TOA CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥164.83B
• Operating Income: ¥11.14B
• Net Income: ¥7.73B
• EPS: ¥97.56

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: A solid FY2026 Q2 with double‑digit top-line growth and stronger operating leverage, translating into higher margins and robust cash generation. Revenue rose 10.0% YoY to 1,648.29, while operating income increased 18.1% YoY to 111.39 and ordinary income grew 20.2% YoY to 110.25. Net income advanced 15.0% YoY to 76.65, with EPS of 97.56 JPY. Gross profit was 189.10, yielding a gross margin of 11.5%. Operating margin improved to 6.76%, and net margin reached 4.65%. Based on back-solved priors, we estimate operating margin expanded by roughly 46 bps YoY and ordinary margin by about 57 bps; net margin likely expanded by ~20 bps. Non-operating items were small and net negative (income 3.04 vs expenses 4.18), with dividend income of 2.05 and interest income of 0.48 partially offsetting interest expense of 2.81. Cash flow quality was strong: operating cash flow was 187.26, or 2.44x net income, and implied free cash flow after capex (~12.62) was about 174.64. The balance sheet shows total assets of 3,031.28 and equity of 1,076.35 (leverage 2.82x), with current assets of 2,447.13 and current liabilities of 1,766.18 (current ratio 138.6%). Debt is moderate at 412.64 (short‑term 332.84; long‑term 79.80), equating to Debt/EBITDA of 3.29x and debt-to-assets of ~13.6%. ROE is 7.1% via DuPont (NPM 4.7% × AT 0.544 × leverage 2.82x), and ROIC is reported at 7.4%, around the typical 7–8% target range for Japanese corporates. A calculated payout ratio of 130.8% looks elevated against earnings, though cash coverage appears ample this quarter given strong FCF. Earnings quality is high this period, but we note several unreported items (e.g., AR, inventories, dividend details) that limit deeper diagnostics. Looking forward, improved margin execution and high OCF support flexibility for selective capex and shareholder returns, while vigilance is needed on leverage (D/E 1.82x) and potential cost inflation in fixed‑price projects.

Profitability Analysis

ROE (7.1%) = Net profit margin (4.7%) × Asset turnover (0.544) × Financial leverage (2.82x). The most notable driver of YoY improvement appears to be margin expansion, inferred from operating income growth (+18.1%) outpacing revenue growth (+10.0%), which implies roughly +46 bps in operating margin and ~+20 bps in net margin. The business reason is likely a more profitable project mix and/or better cost control in execution, as non‑operating effects were minor and interest expense was stable relative to earnings. Asset turnover also improved modestly on higher revenue against a relatively stable asset base; leverage (Assets/Equity 2.82x) appears steady, suggesting ROE gains are primarily operational. Sustainability: margin gains can persist if bid discipline and cost pass‑through in contracts continue, but fixed‑price construction entails execution risk and potential input cost volatility. Watch for SG&A discipline: SG&A is 77.70 (4.7% of sales), and while detailed SG&A line items are unreported, the fact that operating income grew faster than sales implies operating leverage was positive this quarter.

Growth Assessment

Top-line growth of 10.0% YoY to 1,648.29 reflects solid execution and likely steady order conversion; the lack of segment disclosure limits attribution by business line. Profit growth outpaced sales (OP +18.1%, OI +20.2%, NI +15.0%), indicating a healthier mix and/or improved cost performance. Non-operating contribution was marginally negative, so earnings improvements were fundamentally operational. ROIC at 7.4% sits at the lower end of a healthy target range and is consistent with disciplined capital use. Near-term sustainability depends on order intake, backlog quality, and ability to manage materials and labor inflation in fixed-price contracts. With EBITDA margin at 7.6% and interest coverage at 39.6x, the company has cushion to pursue selective growth. Forward outlook hinges on public works spending trends and private capex cycles; monitor backlog visibility and bid-win rates for momentum. Overall, revenue and profit trajectories appear sustainable near term, with upside if mix remains favorable and costs stay contained.

Financial Health

Liquidity is adequate: current ratio 138.6% (>1.0 but slightly below the 1.5x healthy benchmark); quick ratio shows the same due to unreported inventory details but cash and deposits are a solid 442.99. Working capital is positive at 680.95, and current assets of 2,447.13 comfortably exceed short-term loans of 332.84, suggesting low maturity mismatch risk. Solvency: Debt-to-equity is 1.82x, which is above the conservative benchmark (<1.5x) and warrants attention even though absolute leverage vs assets is modest (debt-to-assets ~13.6%). Interest coverage is strong at 39.64x, mitigating near-term refinancing risk. Long-term loans are 79.80 vs noncurrent liabilities of 188.74; the balance sheet is not overly back-loaded. No off-balance sheet obligations are disclosed in the provided data; absence of disclosure does not imply absence of such commitments (e.g., guarantees/JV commitments). Explicit warnings: Current ratio is not below 1.0 (no immediate red flag); D/E at 1.82x is elevated and should be monitored.

Cash Flow Quality

OCF of 187.26 is 2.44x net income, indicating high earnings quality with cash conversion well above the 1.0x benchmark. Implied free cash flow (OCF - capex) is approximately 174.64, comfortably positive and supportive of balance sheet flexibility. Working capital details (AR, inventories, AP) are unreported, limiting analysis of period-specific WC drivers and any potential pull-forward/deferral tactics. No evident signs of manipulation emerge from the high OCF relative to NI, but verification would require WC schedules. Financing CF of -146.72 suggests net debt reduction and/or shareholder returns; specifics on dividends/repurchases are unreported. Overall, cash generation appears robust and sustainable near term, pending order intake and execution quality.

Dividend Sustainability

Dividend details are unreported, but the calculated payout ratio is 130.8% of net income, which is high versus the <60% benchmark and would be earnings‑unsustainable if maintained structurally. However, with implied FCF of ~174.64 and NI of 76.65, cash coverage appears adequate this quarter; an estimated dividend outlay consistent with a 130.8% payout would be ~100.3, still covered by FCF. Sustainability will depend on normalizing payout closer to earnings growth and maintaining strong OCF amid capex needs. Policy clarity is limited due to missing DPS and total dividends paid; monitor management guidance and payout framework. If leverage reduction becomes a priority (D/E 1.82x), future distributions may be balanced against deleveraging.

Risk Assessment

Business Risks:

• Fixed-price contract execution risk (cost overruns, schedule delays) impacting margins
• Materials and labor cost inflation potentially compressing gross margin
• Order intake cyclicality tied to public works budgets and private capex
• Project concentration and backlog mix risk (marine/civil large projects)
• Supply chain/disruption risk for specialized construction inputs

Financial Risks:

• Elevated debt-to-equity (1.82x) despite modest debt-to-assets (~13.6%)
• Reliance on short-term borrowings (332.84) introduces refinancing/interest rate risk
• Potential increase in interest expense if rates rise, though current coverage is strong (39.6x)
• Working capital swings inherent to construction can pressure liquidity despite current OCF strength

Key Concerns:

• Sustainability of margin gains given competitive bidding environment
• High calculated payout ratio (130.8%) versus earnings, despite FCF coverage
• Limited disclosure on AR/inventories/dividends reduces visibility into cash cycle and shareholder return policy
• Non-operating income stability (dividends/interest) is minor but could fluctuate

Investment Implications

Key Takeaways:

• Strong quarter: revenue +10.0%, OP +18.1%, NI +15.0% with margin expansion
• High cash conversion (OCF/NI 2.44x) and positive FCF (~174.64) enhance financial flexibility
• Leverage manageable but above conservative benchmark (D/E 1.82x); interest coverage very strong
• ROE 7.1% and ROIC 7.4% indicate acceptable returns with scope for improvement via mix and asset turns
• Dividend payout appears high versus earnings; sustainability hinges on continued strong OCF or policy normalization

Metrics to Watch:

• Order backlog, order intake, and book-to-bill
• Operating and gross margin trends (bps) and cost pass-through effectiveness
• Working capital components (AR, inventories, AP) and OCF conversion
• Leverage trajectory (net debt, D/E) and Debt/EBITDA
• Dividend policy disclosures (DPS, total payout) and FCF coverage

Relative Positioning: Among domestic mid-cap general contractors and marine-focused civil companies, the firm shows solid operating momentum and superior cash conversion this quarter, offset by somewhat higher D/E leverage versus conservative peers; returns (ROE/ROIC) are acceptable but not top-tier, leaving room for improvement through continued margin discipline and asset efficiency.

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