TOA ROAD CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥51.46B
• Operating Income: ¥406M
• Net Income: ¥518M
• EPS: ¥10.19

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 operating recovery but weak bottom line; cash generation exceptionally strong in FY2026 Q2. Revenue declined 4.5% YoY to 514.59, yet operating income surged 129.3% YoY to 4.06, indicating effective cost control and better project execution. Gross profit was 47.83 with a gross margin of 9.3%, while SG&A of 43.76 (8.5% of sales) kept operating margin thin at 0.79%. Ordinary income rose 71.8% YoY to 5.52 supported by 1.82 in non-operating gains (notably 0.80 dividends and 0.12 interest), partially offset by 0.36 in non-operating expenses. Profit before tax reached 7.00, but net income fell 22.1% YoY to 4.69, implying adverse YoY comparables at the below-the-line level or extraordinary factors last year. Net margin compressed to 0.91% despite stronger ordinary margin, reflecting a disconnect between operating/ordinary improvements and bottom-line delivery. Operating cash flow was 65.84 (14.0x net income), signaling very strong cash conversion driven by working capital release and non-cash D&A of 10.81. Liquidity is robust with current ratio 201.9% and quick ratio 197.7%; leverage remains conservative (D/E 0.53x; interest coverage 22.6x). ROE stands at 0.9% and ROIC at 0.7%, both subdued for the sector and indicating capital efficiency remains a key challenge. Operating margin expanded sharply YoY (approx. +46 bps to 0.79%), but net margin contracted by ~21 bps to 0.91% due to below-the-line items and tax. The ordinary income margin improved to 1.07% (+48 bps YoY), aided by higher non-operating income. Financing cash outflow of -75.61 included share repurchases of -5.19; capex was a modest -12.18, implying ample headroom for disciplined shareholder returns, though dividends were unreported. Given order seasonality in road construction, the strong OCF likely reflects collection timing and may normalize in H2. Forward-looking, cost pass-through discipline and mix improvement appear to be taking hold, but achieving sustainable ROIC >5% will require further margin uplift and better asset turnover. Overall, the quarter demonstrates improving operations, pristine liquidity, and high cash conversion, offset by still-low profitability and bottom-line volatility.

Profitability Analysis

ROE decomposition (DuPont): ROE 0.9% = Net Profit Margin (0.9%) × Asset Turnover (0.632) × Financial Leverage (1.53x). The most notable factor is the very low net profit margin, which is the primary constraint on ROE despite modest leverage. Operating income rose 129% YoY on a 4.5% revenue decline, implying operating margin expansion of roughly +46 bps (from ~0.33% to ~0.79%), driven by better cost control and execution. However, net margin decreased ~21 bps YoY (to ~0.91%) because bottom-line items (taxes/extraordinary factors) offset the improvement at operating and ordinary levels. Asset turnover at 0.632 is moderate for a construction-oriented business but not strong enough to compensate for thin margins; we lack prior-period asset data to quantify YoY change. Financial leverage at 1.53x is conservative and relatively stable; management is not using leverage to enhance ROE. SG&A ratio is 8.5% of sales; with revenue down, SG&A discipline is acceptable but leaves little room for error given a 9.3% gross margin. Sustainability: the operating margin gains look achievable if bid/pricing discipline and input cost normalization persist; reliance on non-operating income (dividends/interest) to lift ordinary profit is supportive but non-core. Watch for any reversal in working-day/weather impacts and asphalt input cost fluctuations that could pressure gross margin.

Growth Assessment

Top-line contracted 4.5% YoY to 514.59, suggesting softer order conversion or project timing. Profit growth quality was mixed: operating income +129.3% YoY and ordinary income +71.8% YoY indicate operational recovery and higher non-operating contributions, while net income -22.1% YoY signals below-the-line headwinds. Gross margin at 9.3% and SG&A at 8.5% yielded a slim operating margin of 0.79%; the expansion is encouraging but still leaves profitability below industry averages. Non-operating income of 1.82 (dividends 0.80, interest 0.12) accounted for a sizable share of earnings leverage this quarter. Outlook hinges on: continued cost pass-through for asphalt and materials, maintaining bid discipline, stable weather, and public works budget execution in H2. With ROIC at 0.7%, incremental improvements to project mix and site productivity are critical for medium-term value creation. Absent explicit backlog data, revenue visibility is limited; however, strong OCF suggests recent milestone billings/collections, which may normalize later in the year.

Financial Health

Liquidity is strong: current ratio 201.9% and quick ratio 197.7% well exceed benchmarks; no warning on Current Ratio (<1.0) or D/E (>2.0). Cash and deposits of 104.68 comfortably cover short-term loans of 29.50, limiting near-term refinancing risk. Total liabilities 280.69 vs total equity 533.22 produce a conservative D/E of 0.53x; interest coverage at 22.56x indicates ample buffer. Maturity mismatch risk appears low given current assets 500.62 vs current liabilities 247.95 and modest long-term debt (2.25). No off-balance sheet obligations were disclosed in the provided data. Working capital is positive at 252.67, supporting project execution needs.

Cash Flow Quality

OCF/Net Income is 14.04x, indicating very high cash conversion and low accrual risk this quarter. The strong OCF likely reflects working capital inflows (collections on receivables/milestones) and non-cash D&A of 10.81. Capex was -12.18; a proxy FCF (OCF − Capex) is approximately 53.66, implying ample internal funding capacity. Financing CF was -75.61, including share repurchases of -5.19; dividends were unreported, limiting full FCF coverage analysis. Potential working capital timing effects are notable in construction/road paving and may reverse in subsequent quarters; monitor receivables and unbilled balances once disclosed. No signs of aggressive working capital manipulation are evident from available data, but limited disclosure (e.g., receivables/payables) constrains a deeper assessment.

Dividend Sustainability

Dividend data were unreported; the provided payout ratio figure (1450.6%) is not reliable without DPS and should not be used for conclusions. Based on cash generation, a proxy FCF of ~53.66 comfortably covers the reported buybacks (5.19), suggesting capacity for ordinary shareholder returns, but actual dividend outflow is unknown. With conservative leverage (D/E 0.53x) and strong liquidity, balance sheet capacity for dividends is ample. Sustainability will depend on maintaining positive OCF after working capital normalization and keeping capex disciplined. Policy outlook cannot be assessed from the dataset; monitor company guidance and dividend policy statements.

Risk Assessment

Business Risks:

• Asphalt and petroleum-linked input price volatility affecting gross margins
• Weather and seasonality impacting project execution and revenue recognition
• Competitive bidding pressure potentially compressing margins
• Execution risk on complex paving/maintenance projects leading to cost overruns
• Dependence on public works budgets and timing of order intake

Financial Risks:

• Low ROIC (0.7%) indicating weak capital efficiency and value creation risk
• Earnings reliance on non-operating income (dividends/interest) to lift ordinary profit
• Potential reversal of working capital-driven OCF in subsequent quarters
• Bottom-line volatility due to extraordinary items/tax effects

Key Concerns:

• Net income declined 22.1% YoY despite operating recovery
• Operating margin still very thin at 0.79%, leaving limited buffer for cost shocks
• Limited disclosure on receivables/payables and dividends constrains visibility
• ROE at 0.9% below cost of equity benchmarks

Investment Implications

Key Takeaways:

• Operational turnaround evidenced by +129% YoY operating income on -4.5% revenue
• Ordinary profit supported by sizable non-operating income (1.82)
• Net profit weakness underscores below-the-line headwinds
• Cash generation very strong (OCF 65.84; OCF/NI 14x) with low leverage
• Capital efficiency remains a priority: ROIC 0.7%, ROE 0.9%

Metrics to Watch:

• Order backlog and book-to-bill (not disclosed)
• Gross and operating margin trajectory vs asphalt price index
• Receivables and unbilled balances to track OCF normalization
• Capex pipeline and productivity initiatives (impact on ROIC)
• Extraordinary gains/losses and effective tax rate

Relative Positioning: Within Japan’s road construction/maintenance peer set, the company exhibits stronger liquidity and conservative leverage but lags on profitability and capital efficiency; the quarter shows improving operations yet sustained under-earning versus typical mid-cap contractors.

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
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