Growth Assessment

Top-line sustainability is unclear due to absent YoY revenue data; current revenue of 2,225.14 (100M JPY) supports higher profits, but durability depends on backlog and order intake trends (not disclosed). Profit growth quality is mixed: operating and ordinary income surged, but negative OCF suggests working capital outflows (typical in the industry as projects ramp) rather than underlying deterioration; confirmation will require H2 cash conversion. Non-operating contributions (dividends 5.31; interest income 1.88) provided incremental support but are not the core driver. Effective tax rate at 34.2% is in a normal range, implying no unusual tax benefits. Comprehensive income uplift (+36.96 above NI) indicates valuation gains on securities, which are non-cash and volatile. EBITDA margin at 3.8% remains thin, consistent with general contractors, implying limited operating leverage unless scale and mix improve. Outlook hinges on execution of high-margin projects, cost control in labor/materials, and timely billing to reverse OCF. If H2 brings milestone collections, reported profit could translate to positive FCF; otherwise, financing reliance may persist. Given ROE 2.7% and ROIC 2.9%, improving capital turnover (asset efficiency) and margin would be needed to approach sector norms. We see near-term profit momentum but need evidence of conversion to cash and sustained margin discipline.

Financial Health

Liquidity: Current ratio 152.5% and quick ratio 152.5% are healthy (>1.5x threshold), with working capital of 1,131.03 (100M JPY). No warning on current ratio (<1.0) is needed. Cash and deposits of 575.94 comfortably exceed short-term loans of 150.75, limiting near-term refinancing risk. Solvency: Total liabilities/equity (D/E) is 1.41x, within the conservative benchmark (<1.5x) and backed by net cash (cash 575.94 vs total interest-bearing debt 426.21). Interest coverage is strong at 17.52x, indicating ample capacity to service debt. Maturity mismatch risk appears low: current assets 3,285.14 exceed current liabilities 2,154.11, and cash covers short-term debt. Off-balance sheet obligations were not disclosed; as a contractor, potential contingent liabilities (performance guarantees, JV commitments) may exist but are not reported here.

Cash Flow Quality

OCF/Net Income is -1.09x, flagging weak earnings quality this half. Operating CF was -54.15 (100M JPY) despite net income of 49.53, likely driven by working capital outflows (e.g., increases in receivables/unbilled revenues or declines in advance receipts), which are common mid-project. With capex of -33.05, a proxy FCF after capex is approximately -87.20 (100M JPY), indicating cash burn in H1. Financing CF of +197.68 suggests reliance on external funding (details unreported), which covered the OCF deficit and capex. Sustainability: if the OCF shortfall reflects timing and reverses with milestone collections, cash conversion can normalize; if not, persistent negative OCF would pressure balance sheet and dividends. No clear signs of earnings management can be inferred without working capital detail, but the divergence requires monitoring of receivables, unbilled WIP, and advances from customers.

Dividend Sustainability

Dividend data (DPS and total dividends) are unreported, and the calculated payout ratio of 734.1% likely reflects partial-period earnings versus full-year dividend assumptions, making it not decision-useful at this stage. Given negative proxy FCF (-87.2) and negative OCF, near-term dividend coverage from internal cash generation appears weak for H1 alone. Balance sheet strength (net cash) provides a buffer, but sustainable dividends typically require OCF > dividends over the full year. We therefore see limited visibility on payout trajectory until H2 cash flows and full-year guidance are available. Company policy is not disclosed here; if a stable/dividend-growth policy is in place, it may be supported by H2 cash conversion and working capital release.

Risk Assessment

Business Risks:

• Project execution risk: cost overruns, delays, and change orders affecting thin margins
• Input cost inflation (materials, labor) compressing margins if not passed through
• Order intake/backlog volatility impacting revenue visibility (not disclosed)
• Concentration risk in specific end-markets or large projects (data not provided)

Financial Risks:

• Negative operating cash flow in H1 (-54.15), creating reliance on financing
• Capital efficiency risk: ROIC at 2.9% below 5% threshold
• Potential working capital build (receivables/unbilled) elevating cash conversion risk
• Interest rate risk on floating-rate borrowings (debt details not disclosed), partially offset by net cash

Key Concerns:

• OCF/Net Income of -1.09x indicates weak earnings quality
• Low ROE (2.7%) and ROIC (2.9%) vs sector benchmarks
• Profit uplift partly supported by non-cash comprehensive income gains
• Margin sustainability uncertain without order book and cost trend disclosure

Investment Implications

Key Takeaways:

• Sharp profit rebound: OI +495% YoY; NI +841% YoY, margins currently modest but improved
• Earnings quality weak in H1: OCF negative and proxy FCF about -87.2 (100M JPY)
• Balance sheet resilient: net cash position and strong interest coverage
• Capital efficiency below par: ROE 2.7%, ROIC 2.9% signal need for better asset turnover/margins
• Non-operating income modestly supportive (dividend income 5.31), while comprehensive income inflated by valuation gains

Metrics to Watch:

• OCF trajectory and working capital components (receivables, unbilled WIP, advances)
• Backlog/order intake and pricing to gauge revenue sustainability
• Gross margin/operating margin trends by project type (if disclosed)
• Capex and investment discipline versus ROIC improvement
• Leverage and liquidity buffers (short-term debt vs cash) into H2

Relative Positioning: Within Japanese general contractors, Kumagai Gumi shows healthy liquidity and net cash but operates with thin margins and lower capital efficiency than top-tier peers; the current half’s strong profit contrasts with subpar ROE/ROIC and negative cash conversion, placing it mid-to-lower on profitability/efficiency while maintaining a solid balance sheet.

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