TAKADAKIKO(Steel Construction)CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.38B
• Operating Income: ¥-274M
• Net Income: ¥-413M
• EPS: ¥-71.56

Income Statement

Balance Sheet

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

Verdict: Weak quarter with revenue contraction and negative profitability, partially cushioned by non-operating income, but bottom-line turned to loss. Revenue declined 20.5% YoY to 73.82, indicating softer demand or project timing delays. Operating income fell to -2.74, translating to an operating margin of approximately -3.7%. Ordinary income improved from operating level with non-operating net income of 0.76 (0.95 non-op income less 0.19 non-op expense) but remained negative at -2.03, a margin of roughly -2.7%. The quarter leaned on financial income, notably 0.68 in dividends and 0.05 in interest income, highlighting dependence on investment returns amid weak core operations. Despite ordinary loss, profit before tax was reported at 3.74, implying sizable extraordinary gains roughly in the +5.8 range, which is atypical relative to the operating trend. Net income, however, was -4.13 (EPS -71.56 yen), suggesting further non-recurring losses or tax-related adjustments below the ordinary line, resulting in a large gap between PBT and bottom line. SG&A was 8.29, equating to about 11.2% of sales, which appears heavy given the revenue drop, contributing to the operating loss. Financially, liquidity remains strong: current ratio 247.1% and working capital 104.00 provide cushion. Leverage looks conservative with D/E of 0.52x, but interest coverage is deeply negative at -20.29x due to the operating loss. ROE was -2.0% from DuPont (NPM -5.6%, asset turnover 0.274x, leverage 1.32x), and ROIC was -0.8%, well below a 5% warning threshold, underscoring capital inefficiency. The quality of earnings is questionable this quarter because core operations are loss-making while non-operating and extraordinary items materially influence reported profit lines. Cash flow data were not disclosed, preventing validation of earnings with operating cash. Forward-looking, recovery hinges on order intake normalization, gross margin stabilization, and reduction in reliance on financial income. Key watch points are project execution margins, non-operating income sustainability (dividends), and any further extraordinary items driving volatility.

Profitability Analysis

ROE decomposition: -2.0% = Net Profit Margin (-5.6%) × Asset Turnover (0.274x) × Financial Leverage (1.32x). The dominant drag is the net profit margin, driven by an operating margin of roughly -3.7% and a negative ordinary income margin of about -2.7%. Asset turnover at 0.274x indicates low utilization of the asset base in the current period, consistent with a 20.5% revenue decline. Financial leverage at 1.32x is modest and neither a significant help nor hindrance. The most material change vs. a typical profitable period is the margin compression stemming from revenue contraction and fixed-cost burden (SG&A at 8.29 or ~11.2% of sales) combined with likely weaker gross margins (undisclosed). Business drivers likely include delayed project recognition, input cost pressures, and under-absorption of overheads. Non-operating income (dividends/interest totaling 0.73) provided a cushion but could not offset the operating loss. The sharp divergence between ordinary income (-2.03) and profit before tax (+3.74) suggests one-off extraordinary gains; however, net income of -4.13 implies additional non-recurring losses or adjustments, elevating earnings volatility. Sustainability: the current negative margin is not sustainable; recovery depends on order intake and margin restoration. Flag: operating expenses (SG&A) appear high relative to depressed sales; if SG&A growth exceeded revenue growth, operating leverage would worsen—data insufficiency prevents full validation but the ratio indicates pressure.

Growth Assessment

Revenue contracted 20.5% YoY to 73.82, indicating significant demand softness or project timing slippage. Operating income fell to -2.74, a major deterioration, with margin near -3.7%. Ordinary income remained negative despite support from dividends and interest, underscoring weak core profitability. Profit before tax swung to a positive 3.74 due to extraordinary items, but net income printed a loss of -4.13, pointing to non-recurring losses or tax effects later in the P/L. With gross profit undisclosed, it is difficult to isolate mix vs. cost inflation, but the scale of the operating loss suggests gross margin pressure plus fixed-cost drag. The presence of 0.68 in dividend income implies a material contribution from investments amid weak operations; sustainability depends on investee performance and payout policies. Near-term outlook depends on backlog conversion and normalization of site progress; if orders and utilization recover, asset turnover could lift from 0.274x and ease margin pressure. However, absent evidence of order recovery, the baseline implies muted top-line and continued earnings volatility.

Financial Health

Liquidity is strong: current ratio 247.1% and working capital 104.00 provide a substantial buffer. No warning on current ratio (<1.0) or D/E (>2.0); D/E at 0.52x is conservative. Short-term loans are 34.00 versus cash of 22.89, implying reliance on receivables/inventories (undisclosed) to cover near-term obligations; overall current assets of 174.68 comfortably exceed current liabilities of 70.68, mitigating maturity mismatch risk. Long-term loans are 30.00, with total liabilities at 106.47 against equity of 203.63, indicating solid solvency. Interest coverage is weak at -20.29x due to operating losses; if sustained, this could pressure refinancing costs despite low leverage. Investment securities of 48.16 are sizable, introducing market valuation risk but also providing potential liquidity if readily marketable. No off-balance sheet obligations were disclosed; data limitations prevent assessment of guarantees or order-related contingencies common in engineering/steel fabrication.

Cash Flow Quality

Operating cash flow was not disclosed; therefore, OCF/Net Income cannot be assessed and earnings quality cannot be validated by cash conversion. The negative net income and reliance on non-operating and extraordinary items raise quality concerns until OCF data confirm cash generation from core operations. Free cash flow and capex were not reported, limiting assessment of capacity to fund maintenance capex and any growth investments. Working capital movements are unknown; we cannot detect signs of end-period working capital management. Dividend and interest receipts (0.73) indicate recurring financial cash inflows, but they do not substitute for durable operating cash if the core business remains loss-making.

Dividend Sustainability

Dividend data were not disclosed; the calculated payout ratio of -162.5% is not decision-useful given negative earnings and missing DPS/FCF. With net income negative and ROIC at -0.8%, any maintained dividend would rely on cash reserves, investment income, or asset sales rather than earnings. Without OCF and FCF disclosure, sustainability cannot be confirmed. Balance sheet liquidity (current assets 174.68, cash 22.89) offers near-term flexibility, but persistent operating losses and weak interest coverage would erode capacity to fund distributions over time. Policy outlook is uncertain; visibility will improve with restored operating profitability and disclosed cash flows.

Risk Assessment

Business Risks:

• Demand cyclicality and project timing risk in steel fabrication/construction-related markets causing a 20.5% revenue decline
• Gross margin pressure from input cost inflation and under-absorption of fixed costs leading to operating loss
• Execution risk on large projects (schedule delays, cost overruns) impacting revenue recognition and margins
• Dependence on non-operating income (dividends/interest totaling 0.73) to offset weak core earnings

Financial Risks:

• Negative interest coverage (-20.29x) despite modest leverage, increasing refinancing and covenant risk if sustained
• Short-term loans (34.00) exceeding cash (22.89), necessitating smooth collection of receivables (undisclosed)
• Market risk on investment securities (48.16) potentially impacting equity via valuation changes
• Earnings volatility due to extraordinary items affecting the gap between ordinary income and net income

Key Concerns:

• Significant divergence between ordinary income (-2.03), profit before tax (3.74), and net income (-4.13) indicating material non-recurring items and high P/L volatility
• ROIC at -0.8% implies capital inefficiency versus typical 7–8% targets in industrials
• Data gaps (gross profit, OCF/FCF, inventories/receivables) limit visibility on margin drivers and cash conversion
• Sustainability of dividend income from investments if broader market conditions weaken

Investment Implications

Key Takeaways:

• Core operations loss-making with operating margin about -3.7% on a 20.5% revenue decline
• Ordinary income supported by financial income but still negative; extraordinary items drove PBT positive, yet bottom line was a loss
• Liquidity and leverage are adequate (current ratio 247%, D/E 0.52x), but interest coverage is deeply negative
• ROE -2.0% and ROIC -0.8% highlight depressed returns and capital inefficiency
• Large investment securities balance (48.16) is a double-edged sword: income support and liquidity versus valuation risk

Metrics to Watch:

• Order intake/backlog and book-to-bill to gauge revenue recovery
• Gross margin and SG&A ratio for operating leverage improvements
• Operating cash flow and free cash flow to validate earnings quality
• Interest coverage and debt maturity profile, especially short-term loan rollovers
• Dividend and interest income trends and any valuation gains/losses on securities
• Extraordinary gains/losses to monitor P/L volatility and one-off dependence

Relative Positioning: Versus domestic peers in steel fabrication/plant engineering, profitability and ROIC are weaker this quarter, with higher reliance on non-operating income; however, the balance sheet is comparatively liquid and moderately leveraged, offering time to execute an operational recovery.

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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