Daido Signal Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.32B
• Operating Income: ¥937M
• Net Income: ¥781M
• Earnings per Unit (EPU): ¥44.56

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Unit Information

Distribution 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

Verdict: Strong top-line and operating profit momentum, but net income declined on tax/one-off effects, leaving overall profitability and capital efficiency still subdued. Revenue rose 18.3% YoY to 113.19, driven by healthy demand and/or improved project execution. Operating income surged 157.2% YoY to 9.37, implying sizable operating margin expansion. Ordinary income increased 131.8% YoY to 10.98, supported by non-operating income of 1.99 (notably dividend income of 1.87). Net income, however, declined 8.5% YoY to 7.05, implying a higher tax burden and/or the absence of prior-year special items. Gross profit reached 33.35, producing a gross margin of 29.5% this period. Operating margin stands at 8.3% (9.37/113.19), up markedly from an estimated ~3.8% a year ago, indicating roughly 450–490 bps expansion. Net margin is 6.2%, down from an estimated ~8.0% in the prior year, implying roughly 180–200 bps compression despite stronger operations. Ordinary margin is 9.7%, highlighting the meaningful lift from non-operating gains this period. Balance sheet strength is solid with a current ratio of 249.5%, quick ratio of 220.5%, and D/E of 0.54x; interest coverage is robust at 25.6x. ROE is a modest 2.3% and ROIC is 2.0%, both below typical cost of capital thresholds, flagging capital efficiency as a key challenge. Cash flow disclosure is limited this quarter (OCF unreported), preventing earnings quality cross-checks versus cash generation. Working capital is sizable (AR 117.34, inventory 32.02) relative to payables 15.70, consistent with project/infrastructure businesses and a potentially long cash conversion cycle. Dividend income contributed meaningfully to ordinary profit, indicating a partial reliance on financial income alongside operating recovery. Forward-looking, continued execution to sustain the improved operating margin while converting profits to cash will be critical. The focus should be on order intake, backlog quality, delivery schedules, and tax normalization to stabilize net margin.

Profitability Analysis

ROE decomposition: 2.3% = 6.2% net margin × 0.240 asset turnover × 1.54x leverage. Margin was the main driver YoY: operating margin expanded markedly (~3.8% → 8.3%), while net margin compressed (~8.0% → 6.2%) due to tax/one-off factors. The improvement likely stems from better execution and operating leverage; sustainability is plausible if backlog quality and pricing hold. Non-operating dividend income provided a notable boost to ordinary profit this period; this is less controllable and can be volatile. Watch for any period where SG&A growth re-accelerates above revenue—this quarter, operating leverage is favorable.

Growth Assessment

Revenue expanded 18.3% YoY to 113.19, indicating healthy underlying demand/order execution. Operating income rose 157.2% to 9.37, far outpacing sales growth and confirming strong operating leverage. Ordinary income increased 131.8% to 10.98, aided by non-operating income of 1.99 (dividends 1.87). Net income fell 8.5% to 7.05, likely reflecting a normalization in effective tax rate (28.8% this period) and the absence of prior-year special items. Gross margin is 29.5%, supportive of the operating margin recovery; detailed SG&A mix is unreported, limiting deeper cost diagnostics. Profit quality appears mixed: operating recovery is tangible, but net dependency on tax/one-off dynamics and non-operating income introduces variability. Outlook hinges on sustaining order intake and execution, stabilizing tax, and maintaining pricing power. The company’s low ROIC (2.0%) underscores the need to lift returns via margin improvements and asset turns (faster collections, inventory discipline). Given the sizable accounts receivable, timely cash conversion will be crucial to underpin further growth investments without leverage expansion.

Financial Health

No red flags on liquidity or leverage: Current Ratio 249.5%, Quick Ratio 220.5%, D/E 0.54x, Interest Coverage 25.6x. Short-term debt (54.86) is comfortably covered by current assets (275.18), including cash (29.72) and AR (117.34). No disclosed off-balance sheet obligations in the provided data. Equity base is solid at 306.16, supporting resilience.

Cash Flow Quality

OCF/Net Income is not calculable (OCF unreported), so earnings quality cannot be validated by cash. FCF unreported, leaving dividend and capex coverage uncertain. Working capital structure (high AR, low AP) suggests potential OCF unevenness. Reliance on non-operating dividends underscores the need for robust core cash generation.

Dividend Sustainability

Calculated payout ratio at 38.3% suggests room for maintenance within policy norms. Without FCF data, cash coverage is unknown, but low leverage and ample liquidity provide near-term flexibility. Longer-term sustainability depends on sustained operating margin and improved cash conversion.

Risk Assessment

Business Risks:

• Execution risk on long-cycle signaling projects
• Customer concentration/public-sector funding cycles
• Supply chain and parts availability affecting delivery
• Competitive pricing pressure in bids

Financial Risks:

• Low ROIC (2.0%) and ROE (2.3%) below cost of capital
• Volatility in non-operating dividend income
• Large investment securities portfolio market risk
• Refinancing needs for short-term loans despite strong liquidity

Key Concerns:

• Net income down YoY despite operating improvement, indicating below-the-line volatility
• OCF and FCF unreported; cash conversion risk cannot be assessed
• High AR relative to AP implies elongated cash cycle

Investment Implications

Key Takeaways:

• Operating performance improved substantially; margin recovery evident
• Net margin compressed due to taxes/one-offs
• Balance sheet strength provides cushion
• Capital efficiency and cash conversion remain the primary improvement levers

Metrics to Watch:

• OCF/NI ratio and FCF
• Order intake/backlog and project delivery timing
• Gross/operating margin trends
• AR days and inventory turns
• Composition of non-operating income and tax rate

Relative Positioning: Stronger operational rebound than some domestic peers with similar project exposure, but still trailing best-in-class on ROIC/ROE and cash conversion consistency.

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