Kumagai Gumi Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥49.45B
• Operating Income: ¥7.38B
• Net Income: ¥526M
• 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

For FY2026 Q2, Kumagai Gumi (1861) delivered a sharp earnings rebound on flat topline. Revenue was ¥49.45bn (+0.0% YoY), while operating income surged to ¥7.38bn (+494.9% YoY), indicating substantial margin expansion versus a weak prior-year base. Ordinary income came in at ¥7.57bn, modestly above operating income, suggesting net non-operating gains offset interest costs. Net income was ¥4.95bn (+841.1% YoY), implying a net margin of 10.0%, well above typical mid-cycle construction margins. EBITDA was ¥8.37bn (margin 16.9%), underscoring strong operating profitability for the half-year. Despite the earnings recovery, operating cash flow was only ¥0.91bn, yielding an OCF/net income ratio of 0.18, which points to weak cash conversion in the period—consistent with the working capital intensity and timing in construction. Financing cash outflows of ¥19.33bn indicate deleveraging or other financing uses; with DPS unreported (0.00 placeholder), this likely reflects debt reduction rather than shareholder returns in the half. On the balance sheet, total assets were ¥444.49bn and total equity ¥184.70bn, implying an equity ratio around 41.6% (despite a reported 0.0% placeholder), which is solid for the sector. The debt-to-equity ratio of 1.52x and current ratio of 155.8% indicate a manageable capital structure and sound liquidity at quarter-end. DuPont decomposition shows ROE of 2.68% for the interim period; on a simple annualized view, this would approximate mid–5% levels, pending second-half delivery. Asset turnover is low at 0.111 given the interim denominator and the asset-heavy, long-cycle nature of the business. The step-up in profitability likely reflects favorable project mix, improved cost pass-through, and SG&A discipline, but sustainability depends on order backlog quality and execution. Cash flow quality is the main caveat, with OCF lagging earnings due to working capital movements typical in H1; a catch-up in H2 will be important. Overall, Kumagai Gumi exhibits improved profitability and resilient balance sheet metrics, but cash conversion and the durability of margin gains are key watchpoints. Data limitations exist where certain line items (e.g., gross profit, cash balance, inventories, DPS) were not disclosed in the extract and appear as zeros, so conclusions focus on the available non-zero metrics and reasonable inferences.

Profitability Analysis

ROE of 2.68% (interim) decomposes into net margin 10.02%, asset turnover 0.111, and financial leverage 2.41, implying that current ROE is driven predominantly by margin expansion rather than asset efficiency. Operating margin was approximately 14.9% (operating income ¥7.38bn on revenue ¥49.45bn), with EBITDA margin at 16.9%, reflecting strong project execution and/or favorable mix in the half. The large YoY jump in operating income (+494.9%) on flat revenue suggests significant operating leverage—likely a combination of improved gross margin on projects and tight SG&A control, along with a low prior-year base. Ordinary income exceeded operating income by ¥0.19bn; with interest expense of ¥0.25bn, this implies net non-operating gains of roughly ¥0.44bn (e.g., financial income, JV/affiliate contributions). Implied effective tax rate, using income tax of ¥0.62bn and ordinary income ¥7.57bn as a proxy for pre-tax, is roughly 8%, though tax accounting in construction can diverge from ordinary income and the reported calculated tax rate metric shows as 0.0% (placeholder). EBITDA of ¥8.37bn versus D&A of ¥0.99bn indicates a low non-cash burden and highlights that current profitability is predominantly cash-earnings before working capital effects. The sustainability of the double-digit net margin is uncertain in a competitive bidding environment; normalization is typical as projects progress and weather/claims risks emerge.

Growth Assessment

Revenue was flat YoY at ¥49.45bn, but profit growth was outsized due to margin expansion. The quality of profit growth appears driven by operations (operating income +495%), not by one-off financing gains, as ordinary income only modestly exceeds operating income. With asset turnover at 0.111 during H1, the business remains asset- and working-capital-intensive; sustained growth will depend on order intake and backlog execution rather than balance sheet stretch. Given construction seasonality, H2 typically carries a heavier completion mix; therefore, annualized trends may differ materially from H1. The surge in EPS (¥28.84) reflects cyclical recovery and mix, but maintaining this trajectory will require disciplined bidding and cost control amid input cost and labor constraints. The small delta between operating and ordinary income reduces concern about profit quality from non-operating sources this half. Outlook hinges on backlog quality (not disclosed here), new orders momentum, and the ability to pass through costs; absent backlog data, we assume a steady pipeline consistent with flat revenue. Any acceleration in public civil works or private non-residential capex could support revenue sustainability; conversely, project delays can suppress near-term recognition.

Financial Health

Total assets were ¥444.49bn and total equity ¥184.70bn, implying an equity ratio of roughly 41.6% and financial leverage (assets/equity) of 2.41x—healthy for a general contractor. Total liabilities were ¥280.70bn (debt-to-equity ratio proxy at 1.52x, using total liabilities as a broad leverage measure in the absence of interest-bearing debt disclosure). Liquidity appears solid with current assets of ¥357.41bn versus current liabilities of ¥229.40bn, yielding a current ratio of 155.8% and working capital of ¥128.02bn. The quick ratio mirrors the current ratio due to unreported inventories in this extract, but in practice, receivables, advances, and WIP typically drive current assets. Interest expense of ¥0.25bn is modest relative to operating income (coverage ~29.5x), indicating low interest burden and ample headroom. Financing cash outflow of ¥19.33bn suggests deleveraging or other financing uses, which, if debt reduction, would further strengthen solvency. While cash and cash equivalents are not disclosed here, the strong working capital position mitigates near-term liquidity risk, contingent on smooth collections and project cash profiles.

Cash Flow Quality

Operating cash flow of ¥0.91bn versus net income of ¥4.95bn yields an OCF/net income ratio of 0.18, indicating weak cash conversion in H1, likely due to working capital build (receivables, unbilled WIP, or reduced advances). D&A was ¥0.99bn, broadly consistent with a capital-light profile for a contractor. Free cash flow cannot be assessed precisely as investing cash flow is not disclosed in this extract (shown as 0 placeholder). The divergence between earnings and OCF suggests timing effects typical in construction; monitoring H2 cash catch-up is critical to validate earnings quality. Interest expense is low and well-covered, so operating cash shortfall appears tied to project timing rather than financing strain. Absent capex data, we assume maintenance capex is manageable relative to EBITDA, but the true FCF trajectory will depend on collection cycles and advances on new projects.

Dividend Sustainability

Annual DPS is not disclosed in this extract (0.00 placeholder), and payout ratio is shown as 0.0% by default; therefore, we cannot infer an explicit dividend policy from the data provided. Given interim net income of ¥4.95bn, payout capacity would depend on full-year earnings, working capital release in H2, and any debt reduction priorities implied by the ¥19.33bn financing outflow. With OCF of ¥0.91bn in H1 and unknown capex, FCF coverage of dividends cannot be determined; the reported FCF coverage metric at 0.00x reflects the absence of investing cash flow disclosure rather than actual capacity. Balance sheet strength (implied equity ratio ~41.6%) supports medium-term dividend capacity, but near-term sustainability hinges on converting profits to cash in H2 and maintaining profitability. Until investing cash flows and actual DPS are disclosed, we treat dividend outlook as undetermined, with a bias to prudent distributions aligned with cash generation.

Risk Assessment

Business Risks:

• Project execution risk (cost overruns, delays, claims) impacting margins and cash timing
• Order intake and backlog visibility not disclosed; potential revenue volatility if orders slow
• Input cost inflation (materials, labor) and subcontractor availability affecting bid economics
• Civil engineering/regulatory and permitting risks that can delay revenue recognition
• Customer credit risk and collection timing for large receivables and retention money
• Seasonality and milestone-based revenue recognition leading to intra-year swings

Financial Risks:

• Weak H1 cash conversion (OCF/NI 0.18), implying reliance on H2 working capital release
• Leverage measured by total liabilities/equity at 1.52x; funding mix sensitivity if credit tightens
• Potential mismatch between earnings and cash due to advances/WIP movements
• Exposure to interest rate changes on any floating-rate debt (exact debt split not disclosed)
• Non-operating income dependence to bridge interest costs (albeit limited this half)

Key Concerns:

• Sustainability of double-digit net margins in a competitive bidding environment
• Visibility on order backlog and new orders not available in this extract
• Confirmation of H2 cash flow normalization to validate earnings quality
• Clarity on financing outflows (debt reduction vs. shareholder returns) and future capital allocation

Investment Implications

Key Takeaways:

• Strong margin-led earnings rebound in H1 on flat revenue; operating margin ~14.9%, net margin 10.0%
• ROE of 2.68% for the half implies mid-single-digit annualized ROE, driven by margin, not asset turnover
• Balance sheet appears robust with implied equity ratio ~41.6% and current ratio 155.8%
• Cash conversion lagged (OCF/NI 0.18); H2 cash catch-up is crucial
• Financing outflow of ¥19.33bn suggests deleveraging or other financing uses; reduces financial risk if debt-related

Metrics to Watch:

• Order backlog and new order intake (value and margin) to assess revenue sustainability
• OCF/NI and working capital movements (receivables, unbilled WIP, advances received)
• Gross and operating margin on ongoing projects, including change orders/claims
• Equity ratio and debt profile (interest-bearing debt, maturities, rates)
• Capex and investing cash flows to refine FCF outlook
• Ordinary income versus operating income to track non-operating contribution

Relative Positioning: Within Japan’s general contractors, Kumagai Gumi’s interim leverage appears moderate and liquidity sound, with profitability in H1 trending above typical mid-cycle levels; the company’s positioning will be strengthened if it sustains margins while normalizing cash conversion in H2.

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