TENOX CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥9.08B
• Operating Income: ¥454M
• Net Income: ¥282M
• EPS: ¥45.82

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: Solid margin resilience despite a sharp topline contraction, with operating profit growth and net profit modestly higher, but ordinary profit softened due to non-operating drag. Revenue fell 25.1% YoY to 90.76, indicating significant project timing effects or slower order conversion in H1. Gross profit was 17.55, yielding a gross margin of 19.3%. SG&A was 13.01, an SG&A-to-sales ratio of 14.3%, helping deliver operating income of 4.54 (+2.5% YoY). Based on derived prior-year figures, operating margin expanded to 5.0% from roughly 3.7% YoY (about +134 bps), reflecting improved project mix and SG&A discipline. Ordinary income declined 8.0% YoY to 4.42 as non-operating expenses (0.46) exceeded non-operating income (0.34), creating a small net non-operating loss. Net income rose 3.7% YoY to 3.04, with a net margin of 3.4% and an effective tax rate of 37.0%. Balance sheet quality is strong: equity of 135.76 on assets of 187.89 implies an equity ratio near 72%, with a very high current ratio of 338% supported by cash of 83.70. Asset turnover is low at 0.483, consistent with a H1-heavy working capital build in construction-type businesses. DuPont ROE is 2.2% (Net margin 3.4% × Asset turnover 0.483 × Leverage 1.38x), indicating profitability and capital efficiency are the main constraints, not leverage. OCF is unreported, so we cannot confirm earnings-to-cash conversion; this is the key quality limitation for this quarter’s assessment. The reported payout ratio (calculated) is 120.8%, which appears elevated relative to mid-cycle cash generation and could be stretched without strong H2 cash inflow. ROIC is reported at 5.5%, below the typical 7–8% value-creation threshold, highlighting the need for further margin and turnover improvement. Forward-looking, recovery hinges on H2 project execution, order intake, and cost pass-through amid labor tightness and material price normalization. Overall, Q2 shows healthy cost control and margin expansion against lower sales, but sustainability rests on backlog conversion and cash flow in H2.

Profitability Analysis

ROE decomposition (DuPont): ROE 2.2% = Net margin 3.4% × Asset turnover 0.483 × Financial leverage 1.38x. The largest constraint on ROE is low asset turnover, followed by modest net margin; leverage is conservative and not a driver. Business context: revenue contracted sharply (-25.1% YoY), likely depressing asset turnover as assets (notably cash and current assets) remained high during H1. Operating margin improved to ~5.0% (OI 4.54 / Sales 90.76) from an estimated ~3.7% a year ago, indicating better project mix, procurement, and SG&A control; however, ordinary income was pulled down by net non-operating expenses. Sustainability: Margin gains appear partly structural (SG&A discipline) but also depend on mix and cost pass-through, which can fluctuate with project timing. Asset turnover should improve in H2 if backlog converts, suggesting some cyclical recovery in ROE is possible. Watchpoints: SG&A rose more slowly than revenue decline (negative operating leverage avoided), but the topline contraction is severe; continued SG&A restraint is necessary. The effective tax rate at 37% also caps net margin, and any further non-operating losses could offset operating improvements.

Growth Assessment

Topline contracted 25.1% YoY to 90.76, pointing to order timing or delayed site progress; this is typical for H1 in construction-related businesses but still steep. Despite the drop, operating income increased 2.5% YoY to 4.54, supported by improved margins and controlled SG&A. Ordinary income fell 8.0% YoY to 4.42 due to a swing to net non-operating loss; net income rose 3.7% to 3.04. Gross margin stands at 19.3%, and operating margin at 5.0%, both reasonable for foundation/construction services when mix is favorable. With ROIC at 5.5%, current profitability is below typical value-creation thresholds and suggests room for improvement via better utilization (higher turnover) and continued margin discipline. Sustainability depends on H2 backlog execution; without order conversion, the margin gains could be offset by scale deleverage. Outlook: if material costs remain stable and labor availability improves, the company can maintain mid-single-digit operating margins, but revenue recovery is needed to lift ROE and ROIC.

Financial Health

Liquidity is strong: current ratio 338.3% and working capital 101.82, driven by cash and deposits of 83.70. Quick ratio equals the reported current ratio due to unreported inventories; the true quick ratio is likely lower but still expected to be robust given cash levels. Solvency is conservative: total equity 135.76 on assets 187.89 implies an equity ratio of ~72.2%, and D/E of 0.38x (based on total liabilities/equity) is well below risk thresholds. There is no explicit warning on Current Ratio (<1.0) or D/E (>2.0); both are comfortably healthy. Maturity mismatch risk appears low as current assets (144.54) far exceed current liabilities (42.72). Interest-bearing debt breakdown is unreported, limiting precise leverage and interest coverage analysis. No off-balance sheet obligations are disclosed in the provided data.

Cash Flow Quality

OCF is unreported, so we cannot compute OCF/Net Income; earnings quality cannot be validated against cash generation. Free cash flow is also unreported, leaving us unable to assess coverage of capex and dividends. Given construction seasonality, working capital can swing significantly in H1; without cash flow detail, we cannot confirm whether the H1 margin resilience translated to cash. No clear signs of working capital manipulation can be inferred from the limited data, but the large cash balance supports near-term liquidity.

Dividend Sustainability

The calculated payout ratio is 120.8%, which typically exceeds sustainable levels absent exceptional cash inflows; however, DPS is unreported, and FCF is unavailable, so this ratio may reflect interim earnings seasonality rather than full-year economics. With strong liquidity and low leverage, near-term payments are manageable, but medium-term sustainability requires FCF to cover dividends comfortably. Policy outlook likely depends on H2 earnings and cash conversion; if H2 restores normalized profitability and working capital releases, payout strain could ease. Until FCF is observable, dividend coverage risk should be considered above average.

Risk Assessment

Business Risks:

• Order timing and backlog conversion risk leading to revenue volatility (H1 revenue -25.1% YoY).
• Execution risk on construction projects (schedule slippage, change orders, cost overruns).
• Input cost volatility (steel, cement, fuel) affecting gross margins despite recent stabilization.
• Labor availability and wage inflation pressures in construction trades.
• Customer concentration/public sector exposure risk typical of civil engineering segments.

Financial Risks:

• Earnings-to-cash conversion uncertainty due to unreported OCF and FCF.
• Elevated calculated payout ratio (120.8%) potentially exceeding sustainable cash generation.
• Ordinary income sensitivity to non-operating items (net non-operating loss this quarter).
• Low asset turnover (0.483) depresses ROE and ROIC, requiring higher execution in H2.

Key Concerns:

• Sharp topline decline despite profit resilience raises questions on volume recovery.
• ROIC at 5.5% below typical 7–8% threshold for value creation.
• High effective tax rate (37.0%) constrains net margin.
• Limited disclosure (OCF, capex, DPS, interest expense) restricts full risk assessment.

Investment Implications

Key Takeaways:

• Operating margin expanded to ~5.0% despite a 25.1% sales drop, showcasing cost control and mix benefits.
• Ordinary income declined 8.0% YoY due to net non-operating losses, partially offsetting operating gains.
• ROE remains low at 2.2% as asset turnover is depressed and leverage conservative.
• Liquidity is very strong (current ratio ~338%, equity ratio ~72%), reducing balance sheet risk.
• Dividend affordability is uncertain with a calculated payout ratio of 120.8% and no FCF data.
• H2 backlog execution is the key swing factor for revenue normalization and ROIC improvement.

Metrics to Watch:

• Order intake and backlog conversion rates into H2.
• Operating margin trajectory and SG&A-to-sales ratio.
• OCF and FCF in H2 (OCF/NI > 1.0 target).
• ROIC progression toward 7–8% and ROE uplift via turnover recovery.
• Non-operating income/expense balance and effective tax rate normalization.
• Working capital movements (receivables and inventories when disclosed).

Relative Positioning: Compared with typical small-to-mid cap construction peers, the company exhibits stronger liquidity and conservative leverage, but lower ROE and sub-target ROIC due to weak asset turnover. Margin discipline appears competitive, yet sustainable improvement hinges on H2 volume recovery and cash conversion.

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