SEIKITOKYU KOGYO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥42.98B
• Operating Income: ¥2.22B
• Net Income: ¥935M
• EPS: ¥41.06

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

For FY2026 Q2, Seikitokyu Kogyo (18980) delivered solid profit expansion despite a modest top-line contraction. Revenue declined 3.8% year over year to ¥42.98bn, yet operating income rose 47.3% to ¥2.22bn, indicating material margin improvement and/or disciplined cost execution. Gross profit of ¥4.47bn implies a gross margin of 10.4%, while operating margin expanded to 5.2%, a notable step-up for a civil engineering/road paving-oriented business that typically operates on thin margins. Ordinary income was ¥2.21bn, only slightly below operating income, reflecting minimal non-operating drag given low interest expense (¥29m). Net income climbed 60.7% YoY to ¥1.50bn, with EPS of ¥41.06, supported by improved operating performance and a normalizing tax burden. DuPont analysis shows ROE of 3.61% on a net profit margin of 3.50%, asset turnover of 0.545x, and financial leverage of 1.90x, consistent with a capital-light but competitive industry structure. Liquidity is sound with a current ratio of 139.8% and working capital of ¥14.58bn, providing ample room to manage seasonality in public works and receivables collection cycles. Solvency appears strong: total liabilities to equity of 0.98x and a computed equity ratio of roughly 52.7% (equity/total assets), despite a reported 0.0% equity ratio flag that appears to be an unreported metric rather than an economic zero. Cash generation was robust, with operating cash flow (OCF) of ¥2.88bn at 1.92x net income and about 0.90x of EBITDA, signaling healthy earnings quality. Financing cash outflow of ¥1.59bn suggests net debt reduction and/or shareholder returns, though DPS is currently unreported for the period (annual DPS shown as 0.00, likely a disclosure timing issue at Q2). The effective tax rate appears around 25–26% on a simple reconstruction (¥516m tax over pre-tax income proxy), not 0.0% as noted in the calculated metrics (which likely reflects an unreported item). Revenue softness alongside higher profits implies improved project mix, procurement discipline, and/or better pass-through of input cost inflation. Seasonality in road maintenance and public works means 2H weighting may further influence full-year outcomes. Overall, profitability momentum, strong cash conversion, and conservative leverage position the company favorably to navigate input cost volatility and bidding competition, though sustaining higher margins into the busy 2H remains the key watchpoint. Data limitations exist where zeros denote unreported items (e.g., inventories, cash and equivalents, investing CF, equity ratio, shares outstanding), and the analysis focuses on available non-zero disclosures.

Profitability Analysis

ROE of 3.61% decomposes as: net margin 3.50% × asset turnover 0.545× × financial leverage 1.90×. Operating margin is 5.2% (¥2.22bn/¥42.98bn), ordinary margin 5.1%, and net margin 3.5%. Gross margin at 10.4% supports the narrative of improved cost management or mix despite lower revenue. EBITDA of ¥3.21bn yields a 7.5% EBITDA margin, with D&A at ¥0.99bn indicating a moderate capital intensity. Interest coverage is strong at 76.6x (operating income/interest expense), highlighting limited financial drag and headroom for rate volatility. The spread between gross and operating margins (about 5.2 ppt) reflects SG&A discipline; the YoY surge in operating income against a 3.8% revenue decline evidences positive operating leverage in the period. Margin quality appears improved, likely from better bidding discipline, procurement gains in asphalt/bitumen and materials, and execution benefits, though durability through the seasonally stronger 2H is the key test.

Growth Assessment

Top-line contracted 3.8% YoY to ¥42.98bn, suggesting either timing-related delays in public works, weather-driven workdays, or portfolio pruning of lower-margin jobs. Profit growth outpaced revenue, with operating income up 47.3% and net income up 60.7% YoY, indicating better project mix and cost pass-through. Revenue sustainability near term will hinge on order backlog conversion and public capex execution in 2H, which is typically stronger for maintenance and paving programs. Profit quality looks solid: the OCF/NI ratio of 1.92 and OCF/EBITDA of ~0.90 imply cash-backed earnings rather than accrual-driven gains. Outlook considerations include price stability for asphalt/bitumen, labor availability, and competitive intensity in municipal bidding. With ordinary income close to operating income and minimal interest burden, underlying operating improvements seem genuine. While the revenue dip is a caution flag, the improved margins may reflect a deliberate shift to higher-quality work. Sustaining this balance between disciplined growth and profitability will be central to full-year performance.

Financial Health

Liquidity is healthy with current assets of ¥51.23bn versus current liabilities of ¥36.66bn, yielding a current ratio of 139.8% and positive working capital of ¥14.58bn. The quick ratio matches the current ratio due to inventories being unreported (0 indicates not disclosed), which limits precision but still suggests ample short-term coverage. Solvency is comfortable: total liabilities of ¥40.86bn vs equity of ¥41.60bn implies liabilities-to-equity of ~0.98x. A computed equity ratio (equity/total assets) is approximately 52.7%, despite the reported 0.0% which appears to reflect unreported data. Interest expense is very low (¥29m), and interest coverage exceeds 70x, reducing refinancing risk. Capital structure is balanced and conservative for a mid-cap construction/materials contractor, affording resilience against input cost and receivables timing swings.

Cash Flow Quality

OCF of ¥2.88bn versus net income of ¥1.50bn yields an OCF/NI ratio of 1.92, indicating high cash realization and limited accrual risk. OCF at roughly 0.90× EBITDA (¥3.21bn) further supports solid cash conversion from operations. Investing cash flow is shown as 0 (likely unreported), so Free Cash Flow cannot be precisely calculated; conceptually, FCF equals OCF less capex, but capex data are unavailable. Working capital dynamics appear supportive given the positive OCF in a seasonally front-half period, implying reasonable receivables collection and billing progress. With financing cash outflow of ¥1.59bn, the company appears to be reducing net debt and/or distributing cash, though DPS is unreported for the period. Overall earnings quality looks strong this quarter, but confirmation will require full-year data including capex and cash balances.

Dividend Sustainability

Annual DPS and payout ratio are displayed as 0.00, indicating non-disclosure at this interim stage rather than a confirmed zero. EPS stands at ¥41.06 for 1H, and OCF is ¥2.88bn, suggesting internal capacity for shareholder returns absent heavy capex; however, FCF cannot be computed without investing CF/capex disclosure. Payout sustainability assessment is therefore constrained. Historically, contractors align dividends with normalized earnings and cash flow post working-capital swings; given strong OCF and low interest burden, coverage appears likely adequate, but firm conclusions await full-year DPS guidance and capex data. Policy outlook should be gauged against leverage (moderate), cash needs for fleet and plant renewal, and visibility from public works backlog.

Risk Assessment

Business Risks:

• Input cost volatility for asphalt/bitumen and aggregates impacting margins if pass-through lags
• Bidding competition in public works compressing margins
• Seasonality and weather-related disruption affecting revenue recognition and productivity
• Labor availability and wage inflation in construction trades
• Project execution risk (quality, schedule, penalties) on fixed-price contracts
• Dependency on public-sector demand and budget cycles (MLIT/local governments)
• Backlog timing and potential delays in order intake or approvals

Financial Risks:

• Receivables concentration and collection timing with public-sector counterparties
• Potential working-capital swings in 2H tied to project ramp-up
• Interest rate normalization (albeit modest impact given low interest expense)
• Limited visibility on cash and capex due to unreported items, creating FCF uncertainty
• Possible off-balance or contingent liabilities typical in long-term projects (warranty/defect obligations)

Key Concerns:

• Revenue declined 3.8% YoY; sustainability of current margin gains needs validation
• Thin structural margins characteristic of the sector raise sensitivity to cost spikes
• Data gaps (inventories, cash, investing CF, equity ratio, shares) limit precision of analysis

Investment Implications

Key Takeaways:

• Strong profit rebound: operating income +47.3% YoY on -3.8% revenue highlights improved execution and mix
• Operating margin rose to 5.2% and net margin to 3.5%, with robust cash conversion (OCF/NI 1.92x)
• Balance sheet conservative with computed equity ratio ~52.7% and interest coverage ~77x
• Working capital position is solid (¥14.6bn), supporting seasonally stronger 2H activity
• Ordinary income nearly equals operating income, indicating minimal non-operating drag
• FCF and dividend visibility are constrained by unreported investing CF and DPS data
• Key swing factor: sustaining margin gains amid cost volatility and bidding pressure in 2H

Metrics to Watch:

• Order backlog and book-to-bill trends
• Operating margin and gross margin sustainability in 2H
• Asphalt/bitumen price indices and pass-through effectiveness
• Receivables days and OCF/EBITDA conversion
• Capex and investing cash flows to assess FCF
• Labor utilization and subcontractor rates
• Win rates and average bid spreads in key regions
• Ordinary income to operating income gap (non-operating items)
• Leverage metrics (net debt/EBITDA) once cash balances are disclosed
• Weather impact and project execution KPIs

Relative Positioning: Within Japan’s road paving and civil maintenance peer set, the company appears mid-tier on profitability but currently benefiting from mix and execution tailwinds; leverage is conservative, cash conversion is strong this half, and operating margins have improved versus sector norms, though sustaining these levels through the seasonally heavier second half will determine its relative standing.

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
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