JGC HOLDINGS CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥381.25B
• Operating Income: ¥15.77B
• Net Income: ¥12.76B
• 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

JGC Holdings (19630) reported FY2026 Q2 consolidated results under JGAAP showing resilient profitability despite a top-line contraction. Revenue declined 6.3% YoY to ¥381.3bn, yet operating income increased 26.9% YoY to ¥15.8bn, indicating notable operating leverage and improved project margin execution. Gross profit of ¥27.4bn implies a 7.2% gross margin, while the operating margin improved to approximately 4.1%, highlighting disciplined cost control and/or a favorable project mix. Ordinary income of ¥21.1bn exceeded operating income, suggesting meaningful non-operating gains (e.g., FX or investment income), which helped offset the revenue decline. Net income was ¥11.7bn (-8.7% YoY), with the YoY decline likely reflecting higher taxes and/or below-the-line items despite solid operating momentum. Cash flow quality was strong: operating cash flow (OCF) of ¥58.3bn equates to about 5.0x net income, consistent with milestone billings and favorable working capital movements typical of EPC projects. Liquidity is robust with current assets of ¥561.3bn and current liabilities of ¥346.9bn, translating to a current ratio of about 1.62x and a quick ratio of roughly 1.59x, aided by low inventory intensity (inventories ¥8.1bn). The balance sheet is conservatively positioned: total equity of ¥412.6bn against assets of ¥791.7bn implies an equity ratio of approximately 52%, despite the supplied equity ratio field showing 0% (not disclosed). Leverage appears moderate with a reported debt-to-equity ratio of 0.95x and interest expense of only ¥0.65bn, consistent with healthy interest coverage of about 24x based on operating income. EBITDA of ¥20.7bn (margin ~5.4%) and D&A of ¥4.94bn indicate manageable capital intensity for the period. The DuPont decomposition yields a reported ROE of 2.83% for the period, driven by a 3.06% net margin, 0.482x asset turnover, and 1.92x financial leverage. The decline in revenue alongside higher operating profit implies improved project-level profitability and/or reversal of prior provisions, but sustainability depends on order intake and backlog quality. Ordinary income outperformance versus operating income suggests some reliance on non-operating items; normalization of FX or investment gains could narrow this gap ahead. Dividend data were not effectively disclosed (DPS shown as 0), and free cash flow was not available due to unreported investing cash flows, limiting payout sustainability analysis at this juncture. Overall, JGC’s Q2 shows margin traction, strong cash conversion, and solid liquidity, though revenue softness and reliance on non-operating gains temper the quality of earnings. Given EPC cyclicality, visibility hinges on order momentum in energy, LNG, and industrial segments, as well as disciplined risk management on fixed-price contracts. Data limitations (e.g., cash balance, investing cash flows, DPS) necessitate caution in extrapolating trends.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 3.06%
• asset_turnover: 0.482x
• financial_leverage: 1.92x (Assets/Equity ≈ 791.7/412.6)
• calculated_ROE: 2.83% (reported and consistent with components) margin_quality:
• gross_margin: 7.2% (¥27.4bn/¥381.3bn)
• operating_margin: 4.1% (¥15.8bn/¥381.3bn), up YoY with operating income +26.9% vs revenue -6.3%
• ordinary_margin: 5.5% (¥21.1bn/¥381.3bn), aided by non-operating gains
• net_margin: 3.06% (consistent with reported metric)
• commentary: Margin expansion despite lower revenue indicates improved project mix, disciplined cost control, and/or release of contingencies. The spread between ordinary and operating income underscores non-operating tailwinds (likely FX/investment income), which may not be recurring. operating_leverage: Positive: operating income +26.9% YoY on revenue -6.3% suggests effective cost flex and/or higher-margin project phasing. Monitor sustainability as EPC revenue is milestone-based and lumpy. other_notes: EBITDA ¥20.7bn (5.4% margin) and D&A ¥4.94bn imply a modest capex burden in-period; interest coverage ~24.4x from operating income indicates ample cushion.

Growth Assessment

revenue_sustainability: Revenue contracted 6.3% YoY to ¥381.3bn; given the EPC business model, timing of project recognition and order backlog phasing likely drove the decline. Sustained recovery depends on new orders in energy/LNG, petrochemicals, and life sciences, and the regional mix. profit_quality: Operating profit improved materially, with gross-to-operating margin conversion strengthening. However, the uplift in ordinary income vs operating income suggests part of profit growth is non-operational. Net income fell 8.7% YoY, indicating below-the-line pressures (taxes/others). outlook: If current project margins hold and non-operating gains normalize, profitability should track operating income rather than ordinary income. Revenue trajectory will hinge on order intake and backlog execution; watch for potential re-acceleration as large energy/industrial projects reach recognition milestones.

Financial Health

liquidity:

• current_assets: ¥561.3bn
• current_liabilities: ¥346.9bn
• current_ratio: 1.62x
• quick_ratio: 1.59x
• working_capital: ¥214.3bn
• commentary: Strong liquidity with limited inventory reliance aligns with EPC advances and receivables-heavy working capital. solvency_capital_structure:
• total_assets: ¥791.7bn
• total_equity: ¥412.6bn
• total_liabilities: ¥391.9bn
• equity_ratio: ≈52.1% (computed from BS; the reported 0% is an undisclosed placeholder)
• debt_to_equity: 0.95x (reported)
• interest_expense: ¥0.65bn
• interest_coverage: ≈24.4x (operating income/interest)
• commentary: Balance sheet appears conservatively capitalized with ample equity buffer and manageable financial costs.

Cash Flow Quality

earnings_quality: OCF/Net Income ~5.0x (¥58.3bn/¥11.7bn) signals robust cash conversion, consistent with milestone billings and favorable working capital movements. free_cash_flow: Not assessable: investing cash flow was undisclosed (shown as 0), so FCF cannot be derived despite strong OCF. working_capital_dynamics: Low inventories (¥8.1bn) and sizeable working capital (¥214.3bn) imply the cash profile is driven by receivables, contract assets/liabilities, and advances. Positive OCF suggests net inflows from these items in the period. additional_notes: Cash and equivalents were not disclosed (shown as 0), limiting end-period liquidity verification despite strong current ratios.

Dividend Sustainability

payout_ratio_assessment: EPS was ¥48.24; payout ratio shown as 0.0% due to undisclosed DPS. With DPS unreported (0 indicates not disclosed), payout ratio cannot be meaningfully assessed. FCF_coverage: Not determinable: FCF is unavailable due to undisclosed investing cash flows. OCF strength would ordinarily support payouts if capital needs are modest. policy_outlook: No explicit guidance provided here. For an EPC-centric group, dividend policy often targets stability through cycles; assess alongside full-year guidance, cash balance, and order/backlog visibility once disclosed.

Risk Assessment

Business Risks:

• Project execution risk on fixed-price EPC contracts (cost overruns, delays, liquidated damages).
• Order intake and backlog cyclicality tied to energy/LNG and petrochemical capex cycles.
• Geopolitical and regional risks in MENA/EMEA project geographies.
• Supply-chain constraints and inflation affecting materials and subcontracting costs.
• FX volatility impacting ordinary income and project costs/revenues.

Financial Risks:

• Working capital volatility from milestone billings, advances, and receivables collection.
• Potential contingent liabilities (performance guarantees, letters of credit) typical in EPC.
• Non-operating income reliance (FX/investment gains) boosting ordinary income in-period.
• Interest rate and credit market conditions affecting bonding capacity and financing costs.

Key Concerns:

• Sustainability of margin expansion amid declining revenue.
• Visibility on order backlog and new orders to support revenue recovery.
• Lack of disclosure on cash balance, investing cash flows, and dividends limiting capital return assessment.

Investment Implications

Key Takeaways:

• Operating leverage positive: operating income +26.9% YoY despite revenue -6.3% YoY.
• Ordinary income above operating income indicates non-operating tailwinds; may normalize.
• Strong cash conversion with OCF/Net Income ~5.0x, consistent with favorable working capital.
• Solid liquidity (current ratio ~1.62x) and computed equity ratio ~52%, indicating balance sheet strength.
• Data gaps (cash, investing CF, DPS) constrain full assessment of capital allocation and FCF.

Metrics to Watch:

• Order intake and backlog by segment/region.
• Gross and operating margins by project cohort; provisioning trends.
• OCF sustainability and working capital movements (advances, contract assets/liabilities).
• Non-operating income components (FX gains/losses, investment income).
• Dividend guidance and full-year capex/investing cash flows.
• Interest-bearing debt and guarantees exposure relative to equity.

Relative Positioning: Within Japanese EPC/plant engineering peers, JGC’s Q2 shows above-peer cash conversion and solid balance sheet resilience, with profitability trending up on mix and execution; revenue softness and reliance on non-operating gains are the main relative caveats pending clearer order momentum.

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