TSUKISHIMA HOLDINGS CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥56.64B
• Operating Income: ¥1.65B
• Net Income: ¥11.79B
• EPS: ¥278.37

Income Statement

Balance Sheet

Cash Flow Statement

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: A solid operational quarter with notable margin expansion, but headline net income is inflated by large extraordinary gains, masking modest core profitability. Revenue rose 6.3% YoY to 566.39, with operating income up 48.9% YoY to 16.47 and ordinary income up 24.3% to 23.97. Gross profit reached 115.76, implying a gross margin of 20.4%, while operating margin improved to 2.9%. Based on back-solved prior-year figures, operating margin expanded about 83 bps YoY (from ~2.1% to ~2.9%), reflecting better project mix/price discipline and SG&A control. Non-operating income of 10.23 (notably dividend income 4.95 and interest income 1.38) supported ordinary income. Profit before tax surged to 172.66, far above ordinary income, indicating sizable extraordinary gains in the quarter. Net income rose 10.6% YoY to 117.83, yielding a net margin of 20.8%, which is not reflective of recurring earnings power given the extraordinary boost. Earnings quality is acceptable on cash conversion: OCF of 133.29 exceeds net income (OCF/NI 1.13x), suggesting underlying cash realization from projects was healthy. Liquidity is strong with a current ratio of 258%, cash of 416.51, and low short-term borrowings (0.50), mitigating near-term refinancing risk. Leverage remains conservative to moderate (D/E 0.69x) with robust interest coverage of 28.9x. However, capital efficiency is weak with ROIC at 1.4%, well below the 5% warning threshold, highlighting structurally low asset turnover in the project business and a large capital base. Shareholder returns are active: financing CF of -179.48 includes share repurchases of -112.29; the calculated payout ratio is 29.2%, implying capacity to continue distributions. Forward-looking, core operating improvements appear sustainable if order quality and execution discipline hold, but headline earnings likely normalize as extraordinary gains fade. Focus should shift to improving ROIC, maintaining operating margin gains, and disciplined use of balance sheet for buybacks and selective growth. Watch order intake/backlog quality, cost pass-through, and any further non-recurring gains or losses that could obscure the run-rate.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (NPM) 20.8% × Asset Turnover (AT) 0.304 × Financial Leverage (FL) 1.69x = ROE 10.7% (matches reported). The component with the largest distortion this quarter is NPM, inflated by extraordinary gains (PBT 172.66 vs ordinary income 23.97), not by core operations. Operating margin is 2.9% and ordinary margin is 4.2%, indicating the underlying profitability absent extraordinary items is much lower than the 20.8% net margin suggests. Asset turnover at 0.304 remains low, consistent with an EPC/engineering-heavy model and high working capital tied to receivables. Financial leverage at 1.69x is moderate and not the primary driver of ROE. Business reason for the NPM spike: sizable extraordinary gains above ordinary income, alongside healthy non-operating income (dividends and interest). Sustainability: the margin uplift from extraordinary items is one-time; the operating margin expansion (+83 bps YoY) is more likely sustainable if mix and execution hold. Watch SG&A efficiency: SG&A is 99.29; while we lack YoY SG&A, operating profit grew faster than revenue (+48.9% vs +6.3%), signaling positive operating leverage this period. Key concern: very low ROIC (1.4%) despite 10.7% ROE, implying accounting equity efficiency is flattered by one-offs and leverage while economic returns on invested capital lag.

Growth Assessment

Top-line growth of 6.3% to 566.39 appears steady, consistent with project execution ramp. Operating income grew 48.9%, outpacing revenue, driven by improved margins and possibly favorable project close-outs. Ordinary income grew 24.3% supported by 10.23 in non-operating income (notably dividend income 4.95), indicating portfolio income contribution. Headline net income rose 10.6% but is primarily boosted by extraordinary gains, suggesting limited visibility into sustained EPS at this level. EBITDA of 33.36 (5.9% margin) indicates modest operating cash earnings consistent with an engineering/services mix. With OCF at 133.29, cash conversion was strong this half, likely aided by receivables collection and low inventory intensity. Revenue sustainability hinges on order intake and backlog quality (not disclosed here); the receivables balance (521.28) suggests a sizable project base in execution. Outlook: expect normalization of net margin as extraordinary gains subside; focus on maintaining operating margin near ~3% or higher, selective price discipline, and improved project risk management to gradually lift ROIC.

Financial Health

Liquidity is strong: current ratio 258.2% and quick ratio 258.0% (inventory only 1.26), no warning on Current Ratio (<1.0) or acute liquidity strain. Cash and deposits of 416.51 plus receivables of 521.28 comfortably cover current liabilities of 453.63. Solvency is conservative to moderate with D/E at 0.69x and long-term loans of 107.12 vs short-term loans of just 0.50, limiting maturity mismatch risk. Interest coverage is robust at 28.89x, indicating ample buffer against rate increases. Working capital is sizable at 717.84, typical for project businesses but a drag on capital efficiency. No off-balance sheet obligations are disclosed in the provided data; absence of disclosure does not confirm absence. Maturity profile appears favorable given low short-term debt and high liquidity.

Cash Flow Quality

OCF/Net Income is 1.13x, above the 0.8 threshold, indicating acceptable earnings quality despite one-time gains in accounting profit. Operating cash flow of 133.29 likely benefited from collections and milestone billings, with minimal inventory dynamics. Investing CF is unreported; however, reported capex is low at 3.85, suggesting capital-light operations. A proxy FCF (OCF - capex) is approximately 129.44, indicating capacity to self-fund dividends and buybacks, though full FCF is uncertain without complete investing CF details (e.g., M&A, securities). Financing CF of -179.48 reflects active shareholder returns, notably share repurchases of -112.29; leverage still remains moderate post-returns. No clear signs of working capital manipulation from the snapshot, but the large receivables base warrants continued monitoring of DSO and project cash curves.

Dividend Sustainability

The calculated payout ratio is 29.2%, comfortably below the 60% benchmark. While total dividends paid are unreported, cash generation (OCF 133.29) and low capex (3.85) imply strong coverage of ordinary dividends on a proxy FCF basis. Given share repurchases of -112.29 in the period, the total shareholder return outlay is significant but appears manageable within liquidity and leverage constraints. Policy outlook: with net cash-like liquidity and moderate debt, the company has room to sustain dividends and opportunistic buybacks; however, reliance on extraordinary gains should not anchor dividend growth decisions. Watch for management guidance on DPS trajectory and any shift toward ROIC-focused capital allocation to enhance sustainability.

Risk Assessment

Business Risks:

• Project execution risk and cost overruns in EPC/engineering contracts, which can compress margins.
• Receivables concentration and collection timing risk given large AR (521.28).
• Order intake/backlog volatility affecting revenue visibility (not disclosed here).
• Input cost inflation and subcontractor availability impacting project profitability.
• Potential normalization after extraordinary gains, lowering headline profitability.

Financial Risks:

• Low ROIC (1.4%) indicating weak capital efficiency and potential value dilution if not improved.
• Working capital intensity tying up cash and reducing flexibility in downturns.
• Dividend and buyback commitments could outpace sustainable FCF if cash conversion weakens.
• Exposure to interest rate increases is limited but present via 107.12 in long-term loans.

Key Concerns:

• Headline net margin is not representative of recurring earnings due to large extraordinary gains.
• Dependence on large receivables conversion; delays could impact OCF.
• Limited disclosure on investing CF and extraordinary items reduces transparency.

Investment Implications

Key Takeaways:

• Core operations improved with operating margin expansion (~+83 bps YoY) on modest revenue growth.
• Headline net income is elevated by extraordinary gains; ordinary income and operating income are better proxies.
• Cash conversion is healthy (OCF/NI 1.13x) with strong liquidity and moderate leverage.
• Capital efficiency is the main weakness (ROIC 1.4%); management focus on ROIC uplift is needed.
• Active shareholder returns via buybacks; balance sheet can currently support distributions.

Metrics to Watch:

• Order intake and backlog quality/mix to validate revenue sustainability.
• Operating margin trajectory and SG&A efficiency versus revenue growth.
• Details of extraordinary income items and recurrence.
• Receivables days and cash conversion cycle.
• ROIC progression and asset turnover improvement.
• Capital allocation (DPS, buyback pace) versus OCF and full FCF.

Relative Positioning: Within Japan’s engineering/environmental solutions peers, Tsukishima shows strong liquidity and improving operating margin but lags in capital efficiency (low ROIC) and relies on one-off gains for headline profitability this quarter. Maintaining operating discipline while lifting ROIC and sustaining cash conversion will be key to closing the gap with higher-ROIC competitors.

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