PS Construction Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥73.05B
• Operating Income: ¥6.84B
• Net Income: ¥4.36B
• EPS: ¥93.27

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: Solid top-line and operating profit growth with modest margin expansion, but earnings quality deteriorated due to a large operating cash outflow. Revenue rose 12.6% YoY to 730.51, highlighting healthy project execution and order conversion. Operating income grew 19.0% YoY to 68.36, outpacing sales and indicating improved operating leverage. Ordinary income increased 18.5% to 68.00, and net income climbed 16.9% to 43.63. Gross profit was 122.09 with a gross margin of 16.7%, consistent with disciplined cost control amid input cost normalization. Operating margin was 9.4% (68.36/730.51), up about 51 bps from an estimated 8.9% in the prior-year period. Net margin was 6.0% (43.63/730.51), expanding by roughly 22 bps YoY based on the reported net income growth and implied prior revenue. EBITDA reached 73.76, yielding a 10.1% EBITDA margin. ROE printed at 7.2%, aligned with reported DuPont values, and broadly in line with the reported ROIC of 7.1%, implying limited incremental leverage-driven return. Liquidity appears adequate with a current ratio of 162.8% and working capital of 422.95, while solvency is conservative with D/E at 1.25x and an excellent interest coverage of 57.45x. However, operating cash flow was -105.04, resulting in an OCF/net income ratio of -2.41x, which flags a significant earnings quality gap likely tied to working capital build typical for construction. Free cash flow (strictly unreported) is likely negative this half given the OCF deficit and capex of 4.83. The effective tax rate was 35.0%, consistent with statutory levels. Dividend affordability is questionable near term with a high calculated payout ratio of 78.4% against negative OCF, despite a solid earnings print. Forward-looking, performance resilience depends on order backlog quality, cost pass-through, and normalization of working capital in 2H. Overall, profit momentum and margins improved, but cash conversion needs to rebound to sustain shareholder returns and balance sheet strength.

Profitability Analysis

ROE decomposition (DuPont): ROE 7.2% = Net Profit Margin 6.0% × Asset Turnover 0.538 × Financial Leverage 2.25x. The most notable change YoY appears in margin, as operating income grew faster than sales (19.0% vs 12.6%), implying operating margin expansion of roughly 51 bps to 9.4%; net margin also widened ~22 bps to 6.0%. Business drivers likely include improved project mix, better procurement and cost control, and stabilization of materials/labor inflation. This margin improvement seems partially sustainable if the company maintains disciplined bidding and cost pass-through; however, construction margins can be volatile due to project timing and fixed-price contract risk. Asset turnover at 0.538 is typical for the sector and likely moderated by asset growth to support pipeline (exact YoY AT change is unclear due to missing prior asset data). Financial leverage at 2.25x indicates modest use of leverage; with strong interest coverage, leverage is not the key ROE driver. Watch for SG&A rising slower than revenue (SG&A details unreported, but operating leverage suggests SG&A discipline); if SG&A growth were to exceed revenue growth in coming quarters, it would pressure margins.

Growth Assessment

Revenue growth of 12.6% YoY to 730.51 suggests healthy execution and possibly robust public/private construction demand. Operating income grew 19.0% YoY to 68.36, with margin expansion indicating improved mix and cost efficiency. Net income increased 16.9% to 43.63, tracking operating performance with a stable 35.0% tax rate. Non-operating items were a small net negative (1.59 income vs 1.95 expenses), with dividend income of 0.78 and interest income of 0.13; core profit growth was therefore primarily operating-driven. ROIC of 7.1% sits at the lower end of a typical value-creation range, suggesting execution is adequate but with room for improvement via further mix upgrades and capital efficiency. Sustainability of growth hinges on backlog quality, bid discipline, and the ability to pass through costs in a still-tight labor market. The 2H seasonality and working capital normalization are pivotal for converting earnings into cash. Near-term outlook appears constructive on margins but tempered by cash conversion and macro exposure to public capex cycles and private investment sentiment.

Financial Health

Liquidity: Current ratio 162.8% and quick ratio 162.8% indicate solid short-term coverage; working capital stands at 422.95. No warning on liquidity (Current Ratio > 1.5). Solvency: Debt-to-equity 1.25x is within a conservative range; interest coverage is very strong at 57.45x, indicating low interest burden risk. Capital structure: Short-term loans are 130.00 and long-term loans 16.20; cash and deposits are 119.53. While short-term borrowings slightly exceed cash, overall current assets (1,096.83) comfortably exceed current liabilities (673.88), limiting maturity mismatch risk. Noncurrent liabilities are modest at 81.78. No off-balance sheet obligations were reported in the provided data. Overall, the balance sheet can absorb working capital swings, but persistent negative OCF would gradually erode flexibility.

Cash Flow Quality

OCF/Net Income is -2.41x, signaling weak earnings quality this period and likely driven by working capital build typical of construction (e.g., increases in receivables/unbilled WIP and decreases in advances), though specific working capital line items were unreported. Operating CF was -105.04 against NI of 43.63. With capex at 4.83, implied FCF would be negative this half even without detailed investing CF data. Sustainability: To maintain dividends and capex, OCF must revert positive in 2H; otherwise, reliance on cash buffers or incremental debt could rise. No overt signs of deliberate working capital manipulation are evident from the limited disclosure, but the scale of the OCF deficit requires monitoring of billing milestones and collection cycles. Depreciation was 5.40, indicating low capital intensity; thus, cash conversion should improve as milestones are invoiced.

Dividend Sustainability

The calculated payout ratio of 78.4% appears high versus a general sustainability benchmark of <60%. With negative OCF this period, dividend coverage from free cash flow is weak; dividends paid were unreported, limiting precision. Near-term sustainability depends on 2H cash conversion and backlog execution. Balance sheet capacity exists (current assets > current liabilities; D/E 1.25x), but funding dividends through working capital or debt would not be desirable if OCF remains negative. Policy outlook likely targets stable or gradually rising DPS contingent on earnings and cash flow normalization; any continued OCF shortfall would argue for prudence.

Risk Assessment

Business Risks:

• Project execution and fixed-price contract risk leading to margin volatility
• Materials and labor cost inflation or supply constraints impacting cost pass-through
• Backlog conversion and timing risk affecting revenue recognition
• Customer concentration or public sector budget cycles affecting demand
• Competition in bidding potentially compressing margins

Financial Risks:

• Negative operating cash flow creating reliance on working capital financing
• Short-term debt (130.00) slightly exceeding cash (119.53), though mitigated by strong current assets
• Potential extension of receivables/unbilled WIP increasing cash conversion cycle
• High effective tax rate (35.0%) limiting net margin expansion

Key Concerns:

• OCF/NI at -2.41x highlights weak cash conversion this half
• Payout ratio at 78.4% is elevated relative to cash generation
• Margin gains may be sensitive to mix and cost trends; sustainability needs validation in 2H
• Limited disclosure on SG&A, working capital components, and dividends constrains visibility

Investment Implications

Key Takeaways:

• Strong YoY earnings with operating margin expansion to 9.4%
• Net margin improved to 6.0%, lifting ROE to 7.2% in line with ROIC 7.1%
• Liquidity and solvency are sound, with 162.8% current ratio and 57.45x interest cover
• Earnings quality is weak near term with OCF of -105.04 vs NI of 43.63
• Dividend affordability is tight given a 78.4% payout ratio and negative OCF

Metrics to Watch:

• Backlog, book-to-bill, and order intake trends
• Working capital details: receivables, unbilled WIP, advances from customers
• OCF trajectory and FCF in 2H
• Operating margin by project mix and cost pass-through effectiveness
• Short-term debt rollover and cash balance dynamics
• Tax rate normalization and any one-time items

Relative Positioning: Within the construction peer set, profitability is improving with solid operating leverage and acceptable ROE/ROIC, while balance sheet metrics are robust; however, cash conversion significantly lags, placing the company mid-pack on quality until OCF normalizes.

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