DKK Co.,Ltd. FY2026 FY Earnings Report

Financial Highlights

• Net Sales: ¥35.45B
• Operating Income: ¥1.20B
• Net Income: ¥1.70B
• EPS: ¥214.12

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

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AI Financial Analysis

Executive Summary

FY2026 results show a solid topline-led recovery with operating leverage, but cash flow quality and one-time items temper the headline profit surge. Revenue grew 8.8% YoY to 354.46, lifting operating income 28.2% to 11.99 and ordinary income 16.7% to 11.96. Net income attributable to owners jumped to 18.89 (+143.1% YoY), supported by segment profit growth and net extraordinary gains. Gross profit reached 71.77 (GP margin 20.2%), while SG&A held at 59.78, yielding an operating margin of 3.4% (+40 bps YoY). Ordinary margin also improved to 3.4% (+20 bps YoY). EBITDA was 20.11 (margin 5.7%), and interest coverage remained very comfortable at 13.5x on an EBIT basis. DuPont ROE printed at 5.1% (Net margin 5.3% × Asset turnover 0.668 × Leverage 1.43x), aided mainly by better net margin. Cash flow quality weakened: operating cash flow was -24.71 versus net income of 18.89 (OCF/NI -1.31x), driven by higher receivables (-29.52) and inventory build (-8.04). Free cash flow was -4.24 after positive investing cash flow from securities disposals partially offsetting capex. The balance sheet stays conservative with a current ratio of 296%, D/E of 0.43x, debt/capital of 12.7%, and cash/short-term debt of 2.38x, though the short-term debt mix is high. Segment performance was led by Telecommunication (sales 254.07, OI 23.67, margin 9.3%) and Radio Frequency (sales 99.52, OI 15.92, margin 16.0%); Telecommunication is the core earnings driver and also the largest revenue contributor. Construction-related activity supported growth: completed construction revenue rose to 142.20 with gross profit of 29.86. Extraordinary items nearly offset (income 18.90, loss 17.75), with a notable gain on sales of securities (8.62) and impairment (17.65) shaping the PBT bridge. Dividend policy tightened to DPS 100, implying a 52.4% payout ratio on reported earnings, but FCF did not cover dividends (FCF coverage -0.43x). Against the company’s new guidance, FY2026 actuals achieved 97% of sales, 73% of operating and ordinary income, and 82% of profit to owners vs the indicated full-year targets, suggesting further efficiency gains are needed to reach margin ambitions. Overall, fundamental profitability improved, the balance sheet remains sound, but weaker cash conversion and reliance on one-off items constrain quality of earnings and raise near-term execution risk.

Profitability Analysis

ROE decomposition (3-factor): Net profit margin 5.3% × Asset turnover 0.668 × Financial leverage 1.43x = ROE 5.1%. The largest positive change came from net margin expansion, as operating margin rose ~40 bps to 3.4% and ordinary margin rose ~20 bps, while leverage stayed conservative. Business drivers included higher Telecommunication volumes (+15.0% segment sales) and resilient Radio Frequency profitability (16.0% margin), which improved the consolidated mix and operating leverage. The uplift appears partly sustainable given segment momentum and disciplined SG&A, but the contribution from extraordinary gains and volatile construction working capital makes the net margin less repeatable. SG&A increased slower than revenue, supporting operating leverage; however, EBIT margin at 3.4% still trails quality benchmarks and leaves limited buffer against input cost or project execution volatility.

Growth Assessment

Topline growth of 8.8% YoY was broad-based, led by Telecommunication, while Radio Frequency margins remained structurally higher. Operating income grew 28.2% on a 140 bps improvement in gross-to-OP spread due to controlled SG&A growth versus gross profit expansion. Construction revenues and gross profit improved (142.20 revenue; 29.86 gross profit), indicating healthy execution throughput. EBITDA rose to 20.11 with margin at 5.7%, reflecting better operating scale. Ordinary income grew 16.7%, dampened by higher non-operating expenses; FX losses were 0.82 and interest expense 0.89. Net income surged to 18.89 aided by net extraordinary income (18.90 income vs 17.75 loss) and lower minority drag, but quality-adjusted growth is slimmer. Segment-wise, Telecommunication OI grew 23.5% YoY to 23.67 (margin +60 bps), and Radio Frequency OI fell 8.7% YoY to 15.92 on a 4.4% sales decline but preserved a high 16.0% margin. Near-term growth sustainability hinges on continued capex cycles at domestic carriers and maintenance of RF order intake; cash conversion needs improvement to support reinvestment and shareholder returns.

Financial Health

Liquidity is strong: current ratio 296% and quick ratio 296%, supported by cash and deposits of 116.44. Solvency is conservative: D/E 0.43x, debt/capital 12.7%, EBITDA interest coverage 22.6x. Short-term debt dominates the debt stack (short-term debt ratio 90.3%), raising refinancing concentration, but cash/short-term debt coverage of 2.38x limits near-term risk. Working capital is ample (254.79) with contract assets of 30.18 and unearned revenue/contract liabilities totaling 23.15 combined, consistent with construction/manufacturing order flows. Notable capital structure changes include a sharp rise in long-term loans to 5.25 (from 0.33) and a decline in cash and deposits to 116.44 (-28% YoY), alongside changes in treasury stock balance consistent with share repurchases and potential cancellations. Maturity mismatch risk is mitigated by liquidity headroom despite the high short-term mix. No material off-balance sheet obligations are indicated.

Notable B/S Changes

Long-term loans: +4.92 (from 0.33 to 5.25, +1,491%) – Terming-out of debt or new project financing; modest leverage impact but improves duration profile. Cash & deposits: -45.36 (from 161.80 to 116.44, -28.0%) – Funding of WC build, dividends, and buybacks; reduces liquidity buffer though still ample. Treasury stock (contra-equity): +12.53 (from -39.11 to -26.58, +32.0%) – Change reflects treasury stock movements/cancellation; equity base uplifted despite ongoing repurchases. Contract liabilities: +2.75 (from 2.69 to 5.44, +102%) – Higher advance billings support near-term revenue visibility and cash pre-financing. Net defined benefit asset: +5.76 (from 14.61 to 20.37, +39.5%) – Actuarial/return effects improving pension position, modest positive for equity.

Cash Flow Quality

OCF was -24.71 versus net income of 18.89 (OCF/NI -1.31x), signaling weak cash conversion driven by working capital: trade receivables rose 29.52 and inventories increased 8.04. Cash conversion (OCF/EBITDA) was -1.23x, reinforcing earnings quality concerns. Investing cash flow was +20.47, aided by proceeds from sales of investment securities (6.77) offsetting capex of 15.95; FCF was -4.24. The negative FCF, coupled with dividends (8.23) and buybacks (10.01), resulted in net cash outflows, funded by cash balances and modest net borrowings. Working capital movements appear operational (receivables/inventory build aligned with revenue growth and construction progress), but sustained divergence would be a red flag. No clear signs of deliberate working capital manipulation are evident, though the magnitude of receivable growth versus sales requires monitoring.

Dividend Sustainability

DPS totaled 100 yen (interim 40, year-end 60), implying a payout ratio of 52.4% against reported EPS of 214.12 yen. Free cash flow coverage was -0.43x, indicating dividends were not covered by internally generated cash this year. Including buybacks, the total return exceeded internal cash generation, leaning on the balance sheet. With Debt/EBITDA at 2.70x and strong liquidity, near-term funding capacity exists, but sustained negative OCF would pressure the policy. CapEx/Depreciation of ~2.0x suggests ongoing reinvestment needs; maintaining DPS will require better cash conversion or reduced buybacks in a softer OCF scenario.

Risk Assessment

Business risks include Telecommunication concentration: 71.1% of revenue, tying performance to carrier capex and project timing, Customer concentration: NTTドコモ is a major customer within Telecommunication, Project execution risk in construction-related activities impacting margins and cash collection, Commodity and component cost volatility affecting gross margin in antenna/steel structures and RF equipment.

Financial risks include Weak cash conversion (OCF/NI -1.31x) and negative FCF requiring balance sheet support, High short-term debt ratio (90.3%), concentrating refinancing needs despite ample cash, Capital efficiency below benchmarks (ROIC 2.4%), limiting value creation if sustained.

Key concerns include Earnings quality sensitivity to one-time items; net extraordinary items materially influence bottom line, Receivables growth outpacing sales, elevating working capital risk, Operating margin at 3.4% leaves limited cushion against cost or project slippage.

Investment Implications

Key takeaways include Revenue growth (+8.8%) translated to disproportionate OP growth (+28.2%) via operating leverage, Segment mix is favorable but concentrated; Telecommunication is the core earnings engine, Cash flow quality is the principal weak spot; OCF materially trails NI, Balance sheet strength provides flexibility, offsetting refinancing concentration, One-time items meaningfully shape reported net profit; underlying profitability is modest.

Metrics to watch include OCF/Net income and working capital turns (receivables and inventory days), Segment order intake and backlog conversion in Telecommunication and RF, Operating margin trajectory toward guidance versus input cost trends, Short-term debt rollovers and cash/short-term debt coverage, Extraordinary gains/losses and disposal activity.

Regarding relative positioning, Within Japanese telecom equipment/construction-adjacent manufacturers, the company exhibits above-average balance sheet strength but below-peer operating margins and cash conversion; execution on working capital and sustained segment profitability are required to close the gap.