TECHNO RYOWA LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥43.62B
• Operating Income: ¥6.36B
• Net Income: ¥4.56B
• EPS: ¥218.26

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: A standout FY2026 Q2 with strong top-line growth translating into outsized operating leverage and superior cash conversion. Revenue rose 24.5% YoY to 436.19, while operating income surged 187.0% YoY to 63.57 and net income increased 170.8% YoY to 45.45. Gross profit reached 106.16, implying a gross margin of 24.3%, and operating margin improved to 14.6%. Ordinary income was 65.76, aided modestly by net non-operating income of 2.19 (dividends 1.76 and interest 0.20, offset by 0.35 in non-op expenses). Estimated operating margin expansion was approximately 825 bps YoY (from ~6.3% to 14.6%), based on disclosed YoY growth rates. Net margin also expanded by an estimated ~563 bps YoY to 10.4% (from ~4.8%), reflecting both margin gains and low financial costs. Cash generation was exceptional: operating cash flow of 134.49 was 2.96x net income, and proxy FCF after capex appears very strong given minimal capex of 0.95. Balance sheet strength is high with current ratio of 249% and D/E of 0.47x; interest coverage is an exceptional 706x, underscoring minimal leverage risk. ROE printed at 8.2% on DuPont metrics (10.4% margin × 0.535 turnover × 1.47x leverage), broadly in line with a capital-efficient phase driven by margins more than leverage. ROIC at 13.0% is well above typical cost of capital, suggesting value-creating growth. Dividend payout ratio is calculated at 46.7%, appearing sustainable given cash flow, alongside buybacks of 21.97 within financing outflows of -32.86. Earnings quality is high, with OCF exceeding NI significantly and limited reliance on non-operating gains (non-op income ratio 5.6%). Forward-looking, sustaining elevated margins will hinge on project mix, cost pass-through, and execution, as well as maintaining a healthy order backlog to support revenue momentum. While disclosures omit some working capital line items, the available data indicate robust operational performance and liquidity. Overall, the quarter signals improved profitability and capital efficiency, with ample balance sheet capacity to support shareholder returns and selective growth investments.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (NPM) 10.4% × Asset Turnover (AT) 0.535 × Financial Leverage 1.47x = ROE 8.2% (matches reported). The largest change driver appears to be NPM, given operating income +187% vs revenue +24.5%, implying substantial operating margin expansion. Business drivers: improved project mix and/or better cost control likely lifted gross margin and reduced SG&A intensity (SG&A ratio 9.8%), while low interest burden and modest non-operating gains (dividends/interest) provided a small tailwind. Sustainability: margin gains partly reflect operating leverage; durability depends on project pipeline quality, input cost stability, and execution discipline—some reversion risk exists if mix normalizes. Operating leverage is evident: operating margin 14.6% vs an estimated ~6.3% in the prior-year period, aided by scale and likely favorable pricing. Watchpoints: if SG&A growth outpaces revenue in future periods or if gross margin softens due to input cost swings, NPM could compress. No signs of profit inflated by one-offs; non-operating contribution (net 2.19) is modest relative to OI.

Growth Assessment

Revenue growth of +24.5% YoY to 436.19 indicates strong demand and/or robust backlog conversion. Profit growth was outsized vs revenue (OI +187%, NI +171%), indicating strong operating leverage and favorable margin dynamics. Gross profit of 106.16 supports a 24.3% gross margin; SG&A at 42.59 (9.8% of sales) suggests disciplined overhead scaling. Non-operating income (5.6% of ordinary income) provided a small incremental boost but is not the core driver. Outlook drivers: sustainability hinges on order intake, backlog quality, input cost pass-through, and labor availability. ROIC at 13.0% implies growth is value-accretive. With cash on hand of 219.73 and low debt, the company has capacity to pursue selective growth investments without straining the balance sheet. Near-term comps may be challenging given the step-up in margins; maintaining double-digit operating margin will be key to sustaining earnings growth.

Financial Health

Liquidity is strong: current ratio 249.3% and quick ratio 249.3% (no warning; both well above healthy thresholds). Solvency is conservative: D/E 0.47x, long-term loans only 0.05, and interest coverage 706x. Maturity mismatch risk appears low: current assets 560.34 comfortably cover current liabilities 224.79; cash alone (219.73) nearly matches current liabilities. Equity constitutes ~67.9% of assets (553.06/815.34), aligning with the 1.47x leverage factor. No off-balance sheet obligations are disclosed in the provided data. Working capital is ample at 335.55, supporting operational flexibility.

Cash Flow Quality

OCF/Net Income = 2.96x, indicating high earnings quality and strong cash conversion. Proxy FCF (OCF - capex) is approximately 133.54, given minimal capex of 0.95; Investing CF is unreported, so this is a conservative proxy excluding other investing flows. Financing CF is -32.86, reflecting active shareholder returns (share repurchases 21.97) and potentially dividends (unreported). No red flags of working capital manipulation are evident from available data; however, detailed AR/inventory/payables are unreported, limiting deeper analysis. With cash of 219.73 and strong OCF, the company appears well-positioned to fund maintenance capex, dividends, and opportunistic buybacks.

Dividend Sustainability

The calculated payout ratio is 46.7%, within a conservative/sustainable range (<60%). Given OCF of 134.49 and minimal capex (0.95), cash coverage of dividends appears ample even after considering buybacks of 21.97. FCF coverage cannot be precisely calculated due to unreported investing CF and dividends paid, but cash generation substantially exceeds implied shareholder returns in the period. Policy outlook: Balance sheet strength and ROIC at 13.0% support continued shareholder returns, with flexibility to adjust buybacks depending on investment opportunities and backlog visibility.

Risk Assessment

Business Risks:

• Project execution risk leading to cost overruns or penalties, which could compress margins.
• Input cost volatility (materials and subcontracting) potentially pressuring gross margin if not fully passed through.
• Labor availability and wage inflation impacting SG&A and project timelines.
• Backlog and order intake visibility; slowdown would affect revenue conversion and operating leverage.
• Customer/project concentration risk if large projects dominate earnings (not disclosed).

Financial Risks:

• Potential working capital swings typical of the construction/installation sector (AR, unbilled receivables, retentions), with detailed components unreported.
• Dividend and buyback commitments vs cyclical cash flows, though current liquidity is strong.
• Market valuation risks associated with equity securities holdings (investment securities 118.08) affecting comprehensive income.

Key Concerns:

• Sustainability of the large YoY margin expansion; regression risk if mix normalizes.
• Limited disclosure on AR, inventories, and payables constrains assessment of cash conversion drivers.
• Dependence on favorable macro/project environment; delays could materially affect earnings given higher fixed-cost absorption.

Investment Implications

Key Takeaways:

• Material operating margin expansion to 14.6% with revenue +24.5% drove NI +171% YoY.
• Earnings quality is high: OCF/NI 2.96x; proxy FCF remains strong after minimal capex.
• Balance sheet is robust (current ratio 249%, D/E 0.47x, cash 219.73), enabling continued shareholder returns.
• ROE 8.2% and ROIC 13.0% indicate healthy capital efficiency, driven more by margins than leverage.
• Non-operating income contribution is modest; core operations are the primary profit engine.

Metrics to Watch:

• Order backlog and book-to-bill to gauge sustainability of revenue growth.
• Gross margin and SG&A ratio to monitor persistence of margin gains.
• OCF/NI ratio and changes in receivables/unbilled balances when disclosed.
• Project mix (public vs private, service vs installation) and cost pass-through efficacy.
• Shareholder return cadence (dividends and buybacks) vs capex and growth investment needs.

Relative Positioning: Within Japanese building systems/engineering peers, the company currently exhibits superior cash conversion, conservative leverage, and above-target ROIC, with profitability metrics that have inflected positively; sustainability of elevated margins will determine whether the outperformance persists.

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