TAISEI ONCHO CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥29.67B
• Operating Income: ¥1.67B
• Net Income: ¥1.55B
• 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

Taisei Oncho (19040) delivered steady topline growth and stronger operating performance in FY2026 Q2, but bottom-line declined year on year amid non-operating and tax effects and significant working capital outflows. Revenue rose 2.0% YoY to ¥29.668bn, while operating income increased 22.2% YoY to ¥1.668bn, lifting the operating margin to roughly 5.6%. Gross profit was ¥4.262bn, translating to a gross margin of 14.4%, indicating improved pricing/execution or a more favorable project mix. Ordinary income reached ¥1.794bn, exceeding operating income, implying net non-operating gains, yet net income fell 15.2% YoY to ¥1.316bn, likely due to higher taxes and other below-the-line factors. Based on disclosed tax expense of ¥579m and ordinary income of ¥1.794bn, the implied effective tax rate looks around the low 30s, despite a reported “0.0%” metric, which appears inconsistent with the non-zero tax amount. ROE, via DuPont, is 4.63%, driven by a 4.44% net margin, 0.691x asset turnover, and 1.51x financial leverage, indicating conservative balance sheet usage and moderate profitability. Liquidity remains solid with a current ratio of 167.8% and working capital of about ¥12.37bn, while solvency is strong with total liabilities/equity at 0.66x and an equity-to-asset ratio around 66% (computed from provided totals). Despite healthy earnings quality at the operating line, cash conversion was weak this half: operating cash flow was negative ¥3.870bn, yielding an OCF/Net Income ratio of -2.94, consistent with a sizable working capital build typical for construction-type businesses. EBITDA was ¥1.862bn (6.3% margin), and interest coverage was extremely comfortable at ~558x given minimal interest expense of ¥3.0m. Depreciation and amortization were modest at ¥194m, underscoring the asset-light nature of the contracting model. The balance sheet scale totaled ¥42.914bn with current assets of ¥30.614bn and current liabilities of ¥18.244bn, indicating ample short-term resources to meet obligations. Dividend data were not disclosed in this dataset (DPS and payout shown as zero indicate unreported), so dividend sustainability cannot be quantified from this release. Several items such as inventories, cash and equivalents, investing cash flows, and share counts are unreported, which limits some ratio precision (e.g., quick ratio, per-share indicators, and FCF). Overall, the company demonstrates improving operating profitability and strong financial resilience, but cash flow volatility and the YoY decline in net income warrant monitoring. Outlook hinges on order intake, project execution, and normalization of working capital through the back half of the fiscal year.

Profitability Analysis

ROE of 4.63% decomposes into a net margin of 4.44%, asset turnover of 0.691x, and financial leverage of 1.51x. Operating margin stands near 5.6% (¥1.668bn / ¥29.668bn), up materially YoY given operating income +22.2% vs revenue +2.0%. Gross margin of 14.4% (¥4.262bn / ¥29.668bn) suggests improved project mix and/or cost control. Ordinary margin approximates 6.0% (¥1.794bn / ¥29.668bn), indicating modest non-operating tailwinds. EBITDA margin of 6.3% and low D&A (¥194m) reflect an asset-light contracting model with limited fixed cost drag. Interest burden is negligible (interest expense ¥3.0m), and interest coverage is ~558x, indicating minimal financial friction. The YoY decline in net income (-15.2%) despite stronger operating profit implies below-the-line headwinds (taxes and/or other items). The implied effective tax rate, based on provided amounts, is roughly 32% (¥579m / ¥1.794bn), which pressured net margin. Overall margin quality appears sound at the gross and operating levels, with operating leverage evident as small revenue growth translated into sizable operating profit growth.

Growth Assessment

Revenue grew 2.0% YoY to ¥29.668bn, indicating steady demand in core HVAC/mechanical contracting markets. Operating income rose 22.2% YoY to ¥1.668bn, signaling improved execution, pricing, or a favorable mix of higher-margin projects. Ordinary income of ¥1.794bn outpaced operating income, suggesting supportive non-operating contributions. However, net income fell 15.2% YoY to ¥1.316bn, likely due to higher tax expense (implied ETR ~32%) and other below-the-line movements, which diluted the translation of operating gains to the bottom line. EBITDA of ¥1.862bn (6.3% margin) underscores incremental margin expansion potential from scale and cost control. Sustainability of growth will depend on the backlog, order intake, and the cadence of project completions, none of which are disclosed here. The negative OCF points to working capital build, typical mid-year in construction; a second-half reversal would be a positive indicator for full-year growth quality. Given the conservative leverage profile, the company appears well-positioned to fund organic growth; capex intensity looks low given modest D&A, though investing CF is unreported in this dataset. Outlook hinges on maintaining gross margin discipline and smoothing project timing to reduce earnings and cash flow volatility.

Financial Health

Total assets are ¥42.914bn and total equity ¥28.451bn, implying an equity ratio near 66% and financial leverage ~1.51x, both indicative of a strong capital structure. Total liabilities are ¥18.782bn, with current liabilities of ¥18.244bn, suggesting limited long-term debt reliance. Current assets are ¥30.614bn, producing a current ratio of 167.8% and working capital of about ¥12.37bn, signaling ample liquidity. The quick ratio is shown as 167.8%, but inventories are unreported; thus, true quick liquidity cannot be precisely assessed. Debt-to-equity is 0.66x (liabilities/equity), well within conservative bounds. Interest expense is very low at ¥3.0m, and coverage is ~558x, reflecting minimal solvency risk. Cash and equivalents are unreported, so cash buffers cannot be quantified from this dataset. Overall, balance sheet strength is a key support, offsetting near-term cash flow volatility.

Cash Flow Quality

Operating cash flow was -¥3.870bn versus net income of ¥1.316bn, yielding an OCF/NI ratio of -2.94, indicative of a substantial working capital outflow. This pattern is consistent with the construction business model where receivables, unbilled contract assets, and advances can swing materially mid-year; however, specific line-item drivers are not disclosed here. Free cash flow cannot be determined because investing cash flow is unreported in this dataset (shown as zero). EBITDA of ¥1.862bn versus OCF suggests non-cash profitability is intact, but conversion is currently weak due to timing effects. Working capital stands at ~¥12.37bn, and normalization in 2H would be a key sign of improving cash conversion. With low interest burden and strong equity base, short-term negative OCF is manageable, but persistent outflows would pressure cash balances and potentially necessitate higher reliance on customer advances or short-term financing.

Dividend Sustainability

Dividend per share (DPS) and payout ratio are shown as zero, indicating undisclosed rather than actual zero in this dataset; thus, we cannot assess the dividend profile from the provided numbers. EPS is ¥213.87, and net income is ¥1.316bn, but without DPS we cannot compute the cash payout ratio. Free cash flow is indeterminable due to unreported investing CF, so FCF coverage of dividends cannot be evaluated. Balance sheet strength (equity ratio ~66%, low financial leverage) offers capacity to sustain dividends if policy exists; however, the negative OCF this half would weaken near-term cash coverage. Policy outlook cannot be inferred from this release; tracking company guidance and historical payout practices is necessary.

Risk Assessment

Business Risks:

• Project execution risk leading to cost overruns and margin erosion.
• Backlog and order intake variability affecting revenue visibility.
• Working capital volatility from receivables, unbilled revenue, and advances.
• Competitive pricing pressure in HVAC/mechanical contracting.
• Input cost inflation (materials, subcontractors) impacting gross margins.
• Seasonality and completion timing causing revenue and cash flow lumpiness.

Financial Risks:

• Negative operating cash flow this half (-¥3.87bn) increasing liquidity management demands.
• Potential persistence of high tax burden (~32% implied) suppressing net margin.
• Reliance on customer payment timing; delays could strain cash conversion.
• Limited visibility on cash balances and investing needs due to unreported items.
• Concentration in current liabilities; need to maintain high current asset coverage.

Key Concerns:

• Weak cash conversion with OCF/NI at -2.94 despite stronger operating profit.
• YoY decline in net income (-15.2%) amid higher taxes and below-the-line items.
• Unreported cash, DPS, and investing CF limit assessment of liquidity buffers and shareholder returns.

Investment Implications

Key Takeaways:

• Operating performance improved: operating income +22.2% YoY with operating margin ~5.6%.
• Balance sheet is robust: liabilities/equity 0.66x and implied equity ratio ~66%.
• Cash conversion weak this half: OCF -¥3.87bn, OCF/NI -2.94, likely working capital timing.
• Net income declined 15.2% YoY, likely on higher taxes and below-the-line effects.
• Interest burden minimal (¥3.0m), interest coverage ~558x, reducing solvency risk.

Metrics to Watch:

• Order backlog and new orders to gauge revenue sustainability.
• Gross margin and operating margin by project type/segment.
• Operating cash flow and changes in contract assets/liabilities (receivables, unbilled, advances).
• Tax rate trajectory and non-operating items’ impact on net income.
• Working capital days (DSO/DPO) and cash balance disclosure in subsequent filings.

Relative Positioning: Within Japanese HVAC/mechanical contracting peers, the company appears conservatively financed with strong equity and minimal interest burden, demonstrating improving operating margins but exhibiting typical sector cash flow volatility tied to project timing and working capital.

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