DAI-DAN CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥118.36B
• Operating Income: ¥17.58B
• Net Income: ¥12.62B
• EPS: ¥291.44

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 very strong FY2026 Q2 with outsized operating recovery and high-quality cash generation. Revenue rose 12.1% YoY to 1,183.59, while operating income surged 159.2% YoY to 175.83, indicating substantial margin expansion and positive operating leverage. Ordinary income increased 159.1% to 181.37, with limited reliance on non-operating gains (net non-operating income of 5.54). Net income jumped 129.5% to 125.20, supported by a normalized effective tax rate of 31.2%. Operating margin improved to 14.9% (175.83/1,183.59), versus roughly 6.4% in the prior-year period, an estimated expansion of about 842 bps. Net margin reached 10.6% (125.20/1,183.59), up approximately 541 bps from around 5.2% last year. EBITDA was 182.51, for a 15.4% margin, showing healthy operating profitability even before depreciation. Cash generation was exceptionally strong with operating cash flow of 446.95, equating to 3.57x net income, signaling robust earnings quality. Liquidity is solid with a current ratio of 198.3% and cash of 698.64 against short-term loans of 26.59, minimizing near-term refinancing risk. Balance sheet strength is underpinned by total equity of 1,183.86 (equity ratio estimated at ~59.4%), while interest coverage is extremely comfortable at 308x. ROE stands at 10.6% (DuPont-consistent) with moderate leverage (financial leverage ~1.68x), and ROIC is a standout at 23.4%, well above typical 7–8% targets. Dividend affordability appears good with a calculated payout ratio of 59.8%, supported by abundant OCF and light capex (-2.61). The key question is sustainability: the magnitude of OCF suggests working capital tailwinds (e.g., collections/advances) that may not fully repeat. Non-operating contributions (dividends/interest) are small and do not drive the thesis. Forward-looking, margin normalization from improved execution and cost controls looks plausible, but project mix and input cost inflation remain watch points. Overall, the quarter demonstrates strong execution, enhanced profitability, and conservative financial posture, positioning the company well into the second half, subject to order intake, backlog quality, and cost environment.

Profitability Analysis

ROE decomposition (DuPont): ROE 10.6% = Net Profit Margin 10.6% × Asset Turnover 0.594 × Financial Leverage 1.68x. The biggest swing YoY is the margin component: operating income grew 159.2% vs revenue +12.1%, implying significant operating margin expansion (approx. +842 bps to ~14.9%). The business driver appears to be improved project execution/mix and operating leverage (SG&A at 98.86 implies an SG&A ratio ~8.35%), alongside contained non-operating drag and a normalized tax rate. Asset turnover at 0.594 is consistent with a project-based contractor with large current assets; leverage at ~1.68x (assets/equity) remains moderate. Sustainability: part of the margin uplift likely reflects better cost control and mix—potentially sustainable if the order backlog quality persists—but any windfall from timing (e.g., revenue recognition milestones) may normalize. Flag: While SG&A absolute increased, we lack YoY SG&A disclosure; however, operating leverage is evident since OI growth far outpaced revenue. No signs of margin dilution from non-operating items; net non-operating income was only 5.54, about 3% of OI.

Growth Assessment

Top-line growth of 12.1% to 1,183.59 reflects healthy order execution; prior-year revenue is estimated at ~1,055.51. Operating income rose to 175.83 from an estimated ~67.86, indicating strong operating leverage and likely improved project margins. Net income of 125.20 (vs ~54.56 prior) benefited mainly from operating improvement, with a standard tax rate and minimal non-operating lift. EBITDA margin of 15.4% supports the narrative of better unit economics. Growth quality is high: OCF/NI at 3.57x points to tangible cash conversion rather than accounting-only gains. Outlook hinges on order intake, backlog conversion, and input costs; sustained double-digit revenue growth may be harder to maintain without incremental capacity or higher-value projects. Near term, profitability should remain above prior-year levels if mix/execution holds; watch for normalization in OCF as working capital cyclicality reverts.

Financial Health

Liquidity is strong: current ratio 198.3% and quick ratio 198.3% (noting inventory is unreported) with cash and deposits of 698.64 nearly covering total current liabilities of 741.54. No warnings: Current Ratio well above 1.0 and D/E (reported) at 0.68x within conservative bounds; note that interest-bearing debt on balance sheet is modest (short-term 26.59, long-term 5.19). Estimated equity ratio is ~59.4% (1,183.86/1,992.60), indicating a solid capital base. Maturity mismatch risk appears low: cash 698.64 and current assets 1,470.52 comfortably exceed current liabilities 741.54; near-term debt obligations are small. Off-balance sheet items are not disclosed; in this industry, performance guarantees and warranties may exist but are not detailed in the data provided.

Cash Flow Quality

Earnings quality is excellent: OCF/Net Income at 3.57x far exceeds the 1.0x benchmark, indicating strong cash realization. Free cash flow appears ample given OCF of 446.95 versus light capex of -2.61, implying substantial capacity to fund dividends and strategic investments; exact FCF is not reported, but OCF alone signals strong coverage. Working capital likely aided OCF (collections/advances), which may not fully repeat; monitor receivables, unbilled work, and advances from customers (unreported here). No signs of manipulation from the available data; non-operating income is small and interest coverage is extremely high, reducing the need for aggressive cash management.

Dividend Sustainability

The calculated payout ratio is 59.8%, right at the threshold of typical sustainability benchmarks (<60%). Given very strong operating cash flow (446.95) and minimal capex (-2.61), dividend coverage appears comfortable in this period. Financing cash flow of -252.20 suggests distributions and/or debt repayment, but total dividends paid are unreported. Policy outlook: with ROE at 10.6% and an estimated equity ratio ~59.4%, the balance sheet can support stable-to-modest dividend increases, contingent on order visibility and maintaining mid-teens operating margins. A potential normalization of OCF from working capital could reduce coverage cushion, but baseline OCF should still support dividends if profitability remains elevated.

Risk Assessment

Business Risks:

• Project execution risk on fixed-price contracts leading to cost overruns and margin volatility
• Input cost inflation (materials and labor) potentially compressing margins
• Backlog quality and order intake visibility impacting revenue continuity
• Timing of revenue recognition milestones causing earnings and cash flow lumpiness
• Human resource constraints in skilled installation/engineering

Financial Risks:

• Working capital cyclicality; current OCF strength may reflect non-recurring releases
• Concentration in current assets typical of contractors raises receivables/unbilled collection risk
• Investment securities (188.09) introduce market valuation and dividend income variability
• Potential off-balance sheet performance guarantees not quantified

Key Concerns:

• Sustainability of the large margin step-up (+842 bps YoY) amid competitive bidding
• Potential normalization of OCF from elevated 3.57x NI conversion
• Limited disclosure on cost of sales/gross margin and SG&A YoY trends

Investment Implications

Key Takeaways:

• Material operating recovery with operating margin ~14.9% and NI margin 10.6%
• High-quality cash flow: OCF 3.57x NI and minimal capex imply ample internal funding
• Robust balance sheet: equity ratio ~59%, current ratio ~198%, interest coverage ~308x
• ROE 10.6% and ROIC 23.4% indicate efficient capital deployment
• Non-operating items immaterial; earnings driven by core operations

Metrics to Watch:

• Order intake and backlog to gauge revenue sustainability
• Project margin trends and any revision to cost estimates
• Working capital components (receivables, unbilled, advances) and OCF normalization
• SG&A ratio trajectory vs revenue growth
• Capex and investment securities volatility

Relative Positioning: Versus domestic electrical and HVAC contractors, Daidan currently exhibits above-peer profitability and cash conversion with a conservative balance sheet; sustained outperformance will depend on maintaining improved project mix and controlling input costs in a competitive bidding environment.

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