GRID (5582) FY2026 Q2 Earnings Report

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Executive Summary

This earnings period delivered substantial increases in both revenue and profit, driven by sharp revenue expansion accompanied by even stronger profit growth; the key highlight is the qualitative improvement in profitability. Revenue was ¥13.2B (+47.7% YoY), Operating Income was ¥2.8B (+342.1%), Ordinary Income was ¥2.8B (+345.8%), and Net Income was ¥1.9B (+377.8%). Profit growth substantially exceeding revenue growth was primarily attributable to the realization of operating leverage, as the increase in SG&A (+22.2%) remained below revenue growth. On the other hand, Operating Cash Flow (OCF) was negative ¥0.6B, indicating a divergence between profit growth and cash-generating capacity.

Factors Affecting Earnings

【Revenue】Revenue increased 47.7% YoY to ¥13.2B. Although segment information is not disclosed, the gross margin remained high at 72.0% (up YoY), suggesting that expanding demand for and orders from existing businesses drove revenue growth. Work in progress (equivalent to projects under construction) was ¥0.70B, up +57.0% from ¥0.45B in the previous year, indicating potential for future revenue recognition while also increasing the degree of dependence on the timing of revenue recognition.

【Income Statement】Operating Income was ¥2.8B (+342.1% YoY), while Ordinary Income was also ¥2.8B (+345.8%), nearly at the same level. The impact of non-operating income and expenses was minor (non-operating income of ¥0.0B and non-operating expenses of ¥0.0B), indicating that most profit was generated by the core business. Net Income was ¥1.9B (+377.8% YoY), maintaining a high growth rate even after recording ¥1.0B in income taxes and other taxes. Extraordinary income and expenses consisted only of a gain on the sale of fixed assets of ¥0.0B, indicating minimal temporary factors. The Operating Margin improved substantially to 21.1% from approximately 7.0% in the previous year, clearly demonstrating that profit growth exceeded revenue growth as the increase in expenses (SG&A +22.2%) was moderate relative to revenue growth.

Key Financial Metrics

【Profitability】The Operating Margin was 21.1% (substantially improved from approximately 7.0% in the previous year), while the Net Profit Margin was 14.1% (improved from approximately 4.3% in the previous year), securing high profitability against a backdrop of a 72.0% gross margin.【Cash Flow Quality】Operating Cash Flow was △¥0.6B, representing a significant divergence from Net Income of ¥1.9B, and OCF/Net Income was approximately △0.32x. The primary factors were a decrease in contract liabilities (△¥1.1B) and an increase in inventories (work in progress), which had a cash impact of △¥0.3B.【Investment Efficiency】Annualized ROE was 9.0%, while a total asset turnover ratio of 0.573x was a limiting factor despite the high Net Profit Margin. Financial leverage was low at 1.11x, indicating that profits were generated primarily through equity capital.【Financial Soundness】The Equity Ratio was 89.8%, cash and deposits were ¥29.6B (64.4% of total assets), and the current ratio was extremely high at 898.1%, with low dependence on interest-bearing debt.

Cash Flow Analysis

Operating Cash Flow was △¥0.6B, a significant deterioration from +¥2.2B in the same period of the previous year. The main uses of funds were a decrease in contract liabilities (△¥1.1B) and an increase in inventories (work in progress), in addition to ¥0.4B in income tax and other tax payments. Investing Cash Flow was △¥1.7B, primarily reflecting ¥0.6B in capital expenditures and security deposits paid, resulting in Free Cash Flow (Operating Cash Flow + Investing Cash Flow) of △¥2.3B. Financing Cash Flow was △¥0.1B, with no significant movement of funds such as share buybacks. Consequently, although cash and deposits decreased from ¥29.6B at the end of the previous fiscal year, the Company still holds more than 60% of total assets in cash and retains ample near-term liquidity. Going forward, the completion and acceptance of work in progress and the replenishment of contract liabilities will be key to normalizing Operating Cash Flow.

Earnings Quality

Ordinary Income of ¥2.8B was nearly equal to Operating Income of ¥2.8B, and since non-operating income and expenses (¥0.0B each) were immaterial, most profit was recurring and generated by the core business. Extraordinary income consisted only of a ¥0.0B gain on the sale of fixed assets, meaning that the impact of temporary factors on profit was extremely limited. On the other hand, Operating Cash Flow was △¥0.6B against Net Income of ¥1.9B, and the significant accrual gap—the difference between accounting profit and cash flow—is an important consideration in assessing earnings quality. This gap was primarily attributable to the decrease in contract liabilities and the increase in work in progress, indicating that revenue recognition depends on project progress and the timing of customer acceptance. While earnings quality remains high from an income statement perspective, delayed cash conversion was a defining feature of the current period.

Earnings Forecast and Guidance

Progress against the full-year plan was 42.4% for Revenue (full-year revenue forecast of ¥31.0B), slightly below the 50% benchmark for the interim period. Meanwhile, progress was 61.8% for Operating Income (forecast of ¥4.5B) and 66.4% for Net Income (forecast of ¥2.8B), indicating progress ahead of plan on a profit basis. The full-year forecasts of +50.2% for Revenue, +5.1% for Operating Income, and △6.1% for Net Income are conservative compared with the high growth rates recorded in the first half, suggesting that the plan assumes normalization of the profit margin in the second half. The required revenue build-up in the second half is approximately ¥17.9B (57.6% of the full-year forecast), making the pace of second-half revenue growth a key factor in achieving the plan.

Shareholder Returns

The dividend for the current interim period was ¥0, and the full-year dividend forecast also remains at ¥0, maintaining a non-dividend policy. The Payout Ratio was 0%, and no cash distribution to shareholders is currently being made. Share buybacks were also negligible (¥0.0B). Retained earnings increased to ¥5.6B (+50.0% from ¥3.7B in the previous year), securing the capacity to use internal funds to address Investing Cash Flow (△¥1.7B) and working capital fluctuations.

Risk Factors

1. Cash Conversion Risk: Operating Cash Flow was △¥0.6B against Net Income of ¥1.9B, resulting in OCF/Net Income of approximately △0.32x. Revenue recognition depends on the timing of project acceptance and billing, making the normalization of cash flow from the second half onward a key point of focus.

2. Work-in-Progress Concentration Risk: All inventories consist of work in progress (¥0.70B, +57.0% YoY), and delays in project completion or customer acceptance could lead to delays in cash collection.

3. Profit Margin Normalization Risk: The first-half Operating Margin rose substantially to 21.1% from approximately 7.0% in the previous year. However, the full-year plan assumes that the profit growth rate will fall below the revenue growth rate, and changes in the project mix and personnel and outsourcing costs in the second half could affect the profit margin.

Industry Benchmark (For Reference; Based on Company Research)

Profitability and Returns

Both the Operating Margin and Net Profit Margin exceed the industry median, placing the Company in the upper tier of the industry in terms of profitability.

Growth and Capital Efficiency

The revenue growth rate is more than twice the industry median, demonstrating a high growth rate within the industry.

※Source: Company research

Key Earnings Highlights

1. Operating Income growth of +342.1%, exceeding the +47.7% revenue growth rate, demonstrates the realization of operating leverage through controlled SG&A growth and indicates a qualitative improvement in the earnings structure.

2. Operating Cash Flow was △¥0.6B against Net Income of ¥1.9B, creating a significant divergence between earnings and cash flow. The primary factors were the decrease in contract liabilities and the increase in work in progress, making the trend in cash conversion during the second half a key structural point for confirmation.

3. Operating Income progress of 61.8% is ahead of Revenue progress of 42.4% under the full-year plan. The fact that the full-year forecast assumes a conservative profit growth rate of +5.1% compared with first-half results is an important consideration when assessing profit margin trends in the second half.

Theoretical Share Price (Reference Value)

Sensitivity: ¥764–¥809 at Cost of Equity ±1%, and ¥783–¥788 at ω±0.1.

Notes:

• Since Net Income progress against the full-year forecast (66%) exceeds the standard benchmark (50%), forecast EPS has been adjusted upward within a ceiling of +10% (because companies with progress ahead of plan tend to outperform their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Since forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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