Upcon Co., Ltd. FY2026 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥1.12B
• Operating Income: ¥435M
• Net Income: ¥294M
• EPS: ¥69.75

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: Strong quarter with double-digit top-line growth translating into outsized profit gains and robust margins, underpinned by an exceptionally conservative balance sheet. Revenue rose 29.4% YoY to 11.17, while operating income increased 52.2% YoY to 4.35 and net income climbed 53.1% YoY to 2.94, indicating positive operating leverage. Gross margin stood at 51.3%, operating margin at roughly 39.0%, and net margin at 26.3%, all signaling a high-value mix and favorable cost discipline. Operating margin likely expanded materially given OI growth outpaced revenue, although exact basis-point expansion is not computable due to lack of prior-period margin disclosure. Net margin similarly appears to have widened YoY, but basis-point quantification is N/A. Ordinary income of 4.42 (up 53.0% YoY) reinforces the quality of core operations, with negligible non-operating drag (non-op income 0.05; expenses 0.01). The effective tax rate was 33.5%, consistent with a normalized burden. Balance sheet strength is a key highlight: current ratio 580.8%, quick ratio 580.8%, D/E 0.14x, and interest coverage 1163x indicate very low financial risk. Cash and deposits of 10.73 represent over 52% of total assets, providing ample liquidity. Asset turnover is moderate at 0.541, suggesting room for efficiency improvements even as margins lead ROE performance. DuPont-calculated ROE is 16.1%, driven primarily by high margins rather than leverage (financial leverage only 1.13x). Earnings quality can’t be fully assessed because operating cash flow and free cash flow were unreported; therefore, OCF vs. NI divergence cannot be evaluated this quarter. Dividend affordability appears comfortable with a calculated payout ratio of 36.0%, though DPS and cash flow coverage are unreported. Forward-looking, the company’s margin profile and cash-rich, low-debt structure position it well to withstand demand variability, but visibility on cash conversion and working capital dynamics is a key missing piece. With elevated profitability and ample liquidity, the near-term outlook is constructive provided demand holds and input costs remain stable. Monitoring asset turnover and SG&A discipline will be important to sustain ROE without increasing leverage. Overall, the quarter reflects robust execution with prudent financial management and headroom for investment or shareholder returns, contingent on cash flow confirmation.

Profitability Analysis

ROE decomposition: 16.1% = 26.3% net profit margin × 0.541 asset turnover × 1.13x financial leverage. The dominant driver is net profit margin, reflecting strong gross profitability (51.3%) and controlled SG&A relative to sales (SG&A 2.87 vs revenue 11.17). Among the DuPont components, margin likely improved the most YoY given operating income growth (+52.2%) outpaced revenue growth (+29.4%), while leverage remains low (1.13x) and asset turnover is moderate (0.541). Business rationale: improved mix/pricing, scale benefits, and operating expense discipline likely boosted operating margin to ~39%, with minimal non-operating headwinds. Sustainability: margin levels appear supported by core operations (ordinary income 4.42 close to operating income), but sustaining ~39% operating margin depends on demand, pricing power, and input costs; treat the step-up as sustainable if business mix persists, but susceptible to cyclical volume and materials costs. Watch for warning signs such as SG&A growth outpacing revenue; current data do not show that, but detailed SG&A breakdown is unreported, limiting diagnostics.

Growth Assessment

Top-line growth of +29.4% YoY to 11.17 is robust and indicates healthy demand. Profit growth outpaced revenue (OI +52.2%, NI +53.1%), implying positive operating leverage and/or favorable mix. Gross margin at 51.3% and operating margin ~39.0% point to a defensible niche or differentiated offering. With asset turnover at 0.541, growth is being achieved with a moderate capital base; there is room to enhance efficiency. Outlook: If the demand environment and pricing discipline continue, revenue momentum appears sustainable near term; however, the absence of order/backlog data and segment disclosures constrains visibility. Profit quality looks strong on the P/L, but without OCF/FCF reporting we cannot confirm cash conversion, which is a key caveat for sustainability. Effective tax rate at 33.5% suggests limited tax volatility. EPS (basic) is 69.75 JPY, supported by net income of 2.94 and average shares of 4,225,335.

Financial Health

Liquidity is exceptionally strong: current ratio 580.8% and quick ratio 580.8% far exceed healthy thresholds; no warning triggers (both >> 1.0). Solvency is conservative: D/E 0.14x and financial leverage 1.13x indicate minimal reliance on debt; no D/E warning (well below 2.0). Interest coverage at 1163.10x confirms negligible interest burden. Maturity mismatch risk appears low: current assets 14.43 vs current liabilities 2.48 yield working capital of ~11.94, and cash & deposits alone (10.73) cover 4.3x current liabilities. Noncurrent liabilities are de minimis at 0.05. Off-balance sheet obligations are not disclosed; none can be assessed from the provided data. Overall, the balance sheet provides significant resilience and optionality.

Cash Flow Quality

OCF and FCF were unreported, so OCF/Net Income and FCF coverage cannot be calculated this period. As a result, we cannot confirm whether earnings are cash-backed; OCF/NI assessment is N/A (no quality flag implied). Working capital signals (receivables, inventories) are also unreported, preventing analysis of potential quarter-end working capital pull-forwards. Cash holdings are substantial at 10.73, but sustainability of future cash generation requires confirmation once cash flow statements are available. Without capex and dividend cash data, we cannot evaluate FCF sufficiency for capex plus dividends; caution is warranted until OCF disclosure is available.

Dividend Sustainability

Calculated payout ratio is 36.0%, which is within a generally sustainable range (<60%). DPS and total dividends paid are unreported, and FCF coverage is not calculable due to missing cash flow data. On balance sheet metrics alone—strong cash (10.73), low debt, and retained earnings (13.35)—the company appears well-positioned to fund dividends and operations. Policy outlook cannot be inferred without management guidance; however, profitability strength and low leverage support the capacity to maintain ordinary dividends assuming stable earnings and capex. Confirmation awaits OCF and capex disclosure.

Risk Assessment

Business Risks:

• Demand cyclicality tied to construction/maintenance activity and public/private capex cycles
• Input cost volatility (e.g., polyurethane/chemical materials) potentially pressuring gross margins
• Project timing and seasonality affecting quarterly revenue recognition and utilization
• Customer concentration risk (not disclosed), common in specialized engineering services
• Execution risk on specialized projects that can impact margins if rework occurs

Financial Risks:

• Limited disclosure of OCF/FCF impedes assessment of cash conversion and dividend coverage
• Asset turnover is moderate (0.541), leaving ROE reliant on high margins rather than efficiency gains
• Small-cap liquidity risk and potential share price volatility
• Potential mismatch if large receivables or WIP build up (receivables/inventories unreported)

Key Concerns:

• Cash flow statement unreported; OCF/NI and FCF coverage N/A
• SG&A breakdown absent; cost structure sensitivity cannot be stress-tested
• Segment/backlog data unreported; limited visibility on revenue sustainability
• Industry cost inflation could erode the currently elevated operating margin (~39%)

Investment Implications

Key Takeaways:

• Top-line growth +29.4% YoY with OI +52.2% indicates strong operating leverage
• High margin profile: GM 51.3%, OM ~39.0%, NM 26.3%
• ROE 16.1% driven primarily by margins; leverage remains low at 1.13x
• Balance sheet is cash-rich with minimal debt (D/E 0.14x) and ample liquidity (current ratio 580.8%)
• Earnings quality cannot be validated due to missing OCF/FCF data
• Payout ratio of 36.0% suggests room for dividends within earnings, pending cash flow confirmation

Metrics to Watch:

• Operating cash flow and OCF/NI ratio (target >1.0 over time)
• Order backlog and booking trends to gauge revenue sustainability
• Gross and operating margin trajectory (bps changes) vs input cost movements
• Asset turnover improvement from 0.541 to enhance ROE without leverage
• SG&A growth vs revenue growth to monitor operating discipline
• Capex levels and FCF coverage of dividends

Relative Positioning: Versus TSE small-cap construction/engineering peers, the company exhibits superior liquidity, lower leverage, and higher operating margins; however, its asset turnover is moderate and disclosure on cash flows is limited, which tempers visibility compared with peers that provide fuller cash flow and segment data.

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