ASAHI KOGYOSHA CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥41.44B
• Operating Income: ¥4.09B
• Net Income: ¥3.21B
• EPS: ¥124.66

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment 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: Strong Q2 with significant margin expansion and double-digit profit growth outpacing modest top-line growth. Revenue grew 2.3% YoY to 414.41, while operating income surged 46.3% YoY to 40.91, lifting operating margin to 9.9% from roughly 6.9% a year ago. Ordinary income rose 42.1% YoY to 42.76, supported by 2.48 of non-operating income (notably 1.74 in dividends and 0.11 in interest), while non-operating expenses were constrained at 0.63. Net income advanced 35.9% YoY to 32.11, taking net margin to 7.8% versus about 5.8% last year. Gross margin stands at 19.6%, indicating solid project execution and favorable mix. Operating margin expanded by about 296 bps YoY (9.9% vs ~6.9%), and net margin expanded by about 191 bps (7.8% vs ~5.8%). Ordinary margin expanded by about 289 bps (10.3% vs ~7.4%). Interest coverage is exceptionally strong at 141x, reflecting low financial risk. Balance sheet strength is evident with cash and deposits of 221.21 against total interest-bearing debt of approximately 51.52, implying a net cash position of ~169.7. Liquidity is comfortable with a current ratio of 179.7% and working capital of 255.94. ROE calculated at 7.3% (Net margin 7.8% × Asset turnover 0.512 × Leverage 1.85x) indicates improving capital efficiency, supported primarily by margin gains. ROIC of 10.3% (provided) sits above an 8% excellence benchmark and suggests disciplined capital deployment and healthy project returns. Earnings quality cannot be fully assessed as operating cash flow and free cash flow data are unreported, introducing uncertainty on cash conversion and sustainability of payouts. The reported calculated payout ratio of 101.7% flags potential pressure on dividend sustainability absent strong underlying cash flow. Forward-looking, the combination of margin momentum, net cash, and strong coverage underpins resilience, but sustainability depends on the order environment, cost control, and execution given construction project lump-sum risks.

Profitability Analysis

ROE decomposition: ROE 7.3% = Net Profit Margin 7.8% × Asset Turnover 0.512 × Financial Leverage 1.85x. The largest change driver YoY is net profit margin expansion, as operating income rose 46.3% against revenue growth of 2.3%, implying significant operating leverage and cost discipline. Operating margin expanded from roughly 6.9% to 9.9% (~+296 bps), and net margin from 5.8% to 7.8% (+191 bps), corroborating margin-led ROE improvement; asset turnover and financial leverage appear relatively stable given modest revenue growth and a solid equity ratio. Business rationale: better project mix, improved execution on construction contracts, and tight SG&A control (SG&A grew slower than gross profit; absolute SG&A 40.46 on gross profit 81.38 implies improved coverage) likely drove EBIT leverage. Non-operating tailwinds (dividends 1.74, net non-operating +1.85) also aided ordinary income. Sustainability: part of the margin gain may be sustainable if driven by structural mix and bidding discipline; however, construction earnings are inherently lumpy and sensitive to cost overrun risks, so some uplift may be one-time or timing-related. Watch for any subsequent quarters where SG&A growth outpaces revenue or gross profit, as that would pressure margins. No explicit red flags in the period, but the durability of near-10% operating margin in a building services/engineering context should be viewed cautiously relative to historical industry mid-single-digit norms.

Growth Assessment

Top-line growth was modest (+2.3% YoY), but profit growth was outsized: operating income +46.3%, ordinary income +42.1%, and net income +35.9%. The growth appears quality-enhancing given broad-based margin expansion across operating, ordinary, and net levels, aided by modest positive non-operating income. With gross margin at 19.6% and operating margin near 10%, revenue growth is translating into stronger profitability due to operating leverage and likely favorable project mix. Sustainability hinges on backlog quality, pricing discipline, and input cost control; limited disclosure on pipeline/backlog constrains visibility. Absent OCF/FCF data, it is unclear whether profit growth is matched by cash conversion, a key determinant of sustainable expansion. Near-term outlook is cautiously favorable given momentum and a net cash balance sheet that supports execution capacity.

Financial Health

Liquidity is solid: current ratio 179.7% and working capital 255.94, with cash and deposits of 221.21 providing ample cushion. Quick ratio equals the current ratio due to unreported inventories/receivables; the true quick ratio may be lower but is still likely strong given the cash position. Solvency is conservative: total equity 437.56 vs total assets 809.77 implies an equity ratio of ~54.0%; D/E is 0.85x (within conservative benchmarks). Interest-bearing debt totals ~51.52 (short-term 22.30, long-term 29.22), comfortably covered by cash, resulting in net cash of ~169.7. No warning on Current Ratio (<1.0) or D/E (>2.0). Maturity mismatch risk appears low, as current assets (577.15) comfortably exceed current liabilities (321.21), and short-term loans are small relative to cash on hand. No off-balance sheet obligations were disclosed in the provided data.

Cash Flow Quality

Operating cash flow, free cash flow, and capex are unreported, so OCF/Net Income and FCF coverage cannot be assessed and represent a material limitation to evaluating earnings quality. Without OCF, we cannot identify working capital-driven divergences or potential manipulation signals (e.g., receivables build, contract assets growth). The strong net cash balance provides a buffer, but sustainability of dividends and investment depends on underlying cash generation, which is currently opaque. Monitor future disclosures for OCF/NI (target >1.0) and FCF after maintenance capex.

Dividend Sustainability

The calculated payout ratio is 101.7%, which, if accurate for FY2026 Q2 basis, indicates dividends exceeding current period earnings and raises sustainability concerns absent robust OCF or the presence of special dividends. FCF coverage is not calculable due to missing cash flow and capex data. With net cash (~169.7) and strong liquidity, the company could fund dividends in the short term, but a payout above earnings is not a steady-state policy in this sector. Policy outlook depends on management guidance (undisclosed here); a normalization toward a payout ratio below 60% would be more sustainable unless structural cash conversion is proven high.

Risk Assessment

Business Risks:

• Project execution risk on fixed-price/lump-sum contracts leading to potential cost overruns and margin volatility.
• Input cost inflation (materials, subcontracting, energy) that could compress gross margins if not passed through.
• Labor availability and skilled technician shortages impacting project timelines and costs.
• Order intake/backlog visibility risk given cyclical private investment and public works timing.
• Customer concentration risk if large projects represent outsized revenue share (not disclosed).

Financial Risks:

• Dividend sustainability risk with a calculated payout ratio above 100% absent corroborating cash flows.
• Cash flow visibility risk due to unreported OCF/FCF and working capital details.
• Potential interest rate risk on variable-rate debt (though mitigated by net cash position).
• Revenue recognition timing and contract asset/liability swings may create profit-to-cash gaps.

Key Concerns:

• Margin uplift sustainability in a sector where operating margins are typically mid-single digit.
• Limited disclosure on SG&A components and depreciation/R&D, reducing transparency on cost drivers.
• Non-operating income (dividends) contributed to ordinary income; a reversal could pressure totals.
• Data limitations (no OCF, no inventories/receivables details) hinder assessment of cash conversion and working capital quality.

Investment Implications

Key Takeaways:

• Strong quarter with significant operating and net margin expansion despite modest revenue growth.
• ROE at 7.3% and ROIC at 10.3% indicate improved capital efficiency and returns above cost of capital.
• Balance sheet strength with net cash of ~169.7 and an equity ratio near 54% reduces financial risk.
• Earnings quality and dividend sustainability cannot be validated without OCF/FCF; calculated payout >100% is a caution flag.
• Non-operating income provides a small tailwind but is not a core earnings driver.

Metrics to Watch:

• Order intake and backlog growth/mix to gauge revenue visibility and margin sustainability.
• Gross and operating margin trajectory, especially bps changes vs prior periods.
• Operating cash flow and FCF (OCF/NI target >1.0) to validate earnings quality.
• Working capital metrics (receivables, contract assets/liabilities, inventories) once disclosed.
• Dividend guidance and payout policy relative to earnings and FCF.
• Interest-bearing debt mix and any changes in short-term funding.

Relative Positioning: Within Japanese building services/plant HVAC contractors, achieving ~10% operating margin is notably strong versus industry norms of mid-single digits, supported by a net cash balance sheet and high interest coverage; however, limited cash flow disclosure and a calculated payout above earnings temper the quality assessment until conversion is evidenced.

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