Chiyoda Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥194.73B
• Operating Income: ¥15.62B
• Net Income: ¥14.50B
• EPS: ¥63.79

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

Chiyoda Corporation (TSE: 6366) reported FY2026 Q2 consolidated results under JGAAP featuring revenue of ¥194.729bn (-18.0% YoY), operating income of ¥15.615bn (+13.7% YoY), and net income of ¥17.580bn (+24.1% YoY), indicating margin expansion and improved profitability despite lower sales. The DuPont profile shows a 9.03% net margin, 0.435x asset turnover, and 9.68x financial leverage, yielding a high ROE of 38.01%, underpinned by leverage and stronger margins. Ordinary income of ¥19.589bn exceeded operating income by ¥3.974bn, implying sizable non-operating contributions (e.g., FX, equity method, or other non-operating gains) net of ¥0.347bn interest expense. OCF was ¥19.651bn, exceeding net income by 12%, supporting earnings quality in the period. Liquidity is adequate but thin for an EPC contractor, with a current ratio of 106.8% and working capital of ¥27.743bn. Leverage is high: total liabilities of ¥435.578bn versus equity of ¥46.256bn result in 9.42x debt-to-equity and an implicit equity ratio around 10% (equity/asset), though the disclosed equity ratio field is unreported. EBITDA of ¥17.456bn implies a 9.0% EBITDA margin, while EBIT interest coverage is a strong 45x, reflecting improved operating performance and manageable cash interest in the period. Revenue decline alongside profit growth suggests favorable project mix, cost control, progress on legacy projects, and/or claim recoveries; however, the sustainability of non-operating gains should be monitored. The implied effective tax rate is about 15% (¥2.998bn tax/¥19.589bn pre-tax), despite the reported metric field showing 0.0%. Cash and equivalents are unreported in XBRL; similarly, gross profit and inventories are not disclosed under the provided labels, limiting margin granularity and working capital composition analysis. No dividend was declared (DPS ¥0; payout 0%), consistent with balance sheet repair priorities given leverage. Asset-light capex visibility is limited because investing CF is unreported; hence free cash flow cannot be reliably derived from the provided data. The company remains exposed to EPC project execution risk, but the period’s strong OCF and coverage metrics suggest better operational traction. Overall, results indicate improving profitability, strong DuPont ROE driven by leverage and margin, and adequate near-term liquidity, with data limitations on inventory, cash levels, and detailed non-operating drivers.

Profitability Analysis

ROE of 38.01% decomposes into 9.03% net margin × 0.435x asset turnover × 9.68x financial leverage. The net margin (9.03%) has expanded YoY given operating income growth (+13.7% YoY) against lower revenue (-18.0%), pointing to a stronger project mix, cost containment, or positive project re-estimations. Operating leverage is evident as EBIT rose despite sales contraction, indicating fixed cost absorption benefits and/or release of project contingencies; however, sustainability depends on backlog conversion quality. Ordinary income exceeded operating income by ¥3.974bn, suggesting non-operating tailwinds (e.g., FX gains, equity-method profits, or one-offs) contributed materially to overall profitability. EBITDA of ¥17.456bn and an EBITDA margin of 9.0% corroborate improved operating efficiency relative to the revenue base. Interest coverage is robust at ~45x on EBIT, showing that operating performance comfortably services cash interest of ¥0.347bn. The absence of disclosed gross profit constrains analysis of direct margin drivers (procurement, subcontracting, and contingency releases), but the overall margin profile is clearly improved. Effective tax appears ~15% (¥2.998bn/¥19.589bn), consistent with ordinary income composition and possible foreign tax effects.

Growth Assessment

Top-line contracted to ¥194.729bn (-18.0% YoY), likely reflecting project phasing and lower recognition on large EPC contracts; however, profit growth at both operating (+13.7% YoY) and net levels (+24.1% YoY) points to higher-quality earnings this period. The divergence between revenue and profit suggests margin uplift from resolution of legacy issues, favorable claim settlements, or efficiency gains in ongoing projects. Non-operating gains (ordinary income > operating income by ¥3.974bn) boosted aggregate profit; recurring versus non-recurring nature remains to be confirmed. Asset turnover at 0.435x is typical of EPC firms with large balance sheets and advance/retention balances; improved profitability with lower turnover implies better project economics rather than volume expansion. Sustainability hinges on backlog quality, book-to-bill, and the pipeline in energy/LNG, petrochemicals, and decarbonization segments; these datapoints were not provided. Near-term outlook is cautiously constructive given OCF > net income and strong coverage, but revenue trajectory may remain volatile with project timing. Monitoring of order intake, backlog margin, and status of large projects will be key to assessing whether margin gains are cyclical or structural.

Financial Health

Total assets were ¥447.578bn against total liabilities of ¥435.578bn and equity of ¥46.256bn, implying an equity ratio of roughly 10.3% (computed) even though the disclosed field is unreported. Leverage is elevated: debt-to-equity (using total liabilities as a proxy) is 9.42x, and financial leverage in DuPont is 9.68x (assets/equity). Liquidity is adequate but not ample, with current assets of ¥437.274bn and current liabilities of ¥409.531bn yielding a current and quick ratio of 106.8%; working capital stands at ¥27.743bn. Interest expense is modest at ¥0.347bn relative to operating income, and EBIT interest cover is ~45x, indicating manageable servicing capacity at current earnings. The lack of disclosed cash and inventory balances constrains assessment of immediate liquidity buffers and project-related working capital risks (advances, retentions, and claims). Overall solvency depends on maintaining positive operating cash flow and avoiding large project loss provisions; the thin equity base leaves limited shock absorption for EPC downside scenarios.

Cash Flow Quality

Operating cash flow was ¥19.651bn, exceeding net income of ¥17.580bn (OCF/NI = 1.12), indicating solid earnings-to-cash conversion in the period. Positive OCF alongside higher profits suggests constructive working capital movements or improved milestone billings; however, with inventories and detailed receivables/payables undisclosed, drivers cannot be decomposed. Investing CF is unreported (0), so free cash flow cannot be reliably calculated; the provided FCF figure of 0 likely reflects missing data rather than true zero. Financing CF was a small outflow of ¥0.133bn, indicating limited reliance on external funding in the period. Depreciation and amortization of ¥1.841bn implies modest non-cash charges relative to EBITDA, consistent with an asset-light EPC model. Earnings quality appears acceptable this quarter as cash generation outpaced earnings, but sustainability depends on timing of advances, claim recoveries, and project billing cycles.

Dividend Sustainability

DPS is ¥0.00 with a payout ratio of 0.0%, consistent with capital preservation given high leverage (total liabilities/equity 9.42x) and a relatively small equity base (¥46.256bn). OCF was positive (¥19.651bn), but FCF is not derivable due to unreported investing CF and capex details; hence FCF coverage metrics are not meaningful. With interest coverage strong and profitability improving, capacity to resume distributions will hinge on sustained positive OCF, deleveraging progress, and avoidance of project losses. Policy outlook likely prioritizes strengthening the balance sheet, maintaining bonding capacity, and funding potential working capital needs on new awards before considering dividends.

Risk Assessment

Business Risks:

• EPC project execution risk, including cost overruns and schedule delays
• Claims and change-order recoverability risk affecting margins
• Backlog concentration and timing risk driving revenue volatility
• Exposure to cyclical energy/LNG and petrochemical capex cycles
• FX risk on multi-currency contracts and procurement
• Competitive pricing pressure in global EPC tenders
• Supply chain and subcontractor performance risk

Financial Risks:

• High leverage (total liabilities/equity 9.42x) with a thin equity buffer (~10% equity-to-asset implied)
• Potential covenant or bonding capacity constraints in downturns
• Working capital swings tied to advances, retentions, and milestone billings
• Reliance on non-operating gains to support ordinary income in the period
• Interest rate and credit spread sensitivity on large balance sheet items

Key Concerns:

• Sustainability of margin expansion amid declining revenue (-18.0% YoY)
• Unclear recurrence of non-operating gains (ordinary > operating by ¥3.974bn)
• Limited disclosure on cash, inventories, and gross profit restricting margin diagnostics
• Thin liquidity buffers for EPC risk despite current ratio at 106.8%
• Exposure to single-project shocks given modest equity base (¥46.256bn)

Investment Implications

Key Takeaways:

• Profitability improved meaningfully with operating income up 13.7% despite an 18.0% revenue decline
• High ROE (38.01%) is leverage- and margin-driven; durability depends on recurring operating drivers
• Strong interest coverage (~45x) and OCF > net income (1.12x) support near-term financial resilience
• Leverage remains elevated (9.42x liabilities/equity), keeping balance sheet repair a priority
• Non-operating contributions were material (¥3.974bn), warranting scrutiny for repeatability

Metrics to Watch:

• Order intake and book-to-bill, and disclosed backlog margins
• Project loss provisions and claim recovery progress
• Working capital components (advances, receivables, retentions) and OCF/NI ratio
• Equity ratio (computed) and net debt/EBITDA once cash is disclosed
• Breakdown of ordinary income (FX, equity-method, one-offs) and tax rate normalization

Relative Positioning: Within Japanese plant engineering peers, Chiyoda shows improving profitability and very strong period interest coverage, but remains more highly leveraged than typical peers and more exposed to EPC execution and LNG cycle volatility; sustained OCF and deleveraging would be key to narrowing the gap with stronger-balance-sheet 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
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