YAHAGI CONSTRUCTION CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥89.67B
• Operating Income: ¥7.99B
• Net Income: ¥968M
• 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

Yahagi Construction (18700) posted a strong FY2026 Q2 performance under JGAAP on a consolidated basis, with revenue of ¥89.665bn (+52.6% YoY) and operating income of ¥7.989bn (+520.9% YoY). Ordinary income was ¥7.982bn and net income ¥5.737bn (+492.9% YoY), translating to EPS of ¥133.34. Profitability expanded markedly: operating margin rose to about 8.9% and net margin stood at 6.40%, versus a gross margin of 7.2%. Notably, operating income exceeded reported gross profit, implying substantial other operating income and/or net reductions in SG&A or construction-related adjustments (e.g., recoveries, subsidies, or reclassifications typical in construction accounting), which warrants scrutiny of the operating line composition. DuPont analysis indicates ROE of 7.85%, driven by a 6.40% net margin, asset turnover of 0.579, and financial leverage of 2.12. The company’s balance sheet is sound: total assets are ¥154.774bn and total equity ¥73.089bn, implying an equity ratio of approximately 47.2% (the stated 0.0% equity ratio is clearly an unreported placeholder). Liquidity is solid with a current ratio of 195% and working capital of ¥52.719bn, suggesting ample short-term coverage. Interest coverage is strong at 131x, supported by low interest expense of ¥61m and EBITDA of ¥8.5bn, underscoring manageable financial risk. Despite robust earnings, operating cash flow was negative at -¥7.332bn, likely reflecting working capital consumption typical of construction cycles (e.g., receivable build or declines in advances received), and financing inflows of ¥4.191bn appear to have partially bridged the funding gap. The effective tax rate implied by income tax of ¥403m against ordinary income of ¥7.982bn is approximately 5%, lower than Japan’s statutory rate, likely reflecting timing differences or tax credits; the reported 0.0% effective tax metric is not reliable. Reported cash and cash equivalents and investing cash flow are shown as zero, which should be treated as unreported rather than actual zeros, limiting cash-level visibility. Dividend data (DPS and payout) are also shown as zero/unreported, preventing an assessment of distribution policy from this dataset alone. Overall, fundamentals improved sharply on the income statement, leverage remains moderate, and liquidity is healthy; however, cash conversion is weak in the period, and the unusual relationship between operating income and gross profit calls for closer review of operating items and contract accounting dynamics. Given sector seasonality and milestone-based revenue recognition, second-half performance and cash normalization will be key to confirm earnings quality. Data limitations (notably cash, investing flows, and dividends) constrain full evaluation, so conclusions rely primarily on the robust earnings and solid balance sheet metrics provided.

Profitability Analysis

ROE of 7.85% is consistent with the DuPont breakdown: net profit margin 6.40% × asset turnover 0.579 × financial leverage 2.12. Operating margin is approximately 8.9% (¥7.989bn/¥89.665bn), a significant step-up aided by large YoY growth and likely favorable project mix and cost execution. Gross margin is 7.2% (¥6.421bn/¥89.665bn), but operating income exceeds gross profit, indicating meaningful other operating income and/or net negative SG&A after offsets (e.g., insurance proceeds, claim recoveries, gain on sale of assets, or consolidation adjustments). EBITDA of ¥8.5bn yields a 9.5% margin, implying D&A of ¥0.511bn is relatively light; this is common for general contractors whose asset base is less capital intensive than heavy manufacturers. Interest expense is minimal at ¥61m, and EBIT/interest of 131x confirms margin strength and low financial burden. The effective tax burden appears low (~5%), boosting net margin in the period. Operating leverage appears high given the outsized growth in operating income versus revenue (+521% vs +52.6%), suggesting a favorable scale effect and cost discipline; sustainability depends on backlog quality and the repeatability of the non-core operating items. Overall profitability is strong in this interim period but should be validated against normalized margins and the composition of operating income.

Growth Assessment

Top-line growth was robust at +52.6% YoY to ¥89.665bn, indicative of strong project starts or accelerated progress recognition. Profit growth outpaced sales, with operating income +520.9% YoY and net income +492.9% YoY, reflecting margin expansion and possibly non-recurring benefits in operating items. Asset turnover at 0.579 (trailing/average basis) shows improved capital efficiency relative to typical general contractors, though confirmation requires trend data. Revenue sustainability will depend on the order backlog and project pipeline; absent disclosed backlog figures here, we flag this as a data gap. Profit quality is mixed: headline margins are strong, but the unusual relationship between gross and operating profit and the very low effective tax rate suggest potential one-offs or timing effects. For outlook, the second half is seasonally important for construction, and cash conversion should improve if receivables are collected and advances rebuild; otherwise, working capital drag could persist. Monitoring contract mix (civil vs building), cost pass-through, and inflation-linked clauses will be important for sustaining margins. Without disclosed guidance in this dataset, we assume mid- to high-single-digit normalized operating margins are unlikely to be sustained if non-recurring items fade; however, the current run-rate demonstrates improved execution.

Financial Health

Total assets are ¥154.774bn, liabilities ¥75.384bn, and equity ¥73.089bn, implying a computed equity ratio of ~47.2% and financial leverage (assets/equity) of 2.12. The current ratio is 195% and working capital is ¥52.719bn (¥108.192bn current assets minus ¥55.473bn current liabilities), indicating strong liquidity. Quick ratio is shown as 195%, but cash and equivalents are unreported; nevertheless, low inventories (¥17m) and a receivables-heavy current asset structure are typical for contractors. Debt-to-equity is 1.03x (liabilities/equity proxy in this dataset), consistent with moderate leverage. Interest burden is low (¥61m), with interest coverage at 131x, suggesting minimal solvency risk. The negative operating cash flow in the period implies reliance on short-term financing (financing CF +¥4.191bn) to support project working capital; this is manageable given liquidity but should normalize to protect balance sheet strength. No material concerns on solvency based on the provided figures; cash visibility is limited due to unreported cash balances.

Cash Flow Quality

Operating cash flow was -¥7.332bn against net income of ¥5.737bn, yielding an OCF/NI ratio of -1.28, which indicates poor cash conversion this period. This is consistent with a working capital build, likely from increased receivables and/or lower advances received (typical in periods of rapid revenue growth and milestone timing). Free cash flow cannot be assessed reliably because investing cash flow is shown as zero (unreported); the provided FCF of 0 should not be interpreted as actual. EBITDA of ¥8.5bn and modest D&A (¥0.511bn) suggest that cash generation capacity before working capital is solid; thus, the negative OCF is primarily timing-related rather than structural. Financing inflow of ¥4.191bn likely reflects short-term borrowings or changes in interest-bearing debt to bridge the OCF gap. We would look for normalization in H2 as projects bill and cash is collected; sustained negative OCF despite high profitability would be a red flag. Working capital management (DSO, unbilled receivables, and advances received) is the key swing factor for cash flow quality in this business model.

Dividend Sustainability

Dividend information is shown as zero (DPS 0.00, payout 0.0%), which we treat as unreported rather than actual. Therefore, we cannot compute payout ratios or FCF coverage with reliability. From an earnings capacity perspective, EPS is ¥133.34 in the first half, and the balance sheet shows a healthy equity base (~47% equity ratio by our computation) and low interest burden, suggesting capacity to sustain ordinary dividends if the company maintains profitability and normalizes cash flows. However, given negative OCF in the period and unreported investing cash flows, we cannot judge FCF coverage. Policy outlook cannot be inferred from this dataset; investors should refer to disclosed dividend policies, mid-term plans, and historical payout behavior.

Risk Assessment

Business Risks:

• Project execution risk and cost overruns in a fixed-price environment
• Timing risk from milestone-based revenue recognition causing volatility in margins and cash flows
• Supply chain and materials inflation potentially compressing margins if not fully passed through
• Dependence on public-sector demand cycles and competitive bidding in civil and building segments
• Labor availability and subcontractor capacity constraints impacting delivery and costs
• Regional concentration risk if projects are concentrated in specific prefectures

Financial Risks:

• Negative operating cash flow driven by working capital build and potential reliance on short-term financing
• Counterparty credit risk from receivables concentration
• Margin volatility due to claim recoveries/one-off operating items that may not recur
• Low effective tax rate in the period may normalize higher, reducing net margins
• Limited cash visibility due to unreported cash and investing cash flows

Key Concerns:

• Operating income exceeding gross profit points to significant other operating income or unusual items
• OCF/NI of -1.28 highlights weak cash conversion despite strong earnings
• Dividend and share information are largely unreported, limiting capital return analysis

Investment Implications

Key Takeaways:

• Strong H1 earnings momentum with operating margin ~8.9% and ROE 7.85%
• Healthy balance sheet with computed equity ratio ~47% and interest coverage 131x
• Cash conversion weak this period (OCF -¥7.332bn), likely due to working capital timing
• Operating income composition warrants scrutiny given it exceeds reported gross profit
• Leverage moderate (financial leverage 2.12; debt-to-equity ~1.03x), providing resiliency

Metrics to Watch:

• Backlog size, book-to-bill, and project mix (civil vs building)
• Working capital metrics (DSO, unbilled receivables, advances received)
• Normalized operating margin excluding one-offs
• Cash and equivalents balance and net debt trajectory
• Tax rate normalization in H2 and full year
• Dividend policy disclosures and payout targets

Relative Positioning: Within Japanese general contractors, the company currently exhibits above-trend interim profitability and strong balance-sheet metrics, but weaker cash conversion; sustainability versus peers will hinge on backlog quality, margin normalization, and working capital control in the second half.

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