MIYAJI ENGINEERING GROUP,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥28.31B
• Operating Income: ¥2.85B
• Net Income: ¥2.04B
• EPS: ¥67.94

Income Statement

Balance Sheet

Cash Flow Statement

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

FY2026 Q2 was a mixed quarter with sharp top-line and operating profit contraction but resilient bottom-line margins supported by non-operating income and a strong balance sheet. Revenue declined 21.6% YoY to 283.07, reflecting project timing/volume normalization from a high prior-year base. Operating income fell 36.4% YoY to 28.47, implying an operating margin of 10.1% (vs an estimated 12.4% a year ago), a contraction of roughly 233 bps. Ordinary income decreased 35.2% YoY to 29.96, while net income declined a lesser 20.0% to 18.01, yielding a net margin of 6.4%. Despite weaker operations, non-operating income of 1.79 (including 1.40 of dividend income) cushioned profits and helped keep the net margin broadly intact. Based on the YoY deltas, the net margin likely improved modestly by about 13 bps YoY (estimate), even as operating margin compressed materially. EBITDA was 36.09, for a 12.7% margin, indicating some fixed-cost absorption strain but still healthy coverage of interest (interest coverage 142x). Cash flow quality was weak: operating cash flow was -34.84 versus positive net income of 18.01, producing an OCF/NI of -1.93x. Free cash flow (approximated as OCF minus capex) was about -45.22, driven likely by working capital outflows typical of project timing in steel/bridge engineering. Liquidity remains robust with current assets of 559.31 and a current ratio of 209.8%, and cash/deposits at 57.26; solvency is conservative with D/E of 0.65x and only 39 in loans outstanding. ROE stands at 3.7% via DuPont (6.4% net margin × 0.351x asset turnover × 1.65x leverage), underscoring capital efficiency challenges amid slower turnover. ROIC is 4.1%, below the 5% warning threshold, signaling returns are currently not exceeding typical cost of capital. The payout profile looks stretched on calculated metrics (payout ratio 215.2%) against negative FCF, though dividend data are not fully disclosed. Forward-looking, the key swing factors are order intake/backlog conversion, normalization of working capital, and sustainability of non-operating income (notably dividends). If project execution and billing catch up in H2, cash conversion can recover; if delays persist, cash burn could constrain capital allocation. Overall, the quarter shows cyclical softness and timing effects rather than balance-sheet risk, but efficiency and cash conversion must improve to support returns and distributions.

Profitability Analysis

ROE (3.7%) = Net Profit Margin (6.4%) × Asset Turnover (0.351x) × Financial Leverage (1.65x). The largest negative change driver appears to be operating profitability and turnover: operating margin compressed to 10.1% (from an estimated ~12.4% a year ago), and asset turnover is low at 0.351x given revenue contraction on a sizable asset base. Business rationale: lower project volume and possible mix (fewer high-margin bridge/steel structure jobs) reduced gross/operating margin, while fixed costs in SG&A (24.60) offered limited flexibility, and slower billing/project milestones reduced turnover. Non-operating income (dividends 1.40, interest 0.09) partially offset the operating shortfall at the ordinary and net income levels. Sustainability: the margin compression looks partly cyclical/timing-related; non-operating gains from dividends are recurring but not core, and should not be relied upon to sustain ROE. Watch for SG&A discipline—while we lack YoY SG&A, operating deleverage is evident as operating income declined faster than sales (36.4% vs 21.6%). Overall, asset turnover deterioration tied to volume was likely the main ROE headwind, with financial leverage stable and moderate.

Growth Assessment

Revenue fell 21.6% YoY to 283.07, indicating a significant demand/timing slowdown versus a strong prior-year. Operating income dropped 36.4% YoY to 28.47, highlighting negative operating leverage from fixed-cost absorption. Ordinary income and net income declined 35.2% and 20.0% respectively, with the net line helped by non-operating income (dividends). EBITDA margin at 12.7% remains respectable but below prior-year levels implied by operating margin compression. Given the project-based nature of the business, revenue sustainability hinges on order backlog and milestone recognition; these data are not disclosed here. The near-term outlook depends on H2 backlog conversion and whether mixed/pricing can stabilize margins. Management’s capital efficiency (ROIC 4.1%) is below target levels, suggesting a need for volume recovery or cost/mix improvements to restore growth in returns. Without backlog/order intake disclosure, visibility is limited; however, normalization of working capital could materially improve cash earnings even on modest top-line recovery.

Financial Health

Liquidity is strong: current assets 559.31 vs current liabilities 266.65 imply a current ratio of 209.8% (no warning). Quick ratio is indicated as 209.8%, though inventories and receivables are unreported; conclusions should be tempered by that limitation. Cash and deposits are 57.26, exceeding short-term loans of 36.00, which reduces near-term refinancing pressure. Solvency is conservative with total liabilities 317.08 vs equity 488.98 (D/E 0.65x) and long-term loans of only 3.00. Interest coverage is very strong at 142.35x, indicating ample buffer against rate increases. No explicit off-balance sheet obligations are disclosed in the provided data. Maturity mismatch risk appears low given significant working capital (292.66) and cash exceeding short-term borrowings, though the negative OCF in H1 warrants monitoring if it persists.

Cash Flow Quality

OCF was -34.84 against net income of 18.01, yielding OCF/NI of -1.93x, which signals weak cash conversion this half. The shortfall likely reflects working capital outflows (e.g., growth in unbilled receivables or milestone timing), common in project-centric steel/bridge fabrication. Approximated free cash flow (OCF minus capex) was about -45.22, insufficient to fund dividends or debt reduction without tapping cash/other financing. Financing CF was -61.60, suggesting repayments/dividends, which, combined with negative FCF, reduced financial flexibility this period. We see no obvious signs of earnings management, but reliance on non-operating dividend income (1.40) to support net profit reduces quality of earnings from core operations. Sustained improvement requires normalization of working capital and stabilization of operating margins.

Dividend Sustainability

The calculated payout ratio is high at 215.2%, inconsistent with negative FCF (~-45.22), implying weak coverage this period. Total dividends paid and DPS are unreported, so we cannot reconcile the payout precisely. Given negative OCF and material financing outflows, current dividends may be funded from cash on hand or balance-sheet strength rather than internally generated cash. Sustainability will depend on H2 cash conversion and backlog execution. If OCF normalizes positive and capex remains moderate (capex 10.38), coverage can improve; if not, payout ratios will remain stretched. Company policy details are not provided; watch for any shift toward DOE/ROE-linked payout frameworks.

Risk Assessment

Business Risks:

• Project timing risk leading to revenue and cash flow volatility
• Input cost volatility (steel and fabrication costs) compressing margins
• Execution risk on large bridge/steel structure projects affecting delivery and penalties
• Demand sensitivity to public works and infrastructure budgets

Financial Risks:

• Negative OCF despite positive earnings, pressuring liquidity if prolonged
• Dependence on non-operating dividend income to support net profits
• Interest rate risk on short-term loans (36.00) despite strong coverage
• ROIC at 4.1% below 5% warning threshold, indicating subpar capital efficiency

Key Concerns:

• Operating margin compression (~-233 bps YoY) amid falling sales
• Asset turnover at 0.351x limiting ROE (3.7%)
• Free cash flow approximately -45.22 in H1, not covering dividends/capital needs
• Limited disclosure (gross profit, inventories/receivables, investing CF, dividend cash out) constrains full assessment

Investment Implications

Key Takeaways:

• Revenue and operating profit contracted sharply, with operating margin down to ~10.1%
• Net margin held at ~6.4% aided by non-operating dividend income
• Cash conversion weak (OCF/NI -1.93x) and FCF negative despite strong balance sheet
• ROE low at 3.7% and ROIC 4.1% below threshold, underscoring efficiency headwinds
• Liquidity ample (current ratio ~210%, cash > short-term loans), mitigating solvency risk near term

Metrics to Watch:

• Order intake and backlog visibility/book-to-bill
• Working capital trends (receivables/unbilled, advances, payables) and OCF/NI ratio
• Operating margin trajectory and project mix
• Dividend income and other non-operating contributions to earnings
• Capex discipline and any shift in financing (short-term vs long-term debt)

Relative Positioning: Within Japan’s steel/bridge engineering peers, the company exhibits strong liquidity and conservative leverage but lags on capital efficiency (ROIC 4.1%, ROE 3.7%) and cash conversion this half; recovery in backlog execution and WC normalization are needed to close the gap.

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