JGC HOLDINGS CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥381.25B
• Operating Income: ¥15.77B
• Net Income: ¥11.63B
• EPS: ¥48.24

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

Verdict: Solid operating performance with margin expansion, offset by weaker bottom line due to high tax burden and negative operating cash flow. Revenue declined 6.3% YoY to 3,812.5, reflecting a softer topline likely tied to project mix and progress timing. Despite lower revenue, operating income rose 26.9% YoY to 157.7, evidencing cost discipline and favorable project margins. Ordinary income increased 9.2% YoY to 211.5, supported by sizable non-operating income of 92.2, including 60.2 of interest income and 17.8 of dividends. Net income fell 8.7% YoY to 116.6 as the effective tax rate rose to 44.8%, compressing the bottom line despite stronger operations. Gross margin stood at 7.9%, and operating margin improved to 4.1%. Based on prior-period reconstructions, operating margin expanded by roughly 108 bps YoY (from ~3.05% to 4.13%). Ordinary margin rose by about 79 bps YoY (from ~4.76% to 5.55%). However, net margin contracted by roughly 8 bps YoY (from ~3.14% to 3.06%) due to tax effects. Earnings quality flagged: operating cash flow was -75.8 versus net income of 116.6 (OCF/NI -0.65x), indicating cash conversion issues typical of EPC project working-capital swings. Liquidity remains strong with a current ratio of 167.8% and cash/deposits of 3,047.7, providing ample buffer. Leverage is conservative (total liabilities/equity 0.92x; interest coverage 27.2x), and short-term loans are de minimis. ROE is modest at 2.8%, constrained by low net margin and only moderate asset turnover (0.482x) despite healthy leverage of 1.92x. ROIC is 7.2%, around the typical management target range for Japanese industrials, indicating adequate invested capital returns. Total comprehensive income of 297.6 was well above net income, implying favorable OCI (likely investment valuation or FX effects). Non-operating income dependence is notable this quarter, with a high share of interest/dividend contributions amid large cash balances. Forward-looking, maintaining improved operating margin while normalizing working capital and tax rate will be key to translating operational gains into higher ROE and sustainable cash generation.

Profitability Analysis

ROE decomposition: Net Profit Margin 3.1% × Asset Turnover 0.482 × Financial Leverage 1.92x = ROE 2.8% (matches reported 2.8%). The most influential factor constraining ROE is the low net margin, which declined slightly YoY despite better operating profit, due to a high effective tax rate (44.8%) and reliance on non-operating income. Operating margin improved meaningfully (~+108 bps YoY) as cost of sales fell faster than revenue, suggesting favorable project execution/mix and SG&A discipline (SG&A 145.1). Asset turnover of 0.482x is typical for an EPC contractor with cash-rich balances and large work-in-progress; it did not show signs of acceleration given the 6.3% revenue decline. Financial leverage at 1.92x is moderate and not the limiting factor. Business drivers: operating improvements point to stronger project margins and/or risk provisions release, while the tax drag and project timing suppressed net margin. Sustainability: operating margin gains appear more sustainable than non-operating tailwinds, but quarterly project mix can introduce volatility; tax rate normalization could lift NPM if geographic/project mix improves. Watchouts: revenue contraction alongside SG&A at 145.1 suggests operating leverage worked favorably this quarter, but if SG&A were to grow faster than revenue in coming periods, margin gains could reverse.

Growth Assessment

Topline contracted 6.3% YoY to 3,812.5, indicating softer execution pace or lower new order conversion within the period. Operating income rose 26.9% YoY to 157.7, demonstrating margin-led growth rather than volume. Ordinary income +9.2% to 211.5 was aided by 92.2 in non-operating income (notably 60.2 interest and 17.8 dividends), which may not be consistently repeatable. Net income declined 8.7% to 116.6 due to a high tax rate (44.8%), overshadowing operating improvement. EBITDA of 211.8 (margin 5.6%) shows improved operating efficiency, supported by 54.2 of D&A. With ROIC at 7.2%, returns are near target thresholds, suggesting disciplined capital deployment. Growth sustainability hinges on backlog quality, book-to-bill, and execution milestones, none of which are disclosed here; thus, visibility is limited. Near-term, revenue could remain lumpy given EPC project timing, but cost discipline supports resilient operating profit if mix holds. Large cash balances generate meaningful interest income, temporarily supporting ordinary income while interest rates remain favorable.

Financial Health

Liquidity is strong: current ratio 167.8% and quick ratio 165.5%, with cash/deposits of 3,047.7 far exceeding short-term loans of 2.5. No warning on current ratio (<1.0) or high leverage (D/E >2.0); total liabilities/equity at 0.92x is conservative. Interest-bearing debt disclosures are limited, but reported loans (short + long) total about 136.8, implying very low net debt given cash on hand. Working capital is ample at 2,231.4, mitigating maturity mismatch risk; current assets (5,522.9) comfortably cover current liabilities (3,291.5). Interest coverage is strong at 27.2x, indicating low solvency risk. No off-balance sheet obligations were disclosed in the data; project guarantee/LC exposures typical in EPC are not provided and could represent contingent risks.

Cash Flow Quality

OCF was -75.8 versus net income of 116.6, yielding OCF/NI of -0.65x, which is a quality concern (below 0.8 benchmark). The shortfall likely reflects working capital outflows tied to project progress (e.g., receivables/accrual timing or advances). Capex was 52.8; on a simple OCF – Capex basis, implied FCF is about -128.6 this period, indicating external liquidity (cash reserves) or financing needed to cover dividends/other uses. Financing CF was -103.5, suggesting net outflows (possibly dividends or debt repayment), but dividend and buyback details are unreported. No clear signs of deliberate working capital manipulation can be inferred from the limited disclosures; however, negative OCF alongside profit growth underscores EPC cash volatility. Sustainability: cash generation should improve with milestone collections and project completions; monitoring OCF/NI normalization is essential.

Dividend Sustainability

Payout ratio (calculated) is 89.1%, which is elevated versus the <60% benchmark and not well-covered by current-period implied FCF (~-128.6). With substantial cash on hand (3,047.7) and low debt, near-term dividend capacity is supported by balance sheet strength rather than cash generation. However, if negative OCF persists or margins soften, sustaining a high payout could pressure flexibility. Policy signals are not provided; absent guidance, a prudent stance would tie payouts to medium-term OCF normalization and backlog execution. Coverage from recurring interest/dividend income (non-operating) helps ordinary income but does not guarantee cash coverage of dividends.

Risk Assessment

Business Risks:

• Project execution risk: cost overruns, delays, and liquidated damages affecting margins and cash.
• Revenue volatility from milestone timing and project mix, as evidenced by a 6.3% YoY decline.
• High effective tax rate (44.8%) compressing net margin; potential geographic/project mix exposure.
• Dependence on non-operating income (interest/dividends totaling 78.0) to support ordinary profit.
• EPC industry cyclicality linked to energy/industrial capex cycles.

Financial Risks:

• Negative operating cash flow (-75.8) versus positive earnings (OCF/NI -0.65x).
• Elevated payout ratio (89.1%) relative to current implied FCF.
• Potential working capital strain if collections lag as project activity scales.
• Market value fluctuations in investment securities (OCI sensitivity), given comprehensive income far above net.

Key Concerns:

• Sustainability of operating margin gains amid revenue decline.
• Visibility on backlog and book-to-bill not disclosed, limiting outlook confidence.
• Tax rate normalization uncertain; continued high rate would cap ROE recovery.
• Non-operating income contributions may moderate if interest rates decline.

Investment Implications

Key Takeaways:

• Operating margin expanded significantly (~+108 bps YoY) despite a 6.3% revenue decline.
• Ordinary income supported by large non-operating income (92.2), especially interest (60.2) and dividends (17.8).
• Net income declined 8.7% on a high effective tax rate (44.8%), compressing net margin.
• OCF/NI at -0.65x signals weak cash conversion this period; working capital normalization is key.
• Balance sheet is strong (cash 3,047.7; current ratio 167.8%; low loans), cushioning volatility.
• ROE is modest at 2.8% due to low net margin and moderate asset turnover; ROIC of 7.2% is around target.
• Total comprehensive income (297.6) far exceeded net income, implying OCI gains and potential volatility.

Metrics to Watch:

• Backlog level and book-to-bill ratio (not disclosed here).
• OCF/Net income trend and working capital days.
• Operating margin sustainability and project margin mix.
• Effective tax rate trajectory and geographic mix.
• Non-operating income sensitivity to interest rates and investment performance.
• Cash balance utilization versus shareholder returns (dividends/buybacks) and capex.

Relative Positioning: Versus domestic EPC peers, the company shows stronger liquidity and interest coverage, improving operating efficiency, but still modest ROE driven by a high tax burden and negative cash conversion this period; continued margin discipline and cash normalization would be required to close the profitability gap with best-in-class peers.

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
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