NITTOC CONSTRUCTION CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥37.66B
• Operating Income: ¥1.79B
• Net Income: ¥201M
• EPS: ¥28.32

Income Statement

Balance Sheet

Cash Flow Statement

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

Nittokukensetsu Co., Ltd. (TSE:19290) delivered a strong FY2026 Q2 consolidated result under JGAAP, highlighted by robust top-line growth and substantial profit expansion. Revenue rose 25.4% year over year to ¥37.7bn, while operating income surged 295.8% to ¥1.79bn, evidencing powerful operating leverage. Gross profit of ¥4.94bn implies a gross margin of 13.1%, and the operating margin expanded to about 4.8%, up materially versus the prior year given the outsized operating income growth. Ordinary income reached ¥1.87bn and net income ¥1.18bn, translating to a net margin of 3.14% and EPS of ¥28.32 for the period. DuPont metrics indicate a calculated ROE of 3.38%, driven by a 3.14% net margin, asset turnover of 0.653x, and financial leverage of 1.65x. Liquidity looks ample with a current ratio of 230% and working capital of ¥22.8bn, supported by very low reported inventories and a quick ratio essentially identical to the current ratio. The balance sheet is conservative, with total equity of ¥35.0bn versus liabilities of ¥22.4bn, implying an equity ratio around 60.6% when computed from the provided totals. Cash flow quality appears solid: operating cash flow (OCF) of ¥2.86bn is 2.42x net income and 1.30x EBITDA, suggesting strong cash conversion in the period. Financing cash outflows of ¥1.04bn indicate repayments and/or shareholder returns, though dividend data for the period are not disclosed in the dataset. Interest expense is negligible (¥1m) and the interest coverage ratio is very high at 1,794x, underscoring minimal financial risk from debt service. Profit growth outpaced revenue growth, implying favorable mix, pricing, and/or execution improvements on projects. Given the company’s engineering/construction profile, order intake and backlog dynamics will be crucial to sustaining the elevated operating performance into 2H. Reported zeros in certain disclosures (e.g., cash and equivalents, investing cash flows, equity ratio, DPS) reflect non-disclosure under provided labels rather than actual zeros; therefore, conclusions are drawn from available non-zero data. Overall, fundamentals for H1 appear healthy, with improved profitability, strong cash generation, and a solid balance sheet, though sustainability into the second half and the next fiscal year will hinge on backlog quality, input cost trends, and labor availability. The combination of operating leverage and conservative capital structure positions the company to absorb cyclical variability, provided execution remains tight. Management’s capital allocation stance (capex, potential dividends, and debt management) remains a monitoring point due to limited disclosures in this snapshot. While the effective tax rate metric is shown as 0.0% in the dataset, reported income tax of ¥280m confirms normal tax accruals; we therefore focus on the bottom-line margin and cash conversion as the primary indicators. In short, the first half shows a meaningful step-up in profitability with strong cash backing, limited financial risk, and ample liquidity, but continued order momentum and disciplined bidding will be key to maintaining margins.

Profitability Analysis

ROE decomposition (DuPont) indicates ROE of 3.38% = Net margin 3.14% × Asset turnover 0.653 × Leverage 1.65. Net margin of 3.14% is a marked improvement given operating income grew nearly 4x on a 25.4% revenue increase, signaling improved cost discipline and/or higher-margin project mix. Gross margin stands at 13.1% (¥4.94bn on ¥37.66bn sales), with operating margin at ~4.8% (¥1.79bn), and ordinary margin ~5.0% (¥1.87bn), indicating positive contribution from non-operating items. EBITDA of ¥2.20bn implies an EBITDA margin of 5.8%, which, alongside low interest expense, supports resilient cash generation. Operating leverage is evident: revenue +25.4% YoY vs operating income +295.8% YoY, implying fixed-cost absorption and improved project execution. The spread between gross and operating margins (~8.3ppt) suggests SG&A remains material but was better leveraged this period. With interest expense of only ¥1m, the after-interest margin profile closely tracks operating performance, meaning profitability is primarily a function of project margins and execution rather than financing. Period ROA approximates 2.05% (¥1.182bn / ¥57.694bn) for H1, and could rise if margins are sustained in 2H.

Growth Assessment

Revenue grew 25.4% YoY to ¥37.7bn, consistent with a strong order environment or accelerated progress recognition on existing contracts. Profit growth was significantly stronger than sales, with operating income up 295.8%, signaling mix/pricing improvements and cost efficiencies. Sustainability will depend on order backlog quality, bidding discipline, and public/private capex trends in core geographies. Net income of ¥1.18bn (3.14% net margin) is underpinned by both operating improvement and minimal financing drag; maintaining net margins above 3% in H2 would indicate structural gains rather than transient tailwinds. Given construction seasonality, 2H performance will be key to validating full-year growth durability. The strong OCF suggests that revenue growth is translating into cash, a positive indicator for quality of growth. We lack explicit disclosures on order intake/backlog and capex; thus, forward growth commentary is constrained, but current momentum and leverage to operating efficiency support a constructive operational outlook. Watch for potential normalization of operating leverage if cost inflation or labor constraints re-emerge.

Financial Health

Total assets are ¥57.7bn, liabilities ¥22.4bn, and equity ¥35.0bn, implying an equity ratio around 60.6% based on provided totals (despite the reported equity ratio field being unreported). The current ratio is 229.9% and quick ratio 229.8%, indicating ample short-term liquidity; working capital is ¥22.8bn. Debt-to-equity is 0.64x, reflecting a moderate leverage profile with significant equity cushion. Interest coverage is exceptionally high at 1,794x, highlighting negligible financial risk from interest-bearing debt. The near-zero inventories reported (¥17m) are consistent with a business model where work-in-progress may be recorded under contract assets rather than inventories. Overall solvency appears strong, and the capital structure affords flexibility for investment and potential shareholder returns.

Cash Flow Quality

OCF of ¥2.86bn is 2.42x net income and 1.30x EBITDA, indicating strong cash conversion and limited earnings accrual risk in the period. The positive spread between OCF and net income suggests favorable working capital movements and/or efficient billing/collection on projects. Investing cash flow is shown as zero (undisclosed), so Free Cash Flow cannot be reliably assessed; the calculated FCF of zero reflects the absence of reported investing outflows, not the economic reality of capex. Financing cash flow of -¥1.04bn points to net outflows, likely debt repayment and/or shareholder distributions, though dividends are not disclosed here. Working capital is robust at ¥22.8bn; the quick ratio near the current ratio implies low inventory risk and a liquid asset base. Overall, earnings quality appears high this period given the OCF conversion, but confirmation over multiple quarters would strengthen confidence.

Dividend Sustainability

Dividend per share and payout ratio are shown as zero due to non-disclosure in this dataset, so we cannot directly assess distributions for the period. With net income of ¥1.18bn and strong OCF of ¥2.86bn, the business appears to have capacity for distributions in principle, subject to capex and working capital needs. FCF coverage cannot be determined because investing cash flows are not reported here; thus, any payout ratio or coverage analysis would be incomplete. The balance sheet (equity ~¥35.0bn, modest leverage) supports potential sustainability of ordinary dividends if policy targets a stable payout, but explicit guidance is not provided. We therefore focus on ongoing cash generation and capital needs as primary determinants of dividend capacity.

Risk Assessment

Business Risks:

• Order backlog and booking volatility affecting revenue visibility and resource utilization
• Project execution risk (cost overruns, delays, liquidated damages) impacting margins
• Input cost inflation (materials, subcontracting) compressing gross margins
• Skilled labor availability and wage pressure in construction sector
• Dependence on public works budgets and infrastructure cycles
• Competitive bidding pressure reducing win rates or pricing power
• Seasonality and weather disruptions affecting site productivity

Financial Risks:

• Potential working capital swings from contract asset/liability timing
• Customer credit risk affecting collections and cash conversion
• Capex requirements (undisclosed) that could reduce free cash flow
• Exposure to fixed-price contracts creating margin volatility
• Limited disclosure on cash and equivalents in this snapshot

Key Concerns:

• Sustainability of elevated operating margin into 2H amid cost and labor dynamics
• Visibility on order intake/backlog to support continued top-line growth
• Lack of disclosed capex/investing cash flows complicates FCF assessment

Investment Implications

Key Takeaways:

• Strong H1 operating leverage: operating income +296% on revenue +25.4%
• Healthy margin profile with operating margin ~4.8% and EBITDA margin 5.8%
• Robust cash conversion: OCF ¥2.86bn equals 2.42x net income and 1.30x EBITDA
• Conservative balance sheet: computed equity ratio ~60.6% and interest burden minimal
• Liquidity solid with current ratio ~230% and working capital ¥22.8bn
• Dividend and capex disclosure limited; FCF not reliably derivable from provided data

Metrics to Watch:

• Order backlog and book-to-bill ratio
• Gross margin on new orders and bid discipline
• OCF to net income conversion and contract asset/liability movements
• Capex trends and investing cash flows
• Labor availability and subcontractor cost inflation
• Operating margin sustainability in 2H
• Leverage and interest coverage (though currently ample)

Relative Positioning: Within domestic mid-cap civil engineering peers, the company currently exhibits above-average operating leverage realization, strong cash conversion, and a conservative balance sheet; sustained outperformance will hinge on backlog quality and margin discipline amid sector competition and cost pressures.

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