KAWADEN CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥13.41B
• Operating Income: ¥2.01B
• Net Income: ¥1.35B
• EPS: ¥420.38

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

Verdict: A strong FY2026 Q2, with substantial profit expansion on solid top-line growth and tight cost control, while liquidity and leverage remain conservative. Revenue rose to 134.09 (+27.8% YoY), driving operating income to 20.09 (+181.3% YoY) and net income to 13.46 (+187.8% YoY). The operating margin stands at roughly 15.0% (20.09/134.09), and the net margin at 10.0%, indicating a step-change in profitability. Precise YoY basis-point changes for margins are not computable from the provided dataset, but the outsized growth in operating income versus revenue clearly implies material margin expansion. Gross profit is reported at 31.77 (GP margin 23.7%), though it does not reconcile to revenue minus cost of sales (data limitation noted); nonetheless, operating income and net metrics are internally consistent with the calculated margins provided. Ordinary income reached 20.23 (+179.4% YoY), with minimal non-operating income (0.29) and expenses (0.19), indicating the earnings surge is predominantly operating in nature. Cash generation was supportive: operating cash flow of 12.22 equates to an OCF/NI ratio of 0.91x, a slight shortfall vs 1.0x but within an acceptable range for a growth quarter. Balance sheet strength is notable with current ratio at 305.7% and debt-to-equity at 0.41x, suggesting ample liquidity and conservative leverage. Interest coverage is extremely high at 669.7x, reflecting low interest burden and robust EBITDA of 22.81 (17.0% margin). ROE is calculated at 7.1% (Net Margin 10.0% × Asset Turnover 0.521 × Leverage 1.36x), a healthy level given low leverage, and ROIC of 11.2% exceeds common 7–8% targets, indicating efficient capital deployment. The reported effective tax rate is 35.3%; however, profit before tax (7.23) does not align with net income and tax figures, implying classification/timing differences or partial disclosure—forward analysis should rely on consistently reported operating and net results. Dividend calculus shows a 59.2% payout ratio (calculated), near the upper end of the sustainable range, warranting monitoring against cash generation. With capex at 1.30, proxy FCF (OCF – capex) is approximately 10.92, suggesting capacity to fund dividends if maintained. Forward-looking, margin resilience, backlog execution, and input cost management will be key to sustaining the step-up in profitability. The company’s strong liquidity and low leverage provide flexibility to navigate project timing swings and supply-chain volatility. Key watch items include order intake momentum, project mix, and the conversion of elevated earnings into consistently >1.0x OCF/NI.

Profitability Analysis

ROE decomposition: ROE 7.1% = Net Profit Margin (10.0%) × Asset Turnover (0.521) × Financial Leverage (1.36x). The component that appears to have changed the most YoY is the margin, as operating income grew +181.3% against revenue +27.8%, implying significant operating margin expansion (exact bps not computable from the dataset). Business drivers likely include better project mix, improved pricing/negotiation power, and operating leverage from SG&A on higher volumes. The margin improvement appears partly sustainable if tied to mix and cost discipline, but could be partly one-time if driven by completion of high-margin projects or timing of revenue recognition. Asset turnover at 0.521 indicates moderate efficiency for a project/solution-oriented business; leverage at 1.36x is low, limiting ROE amplification but improving financial resilience. Watch for SG&A growth relative to revenue: SG&A is 24.63 against revenue of 134.09; without prior-period SG&A, we cannot confirm whether SG&A growth exceeded revenue, but the surge in operating profit suggests operating leverage is currently favorable. Overall, margin-driven ROE is the core driver; maintaining project margins and utilization is essential to sustain ROE above cost of equity.

Growth Assessment

Top-line growth of +27.8% YoY to 134.09 indicates robust demand and/or strong order execution. Profit growth outpaced sales (operating income +181.3%, net income +187.8%), signaling mix and operating leverage effects. Current operating margin (~15.0%) and EBITDA margin (17.0%) are materially higher than typical mid-cycle levels for comparable equipment/solution providers, suggesting upside from execution and pricing. Sustainability hinges on the durability of the order book, the cadence of utility and industrial capex cycles, and input cost stability (copper/steel). Non-operating items are small (non-operating income ratio 2.2%), increasing confidence that performance is primarily operating. ROIC at 11.2% exceeds the common 7–8% target range, implying value-accretive growth. Near term, revenue visibility from backlog and the timing of large projects will steer quarterly volatility; profitable growth appears attainable provided cost discipline persists. We note data limitations prevent precise margin trend quantification in bps, but directionally expansion is evident. Outlook: cautious optimism with a focus on maintaining pricing power, delivering complex projects on time, and converting earnings to cash.

Financial Health

Liquidity is very strong: current ratio 305.7% and quick ratio 305.7% (no inventory disclosed), with working capital of 128.91. There is no warning trigger (Current Ratio < 1.0); the company is well within healthy thresholds. Leverage is conservative: debt-to-equity 0.41x, and interest-bearing debt is small relative to equity; no D/E > 2.0 warning. Maturity mismatch risk appears low: current assets (191.58) comfortably exceed current liabilities (62.67), and cash and deposits (81.19) exceed short-term loans (5.58). Long-term loans are modest at 2.87, supporting low solvency risk. Interest coverage is extremely robust at 669.7x, indicating strong capacity to service debt. No off-balance-sheet obligations are disclosed in the dataset; absence of disclosure is not evidence of absence. Equity stands at 188.85, with retained earnings of 156.45 providing a buffer for shocks.

Cash Flow Quality

OCF of 12.22 versus net income of 13.46 yields OCF/NI of 0.91x, slightly below the >1.0x high-quality benchmark but above the 0.8x caution threshold—acceptable for a growth period where working capital may expand. Proxy free cash flow (OCF – capex) is approximately 10.92, as capex was 1.30; full FCF cannot be confirmed because investing CF details are unreported. Earnings appear largely cash-backed with no obvious signs of aggressive working capital release; however, lack of detailed working capital components (AR, inventory, AP movements) limits deeper diagnostics. Interest paid is minimal (interest expense 0.03), supportive of cash conversion. Quality flags: none material—just a note that OCF trails NI modestly, which is typical with project timing and revenue growth. Monitor for sustained OCF/NI above 1.0x over the next quarters to confirm quality.

Dividend Sustainability

The calculated payout ratio is 59.2%, at the high end of the generally sustainable range (<60%). Dividend per share and total dividends paid are unreported, limiting precision. On a cash basis, proxy FCF of ~10.92 suggests headroom to fund dividends in the near term, assuming dividend cash outlays are not materially higher than historical norms. Balance sheet flexibility (cash 81.19, low net debt) provides additional cushion. Policy outlook is not disclosed; with ROIC at 11.2% and low leverage, the company can balance reinvestment and shareholder returns if cash conversion remains solid. Key watch items: cash dividend outflow once disclosed, order timing impacts on OCF, and any step-up in capex that could pressure FCF coverage.

Risk Assessment

Business Risks:

• Project timing and backlog execution risk leading to quarterly revenue and cash flow volatility
• Input cost volatility (copper, steel) potentially compressing margins if not fully passed through
• Customer concentration and capex cycle dependency (utilities, infrastructure, industrial clients)
• Supply chain constraints or component shortages affecting delivery schedules
• Pricing pressure in competitive bids impacting operating margin

Financial Risks:

• OCF/NI at 0.91x; a drop below 0.8x would raise earnings quality concerns
• Potential working capital build in growth periods can temporarily depress cash flows
• Limited disclosure of investing cash flows and dividends paid creates uncertainty around FCF coverage
• Data inconsistencies between certain P/L line items (e.g., gross profit vs cost of sales; PBT vs NI and tax) complicate ratio precision

Key Concerns:

• Sustainability of the step-up in operating margin given likely mix and timing effects
• Visibility of order intake to support continued double-digit revenue growth
• Maintaining ROIC > 8% amid potential input cost and pricing pressures

Investment Implications

Key Takeaways:

• Earnings inflected strongly with operating income +181% YoY and net margin at 10.0%
• Balance sheet is robust: current ratio 3.06x, D/E 0.41x, interest coverage ~670x
• ROIC 11.2% indicates value-accretive operations
• Cash conversion is acceptable (OCF/NI 0.91x) but should improve to >1.0x for higher confidence
• Dividend payout ratio at ~59% suggests near-term sustainability, contingent on FCF consistency
• Margin strength appears to be the primary ROE driver; leverage is low

Metrics to Watch:

• Order intake/backlog and book-to-bill
• Operating margin trend (bps) and SG&A discipline
• OCF/NI ratio and working capital turns (AR days, AP days, inventory days once disclosed)
• Capex trajectory versus growth opportunities
• ROIC by segment/project mix if available
• Input cost indices (copper/steel) and pass-through effectiveness

Relative Positioning: Within Japanese electrical equipment/project-based peers, the company currently shows above-peer profitability momentum and very conservative leverage, positioning it favorably on quality and resilience; sustained cash conversion and order visibility will be determinant for maintaining this relative strength.

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