KAWADA TECHNOLOGIES,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥55.35B
• Operating Income: ¥3.17B
• Net Income: ¥3.14B
• EPS: ¥180.53

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

Verdict: A soft FY2026 Q2 with revenue contraction and margin compression leading to double‑digit profit declines, partially cushioned by positive operating cash flow and a solid balance sheet. Revenue fell 16.7% YoY to 553.46, with operating income down 33.9% to 31.72 and net income down 37.4% to 31.42. Gross profit was 93.28, implying a gross margin of 16.9%, and SG&A totaled 61.56 (11.1% of sales). Operating margin slipped to 5.7% (31.72/553.46), and ordinary income was 39.58 as non-operating income of 12.94 offset non-operating expenses of 5.08. Net margin printed at 5.7% (31.42/553.46). Based on the YoY change rates, we estimate prior-year operating margin at roughly 7.2%, implying about 149 bps compression YoY, and prior-year net margin at roughly 7.5%, implying about 188 bps compression. Earnings quality was acceptable with OCF of 40.61 exceeding net income (OCF/NI 1.29x). EBITDA was 46.53 (8.4% margin), and interest coverage remained strong at 17.6x, indicating low near-term financial stress. Liquidity is healthy: current ratio 164.5%, working capital 331.51, and cash/deposits at 188.74. Leverage looks moderate with D/E of 0.75x and loans totaling about 179.8 (short-term 75.0, long-term 104.76). However, capital efficiency is weak: ROE is 3.4% and ROIC is 2.5%, well below a 5% warning threshold. Profit composition shows a relatively high reliance on non-operating income (about 41% of operating income), suggesting ordinary profit is partly supported by financial/other items rather than core operations. The reported payout ratio of 80.6% appears elevated versus typical sustainability benchmarks and will require continued FCF support if maintained. Forward-looking, normalization of project execution, order intake recovery, and mix improvement will be needed to restore margins and raise ROIC toward mid‑single digits.

Profitability Analysis

ROE decomposition: 3.4% = Net Profit Margin (5.7%) × Asset Turnover (0.341) × Financial Leverage (1.75x). The biggest driver of the decline in earnings appears to be the net profit margin, which compressed as revenue fell 16.7% and operating income fell 33.9%. Business reason: volume contraction and fixed-cost deleverage likely weighed on gross/operating margins, while non-operating items partially supported ordinary income. Sustainability: margin pressure tied to project timing and mix could normalize, but a sustained recovery requires improved order intake, pricing discipline, and cost control; reliance on non-operating income is not a stable driver. SG&A at 11.1% of sales is reasonable, but with revenue down sharply, operating leverage turned negative; we cannot confirm YoY SG&A growth due to unreported YoY data. Operating margin compressed an estimated ~149 bps YoY (to ~5.7%), and net margin compressed an estimated ~188 bps (to ~5.7%). Overall, weak ROIC at 2.5% underscores that returns on invested capital remain below the cost of capital, reflecting margin headwinds and low asset turnover.

Growth Assessment

Top line declined 16.7% YoY, indicating weaker demand and/or project timing slippage. Operating income declined 33.9%, outpacing the revenue decline, highlighting negative operating leverage. Ordinary income fell 38.6% despite sizable non-operating income, underscoring core margin pressure. Net income contracted 37.4%, consistent with the ordinary profit trend. Current gross margin stands at 16.9%; maintaining or improving this will be crucial to profit stabilization. The EBITDA margin of 8.4% provides some buffer, but not enough to offset the sharp revenue drop. With ROE at 3.4% and ROIC at 2.5%, capital efficiency is subpar and requires a recovery in utilization and margin. Outlook hinges on order backlog quality, execution discipline on large bridge/steel structure projects, and cost pass-through for materials and subcontracting. Near-term growth visibility is constrained by limited disclosure on order intake/backlog and segment mix; we therefore assume a cautious trajectory into H2 pending signs of order recovery and improved conversion.

Financial Health

Liquidity is solid with a current ratio of 164.5% and working capital of 331.51; no warning on current ratio. Quick ratio is also shown at 164.5%, though some current asset details are unreported; available cash/deposits are 188.74. Debt metrics are moderate: D/E 0.75x, short-term loans of 75.0, and long-term loans of 104.76, implying manageable leverage. Interest coverage at 17.62x indicates strong ability to service interest. Maturity mismatch risk appears contained: current assets (845.14) comfortably exceed current liabilities (513.63), and cash alone covers a meaningful portion of short-term debt. No off-balance sheet obligations were disclosed in the provided data. There are no threshold breaches: Current Ratio > 1.0, D/E < 2.0.

Cash Flow Quality

OCF/Net Income is 1.29x (>1.0), indicating acceptable earnings quality this quarter. Using reported capex of 11.14, estimated FCF is approximately 29.47 (OCF 40.61 minus capex 11.14), suggesting internal funding capacity for maintenance of dividends and selective investment. With revenue down and profits under pressure, maintaining positive OCF indicates working capital and cash conversion were supportive; however, specific working capital components are unreported, limiting identification of timing effects. No clear signs of working capital manipulation are evident from the limited data, but continued monitoring of receivables, inventories, and payables is warranted as these items are not disclosed.

Dividend Sustainability

The calculated payout ratio is 80.6%, which is above the <60% benchmark for comfort and implies tighter coverage. On an estimated basis, this payout level would imply dividends of roughly 25.3 against NI of 31.42, which appears covered by estimated FCF of ~29.5 this period; however, persistence depends on sustaining OCF amid weaker earnings. Dividend details (DPS, total dividends paid) were not disclosed, limiting precision. If profit pressure persists and capex remains steady, the buffer to maintain an ~80% payout narrows; a more conservative payout would improve resilience. Policy visibility is limited pending formal guidance; assume a cautious stance until H2 profitability and cash generation clarify.

Risk Assessment

Business Risks:

• Project timing and mix risk impacting revenue recognition and margins
• Input cost volatility (steel, materials) affecting gross margin if not fully passed through
• Execution risk on large-scale bridge/steel structure projects (cost overruns, penalties)
• Order intake/backlog visibility risk given revenue contraction
• Dependence on non-operating income to support ordinary profit this period

Financial Risks:

• Moderate leverage (D/E 0.75x) with refinancing exposure on short-term loans (75.0)
• Capital efficiency risk with ROIC at 2.5% (<5% warning), potentially weighing on valuation
• Potential cash flow variability from working capital swings (receivables/inventories not disclosed)
• Dividend coverage risk if high payout (80.6%) is maintained amid weaker earnings

Key Concerns:

• Margin compression: operating margin down an estimated ~149 bps YoY; net margin down ~188 bps
• Elevated reliance on non-operating income (~41% of operating income) to support ordinary profit
• ROE of 3.4% and ROIC of 2.5% indicate subpar returns vs likely cost of capital
• Limited disclosure on key line items (orders, receivables, inventories) constrains risk assessment

Investment Implications

Key Takeaways:

• Core profitability weakened with significant margin compression and negative operating leverage
• Earnings quality is acceptable near term (OCF > NI), supporting liquidity despite profit decline
• Balance sheet is sound (current ratio 164.5%, interest coverage 17.6x), limiting financial stress
• ROIC at 2.5% flags under-earning assets; improvement hinges on margin recovery and turnover
• High calculated payout ratio elevates risk to dividend sustainability if earnings pressure persists

Metrics to Watch:

• Order intake, backlog, and book-to-bill to gauge revenue recovery
• Gross and operating margin trajectory; cost pass-through for materials/subcontracting
• OCF/NI and working capital days (DSO/DIO/DPO) once disclosed
• ROIC progression toward >5% and ROE normalization
• Non-operating income contribution to ordinary profit (quality and recurrence)
• Leverage trend (D/E, short-term loans) and capex discipline

Relative Positioning: Within Japanese steel structure/bridge engineering peers, the company shows solid liquidity and low financing risk but weaker capital efficiency and higher reliance on non-operating income this quarter; near-term positioning appears defensive on balance sheet quality yet challenged on profitability and returns.

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