KANEMATSU ENGINEERING CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥7.21B
• Operating Income: ¥734M
• Net Income: ¥525M
• EPS: ¥107.46

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

Kanematsu Engineering Co., Ltd. (single-entity, JGAAP) delivered solid FY2026 Q2 results with top-line growth translating into disproportionately stronger profits, indicating margin expansion and operating leverage. Revenue rose 2.4% YoY to ¥7.206bn, while operating income increased 24.8% YoY to ¥734m, lifting the operating margin to 10.2%. Ordinary income of ¥744m slightly exceeded operating income, reflecting modest net non-operating gains despite low interest expense of ¥4m. Net income grew 26.3% YoY to ¥525m, with EPS of ¥107.46; this implies an approximate share count near 4.89 million based on the reported EPS, as share data were not disclosed. Gross profit margin was 22.7%, and EBITDA margin was 13.0% on EBITDA of ¥935m, supported by depreciation and amortization of ¥201m. DuPont metrics show a net margin of 7.29%, asset turnover of 0.571x, and financial leverage of 1.70x, yielding a calculated and reported ROE of 7.06%. Cash generation was strong: operating cash flow (OCF) of ¥1.355bn was 2.58x net income, indicating robust cash conversion, likely aided by working capital inflows. The balance sheet appears conservative with total assets of ¥12.614bn and total equity of ¥7.437bn; the computed equity ratio is approximately 59.0% (the “0.0%” equity ratio displayed is flagged as not disclosed, not an actual zero). Liquidity is ample with a current ratio of 192% and a quick ratio of 182.3%, supported by ¥3.213bn of working capital. Leverage is moderate with a debt-to-equity ratio of 0.66x and very high interest coverage of 181x, underscoring low financial risk. Inventories of ¥337m are modest relative to current assets (about 5%), suggesting limited inventory risk and a service/project-heavy mix or efficient inventory management. The effective tax rate reported as 0.0% appears undisclosed; based on income tax of ¥185m and ordinary income of ¥744m, an implied tax rate is roughly 24–25%, consistent with a normal range. Free cash flow cannot be reliably determined because investing cash flow was not disclosed (shown as zero). Financing cash outflow of ¥387m likely reflects debt repayment and/or dividends, but DPS and payout details were not disclosed (reported zeros are placeholders). Overall, earnings quality and financial resilience appear strong into H2, though sustainability of the working capital tailwind and the order environment remain key watch points.

Profitability Analysis

ROE_decomposition: ROE 7.06% = Net margin 7.29% × Asset turnover 0.571 × Financial leverage 1.70. The ROE is primarily driven by healthy profitability and moderate balance-sheet leverage; asset efficiency is middle-of-the-pack for an engineering/manufacturing business. margin_quality: Gross margin 22.7% and operating margin ~10.2% (¥734m/¥7,206m) indicate favorable mix and/or cost control. EBITDA margin at 13.0% aligns with capital-light characteristics and manageable D&A (¥201m). Ordinary income exceeded operating income by ~¥10m, suggesting small net non-operating gains. An implied tax rate near 24–25% (versus a displayed 0.0% that is undisclosed) appears normal. operating_leverage: Revenue grew 2.4% YoY while operating income grew 24.8% YoY, evidencing positive operating leverage from a relatively fixed cost base and/or mix improvements. The step-up in operating margin suggests that incremental revenue drops through at attractive rates.

Growth Assessment

revenue_sustainability: Top-line growth of 2.4% YoY is modest; sustainability hinges on order intake, backlog conversion, and the timing of project revenues. With inventories relatively low, growth likely depends more on service/project scheduling than stock shipments. profit_quality: Profit growth outpaced sales, reflecting margin expansion. The improvement appears operationally driven (cost discipline, mix), with limited reliance on non-operating items. outlook: Assuming stable demand and cost environment, current margins can be sustained; however, the large OCF/NI ratio suggests a working capital tailwind that may normalize in H2. Visibility would be strengthened by backlog data and pipeline commentary (not disclosed).

Financial Health

liquidity: Current ratio 192.0% and quick ratio 182.3% indicate strong short-term solvency. Working capital stands at ¥3.213bn, providing ample buffer for project execution and seasonal swings. solvency: Debt-to-equity ratio is 0.66x and interest coverage is 181.3x, pointing to low refinancing risk and excellent debt service capacity. capital_structure: Total assets ¥12.614bn and total equity ¥7.437bn imply an equity ratio of ~59.0% (computed). Leverage is conservative, allowing flexibility for capex, R&D, or shareholder returns.

Cash Flow Quality

earnings_quality: OCF of ¥1.355bn equals 2.58x net income, signaling strong cash conversion and limited accrual risk this period. This likely reflects favorable working capital movements, which may be timing-related. FCF_analysis: Free cash flow cannot be assessed because investing cash flow was not disclosed (displayed as zero). EBITDA of ¥935m and low interest outlays suggest underlying capacity to fund investments internally. working_capital: The large OCF relative to earnings implies inflows from receivables and/or payables; sustainability is uncertain and could reverse as project milestones shift.

Dividend Sustainability

payout_ratio_assessment: Dividend data (DPS and payout) are shown as zero but are undisclosed; therefore, a payout ratio cannot be evaluated directly. Net income is ¥525m with strong OCF, indicating capacity for distributions if policy permits. FCF_coverage: FCF coverage of dividends cannot be determined because investing CF is undisclosed; financing CF of -¥387m may include dividends and/or debt repayment. policy_outlook: Without stated policy or historical DPS, we cannot infer a trend. Balance sheet strength and cash generation provide room for stable or flexible distributions, subject to investment needs and order visibility.

Risk Assessment

Business Risks:

• Order timing and backlog conversion risk affecting quarterly revenue and margins
• Project execution risk including cost overruns and acceptance timing
• Input cost volatility (materials, outsourced processing) impacting gross margin
• Customer concentration typical of industrial/engineering clients
• Competitive pricing pressure in capital goods and services markets

Financial Risks:

• Potential reversal of working capital tailwinds that boosted OCF
• Exposure to interest rate changes on any variable debt (though current interest burden is low)
• Limited disclosure on cash and investments (cash position not reported), obscuring liquidity buffers
• Capex needs not disclosed, creating uncertainty around future FCF

Key Concerns:

• Sustainability of margin expansion with only modest sales growth
• Lack of disclosure on cash balances, investing cash flows, and dividend policy
• Visibility on order intake/backlog not provided, making H2 run-rate less certain

Investment Implications

Key Takeaways:

• Strong operating leverage: +2.4% revenue vs. +24.8% operating income YoY pushes operating margin to ~10.2%
• Healthy DuPont profile: ROE 7.06% driven by 7.29% net margin and moderate leverage (1.70x)
• Robust cash conversion: OCF ¥1.355bn equals 2.58x net income, likely from working capital inflows
• Solid balance sheet with computed equity ratio ~59% and interest coverage >180x
• Disclosure gaps (cash, investing CF, DPS) limit assessment of FCF and return policy

Metrics to Watch:

• Order intake and backlog-to-revenue ratio
• Gross and operating margin trajectory in H2
• OCF/Net income ratio normalization and working capital movements
• Capex and investing cash flows to refine FCF outlook
• Equity ratio, debt-to-equity, and interest coverage for capital structure stability
• Receivables and inventory turns (not disclosed) for early signs of demand shifts

Relative Positioning: Within domestic engineering/capital goods peers, the company exhibits stronger-than-average cash conversion this period, conservative leverage, and improving margins, though growth is modest and disclosure on FCF and shareholder returns is limited.

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