KAWADA TECHNOLOGIES,INC. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥55.35B
• Operating Income: ¥3.17B
• Net Income: ¥5.05B
• 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

Kawada Technologies (TSE:3443) reported FY2026 Q2 consolidated results under JGAAP showing revenue of ¥55.35bn, down 16.7% YoY, indicating a softer order execution pace and/or project timing slippage. Gross profit of ¥10.58bn implies a gross margin of 19.1%, broadly resilient despite the topline decline, suggesting some pricing discipline and/or favorable project mix. Operating income fell 33.9% YoY to ¥3.17bn, with operating margin at 5.7%, evidencing operating leverage on reduced volumes and likely cost inflation pressure that was not fully passed through. Ordinary income of ¥3.96bn exceeded operating income, indicating net non-operating gains and/or financial income offsetting interest costs (¥191m), supporting below-the-line profitability. Net income declined 37.4% YoY to ¥3.14bn, with net margin at 5.68%, reflecting higher relative tax and/or non-operating normalization versus the prior year. DuPont decomposition yields ROE of 3.38% (net margin 5.68% × asset turnover 0.341 × leverage 1.75), signaling subdued shareholder returns this period primarily due to slower asset turns. The balance sheet remains sound: total assets ¥162.50bn, equity ¥93.06bn, and liabilities ¥73.94bn; computed equity ratio is approximately 57%, implying a conservative capital structure. Liquidity is comfortable with a current ratio of 1.54x and working capital of ¥30.54bn, providing buffer against project cash conversion volatility. Cash flow quality was weak in the half: operating cash flow (OCF) was negative at ¥-5.04bn, equating to an OCF/NI ratio of -1.60, indicative of substantial working capital outflows (e.g., receivables/unbilled costs). Financing cash inflow of ¥4.78bn likely backstopped the OCF shortfall, while investing cash flows were not disclosed. EBITDA of ¥4.66bn (8.4% margin) and EBIT/interest coverage of 16.6x suggest ample debt service capacity despite earnings compression. Dividend payments were not disclosed for the period (DPS 0), and payout metrics are therefore not indicative of policy changes. Overall, the company shows solid balance sheet strength and interest coverage but faces cyclical/project-timing headwinds and cash conversion pressure. Near-term profitability hinges on execution of backlog and stabilization of input costs/labor availability. Key watchpoints include order intake/backlog quality, gross margin trajectory, and normalization of working capital. Data limitations exist for inventory, cash, investing CF, share count, and equity ratio disclosure; analysis relies on the provided non-zero items and derived computations.

Profitability Analysis

ROE_decomposition: ROE 3.38% = Net Margin 5.68% × Asset Turnover 0.341 × Financial Leverage 1.75. Primary drag vs prior periods is reduced asset turnover from lower revenue; leverage is modest and margins mid-single digits. margin_quality: Gross margin at 19.1% is resilient despite a 16.7% revenue decline, implying acceptable project mix/pricing. Operating margin at 5.7% (¥3.17bn EBIT) indicates overhead absorption effects and likely partial cost pass-through. Net margin at 5.68% benefits from non-operating income offsetting interest, but YoY decline suggests less tailwind below the operating line and/or higher relative tax burden. operating_leverage: A 16.7% revenue decline drove a 33.9% EBIT decline, consistent with negative operating leverage in a fixed-cost heavy project business. EBITDA margin at 8.4% versus operating margin at 5.7% implies D&A burden of ~2.7% of sales; leverage on volumes remains meaningful.

Growth Assessment

revenue_sustainability: Topline fell to ¥55.35bn (-16.7% YoY), pointing to weaker execution timing and/or softer order intake in prior periods. Sustainability hinges on public works cadence and private sector demand for steel structures and civil engineering projects. profit_quality: Ordinary income (¥3.96bn) above operating income (¥3.17bn) indicates reliance on non-operating contributions this period; core earnings pressure is evident. Interest cost is modest (¥191m), but tax expense of ¥1.44bn suggests a non-trivial effective tax burden despite the metric table indicating 0% (likely a data artifact). outlook: If order backlog remains healthy and input cost inflation moderates, margins can stabilize; however, near-term growth is constrained by project timing risk and labor availability. Recovery in asset turnover, together with steady margins, is required to lift ROE from the current 3.4% level.

Financial Health

liquidity: Current assets ¥87.24bn vs current liabilities ¥56.70bn yield a current ratio of 1.54x and quick ratio of 1.54x (inventory not disclosed). Working capital stands at ¥30.54bn, providing a buffer for project-related cash swings. solvency: Total liabilities ¥73.94bn vs equity ¥93.06bn imply a debt-to-equity (total liabilities/equity) of ~0.79x and an equity ratio of ~57% (computed). Interest coverage is strong at 16.6x EBIT/interest, indicating ample headroom. capital_structure: Leverage (assets/equity) is ~1.75x, conservative for an engineering/steel fabrication business. The company appears to have capacity to fund operations and moderate capex without stressing the balance sheet, notwithstanding periodic working capital needs.

Cash Flow Quality

earnings_quality: OCF/Net Income is -1.60, signaling poor cash conversion in the half, likely due to increased receivables/unbilled revenue or reduced advances from customers. Earnings therefore outpaced cash, highlighting execution/timing effects. FCF_analysis: Investing cash flows and capex were not disclosed; Free Cash Flow not reported. Given OCF at ¥-5.04bn, FCF was likely negative absent significant asset disposals. working_capital: Negative OCF suggests a build in working capital. With inventories not disclosed, the swing likely stems from trade receivables, unbilled construction assets, or lower contract advances. Monitoring collection cycles and billing milestones is key.

Dividend Sustainability

payout_ratio_assessment: Annual DPS not disclosed (0 reported) and payout ratio shown as 0%; no conclusion can be drawn about policy changes from this dataset. Based on EPS of ¥180.53 and positive net income, capacity exists, but policy and board decisions are unknown. FCF_coverage: With OCF negative and FCF not disclosed, coverage cannot be assessed. In periods of working capital outflow, dividends (if any) would rely on balance sheet strength or financing inflows. policy_outlook: Given a historically conservative capital structure, the company could prioritize balance sheet flexibility during cash conversion troughs. Future distributions would likely track visibility on backlog execution and cash normalization.

Risk Assessment

Business Risks:

• Project timing and backlog execution risk impacting revenue recognition and margins
• Input cost volatility (steel, materials) and limited pass-through in fixed-price contracts
• Labor shortages and subcontractor availability affecting productivity and costs
• Public works budget variability and tender competition pressure
• Construction delays due to permitting, weather, or supply chain disruptions
• Mix risk between higher-margin engineered products and lower-margin construction work

Financial Risks:

• Negative operating cash flow driven by working capital swings
• Receivables/unbilled exposure and potential collection delays
• Reliance on financing inflows to offset temporary cash shortfalls
• Interest rate risk on floating-rate borrowings (if applicable)
• Contingent liabilities from performance guarantees and penalties in long-term contracts

Key Concerns:

• Sustained weak cash conversion (OCF/NI at -1.60) despite positive earnings
• ROE at 3.38% below typical sector norms, driven by low asset turnover
• Operating leverage sensitivity to revenue, with EBIT down 33.9% on a 16.7% sales decline

Investment Implications

Key Takeaways:

• Revenue contraction and negative operating leverage pressured EBIT and net income
• Gross margin resilience (19.1%) supports underlying pricing/mix despite volume decline
• Strong interest coverage and conservative leverage provide solvency comfort
• Cash conversion is the principal weakness this period, with OCF materially negative
• ROE subdued at 3.38%, requiring better asset turns and steady margins to improve

Metrics to Watch:

• Order intake and backlog visibility by segment
• Gross and operating margin progression as input costs/labor normalize
• OCF/Net Income and working capital days (DSO, contract assets/liabilities)
• Capex and investing cash flows to gauge FCF trajectory
• Liability mix and cost of debt as interest rate environment evolves

Relative Positioning: Within domestic steel structure/civil engineering peers, Kawada exhibits solid balance sheet strength and interest coverage but weaker near-term ROE and cash conversion; margin profile is mid-pack while volatility in working capital appears elevated.

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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