WAKACHIKU CONSTRUCTION CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥45.40B
• Operating Income: ¥1.56B
• Net Income: ¥972M
• EPS: ¥73.76

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend 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: Strong rebound in profitability in FY2026 Q2 with broad-based margin expansion, underpinned by robust top-line growth, though capital efficiency remains weak and cash flow visibility is limited. Revenue rose 29.1% YoY to 454.04, driving gross profit of 54.12 and operating income of 15.61 (+238.2% YoY). Ordinary income increased 192.5% to 14.58, while net income surged 300.9% to 9.37. Operating margin improved to 3.4% from roughly 1.3% a year ago (about +213 bps expansion by our estimate). Net margin increased to 2.1% from about 0.7% (approximately +140 bps YoY). Gross margin printed at 11.9%, consistent with an improved project mix and/or better cost pass-through, although prior-year gross margin is not disclosed to quantify the bps change. Non-operating items were mixed: 1.99 of non-operating income (dividends 1.64) was more than offset by 3.01 of non-operating expenses (interest 0.83), but ordinary income still improved sharply due to operating leverage. Interest coverage is strong at 18.8x, supported by higher operating earnings and modest interest burden. Balance sheet quality is solid with current ratio at 201.7% and net cash position of about 17.2 (cash 134.0 minus short- and long-term loans 116.8). ROE is 1.9% for the period on a DuPont basis (NPM 2.1%, asset turnover 0.472x, leverage 1.94x), reflecting improved profit but still low capital efficiency. ROIC at 2.2% is below the 5% warning threshold, highlighting a need for better project returns or asset utilization. Earnings quality assessment is constrained by missing cash flow data, so we cannot confirm conversion from profit to cash (OCF/NI not available). Dividend sustainability is uncertain; the calculated payout ratio of 174.3% suggests potential risk if representative, but DPS and total dividends are unreported for the period. Forward-looking, sustaining higher margins will depend on execution discipline in marine/civil projects, cost control amid labor/material inflation, and maintaining a healthy order book; capital efficiency improvement is a key medium-term task.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 2.1% × 0.472 × 1.94 ≈ 1.9%. The largest YoY improvement driver is Net Profit Margin, given operating income rose +238% on +29% revenue, implying significant operating margin expansion (from ~1.3% to ~3.4%). Business reason: improved project profitability (better bid discipline/project mix) and operating leverage as SG&A growth was contained relative to revenue (SG&A 38.51 not comparable YoY, but operating income surged). Asset turnover at 0.472x for the half reflects typical construction seasonality and working capital intensity; no evidence of improvement or deterioration without prior data. Financial leverage at 1.94x (Assets/Equity) is moderate; leverage did not drive the ROE change. Sustainability: Margin gains are partly cyclical and execution-dependent in construction; absent backlog details, we treat the full magnitude as not fully recurring. Concerning trends: Capital efficiency remains weak (ROIC 2.2%); also, non-operating items account for 21.2% of ordinary profit inputs, signaling some reliance on dividends/financial income.

Growth Assessment

Top-line growth of +29.1% indicates strong order execution and possibly favorable industry demand in marine/civil segments. Profit growth outpaced revenue (operating income +238%, net income +301%), reflecting operating leverage and better project economics. The quality of profit growth is primarily operating-driven (OI 15.61 vs non-op income 1.99), but some contribution from dividend income exists. Sustainability hinges on order backlog, bid environment, and cost inflation pass-through; these data are not disclosed. Without cash flow and backlog disclosure, we cannot verify durability of growth or working capital consumption. Outlook: Near term, margins may stay above prior-year levels if execution holds; medium term, improving ROIC and asset turnover will be necessary to lift returns closer to cost of capital.

Financial Health

Liquidity is strong: current ratio 201.7% and quick ratio 201.7% (no inventory reported), with working capital of 373.5. Solvency is conservative: D/E (liabilities/equity) at 0.94x; interest coverage at 18.8x indicates ample buffer. Net cash position of ~17.2 (cash 134.0 minus total loans 116.8) reduces financial risk. Maturity mismatch risk appears low: short-term loans 55.6 are well covered by cash and current assets (740.9). No explicit off-balance sheet obligations disclosed; construction JVs/guarantees not reported here, so residual risk may exist but cannot be assessed.

Cash Flow Quality

OCF is unreported, so OCF/Net Income cannot be calculated; we cannot confirm earnings-to-cash conversion. Free cash flow is also unreported, limiting assessment of coverage for dividends and capex. Working capital components (receivables, unbilled/advances, payables) are not disclosed; thus, we cannot identify potential period-end working capital maneuvers typical in construction. Given the industry’s cash flow cyclicality, the absence of OCF data is a material limitation to assessing earnings quality.

Dividend Sustainability

Dividend data (DPS, total dividends) are unreported for the period. The calculated payout ratio of 174.3% suggests potential unsustainability if representative; however, without confirmed dividend amounts or cash flow, this figure should be treated with caution. With net cash and strong liquidity, near-term flexibility exists, but long-term sustainability requires positive FCF after capex, which is unreported. Policy outlook cannot be inferred; monitor guidance and full-year payout intentions.

Risk Assessment

Business Risks:

• Project execution risk and cost overruns impacting margins in marine/civil works
• Materials and subcontractor cost inflation pressuring gross margins
• Labor availability and wage pressures affecting productivity and cost base
• Order book concentration and timing risk leading to revenue volatility
• Change-order/claim recoverability risk typical in construction contracts

Financial Risks:

• Capital efficiency risk: ROIC at 2.2% below 5% warning threshold
• Reliance on non-operating income (dividend income 1.64) to supplement earnings
• Market risk from investment securities (74.16) affecting comprehensive income
• Interest rate risk on floating-rate borrowings (total loans 116.8), albeit mitigated by net cash

Key Concerns:

• Low ROIC and ROE despite profit rebound, indicating underutilized capital
• Cash flow opacity: OCF and FCF unreported, limiting earnings quality assessment
• Calculated payout ratio of 174.3% suggests potential dividend strain if accurate
• Margin sustainability uncertain without backlog and cost trend disclosures

Investment Implications

Key Takeaways:

• Revenue +29.1% YoY to 454.04 with significant operating leverage
• Operating income +238% YoY; operating margin expanded ~213 bps to ~3.4%
• Net income +301% YoY; net margin expanded ~140 bps to ~2.1%
• Strong liquidity (current ratio ~202%) and net cash of ~17.2
• Interest coverage robust at 18.8x
• Capital efficiency weak: ROIC 2.2%, ROE 1.9%
• Non-operating income meaningful (dividends 1.64) but outweighed by non-op expenses 3.01
• Cash flow not disclosed; quality and FCF coverage cannot be validated
• Payout ratio (calc.) 174% raises potential sustainability questions

Metrics to Watch:

• Order backlog and new order intake by segment
• Operating cash flow and working capital movements (receivables/unbilled vs advances)
• Project gross margin trends and cost-to-complete assumptions
• SG&A growth vs revenue growth to assess operating discipline
• Investment securities valuation and dividend income stability
• Debt maturity profile and interest rate exposure
• Full-year guidance for margins, ROIC targets, and dividend policy

Relative Positioning: The company enters the back half with a solid balance sheet and improved operating margins relative to its prior-year baseline, but it remains constrained by low capital efficiency and limited cash flow transparency versus best-in-class domestic 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
• 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