YAHAGI CONSTRUCTION CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥89.67B
• Operating Income: ¥7.99B
• Net Income: ¥5.74B
• EPS: ¥133.34

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

FY2026 Q2 was a strong earnings inflection for Yahagi Construction, with a sharp rebound in profitability and solid top-line growth. Revenue rose 52.6% YoY to 896.65, driven by a surge in construction activity, and operating income jumped 520.9% YoY to 79.89. Gross profit reached 133.31, implying a 14.9% gross margin on the expanded revenue base. Operating margin improved to about 8.9%, up an estimated 672 bps YoY based on reported growth rates. Net income increased 492.9% YoY to 57.37, taking net margin to 6.4%, an estimated improvement of ~476 bps YoY. Ordinary income of 79.82 (+502.0% YoY) tracked operating profit closely, indicating the turnaround is fundamentally operational rather than financial-income-driven. Non-operating items were small (income 1.72, expenses 1.80), with dividend income at 1.04 and minimal interest income (0.04), and interest expense at 1.73 contained. The tax burden normalized at a 30.9% effective tax rate. Balance sheet liquidity is healthy (current ratio 194.3%, quick ratio 194.2%), and leverage remains conservative for the sector (D/E 1.12x). ROE is 7.8% on a DuPont basis (NPM 6.4%, asset turnover 0.579x, leverage 2.12x), marking tangible improvement alongside earnings. However, earnings quality is a key concern: operating cash flow was only 6.91 versus net income of 57.37, yielding a weak OCF/NI of 0.12x. The shortfall likely reflects sizable working capital absorption amid rapid revenue growth (typical for construction), but it tightens cash conversion and bears monitoring. Financing cash flow was -22.43, suggesting net repayments or dividend outflows, while investing cash flows and capex were unreported. ROIC stands at 5.8%, below management best-practice targets (>7–8%), indicating further efficiency gains are needed to solidify value creation. Forward-looking, margin execution appears on track, but sustainability hinges on backlog quality, cost pass-through, and normalizing cash conversion.

Profitability Analysis

Decomposing ROE: 7.8% = Net Profit Margin (6.4%) × Asset Turnover (0.579x) × Financial Leverage (2.12x). The largest YoY change is in Net Profit Margin, which expanded materially as operating margin rebounded to ~8.9% from an estimated ~2.2% a year ago. Business drivers include improved project mix, better cost control, and scale benefits as revenue accelerated 52.6% YoY, producing strong operating leverage. The improvement appears operational and broadly recurring, but construction margins can be lumpy; sustainability will depend on backlog quality, cost inflation containment (materials/labor), and change-order recovery. Asset turnover at 0.579x reflects efficient use of assets given the construction model, and could improve further if the revenue run-rate persists without a commensurate asset build. Financial leverage at 2.12x remains moderate and not the main driver of ROE. Watch for any sign of SG&A growth outpacing revenue; current data show SG&A at 53.41 against strong revenue growth, indicating operating discipline (but detailed SG&A breakdown was unreported). Overall, ROE improvement is primarily margin-led with positive operating leverage, while leverage remains a secondary factor.

Growth Assessment

Top-line growth of 52.6% YoY to 896.65 indicates strong execution and likely robust order intake/backlog conversion. Operating income expanded 520.9% YoY to 79.89, implying significant operating leverage and improved project profitability. Net income rose 492.9% to 57.37 with a normalized tax rate (30.9%). The quality of growth is operational rather than dependent on non-operating items, as ordinary income aligns with operating profit and non-operating contributions are minimal. However, revenue-driven working capital needs constrained cash conversion (OCF/NI 0.12x), suggesting growth is currently cash-absorptive. Sustainability hinges on backlog visibility, pricing discipline, and cost pass-through; if the revenue base stabilizes, OCF should normalize as working capital unwinds. Near-term outlook is constructive on margins given the current operating profile, but cash conversion must improve to support self-funded growth.

Financial Health

Liquidity is strong with a current ratio of 194.3% and a quick ratio of 194.2%, comfortably above benchmarks. Total assets are 1,547.74 with equity of 730.89 and liabilities of 816.84. Debt-to-equity is 1.12x, conservative for the sector and below warning thresholds. Short-term loans of 266.00 exceed cash and deposits of 156.17, but are well covered by total current assets of 1,210.91, limiting maturity mismatch risk. Long-term loans stand at 115.00, indicating a manageable term structure. Interest coverage is very strong at 46.18x, suggesting low refinancing or covenant risk under current conditions. No off-balance sheet obligations were reported in the provided data. Overall solvency and liquidity are healthy, with attention warranted on short-term loan reliance if OCF remains weak.

Cash Flow Quality

OCF/Net Income is 0.12x (6.91 vs 57.37), a clear quality flag versus the >1.0x benchmark. The most plausible driver is working capital absorption associated with rapid revenue growth, typical in construction due to receivables, unbilled revenues, and advance payments dynamics (specific line items were unreported). Free cash flow could not be calculated due to missing investing CF/capex data, limiting assessment of coverage for dividends and debt service. Financing CF was -22.43, implying debt repayment and/or shareholder returns, which, alongside weak OCF, draws on cash reserves. No signs of aggressive working capital manipulation are discernible from the limited data, but the scale of OCF shortfall requires monitoring of collections, billing milestones, and payables discipline. Sustained earnings quality improvement will require OCF convergence toward NI as growth normalizes.

Dividend Sustainability

The calculated payout ratio is 62.2%, slightly above the <60% benchmark, suggesting a moderately stretched payout relative to earnings. With OCF/NI at 0.12x and FCF unreported, near-term cash coverage for dividends is uncertain. The balance sheet can currently support dividends given healthy liquidity and moderate leverage, but persistently weak cash generation would pressure sustainability. If margins remain elevated and working capital normalizes, coverage should improve; until then, the dividend stance appears serviceable but not fully underpinned by cash flow. Policy outlook cannot be inferred from unreported DPS/total dividends; monitor guidance and interim distributions.

Risk Assessment

Business Risks:

• Project execution risk leading to margin volatility on large construction contracts
• Materials and labor cost inflation potentially compressing margins if not fully passed through
• Backlog quality and order intake cyclicality affecting revenue visibility
• Change-order and claims recovery risk impacting profitability timing
• Subcontractor capacity and quality management risk

Financial Risks:

• Weak cash conversion (OCF/NI 0.12x) amid rapid growth increasing reliance on short-term funding
• Maturity profile concentration with short-term loans (266.00) exceeding cash (156.17)
• Potential working capital build if billing milestones slip or collections lengthen
• Payout ratio slightly above benchmark (62.2%) without confirmed FCF coverage

Key Concerns:

• Earnings quality flagged by low OCF relative to NI
• ROIC at 5.8% below 7–8% target range, implying room for efficiency improvement
• Unreported details (AR/AP, capex, dividends) limit transparency on cash and capital allocation

Investment Implications

Key Takeaways:

• Strong operational turnaround with operating margin ~8.9% and net margin 6.4%
• Revenue up 52.6% YoY driving significant operating leverage (+~672 bps operating margin YoY)
• Earnings quality is the main overhang (OCF/NI 0.12x)
• Balance sheet and liquidity remain solid (current ratio 194%, D/E 1.12x, interest coverage 46x)
• ROE 7.8% improving, but ROIC 5.8% suggests further capital efficiency gains needed

Metrics to Watch:

• Order intake and backlog (by segment) to gauge revenue sustainability
• OCF/NI and working capital days (DSO/DPO/unbilled) for cash conversion
• Project gross margin trends and cost pass-through rates
• Short-term loans versus cash trajectory
• ROIC progression and capital allocation (capex, dividends, debt reduction)

Relative Positioning: Within Japanese construction peers, Yahagi shows above-trend near-term margin recovery and strong liquidity, but trails best-in-class operators on ROIC and cash conversion; sustained backlog quality and working capital normalization are needed to consolidate the earnings inflection.

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