GEOSTR Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥12.58B
• Operating Income: ¥632M
• Net Income: ¥435M
• EPS: ¥13.89

Income Statement

Balance Sheet

Cash Flow Statement

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: A solid FY2026 Q2 with steady top-line growth, resilient margins, and exceptionally strong operating cash flow, but capital efficiency remains weak. Revenue rose 7.2% YoY to 125.8, with gross profit of 21.13 and operating income of 6.32 (+4.4% YoY), demonstrating controlled SG&A at 14.81 (11.8% of sales). Operating margin stands at roughly 5.0%, ordinary income reached 6.55 (+6.1% YoY), and net income was 4.34 (+9.3% YoY), implying a net margin of about 3.5%. Gross margin is 16.8%, and EBITDA was 9.59 (7.6% margin), indicating stable, if modest, profitability. Although YoY growth rates are provided, prior-period margin levels are not disclosed, so precise basis-point margin expansion/compression cannot be quantified; qualitatively, profit growth roughly tracked sales growth, implying relatively stable margin structure. Earnings quality is very strong: operating cash flow (30.26) was 6.97x net income (4.34), suggesting robust cash conversion, likely aided by favorable working-capital movements. The balance sheet is conservative with current ratio at 231%, quick ratio at 180%, and total liabilities/equity at 0.44x; interest-bearing debt is minimal at 2.9 (short + long), and interest coverage is an exceptional ~399x. Despite these strengths, capital efficiency is a clear weak spot: ROE is 1.8% and ROIC is 1.8%, both below typical cost of capital and industry benchmarks. Asset turnover is low at 0.363x, which, alongside modest margins and low leverage, constrains ROE. A calculated payout ratio of 79.9% points to a high payout relative to earnings, which is supported by current cash generation but could be sensitive to profit swings. Free cash flow is not fully disclosed, but a proxy (OCF – CapEx) is approximately 24.6, comfortably positive. Forward-looking, sustaining current cash conversion and improving asset efficiency (inventory and receivable turns) will be key to lifting ROIC/ROE. The company’s low leverage provides optionality for strategic investment, but returns on invested capital must rise above 5% to escape the warning zone. Absent segment detail, we infer the earnings trajectory is stable, but dependent on construction/infrastructure demand, material costs, and order timing. Overall, Q2 confirms operational stability and strong liquidity, yet highlights a need for capital discipline and efficiency improvements.

Profitability Analysis

DuPont decomposition: ROE (1.8%) = Net Profit Margin (3.5%) × Asset Turnover (0.363x) × Financial Leverage (1.44x). The most constraining component is Asset Turnover at 0.363x, indicating heavy asset intensity relative to sales. Net margin at ~3.5% is modest but positive, and leverage is low-to-moderate, offering limited ROE amplification by design. The likely business drivers for low asset turnover include project-based working capital needs, sizable inventories (51.41) and receivables (51.10), and a substantial fixed-asset base supporting precast/railway-related products. This dynamic appears structural rather than one-time, suggesting that, without targeted efficiency actions (e.g., throughput, lead-time reductions, asset pruning), asset turnover may remain a drag. Operating margin near 5.0% reflects disciplined SG&A (11.8% of sales) but relatively thin gross margins for materials/manufacturing. Sustainability: margins appear stable given operating income growth (+4.4%) broadly tracking revenue growth (+7.2%), but lack of detailed cost disclosure limits confidence on future mix/material price impacts. Concerning trends to watch include the high payout ratio (79.9%) versus low ROE (1.8%) and the risk that SG&A growth could outpace revenue if wage pressures or logistics costs rise; however, this quarter’s SG&A level appears contained.

Growth Assessment

Revenue grew 7.2% YoY to 125.8, indicating healthy demand or improved execution in core end markets. Operating income increased 4.4% YoY to 6.32, suggesting stable operating leverage but limited margin expansion. Ordinary income (+6.1% YoY) and net income (+9.3% YoY) outpaced operating profit growth, aided modestly by net non-operating gains (0.26 vs 0.02 expenses) and a manageable tax rate (~32%). EBITDA margin of 7.6% points to consistent, if not high, earnings quality before non-cash charges (D&A 3.27). The sustainability of growth will hinge on order backlog, bid pipeline, public works and rail-related investment cycles, and commodity input prices (cement/steel). With low leverage and ample liquidity, the company can pursue selective growth investments; however, the current ROIC of 1.8% indicates growth must be value-accretive with clear return hurdles. Given the strong OCF this period, working capital management contributed meaningfully; sustaining this benefit may be harder if receivables/inventories rebuild alongside sales. Outlook: moderate, steady growth is plausible, with upside if gross margin mix improves or if operational efficiency lifts asset turnover; downside risks include material cost inflation and project timing.

Financial Health

Liquidity is strong: current ratio 230.7% and quick ratio 180.3%, with cash and deposits at 7.0 plus significant receivables (51.10) and inventories (51.41) versus current liabilities of 101.94. No warnings on standard thresholds (Current Ratio well above 1.0; D/E well below 2.0). Solvency is conservative: total liabilities/equity at 0.44x; interest-bearing debt is very low (short-term 2.70, long-term 0.20), implying interest-bearing D/E near 0.01x. Interest coverage is extremely strong at ~399x, indicating minimal refinancing or interest-rate sensitivity. Maturity mismatch risk appears low, with current assets (235.22) comfortably exceeding current liabilities (101.94) and only small short-term loans outstanding. Off-balance sheet obligations are not disclosed; none can be assessed from the data provided.

Cash Flow Quality

Earnings quality is high: OCF/Net Income is 6.97x, well above the 1.0x benchmark, implying strong cash conversion, likely from favorable working capital. While full investing cash flow is unreported, CapEx was 5.62; a proxy FCF (OCF – CapEx) is about 24.64, implying ample capacity to fund maintenance and dividends. With low interest burden (interest expense 0.02) and minimal mandatory debt service, cash generation appears robust. Potential working-capital manipulation signals are limited by missing YoY balance sheet bridges; the magnitude of OCF versus NI suggests a working-capital release or advanced customer collections, which may not repeat each quarter. Sustainability: cash flow should remain solid if margins hold and working capital remains disciplined, but normalization of working capital could reduce OCF in subsequent periods.

Dividend Sustainability

Dividends per share are unreported; however, a calculated payout ratio of 79.9% indicates a high distribution relative to earnings. Using net income of 4.34, implied total dividends would be approximately 3.47 if the payout ratio applies, which would be well covered by current-period OCF (30.26) and by proxy FCF (~24.64). That said, payout sustainability should consider that ROE is just 1.8% and ROIC is 1.8%, below typical cost of capital, suggesting reinvestment returns are low; high payouts may cap internal funding for efficiency improvements unless cash generation stays elevated. Policy outlook cannot be inferred due to missing DPS history and guidance; if earnings soften or working-capital tailwinds reverse, a ~80% payout could become tight against NI, though still likely covered by OCF given low leverage.

Risk Assessment

Business Risks:

• Demand cyclicality in construction/rail infrastructure affecting order intake and utilization
• Raw material price volatility (cement, steel) pressuring gross margins
• Project execution and timing risk leading to revenue/EBIT recognition volatility
• Labor and logistics cost inflation impacting SG&A and cost of sales
• Customer concentration risk (potential exposure to large public or railway customers)

Financial Risks:

• Low capital efficiency (ROIC 1.8%, ROE 1.8%) limiting value creation
• High payout ratio (~80%) increasing sensitivity to earnings volatility
• Potential working-capital swings driving OCF variability
• Limited disclosed interest-bearing debt lowers risk, but also reduces leverage-driven returns

Key Concerns:

• Structural low asset turnover (0.363x) constraining ROE
• Thin operating margin (~5.0%) vulnerable to input cost spikes
• Dependence on maintaining favorable working capital to sustain OCF
• Data gaps (no detailed investing CF, DPS, or segment information) limiting visibility

Investment Implications

Key Takeaways:

• Top-line growth of 7.2% YoY with stable operating profit growth (+4.4%) indicates steady operations.
• Margins are modest but resilient: gross margin 16.8%, operating margin ~5.0%, EBITDA margin 7.6%.
• Cash generation is a standout positive: OCF 30.26, ~7x net income; proxy FCF ~24.6.
• Balance sheet is very conservative with minimal interest-bearing debt and ~399x interest coverage.
• Capital efficiency is weak: ROIC 1.8% and ROE 1.8% below benchmark; asset turnover 0.363x is the key drag.
• High payout ratio (~80%) is currently covered by cash flows but could be sensitive to profit normalization.
• Operating leverage appears limited; profit growth roughly tracks revenue growth.
• Non-operating items are small; quality of earnings is primarily operating-driven this quarter.

Metrics to Watch:

• Order backlog and new orders (leading indicator for revenue sustainability)
• Gross margin and material cost trends (cement/steel input prices)
• SG&A ratio versus sales growth (cost discipline)
• Working-capital metrics: receivable days, inventory turns, payable days
• ROIC trajectory and initiatives to improve asset turnover
• CapEx plans and returns on new investments
• Dividend policy disclosures and payout target
• OCF/NI ratio sustainability as working capital normalizes

Relative Positioning: Within Japan’s construction materials/rail-related precast segment, the company exhibits a conservative balance sheet and strong cash conversion this period but lags peers on capital efficiency, with low ROIC/ROE driven by asset intensity and modest margins.

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