TECHNO RYOWA LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥43.62B
• Operating Income: ¥6.36B
• Net Income: ¥1.68B
• 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

Techno Ryowa (19650) posted a strong FY2026 Q2 performance with revenue of ¥43.6bn, up 24.5% YoY, reflecting robust demand and favorable project execution in its mechanical and HVAC contracting businesses. Operating income surged to ¥6.36bn (+187% YoY), with an operating margin of about 14.6%, notably exceeding the 13.5% gross margin, implying sizable net operating credits/other operating income and/or reversal of provisions offsetting SG&A. Ordinary income of ¥6.58bn and net income of ¥4.55bn (+170.8% YoY) underscore significant margin expansion and improved operating leverage. EPS stood at ¥218.26, though share count data is not disclosed, limiting per-share context beyond EPS itself. DuPont metrics show an ROE of 8.22%, driven primarily by an elevated net margin (10.42%) rather than leverage (financial leverage 1.47x) or asset turnover (0.535x). The balance sheet is conservative: total assets ¥81.5bn and total equity ¥55.3bn imply an equity ratio of roughly 67.9%, despite a reported 0.0% that appears unreported rather than actual. Liquidity is solid with a current ratio of 235.6% and working capital of ¥32.35bn, aided by low interest burden (interest expense ¥8m) and exceptional interest coverage (~795x). EBITDA was ¥6.53bn with a margin of 15.0%, highlighting robust operating performance with modest depreciation (¥175m), consistent with an asset-light contracting model. Cash conversion lagged: operating cash flow of ¥1.84bn equates to an OCF/Net income ratio of 0.41, likely reflecting timing of receivables and unbilled work at mid-year. Investing cash flow is undisclosed (reported as 0), making free cash flow assessment incomplete; the “FCF 0” figure should be treated as non-calculable given missing capex data. Financing cash flow was an outflow of ¥0.70bn, consistent with debt repayment and/or distributions, though reported DPS and payout are 0, suggesting no dividend recognized in the period-to-date. The sharp improvement in profitability appears cyclical and project-mix driven; sustainability will depend on backlog quality, cost pass-through, and execution on large-scale projects. Given the nature of construction-type recognition under JGAAP, period-to-period volatility is normal; mid-year results can be skewed by milestone completions. The company’s low leverage and ample liquidity mitigate financial risk, giving flexibility through cycles. Reported effective tax rate at 0.0% looks unreported; using disclosed tax expense (¥786m) against pre-tax income suggests a low-teens effective rate, providing some tailwind. Overall, fundamentals are strong with healthy margins and balance sheet strength, but cash conversion and the atypical operating margin exceeding gross margin warrant monitoring. Data gaps (inventories, cash, equity ratio, shares) constrain deeper ratio precision; analysis focuses on disclosed, non-zero figures per instruction.

Profitability Analysis

ROE_decomposition:

• net_profit_margin: 10.42%
• asset_turnover: 0.535
• financial_leverage: 1.47
• calculated_ROE: 8.22%
• commentary: ROE of 8.22% is primarily margin-driven. Asset turnover is moderate for a contractor, and leverage is modest, reflecting a conservative capital structure. margin_quality: Gross margin of 13.5% and operating margin of ~14.6% (¥6.36bn/¥43.62bn) indicate net positive operating items more than offsetting SG&A, or reversals/credits recognized within operating income. Such a profile can be transient in project-based businesses; sustainability depends on mix and cost control. EBITDA margin of 15.0% corroborates strong operating performance with low D&A intensity. operating_leverage: YoY operating income rose 187% against 24.5% revenue growth, implying significant positive operating leverage from project mix and cost containment. However, leverage appears cyclical; normalization is likely as mix reverts.

Growth Assessment

revenue_sustainability: Revenue growth of 24.5% YoY suggests strong order execution and potentially healthy backlog conversion in HVAC/mechanical construction. Sustainability will depend on non-residential capex cycles (offices, logistics, data centers), energy-efficiency retrofits, and public-sector projects. profit_quality: Net income growth (+170.8% YoY) outpaced sales, driven by unusually high operating profitability relative to gross profit. This raises the likelihood of one-off operating credits or favorable project settlements; recurring earnings power may be lower than the run-rate suggests. outlook: Near-term outlook is constructive given domestic demand for building upgrades, decarbonization retrofits, and data-center MEP. Key to sustaining margins are disciplined bidding, inflation pass-through for materials/labor, and execution on large projects. Watch for normalization of operating margin toward gross margin levels.

Financial Health

liquidity: Current assets ¥56.22bn vs current liabilities ¥23.86bn yield a current ratio of 235.6% and ample working capital of ¥32.35bn. Quick ratio equals current ratio due to unreported inventories; actual quick ratio is likely lower but still strong. solvency: Total liabilities ¥27.22bn vs equity ¥55.31bn imply a debt-to-equity (using total liabilities) of 0.49x. Interest expense is minimal (¥8m) with interest coverage ~795x, indicating very low financial risk. capital_structure: Total assets ¥81.53bn and equity ¥55.31bn suggest an equity ratio around 67.9% (despite a reported 0.0% value that appears unreported). The structure is equity-heavy, providing resilience.

Cash Flow Quality

earnings_quality: OCF of ¥1.84bn vs net income of ¥4.55bn yields an OCF/NI ratio of 0.41, indicating weak cash conversion in the period, likely due to working capital build (receivables/unbilled). This is common mid-year for project contractors. FCF_analysis: Investing cash flow is unreported (0), so capex is unknown. The reported 'FCF 0' should be treated as not determinable rather than zero. Without capex data, FCF coverage of earnings cannot be assessed. working_capital: Strong current assets suggest material trade receivables and advances. The gap between profit and OCF implies revenue recognition ahead of cash collection; monitor billing milestones, retention money, and change-order recoveries.

Dividend Sustainability

payout_ratio_assessment: Reported DPS and payout ratio are 0, likely indicating no interim dividend recognized or data not disclosed. With EPS at ¥218.26 and healthy earnings, capacity exists, but policy is not inferable from current data. FCF_coverage: Not assessable: investing cash flows (capex) are unreported, making FCF uncertain. OCF of ¥1.84bn would cover modest dividends, but clarity on full-year OCF and capex is needed. policy_outlook: Given low leverage and strong balance sheet, the company has flexibility for dividends. However, as a project contractor with working capital swings, a conservative payout anchored to full-year cash generation is likely prudent.

Risk Assessment

Business Risks:

• Project execution risk and potential cost overruns in large HVAC/mechanical installations
• Revenue and margin volatility due to timing of milestone recognition and backlog mix
• Input cost inflation (materials, subcontracting labor) and pass-through risk in fixed-price contracts
• Demand cyclicality in private non-residential construction and capex (offices, commercial facilities, data centers)
• Competition-driven pricing pressure in bidding environments
• Regulatory and building code changes affecting MEP specifications and costs

Financial Risks:

• Working capital intensity leading to cash conversion volatility and reliance on customer collections
• Potential build-up of unbilled receivables/retentions increasing credit and timing risk
• Exposure to project claim/dispute outcomes impacting ordinary/operating income
• Concentration risk if dependent on a few large projects or customers

Key Concerns:

• Operating income exceeding gross profit suggests non-recurring operating credits; margin normalization risk
• OCF/Net income at 0.41 highlights weak cash conversion this period
• Limited disclosure (inventories, cash & equivalents, investing CF, shares) constrains precise analysis

Investment Implications

Key Takeaways:

• Strong topline growth (+24.5% YoY) with outsized operating leverage (+187% YoY OI)
• ROE at 8.22% driven by high net margin; leverage and asset turnover play smaller roles
• Balance sheet strength with equity ratio ~68% and low interest burden
• Cash conversion lagging profits (OCF/NI 0.41), typical for mid-year project timing but worth monitoring
• Reported data gaps (inventories, cash, investing CF, equity ratio, shares) require caution in ratio interpretation
• Operating margin above gross margin implies temporary factors; sustainability is uncertain

Metrics to Watch:

• Backlog level, book-to-bill, and margin on new orders
• OCF/NI and changes in trade receivables and unbilled/retentions
• Gross margin trend vs operating margin normalization
• Capex and true FCF once investing CF is disclosed
• Effective tax rate normalization
• Interest-bearing debt levels and net cash position when cash is disclosed

Relative Positioning: Within Japan’s building services/MEP contracting peer set, Techno Ryowa currently exhibits above-peer operating margins and a stronger-than-average balance sheet with low leverage, but with more pronounced cash conversion volatility and potential margin normalization risk due to project-mix and one-off operating credits.

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