ASAHI CONCRETE WORKS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥2.97B
• Operating Income: ¥70M
• Net Income: ¥80M
• Earnings per Unit (EPU): ¥6.15

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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: Weak quarter with severe profit compression despite healthy liquidity, partially cushioned by non-operating dividend income and strong operating cash flow. Revenue declined 9.7% YoY to 29.69, reflecting softer demand or project timing slippage in construction-related activity. Operating income plunged 79.8% YoY to 0.70, taking operating margin down to 2.4% from roughly 10.6% a year ago (about 820 bps compression). Ordinary income fell 70.4% YoY to 1.19, implying an ordinary margin of 4.0% vs about 12.2% last year (roughly 820 bps compression). Net income decreased 71.0% YoY to 0.80, with net margin at 2.7% vs about 8.4% last year (around 570 bps compression). Gross margin is 27.1%, indicating cost pass-through or mix challenges relative to prior-year profitability levels. Non-operating income of 0.60 (mainly dividend income of 0.59) was a key support, representing a high contribution to earnings given the weak core profit. Profit before tax of 3.99 is well above ordinary income, suggesting sizable unreported extraordinary gains/losses elsewhere in the statement; however, the final net income of 0.80 indicates significant below-the-line charges offsetting PBT, not fully detailed. Cash generation was a bright spot: operating cash flow of 3.16 was 3.96x net income, evidencing robust earnings quality this quarter. With capex of 1.42, we infer positive free cash flow of about 1.74, even as profits compressed. The balance sheet remains very strong: cash and deposits of 52.80 and a current ratio of 376% underpin low refinancing risk. Leverage is conservative with D/E of 0.27x and interest coverage of 43.7x. Capital efficiency is weak: ROE is 0.6% and ROIC is just 0.5%, well below a 5% warning threshold, indicating underutilized assets (notably cash) and depressed margins. Forward-looking, recovery hinges on restoring operating margin via pricing, mix, and cost control, while maintaining disciplined capex and working capital. Given heavy reliance on non-operating dividends this quarter and the indication of significant extraordinary items, visibility into normalized earnings remains limited. We remain focused on margin repair, order intake cadence, and any disclosures on extraordinary items that impacted net income.

Profitability Analysis

ROE decomposition: ROE (0.6%) = Net Profit Margin (2.7%) × Asset Turnover (0.162) × Financial Leverage (1.30x). The dominant driver of the ROE decline is the sharp contraction in margins: operating margin fell to 2.4% from an estimated ~10.6% last year (~820 bps), and net margin decreased to 2.7% from ~8.4% (~570 bps). Asset turnover is low at 0.162, reflecting a large cash position and relatively modest revenue scale against the asset base; leverage is conservative at 1.30x equity multiplier, so financial leverage did not support ROE. Business reasons for margin pressure likely include weaker volumes (revenue -9.7% YoY), adverse price-cost dynamics (cement/materials, energy, logistics), and limited operating leverage given fixed cost absorption. Non-operating dividend income (0.59) cushioned ordinary income but does not address core operating profitability. Sustainability assessment: the margin compression appears cyclical or mix-related rather than structural if price pass-through and project execution normalize; however, reliance on non-operating income is not a durable fix. Watch for SG&A discipline: SG&A is 4.57, but without prior-period detail we cannot confirm growth; still, the drop in operating income versus revenue decline signals negative operating leverage. Overall, ROE remains constrained by both low margins and low asset turnover; a margin-led recovery is the most realistic path near term.

Growth Assessment

Revenue contracted 9.7% YoY to 29.69, indicating demand softness or project delays in the construction materials cycle. Operating profit fell 79.8% YoY to 0.70, far exceeding the pace of revenue decline, highlighting negative operating leverage and/or price-cost pressure. Ordinary income (-70.4% YoY) and net income (-71.0% YoY) declines were severe despite non-operating dividend income support. Growth quality is weak at the profit line: core operating profitability deteriorated, and ordinary earnings were propped up by non-operating items. However, cash conversion was strong (OCF 3.16 vs NI 0.80), suggesting working capital or cash collection was favorable. Near-term outlook depends on order intake, pricing power in precast/concrete products, and stabilization of input costs (cement, aggregates, power). A recovery path requires restoring operating margin toward mid- to high-single digits, supported by better utilization, procurement efficiencies, and mix improvements. Given the company-only (non-consolidated) scope and unreported segment data, visibility into recurring vs one-time effects is limited.

Financial Health

Liquidity is very strong: current ratio 376% and quick ratio 376%, with cash and deposits of 52.80 comfortably exceeding current liabilities of 23.94. No warning triggers: Current Ratio >> 1.0, D/E 0.27x (< 1.5) and far below a 2.0 risk threshold. Interest coverage is robust at 43.7x, and short-term loans (1.70) are minimal relative to cash, indicating negligible near-term refinancing risk. Working capital is ample at 66.12; maturity mismatch risk appears low given sizable liquid assets versus short-term obligations. Total liabilities of 37.82 vs total equity of 140.42 underline a conservative capital structure. Off-balance-sheet obligations are not disclosed; absent detail on guarantees or long-term purchase commitments, we cannot assess contingent exposures. Overall solvency and liquidity are strong, enabling the firm to withstand cyclical downturns.

Cash Flow Quality

Earnings quality is high this quarter with OCF/Net Income at 3.96x (> 1.0), indicating cash earnings exceeded accounting profit. We estimate free cash flow at roughly 1.74 (OCF 3.16 minus capex 1.42), positive despite profit compression. FCF generation appears sufficient to fund maintenance capex and provides optionality for dividends or balance sheet reinforcement. Without detailed working capital bridges, we cannot isolate drivers (receivable collections, payables, inventory), but the strong cash conversion suggests no obvious manipulation. Financing CF of -2.69 indicates net outflows (likely debt repayment and/or dividends), consistent with balance sheet strength. Sustainability: if margins recover to more normal levels, cash conversion should remain solid; if margin pressure persists, FCF resilience will rely on continued working capital discipline and capped capex.

Dividend Sustainability

The reported calculated payout ratio is 281.2%, which appears elevated relative to current net income of 0.80 and suggests either prior-year base or interim distributions exceeding current earnings. Total dividends paid are unreported, limiting precision. On cash terms, estimated FCF of ~1.74 could cover moderate dividends, but sustaining a payout above earnings is not advisable if profit weakness persists. Balance sheet cash (52.80) provides capacity to maintain dividends temporarily, but long-term sustainability requires operating profit recovery. Policy outlook cannot be inferred from disclosures; watch for guidance at fiscal-end regarding payout targets and linkage to earnings/FCF.

Risk Assessment

Business Risks:

• Construction cycle exposure leading to volume and pricing volatility (revenue -9.7% YoY).
• Input cost inflation risk (cement, aggregates, electricity, logistics) pressuring gross and operating margins.
• Project timing and mix risk causing negative operating leverage.
• Customer concentration risk potential (not disclosed) typical in infrastructure/public works.
• Execution risk in restoring operating margin from 2.4% toward historical levels.

Financial Risks:

• Very low ROIC at 0.5% indicates poor capital efficiency and potential value erosion if sustained.
• High reliance on non-operating dividend income (0.59) to support ordinary profit in a weak quarter.
• Visibility risk from significant extraordinary items between PBT (3.99) and NI (0.80) not detailed.
• Potential dividend-policy misalignment with earnings (reported payout ratio 281.2%).

Key Concerns:

• Margin compression: operating margin down ~820 bps YoY; net margin down ~570 bps.
• Asset turnover at 0.162 reflects underutilized asset base (large cash) and weak revenue scale.
• Unreported inventory and segment data limit assessment of cost dynamics and mix.
• Non-consolidated reporting reduces visibility into affiliated entities and off-BS exposures.

Investment Implications

Key Takeaways:

• Core profitability deteriorated sharply; operating margin 2.4% vs ~10.6% last year.
• Ordinary profit supported by non-operating dividends; quality of earnings tilted away from operations.
• Strong cash and low leverage provide ample downside protection and flexibility.
• Cash conversion is strong (OCF/NI 3.96x), yielding positive FCF despite profit pressure.
• Capital efficiency is a key weakness (ROE 0.6%, ROIC 0.5%).
• PBT materially exceeds NI, implying notable extraordinary losses/items not detailed.

Metrics to Watch:

• Order intake/backlog and pricing to gauge revenue recovery.
• Operating margin trajectory and gross margin stability.
• Input cost indices (cement, power, logistics) and pass-through effectiveness.
• Working capital days (AR, AP, inventory) to validate cash conversion.
• Capex discipline vs FCF to assess dividend capacity.
• Disclosure on extraordinary items and dividend policy guidance.

Relative Positioning: Versus domestic precast/concrete peers, the company exhibits stronger liquidity and lower leverage but weaker capital efficiency and current-period profitability; recovery depends on restoring operating margins while leveraging a fortress balance sheet.

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