Sanyo Engineering & Construction Inc. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥28.20B
• Operating Income: ¥1.18B
• Net Income: ¥426M
• EPS: ¥77.90

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

For FY2026 Q2, Santec (19600) delivered modest top-line growth with notable margin-driven profit expansion. Revenue increased 1.8% YoY to ¥28.203bn, while operating income surged 76.7% YoY to ¥1.178bn, pushing the operating margin to approximately 4.2%. Gross profit of ¥3.133bn implies a gross margin of 11.1%, indicating better project mix, pricing, or cost control versus the prior year. Ordinary income reached ¥1.534bn, exceeding operating income and suggesting meaningful non-operating contributions. Net income rose 197.9% YoY to ¥1.196bn, with EPS at ¥77.90, highlighting strong earnings momentum. DuPont decomposition indicates a 4.24% net margin, 0.541x asset turnover, and 1.68x financial leverage, yielding an ROE of 3.85%. Profitability improvements appear driven more by margin expansion than revenue growth, consistent with the sharp increase in operating income on a small sales increase. Cash flow quality is a near-term concern: operating cash flow (OCF) was negative at -¥1.425bn, equating to an OCF/Net Income ratio of -1.19, likely reflecting working capital build typical for construction/engineering seasonality. Liquidity appears adequate with a current ratio of 147.6% and working capital of ¥12.852bn, though cash and inventories were not disclosed, limiting precision of liquidity assessment. Leverage looks moderate with a debt-to-equity ratio of 0.92x and very strong interest coverage of 98.2x, supported by low interest expense of ¥12m. Based on reported totals, implied equity-to-asset capacity appears healthy, though the reported equity ratio of 0.0% is clearly an undisclosed metric rather than an actual value. The effective tax rate metric showing 0.0% is inconsistent with reported income tax expense of ¥349m and should be treated as an unreported indicator. Capex and investing cash flows were not disclosed, constraining free cash flow (FCF) analysis; the reported FCF figure of 0 should be treated as undisclosed rather than zero. Dividend data indicate an annual DPS of 0.00 and a payout ratio of 0.0%, implying a conservative stance or simply a timing/non-disclosure issue at the interim stage. Overall, profitability momentum is solid and balance sheet strength appears sound, but cash conversion lag and limited disclosure on cash, inventories, share count, and investing activities temper confidence. Monitoring working capital dynamics, non-operating items, and the sustainability of the improved margins will be key to assessing earnings durability into 2H.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 4.24%
• asset_turnover: 0.541x
• financial_leverage: 1.68x
• calculated_ROE: 3.85%
• interpretation: ROE is currently modest, with relatively low asset turnover typical of project-based businesses and improving margins contributing more to ROE than leverage. margin_quality: Gross margin of 11.1% supports the sharp YoY increase in operating income; operating margin is ~4.2% (¥1.178bn/¥28.203bn). Ordinary income (¥1.534bn) exceeds operating income, indicating non-operating gains or financial income that boosted profitability; sustainability of these items should be scrutinized. Effective tax rate shown as 0.0% is not reliable given ¥349m tax expense; underlying tax burden appears non-zero. operating_leverage: Revenue grew 1.8% YoY while operating income rose 76.7%, indicating significant operating leverage from cost containment and/or mix improvements. SG&A detail is undisclosed, but the spread between gross profit and operating income suggests better overhead absorption.

Growth Assessment

revenue_sustainability: Top-line growth is modest at +1.8% YoY, consistent with a steady order execution environment; without order backlog or book-to-bill data, sustainability beyond 1H cannot be fully assessed. profit_quality: Net income growth (+197.9% YoY) outpaced revenue due to margin expansion and non-operating contributions. The OCF/Net Income ratio of -1.19 points to weak cash conversion in the period, likely driven by working capital build in projects-in-progress and receivables. outlook: If improved margins reflect structural changes (pricing discipline, procurement savings, or higher value-add projects), earnings momentum could persist. However, absent backlog and pipeline disclosure, we assume normalized growth tied to execution and macro demand in construction/engineering end markets.

Financial Health

liquidity: Current assets ¥39.842bn vs. current liabilities ¥26.990bn yield a current ratio of 147.6% and working capital of ¥12.852bn. Quick ratio equals the current ratio due to undisclosed inventories; actual quick liquidity may be lower depending on receivables/unbilled components. Cash and equivalents are undisclosed. solvency: Debt-to-equity ratio is 0.92x, indicating moderate leverage. Interest coverage is very strong at 98.2x given low interest expense (¥12m). The reported equity ratio of 0.0% is an undisclosed metric; using reported totals, implied equity-to-assets would be substantial, though balance sheet subtotals exhibit classification mismatches common in interim disclosures. capital_structure: Total assets ¥52.158bn, total liabilities ¥28.450bn, total equity ¥31.066bn. The capital structure supports ongoing operations and project bonding; limited interest burden reduces refinancing risk.

Cash Flow Quality

earnings_quality: OCF of -¥1.425bn versus net income of ¥1.196bn (OCF/NI = -1.19) indicates earnings not converting to cash in 1H, consistent with project working capital timing. Depreciation and amortization were ¥369m, and EBITDA was ¥1.547bn (5.5% margin). FCF_analysis: Investing cash flow and capex were undisclosed (reported as 0), so FCF cannot be reliably determined. The stated FCF of 0 should be treated as not disclosed rather than economically zero. working_capital: Current asset build likely centered in receivables and unbilled construction balances (inventories not disclosed). Monitoring DSO, unbilled positions, and advance receipts will be key to cash normalization in 2H.

Dividend Sustainability

payout_ratio_assessment: Annual DPS reported as 0.00 and payout ratio 0.0% likely reflect either a conservative interim stance or undisclosed dividend timing. With net income of ¥1.196bn, earnings capacity to fund dividends exists, but cash conversion in 1H was weak. FCF_coverage: FCF is undisclosed; therefore, coverage metrics cannot be assessed. Sustained dividends would require normalization of OCF and visibility on capex. policy_outlook: Absent explicit policy disclosure, we assume a prudent capital allocation posture prioritizing liquidity and project execution until OCF improves.

Risk Assessment

Business Risks:

• Project execution risk leading to cost overruns and margin erosion
• Order timing and backlog visibility affecting revenue predictability
• Input cost inflation and subcontractor availability impacting gross margins
• Labor shortages and schedule delays in construction/engineering projects
• Customer credit risk and receivables collection delays
• Change-order realization risk and pricing discipline
• Dependence on non-operating gains to support ordinary income

Financial Risks:

• Negative OCF in 1H and potential working capital strain
• Limited disclosure on cash and inventories reducing visibility on liquidity buffers
• Potential mismatch between accounting profit and cash generation
• Exposure to interest rate changes is low today but could rise with higher borrowing
• Tax expense volatility not captured by the reported effective tax rate metric

Key Concerns:

• Sustainability of margin expansion amid modest revenue growth
• Cash conversion and working capital normalization in 2H
• Reliance on non-operating income to bridge from operating to ordinary profits

Investment Implications

Key Takeaways:

• Strong margin-driven profit growth with operating income up 76.7% YoY on +1.8% sales
• ROE of 3.85% constrained by low asset turnover; room for improvement via efficiency
• Very strong interest coverage (98.2x) and moderate leverage (0.92x D/E)
• Near-term earnings quality risk as OCF/NI is -1.19, indicating working capital drag
• Liquidity appears adequate (current ratio 147.6%), but cash level is undisclosed
• Non-operating gains likely boosted ordinary income above operating income

Metrics to Watch:

• Order backlog and book-to-bill ratio
• Gross margin and operating margin trajectory
• OCF, DSO, unbilled construction balances, and advance receipts
• Capex and investing cash flows to refine FCF outlook
• Composition of non-operating income and sustainability
• Leverage and interest expense trend amid potential rate changes

Relative Positioning: Within domestic engineering/construction peers, Santec shows improving profitability and solid coverage metrics but lags on cash conversion; disclosure gaps on cash, inventories, and investing flows limit comparability at mid-year.

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