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

Kyowa Nissei (19810, JGAAP, stand-alone) delivered a solid FY2026 Q2 with meaningful earnings recovery and improving cash generation. Revenue rose 13.9% YoY to ¥18.77bn, while operating income surged 221.4% YoY to ¥0.56bn, indicating strong operating leverage as fixed costs were diluted on higher volumes. Ordinary income of ¥0.70bn exceeded operating income by ~¥0.14bn, suggesting positive non-operating contributions (e.g., dividends/interest income or other gains). Net income increased 132.8% YoY to ¥0.50bn, with EPS of ¥48.56. Profitability remains structurally thin, consistent with construction/utility service contractors: gross margin was 7.0%, EBITDA margin 3.7%, and operating margin roughly 3.0%. The DuPont profile shows a low but improving ROE of 2.66%, driven chiefly by modest net margin (2.64%), reasonable asset turnover (0.675x), and conservative leverage (assets/equity ~1.49x). Liquidity is strong with a current ratio of 190% and ample working capital of ¥8.06bn, while total liabilities of ¥9.49bn imply a low total liabilities-to-equity ratio of ~0.51x. Operating cash flow of ¥0.58bn exceeded net income (OCF/NI ~1.16x), signaling improving earnings quality. Financing cash flow was a ¥0.41bn outflow, likely reflecting debt repayment or other financing uses; no dividend outflow is reported at this stage. Several disclosures are missing or appear inconsistently labeled: inventories, cash and equivalents, investing cash flow, equity ratio, interest expense, shares outstanding, and book value per share show as zero (unreported), and the reported cost of sales does not reconcile with the reported gross profit. Based on assets and equity provided, the economic equity ratio is approximately 67%, despite the reported 0.0% (unreported) figure. Using net income and taxes disclosed, the effective tax rate approximates ~15%, not 0%. Despite data gaps, the direction of travel is favorable: revenue growth, margin expansion, and positive operating cash conversion. Balance sheet resilience supports ongoing project execution and working capital needs in a low-margin industry. The absence of dividend information suggests either a policy of conservation or mid-year timing; clarity at year-end will be important. Key near-term watchpoints include order backlog, project mix, and cost inflation dynamics, which drive margin sustainability.

Profitability Analysis

ROE decomposition (DuPont): Net margin 2.64% x Asset turnover 0.675 x Financial leverage 1.49 = ROE 2.66%, matching the provided calculation. The step-up in operating income (+221% YoY) versus revenue (+13.9% YoY) evidences strong operating leverage, likely from fixed-cost dilution and improved project mix or execution. Gross margin stands at 7.0% (¥1.31bn/¥18.77bn), consistent with low-margin contracting; EBITDA margin is 3.7% (¥0.69bn), and operating margin is about 3.0% (¥0.56bn). Ordinary income exceeds operating income by ~¥0.14bn, indicating supportive non-operating results despite no interest expense reported (likely unreported). The cost-of-sales and gross profit line items do not reconcile, so margin commentary relies on the gross profit figure and calculated margin provided. Effective tax burden appears modest (~15% based on NI and tax expense), aiding net margin. Overall profitability improved substantially YoY but remains modest in absolute terms, in line with sector characteristics.

Growth Assessment

Revenue growth of +13.9% YoY suggests healthy demand and/or improved project progress. Operating income growth of +221.4% YoY indicates a favorable mix and significant operating leverage, likely supported by better utilization, scale benefits, and/or lower SG&A intensity per revenue unit. Ordinary and net income growth (+132.8% YoY for NI) confirm broad-based recovery beyond core operations. The sustainability of revenue growth will depend on order intake, backlog conversion, and client capex trends in gas/water/utility-related construction (typical for the name). Profit quality is improved as OCF exceeds NI (1.16x), indicating earnings are increasingly cash-backed. However, given thin structural margins, growth durability hinges on stable pricing, disciplined bidding, and cost pass-through amid material/labor inflation. Outlook: cautiously constructive if the company maintains backlog health and favorable project mix; continued margin accretion is possible but sensitive to execution risk and cost fluctuations.

Financial Health

Total assets are ¥27.80bn and total equity is ¥18.60bn, implying an effective equity ratio of ~66.9% (vs. reported 0.0% which appears unreported). Total liabilities of ¥9.49bn yield a total liabilities-to-equity ratio of ~0.51x, indicating conservative leverage. Current assets of ¥17.00bn versus current liabilities of ¥8.94bn produce a current ratio of 1.90x and working capital of ¥8.06bn, supporting near-term obligations and project working capital swings. Quick ratio equals current ratio due to unreported inventories; interpret with caution. Interest expense is unreported (0), but ordinary income uplift suggests limited financial burden. The balance sheet appears robust for a contractor, with ample equity and liquidity to absorb volatility in receivables and payables tied to project cycles. Key missing details are cash and equivalents (unreported) and interest-bearing debt composition; conclusions are based on aggregate liabilities.

Cash Flow Quality

Operating CF of ¥576m exceeds net income of ¥495m (OCF/NI 1.16x), indicating reasonable earnings quality and cash conversion. Working capital dynamics are not disclosed in detail, but the positive spread suggests either improved collections, milestone billing, or manageable WIP movements in H1. Free cash flow cannot be reliably assessed because investing CF is shown as 0 (unreported) and capex details are absent; the provided FCF figure of 0 should be treated as unavailable rather than economic zero. Depreciation and amortization are ¥129m, implying modest non-cash charges relative to EBITDA. Financing CF was a ¥408m outflow, likely debt repayment or other financing uses; no cash dividends appear in the period. Overall, cash generation tracks earnings appropriately, but visibility on capex and cash balance is limited due to missing disclosures.

Dividend Sustainability

Annual DPS is shown as ¥0.00 with a 0% payout ratio, which likely reflects timing or non-disclosure at Q2 rather than a definitive full-year policy. With NI at ¥495m and OCF at ¥576m in H1, coverage for potential dividends appears feasible, but the absence of capex/FCF disclosure prevents a robust assessment of free cash coverage. Financing outflows (¥408m) suggest balance-sheet-focused capital allocation during the half. Sustainability will depend on year-end profitability, working capital needs for project execution, and clarity on capex plans. Policy outlook remains uncertain pending full-year guidance and board actions; monitor year-end DPS announcements and payout ratio targets.

Risk Assessment

Business Risks:

• Project execution risk leading to cost overruns and margin erosion
• Material and labor cost inflation with potential pass-through lag
• Order intake and backlog visibility tied to client capex cycles
• Seasonality and weather-related disruptions impacting site productivity
• Client concentration risk typical in gas/water utility contracting
• Skilled labor shortages and subcontractor availability
• Safety and compliance incidents affecting operations and reputation

Financial Risks:

• Thin structural margins increasing sensitivity to small cost variances
• Working capital volatility (receivables, unbilled WIP, advances) affecting cash flow
• Limited disclosure on cash, inventories, and interest-bearing debt
• Potential non-operating income variability affecting ordinary income
• Capex requirements unknown, constraining FCF visibility

Key Concerns:

• Inconsistency between reported cost of sales and gross profit figures
• Multiple unreported items (cash, inventories, investing CF, equity ratio) reducing analytical precision
• Dependence on continued order momentum to sustain operating leverage gains

Investment Implications

Key Takeaways:

• Strong H1 recovery with revenue +13.9% YoY and operating income +221% YoY, evidencing operating leverage
• Margins remain thin but improved: GM 7.0%, EBITDA margin 3.7%, operating margin ~3.0%
• ROE of 2.66% reflects modest net margin and conservative leverage (assets/equity ~1.49x)
• Healthy liquidity (current ratio ~1.90x, WC ¥8.06bn) and low liabilities/equity (~0.51x)
• OCF exceeded NI (1.16x), indicating improving earnings quality
• Data gaps (cash, inventories, capex/FCF, equity ratio) and a gross profit/CoGS mismatch warrant caution

Metrics to Watch:

• Order backlog and book-to-bill to gauge revenue sustainability
• Project gross margin and SG&A ratio to assess margin durability
• OCF/NI and working capital days (AR, AP, WIP) for cash conversion
• Interest-bearing debt and cash balances to refine leverage view
• Capex and maintenance spending to assess true FCF
• Dividend policy updates and payout guidance at year-end

Relative Positioning: Within Japanese utility-related construction/engineering peers, Kyowa Nissei appears conservatively financed with strong liquidity and improving profitability, but maintains structurally thin margins; execution quality and backlog health will be key differentiators versus peers with higher recurring maintenance revenue or stronger pricing power.

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
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