TAISEI ONCHO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥29.67B
• Operating Income: ¥1.67B
• Net Income: ¥1.32B
• EPS: ¥213.87

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 top-line and operating momentum with clear margin expansion, but bottom-line declined due to tax/one-off effects, leaving ROE and ROIC still below ideal targets. Revenue grew 2.0% YoY to 296.68, while operating income rose a stronger 22.2% YoY to 16.68. Gross profit reached 48.25, translating to a gross margin of 16.3%. Operating margin improved to 5.6% (16.68/296.68), up roughly 93 bps YoY based on implied prior-period margins. Ordinary income increased 9.0% YoY to 17.94, lifting the ordinary margin to 6.0% and implying ~39 bps YoY expansion. Despite operating strength, net income declined 15.2% YoY to 13.16, compressing net margin to 4.4% (down about 91 bps YoY). The divergence suggests non-operating and tax effects (effective tax rate 33.3%) offset operating gains; PBT at 19.75 exceeding ordinary income implies the presence of extraordinary items this period, but YoY mix likely turned less favorable. Cash generation was healthy: operating cash flow of 16.34 exceeded net income (OCF/NI 1.24x), indicating solid earnings quality. Balance sheet strength remained a positive: current ratio at 192.9%, quick ratio at 192.9%, cash and deposits at 110.91, and debt-to-equity at a modest 0.51x. Interest coverage is extremely strong at 339.7x, reflecting minimal interest burden (interest expense 0.05) and robust operating earnings. ROE calculated at 4.6% (NPM 4.4% × AT 0.691 × leverage 1.51x) and ROIC at 5.5% remain below common mid-term targets, highlighting room for capital efficiency improvement. EBITDA of 19.09 implies a 6.4% EBITDA margin, consistent with better project execution and cost control. SG&A of 31.56 implies an SG&A-to-sales ratio of about 10.6%; YoY movement is not disclosed. Financing cash outflows of -28.37 included share repurchases of -1.79 and likely dividends/debt repayments; with capex at only -1.10, FCF proxy (OCF - capex) of ~15.24 appears sufficient to fund ordinary shareholder returns. Forward-looking, a healthy liquidity position and improved operating margin support stability into 2H, but achieving higher ROE/ROIC will require further mix improvements, disciplined bidding, and potentially tighter capital allocation.

Profitability Analysis

ROE decomposition: 4.6% = Net Profit Margin (4.4%) × Asset Turnover (0.691x) × Financial Leverage (1.51x). The most notable short-term change appears in margins: operating margin expanded ~93 bps YoY to 5.6%, but net margin compressed ~91 bps to 4.4% due to higher tax/one-off effects despite OI strength. Business drivers: revenue grew modestly (+2.0%) while cost execution improved (OI +22.2%), pointing to better project mix and cost control; however, below-the-line items and a 33.3% tax rate weighed on net profit. Sustainability: operating margin gains look more sustainable if driven by execution and mix; the net margin dip appears more one-off given strong OCF and ordinary income growth, but requires monitoring of non-operating/extraordinary items and tax. Operating leverage is positive (OI grew faster than sales), indicating incremental margins improved; no evidence that SG&A grew faster than revenue (prior SG&A not disclosed). Overall, profitability quality is improving at the operating level, but capital efficiency (ROE 4.6%) remains sub-target due to modest asset turnover (0.691x) and conservative leverage (1.51x).

Growth Assessment

Top-line growth was modest at +2.0% YoY, consistent with steady market demand in HVAC and building equipment. Operating profit growth of +22.2% outpaced revenue, indicating stronger execution and pricing/project mix. Ordinary income rose 9.0% YoY, confirming broad-based operating improvement despite some non-operating variability. Net income declined 15.2% YoY due to tax/one-off factors, not core operations; OCF strength supports that interpretation. Near-term sustainability depends on maintaining bid discipline and controlling materials/subcontracting costs, which have been volatile in construction services. Revenue visibility would normally hinge on order intake and backlog; these are not disclosed here, limiting forward growth visibility. With ROIC at 5.5%, the company is improving but below 7–8% targets; further focus on high-ROIC projects and asset-light approaches could support medium-term growth quality. Execution in retrofit/energy-saving projects may provide a tailwind given decarbonization trends, while new-build exposure may be more cyclical. Overall outlook: steady revenue growth with improving operating margins is plausible, but bottom-line recovery requires stabilization of non-operating/tax items.

Financial Health

Liquidity is strong: current ratio 192.9% and quick ratio 192.9% well above benchmarks; no warning flags (<1.0) observed. Cash and deposits of 110.91 versus current liabilities of 140.59 provide substantial immediate coverage, alongside broader current assets of 271.19. Leverage is conservative: debt-to-equity 0.51x and interest coverage 339.7x indicate ample capacity and low refinancing risk. Maturity mismatch risk appears limited: short-term loans of 27.00 are comfortably covered by cash and operating cash flow. Noncurrent liabilities are minimal (4.03), suggesting low long-term obligation pressure. Off-balance sheet obligations are not disclosed; no information on guarantees or large operating lease commitments is provided. Equity base is solid at 284.51, with retained earnings of 181.31 supporting resilience.

Cash Flow Quality

OCF/Net Income at 1.24x indicates high-quality earnings with cash conversion above parity. Operating cash flow of 16.34 versus net income of 13.16 shows limited accrual build; however, working capital details (receivables/inventories/payables) are not disclosed, constraining deeper diagnostics. Capex was modest at -1.10, implying a strong FCF proxy of ~15.24 (OCF - capex), though other investing flows are unreported and may affect true FCF. Financing CF was -28.37, including share repurchases of -1.79 and likely dividends/debt repayments; OCF covered expected ordinary shareholder returns comfortably. No signs of aggressive working capital management can be confirmed or denied due to missing AR/inventory data. Overall, cash flow quality is solid for this period.

Dividend Sustainability

The calculated payout ratio is 69.0%, slightly above the 60% benchmark, implying moderate pressure if earnings soften. Using an FCF proxy of ~15.24 (OCF - capex), dividends implied by the payout ratio (~9.1 on NI of 13.16) appear covered this period. Share repurchases of -1.79 were also manageable within FCF, but total financing outflows suggest additional debt repayment and/or dividends not fully observable. With strong liquidity and low leverage, near-term dividend capacity is supported; medium-term sustainability depends on maintaining operating margins and stable tax/non-operating results. Explicit DPS and total dividends paid were not disclosed, so conclusions rely on the indicated payout ratio.

Risk Assessment

Business Risks:

• Project execution risk: cost overruns and delays can erode margins in HVAC/construction projects.
• Input cost volatility: materials and subcontractor prices can pressure gross margins.
• Demand cyclicality: private non-residential capex and construction cycles affect order intake.
• Labor availability and wage inflation impacting SG&A and project delivery.
• Dependence on order backlog visibility (not disclosed), increasing forecasting uncertainty.

Financial Risks:

• Earnings sensitivity to non-operating/extraordinary items and effective tax rate variability.
• Short-term loan exposure (27.00) introduces rollover risk, albeit mitigated by cash of 110.91.
• Potential off-balance sheet obligations (e.g., guarantees/leases) not disclosed could emerge.

Key Concerns:

• ROE at 4.6% and ROIC at 5.5% remain below typical targets, indicating capital efficiency headroom.
• Net margin compression (~91 bps YoY) despite operating margin expansion highlights below-the-line drag.
• Limited disclosure on working capital components and order backlog reduces visibility into future cash flows.

Investment Implications

Key Takeaways:

• Operating momentum is strong: OI +22.2% on sales +2.0% with ~93 bps operating margin expansion.
• Net income down 15.2% YoY due to tax/one-off factors; OCF/NI at 1.24x signals solid earnings quality.
• Balance sheet is robust (current ratio 193%, D/E 0.51x, interest coverage ~340x).
• Capital efficiency remains sub-target (ROE 4.6%, ROIC 5.5%), requiring mix and asset turnover improvements.
• Dividend burden moderate (payout ~69%); covered by FCF proxy this period given low capex.

Metrics to Watch:

• Order intake and backlog trajectory (not disclosed) for revenue visibility.
• Gross and operating margin trends, especially materials/subcontracting cost pass-through.
• Non-operating/extraordinary items and effective tax rate impacting net margin.
• Working capital turns (receivables, unbilled work-in-progress) to validate cash conversion.
• ROIC progression toward 7–8% and ROE improvement via margin and asset turnover.

Relative Positioning: Versus domestic building equipment/HVAC peers, the company exhibits stronger near-term cash conversion and conservative leverage, with improving operating margins but still sub-par capital efficiency; earnings are less volatile than heavily leveraged contractors, yet upside hinges on sustaining execution gains and lifting ROIC.

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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