TOA ROAD CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥51.46B
• Operating Income: ¥406M
• Net Income: ¥636M
• 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

Toa Road Corporation (1882) reported FY2026 Q2 consolidated results under JGAAP showing resilient profitability improvement despite a modest revenue decline. Revenue was 51.459 billion yen, down 4.5% year over year, reflecting softer activity or project timing in the first half. Gross profit was 4.383 billion yen, translating to an 8.5% gross margin; this margin level is thin but typical for road construction and paving businesses subject to competitive bidding and materials pass-through dynamics. Operating income increased 129.3% YoY to 406 million yen, indicating improved cost control, mix, or contract execution despite lower sales. Ordinary income reached 552 million yen and net income was 469 million yen, with a net margin of 0.91%. The operating margin was approximately 0.79%, and the ordinary margin about 1.07%, signifying modest non-operating contributions (e.g., financial income) on top of improved core operations. DuPont analysis shows a calculated ROE of 0.88%, driven by a 0.91% net margin, asset turnover of 0.632x, and financial leverage of 1.53x; this implies an equity ratio around the mid-60% range, consistent with the reported balance sheet (equity 53.3 billion yen on assets of 81.4 billion yen). EBITDA was 1.446 billion yen, delivering a 2.8% EBITDA margin and a robust interest coverage of roughly 40.6x given the low interest expense of 10 million yen. Liquidity is strong with current assets of 60.0 billion yen versus current liabilities of 30.4 billion yen, yielding a current ratio of 197% and working capital of 29.6 billion yen. However, operating cash flow was negative at -1.531 billion yen, which likely reflects first-half working capital build typical for construction (receivable growth and progress billings timing) rather than a deterioration in earnings quality per se. The tax expense was 275 million yen; based on ordinary income as a proxy for pre-tax income, the effective tax rate approximates 50%, suggesting normal taxation rather than the 0% shown in the summary metrics (certain items are undisclosed). The capital structure remains conservative, with total liabilities of 33.8 billion yen against equity of 53.3 billion yen (debt-to-equity 0.63x on a broad liabilities basis), supporting solvency and flexibility. Financing cash flow was an outflow of -3.587 billion yen, indicating net repayments or shareholder returns; details are undisclosed. Dividend data were not disclosed in the feed (DPS appears as 0), and cash and equivalents were also not disclosed; these zeros reflect non-reporting rather than actual zero balances. Overall, the company exhibits improved operating profitability on a stable and conservative balance sheet, while cash flow headwinds from working capital warrant monitoring into the seasonally stronger second half. The outlook hinges on order backlog conversion, materials cost pass-through (asphalt), and weather-related execution, with an expectation of operating leverage if volumes recover in H2.

Profitability Analysis

ROE_decomposition: ROE 0.88% = Net margin 0.91% x Asset turnover 0.632x x Financial leverage 1.53x. This indicates that returns are predominantly constrained by thin margins rather than asset efficiency or leverage. The implied equity ratio (~65%) is consistent with the balance sheet (equity 53.3b / assets 81.4b). margin_quality: Gross margin 8.5% (4.383b/51.459b) supports a modest operating margin of ~0.79% (406m/51.459b). Ordinary margin is ~1.07% and net margin 0.91%. The YoY operating income surge (+129%) despite lower revenue implies improved project mix, cost control, or better pass-through of materials, though absolute margins remain thin typical of public works and paving contracts. operating_leverage: Revenue declined 4.5% YoY while operating income rose sharply, suggesting favorable operating leverage from cost base optimization and lower SG&A intensity. EBITDA margin at 2.8% vs operating margin 0.8% shows limited non-cash add-back headroom; sustained operating leverage requires volume recovery and continued cost discipline.

Growth Assessment

revenue_sustainability: H1 revenue of 51.459b (-4.5% YoY) likely reflects project timing, weather, and public works bidding cadence typical for road construction. Seasonality is significant, with second-half execution historically stronger; backlog conversion and order intake will determine sustainability. profit_quality: Operating income growth outpaced revenue, indicating mix/efficiency improvements. Ordinary income exceeding operating income suggests small positive non-operating contributions. The ~50% effective tax rate (275m/≈552m) points to normal tax burden. Negative OCF is more consistent with timing/working capital than profit quality deterioration. outlook: Assuming normal seasonality, stabilization of asphalt prices, and steady public investment, margins could remain on an improving trajectory with potential H2 volume uplift. Key watchpoints are backlog, book-to-bill, and cost pass-through; any weather disruptions or materials volatility would affect top line and margin.

Financial Health

liquidity: Current assets 60.0b vs current liabilities 30.4b yields a current ratio of 197% and quick ratio of 194%, indicating ample short-term liquidity. Working capital stands at 29.6b, supporting project execution and bonding capacity. solvency: Total liabilities 33.8b vs equity 53.3b (broad debt-to-equity 0.63x) and implied equity ratio mid-60% reflect a conservative balance sheet. Interest expense is minimal (10m), and interest coverage is strong (≈40.6x). capital_structure: Low financial leverage (leverage 1.53x) provides flexibility to absorb project timing and materials cost swings. Financing CF outflow (-3.587b) suggests deleveraging or distributions; specific instruments are undisclosed.

Cash Flow Quality

earnings_quality: OCF/Net Income is -3.26x, signaling negative cash conversion in H1, most likely due to working capital build (receivables and unbilled construction costs). Given the industry’s seasonality, this can normalize in H2 as collections catch up. FCF_analysis: Free cash flow cannot be determined from the disclosed items because investing CF and capex were not disclosed (reported as 0). Depreciation and amortization were 1.04b, implying maintenance capex needs, but actual capex timing is unknown. working_capital: Inventories are modest at 0.974b; primary working capital drivers are likely receivables and contract assets/liabilities. The sizable working capital base (29.6b) provides execution capacity but introduces cash flow volatility.

Dividend Sustainability

payout_ratio_assessment: Dividend per share and payout ratio are not disclosed in the dataset (zeros indicate non-reporting). With net income of 469m and conservative leverage, capacity exists for distributions, but payout discipline should reflect cash generation and project pipeline. FCF_coverage: Not assessable this period due to undisclosed investing cash flows and capex; negative OCF in H1 would limit coverage in the near term pending H2 normalization. policy_outlook: Given the cyclical cash profile and strong equity base, a stable or progressive policy would be typical for the sector, contingent on order visibility and cash conversion. Confirmation requires management guidance.

Risk Assessment

Business Risks:

• Volatility in asphalt and petroleum-related material prices affecting pass-through and margins
• Public works budget and bidding environment impacting order intake and pricing
• Weather and seasonality disrupting construction schedules and utilization
• Labor availability and subcontractor capacity constraints
• Project execution risk including cost overruns and warranty obligations
• Regional demand concentration risk in certain prefectures/municipalities

Financial Risks:

• Negative operating cash flow due to working capital swings in H1
• Thin operating margins magnifying downside from cost shocks
• Potential receivables concentration and collection timing risk
• Tax rate volatility versus profit mix and tax adjustments
• Limited disclosure on cash balances and capex complicating FCF assessment

Key Concerns:

• Revenue decline of 4.5% YoY amid competitive market conditions
• OCF of -1.531b versus net income of 469m (cash conversion weakness in H1)
• Operating margin remains sub-1% despite improvement, leaving little buffer
• Financing cash outflow of -3.587b without detail on nature (deleveraging or returns)

Investment Implications

Key Takeaways:

• Operating profitability improved materially despite lower revenue, indicating better execution and/or mix.
• Balance sheet remains conservative with implied equity ratio mid-60% and strong liquidity.
• Cash conversion was weak in H1, consistent with sector seasonality; H2 normalization is critical.
• Margins remain thin; maintaining material cost pass-through is essential for sustaining ROE.
• Disclosure gaps (cash, capex, dividends) limit precision of FCF and payout analysis.

Metrics to Watch:

• Order backlog and book-to-bill ratio
• Asphalt price trends and pass-through timing in contracts
• DSO and movement in contract assets/liabilities (progress billings)
• H2 operating cash flow and full-year FCF
• Operating and EBITDA margins by segment (if disclosed)
• Capital expenditure plans and maintenance versus growth split
• Tax rate normalization and non-operating income/expenses

Relative Positioning: Within Japan’s road construction and paving peers, Toa Road exhibits a strong equity base and low financial leverage, but operates with thinner operating margins than top-tier peers; near-term positioning hinges on backlog conversion and cost pass-through effectiveness in the seasonally stronger 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