Hibiya Engineering,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥40.54B
• Operating Income: ¥3.62B
• Net Income: ¥2.85B
• EPS: ¥130.15

Income Statement

Balance Sheet

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: Solid Q2 performance with modest margin expansion and double-digit profit growth, supported by a fortress balance sheet but tempered by sub-target capital efficiency (ROIC 4.6%). Revenue rose 7.7% YoY to 405.4, indicating healthy project execution and order conversion in building equipment and facilities engineering. Operating income increased 11.7% YoY to 36.2, outpacing top-line growth and implying improved operating leverage. Ordinary income climbed 11.8% to 40.0, aided by non-operating gains (notably dividend and interest income). Net income rose 10.1% to 28.3, with an effective tax rate of 32.3%. Gross margin printed at 20.1%, reflecting decent pricing and cost control in the current backlog. Operating margin improved to 8.9% (36.15/405.42), and net margin reached 7.0%. Using reported growth rates, we estimate operating margin expanded by approximately 32 bps YoY (from ~8.59% to 8.91%). We also estimate net margin expanded by roughly 16 bps YoY (from ~6.84% to 7.00%). Non-operating income was 3.92 (10–14% of profit layers depending on denominator), with dividend income of 2.39 and interest income of 0.58, providing a tailwind but not dominating earnings quality. Equity rose to 738.0 against total assets of 940.4, keeping financial leverage low (1.27x) and D/E at a conservative 0.27x. Liquidity is very strong with a current ratio of 382.7% and cash of 208.7, limiting refinancing and working capital risk. ROE is 3.8% per DuPont, primarily constrained by modest asset turnover (0.431) and intentionally low leverage. ROIC at 4.6% flags capital efficiency below industry aspirations, suggesting room for improved project mix or asset utilization. Earnings quality assessment is limited by the absence of operating cash flow disclosure; we cannot reconcile OCF versus net income this quarter. The calculated payout ratio of 78.8% appears elevated relative to the 60% benchmark, hinging sustainability on cash generation and backlog visibility. Forward-looking, modest margin gains and strong balance sheet support stability, but improving ROIC/ROE will likely require better asset turnover and continued disciplined bidding.

Profitability Analysis

DuPont decomposition: ROE 3.8% = Net Profit Margin (7.0%) × Asset Turnover (0.431) × Financial Leverage (1.27x). The largest constraint on ROE is low asset turnover, characteristic of engineering/construction models with sizable working capital and investment securities on the balance sheet. Net margin improved modestly (estimated +16 bps YoY), aided by operating leverage and non-operating income (dividends/interest totaling 3.0). Financial leverage remains low at 1.27x, reflecting a conservative capital structure that caps ROE upside. Business drivers: operating margin benefitted from better cost pass-through and mix; ordinary income was supported by dividend income (2.39), possibly from strategic holdings. Sustainability: operating margin improvement appears incremental and sustainable if cost discipline continues; non-operating gains from dividends/interest are recurring but market-dependent. Watch-outs: SG&A ratio is 11.2% of sales (45.26/405.42), but lack of YoY SG&A data prevents comparison; we cannot confirm whether SG&A growth outpaced revenue. Overall, margin quality is decent, operating leverage is positive, but low turnover keeps ROE subdued.

Growth Assessment

Top-line expansion of 7.7% demonstrates steady demand and project progress. Operating income growth of 11.7% suggests improved mix and execution, yielding slight operating margin expansion (~+32 bps). Net income growth of 10.1% reflects both operating gains and a stable tax rate profile (32.3% effective). Non-operating income (3.92) contributed ~13.8% of ordinary income, with dividend income (2.39) representing a meaningful but not dominant share of profit support. Revenue sustainability hinges on order intake/backlog, which were not disclosed; absent backlog data, we treat the growth as cyclical/ongoing rather than one-off. Profit quality appears adequate from the P/L, but the lack of cash flow data limits validation of earnings conversion. Outlook: incremental margin improvement and conservative risk posture support stable growth; medium-term upside depends on disciplined bidding, cost inflation management, and better asset utilization to lift ROIC above 5–7% thresholds.

Financial Health

Liquidity is very strong: current ratio 382.7% and quick ratio 382.7% (current assets 644.4 vs current liabilities 168.4), with working capital of 476.0. No warning flags: Current Ratio >> 1.0 and D/E = 0.27x (< 1.5). Cash and deposits of 208.7 cover 124% of noncurrent liabilities (34.1) and 124% of total liabilities when combined with liquid current assets, implying low liquidity risk. Maturity mismatch risk appears low given the surplus of current assets over current liabilities; interest-bearing debt details are unreported, but total liabilities are modest. Investment securities are sizable at 229.8, contributing to equity buffer but exposing the company to market valuation swings (seen in comprehensive income of 46.6). No off-balance sheet obligations were disclosed in the data provided.

Cash Flow Quality

We cannot assess OCF/Net Income or FCF due to unreported cash flow statements and capex. As such, we cannot compute OCF/NI (<0.8) flags or FCF coverage for dividends and capex. Working capital movements (receivables, inventories, payables) are unreported, preventing detection of end-period working capital optimization. Given the business model, timing effects around billing and retention money can drive OCF volatility; absent data, we assume neutral quality with a need for confirmation in the next filing.

Dividend Sustainability

The calculated payout ratio is 78.8%, above the <60% benchmark for conservative sustainability. Without OCF/FCF data, coverage cannot be verified; therefore, dividend sustainability rests on balance sheet strength and expected cash conversion from backlog. Retained earnings are substantial at 571.5, and cash plus investment securities (totaling ~438.5) provide flexibility. If payout reflects an interim/annualized level for a strong half, sustainability may be acceptable; if structural, it could pressure reinvestment and ROE/ROIC unless cash generation remains robust. Policy outlook likely balances stable dividends with a conservative balance sheet, but monitoring FCF and order trends is essential.

Risk Assessment

Business Risks:

• Project execution and fixed-price contract risk impacting margins amid materials/labor cost fluctuations
• Order intake/backlog visibility risk (not disclosed), affecting revenue sustainability
• Supply chain and subcontractor capacity constraints potentially pressuring delivery schedules
• Client concentration and timing of large projects could increase volatility in quarterly results

Financial Risks:

• Capital efficiency risk: ROIC 4.6% (<5% warning), limiting value creation versus cost of capital
• Market valuation risk on investment securities (229.8), driving volatility in comprehensive income and potential P/L through impairment
• Dividend sustainability risk given a high payout ratio (78.8%) without cash flow disclosure
• Potential working capital swings typical of construction projects (retentions, milestone billing) affecting OCF

Key Concerns:

• Low asset turnover (0.431) suppressing ROE despite margin improvements
• Dependence on non-operating income (3.92; ~10–14% contribution) for ordinary profit uplift
• Data limitations: no OCF/FCF, no SG&A YoY trend, no backlog/order book disclosed

Investment Implications

Key Takeaways:

• Core operations improved with revenue +7.7% and operating income +11.7%, indicating mild operating leverage
• Operating margin expanded by an estimated ~32 bps YoY to 8.9%; net margin up ~16 bps to 7.0%
• Balance sheet strength is a key differentiator (current ratio 383%, D/E 0.27x, cash 208.7)
• Capital efficiency lags (ROIC 4.6%, ROE 3.8%) due to low asset turnover and conservative leverage
• Non-operating income provides a supportive but not dominant contribution
• Dividend payout appears high at 78.8%, requiring confirmation of cash coverage

Metrics to Watch:

• Order intake and backlog trajectory (book-to-bill)
• Operating cash flow and FCF conversion versus net income
• Gross margin and SG&A ratio trends to validate sustained operating leverage
• ROIC progression toward 7–8% and drivers (asset turnover improvement vs margin)
• Contribution and volatility of investment securities (dividend income, valuation effects)
• Working capital days (receivables, payables, retention) once disclosed

Relative Positioning: Within domestic building equipment/engineering peers, the company exhibits superior balance sheet conservatism and stable margins, but trails on capital efficiency (ROIC/ROE) due to low asset turnover; sustained backlog growth and better cash conversion are needed to close the gap with higher-ROIC peers.

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