DKK Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥14.91B
• Operating Income: ¥11M
• Net Income: ¥-495M
• EPS: ¥16.07

Income Statement

Balance Sheet

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

Denki Kogyo (Consolidated, JGAAP) delivered FY2026 Q2 cumulative revenue of ¥14.914bn, up 13.8% YoY, indicating solid topline momentum. Despite this growth, profitability remained thin: operating income was only ¥11m, down 25.2% YoY, yielding an operating margin of 0.07%. Gross profit was ¥2.326bn for a gross margin of 15.6%, but nearly all gross profit was consumed by period expenses, keeping operating leverage limited. Ordinary income fell to a loss of ¥61m, suggesting net non-operating expenses of roughly ¥72m versus operating income; reported interest expense was ¥28m, implying other net non-operating losses of about ¥44m. Net income stayed positive at ¥143m (−22.8% YoY), aided by a tax benefit of ¥49m, resulting in a net margin of 0.96% and EPS of ¥16.07. DuPont metrics show low ROE of 0.40% driven by modest net margin (0.96%), low asset turnover (0.298x), and moderate leverage (1.42x assets/equity). The balance sheet is conservative with total assets of ¥50.034bn, liabilities of ¥15.908bn, and equity of ¥35.331bn; the implied equity ratio is approximately 70.6% (company equity ratio figure not disclosed in the dataset). Liquidity appears strong: current assets of ¥38.343bn against current liabilities of ¥11.353bn yield a current ratio of 338% and working capital of ¥26.99bn. Interest coverage is weak at 0.4x (operating income/interest expense), reflecting very slim operating earnings. Cash flow figures are not disclosed in this dataset, limiting free cash flow assessment and OCF quality analysis. Depreciation and amortization are also undisclosed, so EBITDA-based views are not available. Dividend data are not disclosed (DPS shows as zero and should be treated as unreported), so payout metrics cannot be reliably interpreted. Overall, the quarter demonstrates demand resilience but pressured margins, with ordinary losses and a tax benefit driving the gap between ordinary and net income. The capital structure provides a buffer for execution risk, but sustained improvement requires better gross-to-operating margin conversion and containment of non-operating drag. Data gaps (OCF, D&A, cash) constrain depth of analysis, so conclusions focus on the available non-zero figures and implied relationships.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 0.96% × Asset turnover 0.298 × Financial leverage 1.42 = ROE 0.40% (matches reported). Margin quality is weak: gross margin 15.6% but operating margin only 0.07%, implying SG&A and other operating costs of roughly ¥2.315bn (≈15.5% of sales), nearly offsetting gross profit. Ordinary income is negative (−¥61m), indicating non-operating headwinds of about ¥72m versus operating profit; with interest expense of ¥28m, other non-operating items likely contributed an additional approximate ¥44m net loss. Net margin (0.96%) benefited from a tax credit of ¥49m, suggesting that recurring profitability at the net level is weaker than the headline net margin implies. Operating leverage appears unfavorable in this period: despite +13.8% revenue growth, operating income declined 25.2% YoY, pointing to gross margin compression and/or higher fixed cost absorption. Interest coverage is thin at 0.4x, underscoring the sensitivity of earnings to finance costs and other non-operating items. EBITDA cannot be assessed due to undisclosed depreciation/amortization; thus, the true cash operating margin is unknown.

Growth Assessment

Revenue growth of +13.8% YoY to ¥14.914bn indicates healthy demand or improved project progress/order execution. However, profit growth is not keeping pace: operating income fell 25.2% YoY to ¥11m and ordinary income swung to a ¥61m loss, signaling margin pressure and non-operating drag. Net income declined 22.8% YoY to ¥143m and was supported by a tax benefit, so quality of earnings at the bottom line is mixed. Asset turnover at 0.298x is modest for H1; sustaining full-year growth will require stronger conversion of backlog to revenue and improved working capital cycles. With EBITDA undisclosed, underlying cost inflation and project mix effects cannot be quantified, but the spread between gross and operating margin suggests higher overhead burden or pricing pressure. Outlook hinges on stabilizing non-operating items (e.g., financial costs, other income/expenses) and recapturing gross margin to translate revenue growth into operating profit. Without cash flow data, it is not possible to corroborate growth quality through OCF; monitoring contract win rates, backlog, and margin on new orders will be key.

Financial Health

Balance sheet strength is solid: equity of ¥35.331bn against assets of ¥50.034bn implies an equity ratio of ~70.6% (disclosed equity ratio not available), and financial leverage (assets/equity) of 1.42x. Total liabilities of ¥15.908bn equate to a liabilities-to-equity ratio of 0.45x, indicating low structural leverage. Liquidity appears robust with current assets at ¥38.343bn and current liabilities at ¥11.353bn, producing a current ratio of 337.7% and working capital of ¥26.99bn. The quick ratio shown equals the current ratio because inventories are undisclosed; actual quick liquidity may be lower depending on inventory levels. Interest expense is ¥28m; with operating income of ¥11m, interest coverage is only 0.4x, reflecting earnings fragility rather than balance sheet stress. No detail on interest-bearing debt composition, maturity profile, or cash is disclosed in the dataset, so short-term refinancing and covenant risks cannot be assessed directly. Overall solvency is strong due to ample equity, but earnings resilience must improve to comfortably service financing costs from operations.

Cash Flow Quality

Operating, investing, and financing cash flows are undisclosed in this dataset, so OCF quality and FCF cannot be evaluated. The reported OCF/Net Income and FCF figures appear as zero because of non-disclosure, not actual zero cash flow. With depreciation/amortization also undisclosed, we cannot reconcile accrual earnings to cash generation or assess non-cash components. Working capital dynamics are unknown beyond period-end balances; however, large current assets relative to sales suggest meaningful receivables and/or unbilled balances typical of project businesses, which can create timing swings in OCF. Given operating income is minimal and ordinary income negative, near-term cash generation likely depends on working capital inflows and project billing schedules. Confirmation via future OCF disclosure will be essential to judge earnings-to-cash conversion.

Dividend Sustainability

Dividend data (DPS) are not disclosed in the dataset; the displayed DPS and payout ratio of 0 should be treated as unreported. Without DPS and cash flow information, payout ratio and FCF coverage cannot be assessed. The company maintains a strong equity base (~¥35.3bn) and low leverage, which supports potential resilience in shareholder returns policy, but weak current-period operating earnings and negative ordinary income suggest limited immediate coverage from profits. Absent explicit guidance or historical payout trends in this dataset, we cannot infer changes to policy. Future assessment should focus on normalized operating profit recovery, OCF consistency, and any disclosed dividend targets to gauge sustainability.

Risk Assessment

Business Risks:

• Margin pressure from input cost inflation and pricing in project-based businesses, compressing gross-to-operating conversion.
• Execution risk on large projects and order timing, which can cause revenue and OCF volatility.
• Competitive intensity in core markets potentially limiting price realization.
• Dependence on non-operating items (e.g., other income/expenses) affecting ordinary income volatility.
• Potential FX or commodity exposure influencing non-operating and COGS outcomes (if relevant to procurement).

Financial Risks:

• Low interest coverage (0.4x) due to thin operating profit increases sensitivity to finance costs.
• Negative ordinary income in the period highlights vulnerability to non-operating losses.
• Cash flow transparency is limited; undisclosed OCF impedes assessment of liquidity self-funding.
• Potential working capital swings typical of EPC/installation businesses could stress cash if collections lag.

Key Concerns:

• Operating margin at 0.07% despite double-digit revenue growth indicates weak operating leverage.
• Ordinary loss (−¥61m) versus positive net income relies on a tax benefit, reducing quality of earnings.
• Unavailable cash flow and D&A data constrain visibility into earnings durability and cash generation.

Investment Implications

Key Takeaways:

• Topline growth of +13.8% YoY to ¥14.914bn did not translate into operating profit growth; operating income fell 25.2% YoY to ¥11m.
• Gross margin (15.6%) was largely absorbed by operating expenses, leading to a near-breakeven operating margin (0.07%).
• Ordinary loss (−¥61m) and interest coverage of 0.4x reflect earnings fragility.
• Net income of ¥143m (EPS ¥16.07) benefited from a ¥49m tax credit, boosting net margin to 0.96%.
• Balance sheet is conservative with implied equity ratio ~70.6% and liabilities/equity of 0.45x, providing solvency comfort.
• Liquidity appears strong (current ratio ~338%, working capital ~¥26.99bn), though cash specifics are undisclosed.
• Key data gaps: OCF, FCF, D&A, cash and DPS are not disclosed, limiting cash-based analysis.

Metrics to Watch:

• Order intake, backlog and book-to-bill to assess sustainability of revenue growth.
• Gross margin trend and SG&A ratio to confirm operating leverage recovery.
• Ordinary income bridge (interest and other non-operating items) to reduce volatility below operating line.
• Operating cash flow and working capital turns (DSO/DPO) once disclosed to validate earnings quality.
• Interest coverage improvement as operating profit normalizes.
• Capital expenditure and D&A once disclosed to understand maintenance vs. growth investment needs.
• Dividend policy disclosures and payout targets when available.

Relative Positioning: Financially conservative with a strong equity base and ample liquidity versus many peers, but currently exhibiting weaker operating leverage and lower earnings quality due to ordinary losses and reliance on tax benefits to maintain positive net income.

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