KYOWANISSEI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥18.77B
• Operating Income: ¥564M
• Net Income: ¥495M
• EPS: ¥48.56

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: Strong rebound in profitability in FY2026 Q2 with solid revenue growth and improved operating leverage, though capital efficiency (ROIC 3.4%) remains below target and profit mix still leans on non-operating income. Revenue rose 13.9% YoY to 187.69, while operating income surged 221.4% YoY to 5.64, lifting operating margin to roughly 3.0%. Ordinary income increased 133.2% YoY to 7.04, supported by non-operating income of 1.38 (notably 0.77 in dividends). Net income rose 132.8% YoY to 4.95, equating to a net margin of about 2.6%. Gross margin stands at 7.0%, indicating tight but improved project economics for what appears to be a construction/engineering-heavy business mix. Based on revenue and operating income dynamics, operating margin expanded materially YoY by an estimated ~190 bps (from ~1.1% to ~3.0%). Cash generation was healthy with operating cash flow (OCF) of 5.76 exceeding net income (OCF/NI = 1.16x), signaling decent earnings quality this quarter. Liquidity is strong (current ratio 190%) and leverage is conservative (D/E 0.51x), reducing near-term balance sheet risk. However, non-operating income contributes 28% of ordinary income, implying some reliance on financial income (dividends/interest) beyond core operations. ROE is modest at 2.7% given low net margin and moderate asset turnover (0.675x) despite low leverage (1.49x). ROIC at 3.4% is below the 5% warning threshold, underscoring that improved profitability has yet to translate into efficient capital use. Capital allocation leaned toward shareholder returns with 5.68 in buybacks; this exceeded estimated FCF (OCF − capex) of ~5.06, drawing on cash reserves. Tax rate at 28.9% aligns with statutory norms and does not distort earnings quality. Forward-looking, sustaining higher operating margins while improving ROIC will be key, particularly through tighter project execution and mix shift toward higher-margin work. Continued focus on working capital discipline should support cash conversion, but dividend sustainability is uncertain given a high payout ratio (91.2%) and limited margin buffer. Overall, the quarter is a notable operational improvement with acceptable earnings quality, yet structural profitability and capital efficiency remain the main areas to watch.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 2.6% × 0.675 × 1.49 ≈ 2.7%. The largest delta driver YoY is the net profit margin, inferred from operating income growing +221% on +13.9% revenue, which implies operating margin expansion from ~1.1% to 3.0% (+190 bps). Business explanation: likely improved project pricing/execution, normalization of cost overruns, and a better mix; additional lift from non-operating income (dividends/interest) cushioned ordinary income. Sustainability: margin gains are partly cyclical/one-off prone in project businesses; sustaining 3% operating margin will require continued cost control and disciplined bidding; the non-operating component is recurring to a degree (dividends) but not fully controllable. Asset turnover at 0.675x is modest for a contractor and likely stable YoY; leverage at 1.49x is low and not a major ROE lever. Watch for SG&A growth versus revenue; SG&A of 11.33 against revenue 187.69 implies SG&A ratio ~6.0%; without prior SG&A, we cannot confirm, but operating leverage this quarter appears positive as operating profit grew much faster than revenue.

Growth Assessment

Top-line growth of +13.9% YoY to 187.69 indicates healthy demand and/or improved project progress. Profit growth was outsized at the operating and ordinary levels (+221% and +133% YoY), suggesting better margin discipline and some tailwind from non-operating income (28% of ordinary income). Revenue sustainability will hinge on order intake/backlog in utility and construction segments (not disclosed), and any seasonality in H2 execution. Profit quality is acceptable with OCF/NI > 1.0; however, the net margin at ~2.6% remains thin, leaving limited buffer against input price or labor cost volatility. Outlook: with strong liquidity and low leverage, the company can continue executing projects; near-term growth likely moderates as the base effect of last year’s weak profitability fades. Key catalysts would be evidence of continued gross margin improvement and stable dividend/interest income from investment securities.

Financial Health

Liquidity is strong: current assets 170.02 vs current liabilities 89.40 yields a current ratio of 190.2% (healthy) and quick ratio equal at 190.2% given no inventory disclosure. Solvency is conservative: D/E at 0.51x and total liabilities 94.88 against equity 186.02. No red flags: Current Ratio > 1.0 and D/E < 2.0. Maturity mismatch risk appears low; cash and deposits of 67.78 plus current assets comfortably cover short-term obligations. Interest-bearing debt details are unreported; interest coverage cannot be calculated, but low leverage mitigates risk. Off-balance sheet obligations are not disclosed; cannot assess guarantees or construction-related performance bonds.

Cash Flow Quality

OCF/Net Income = 1.16x (>1.0), indicating acceptable earnings quality with positive cash conversion. Estimated FCF ≈ OCF − capex = 5.76 − 0.70 = 5.06; this broadly supports organic needs but is slightly below the period’s shareholder returns (buybacks 5.68), implying use of cash reserves. Working capital drivers cannot be dissected as AR/AP/inventory are unreported; no clear signs of working capital manipulation can be assessed from available data. Investing CF is unreported; capex appears modest relative to OCF, suggesting manageable reinvestment needs.

Dividend Sustainability

The calculated payout ratio is high at 91.2%, which is above the <60% benchmark for comfort and leaves limited cushion. DPS is unreported; total dividends paid not disclosed, but buybacks were 5.68, indicating an overall shareholder return strategy leaning on cash reserves. With estimated FCF of ~5.06, dividends plus buybacks likely exceeded internally generated cash in the period. Sustainability depends on maintaining improved margins and cash conversion; absent stronger FCF, a high payout ratio could constrain balance sheet flexibility. Policy outlook cannot be inferred without explicit guidance; monitor payout discipline versus FCF and ROIC improvement.

Risk Assessment

Business Risks:

• Thin structural margins (gross margin 7.0%, operating margin ~3.0%) expose earnings to cost overruns and input inflation.
• Execution risk in project delivery (labor availability, schedule slippage) can compress margins.
• Dependence on non-operating income (28% of ordinary income) introduces volatility tied to dividends/market conditions.
• Low ROIC (3.4%) indicates underperformance versus cost of capital and limits value creation.

Financial Risks:

• Shareholder returns (buybacks 5.68) slightly exceeding estimated FCF (~5.06) rely on cash balances.
• Interest-bearing debt profile is unreported; inability to assess interest coverage or refinancing needs.
• Potential working capital swings typical of contracting businesses could strain cash if backlog mix shifts.

Key Concerns:

• ROIC below 5% warning threshold despite improved profits.
• Sustainability of operating margin expansion after a low base last year.
• Limited disclosure on receivables/payables and investing CF constrains assessment of cash flow durability.

Investment Implications

Key Takeaways:

• Meaningful profitability rebound with operating margin expansion to ~3.0% and NI up ~133% YoY.
• Earnings quality acceptable (OCF/NI 1.16x), but capital efficiency weak (ROIC 3.4%).
• Balance sheet is liquid and conservatively levered (current ratio 190%, D/E 0.51x).
• Non-operating income remains a notable profit contributor (28% of ordinary income).
• Shareholder returns (buybacks) slightly exceeded FCF, drawing on cash.

Metrics to Watch:

• Gross and operating margin trajectory (bps changes QoQ/YoY).
• Order intake/backlog and project mix (utility vs higher-margin segments).
• ROIC progression toward >5% and ideally 7–8% over time.
• OCF/NI and working capital movements (AR/AP days when disclosed).
• Size and stability of dividend/interest income from investment securities.
• Total shareholder return versus FCF to gauge payout discipline.

Relative Positioning: Versus domestic construction/engineering peers, liquidity and leverage are stronger-than-average, profitability has improved but remains thin, and ROIC is below peer leaders; dependence on non-operating income is somewhat elevated, suggesting core earnings quality still normalizing.

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