Daido Signal Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥11.32B
• Operating Income: ¥937M
• Net Income: ¥824M
• EPS: ¥44.56

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

Daido Signal (6743) reported FY2026 Q2 consolidated results under JGAAP with solid top-line growth and a sharp improvement in operating profitability. Revenue rose 18.3% year on year to ¥11.319bn, supported by strong project execution and/or improved order conversion in the signaling/transport systems domain. Gross profit reached ¥2.606bn, implying a gross margin of 23.0%, which appears healthy for a project-centric manufacturer/system integrator. Operating income surged 157.2% YoY to ¥0.937bn, lifting the operating margin to approximately 8.3%, evidencing meaningful operating leverage and cost discipline. Ordinary income was ¥1.098bn, indicating positive non-operating contributions (+¥0.161bn versus operating income). Despite this, net income declined 8.5% YoY to ¥0.705bn, suggesting heavier tax burden and/or absence of prior-year non-recurring gains; the line-item tax expense of ¥0.359bn implies an effective rate in the low-30% range despite a reported 0.0% placeholder. DuPont metrics show a net margin of 6.23%, asset turnover of 0.240x, and financial leverage of 1.54x, resulting in a modest ROE of 2.30% that leaves room for improvement. The balance sheet is conservative with total assets of ¥47.143bn and equity of ¥30.616bn; the implied equity ratio is about 65% (despite a reported 0.0% placeholder), and liabilities/equity of 0.54x. Liquidity is strong: current ratio 235%, quick ratio 208%, and working capital of ¥15.762bn, supporting ongoing project delivery. Interest coverage is robust at 33.6x, reflecting low financial risk. Asset turnover remains subdued at 0.24x, consistent with long-cycle, project-based revenue recognition and significant working capital requirements. Cash flow data were not disclosed this quarter (zeros denote unreported, not actual zero), limiting assessment of earnings-to-cash conversion. EPS was ¥44.56 with no disclosed DPS; payout ratio and FCF coverage are therefore not inferable this period. Overall, the quarter demonstrates healthy demand and improved cost efficiency, while net profit softness likely reflects tax/non-operating dynamics. Balance sheet strength provides resilience and optionality for investment, though sustaining ROE uplift will require continued margin discipline, better asset utilization, and improved cash conversion.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 6.23% × Asset turnover 0.240 × Financial leverage 1.54 = ROE 2.30%. Margin quality: Gross margin at 23.0% supports the improved operating margin of ~8.3% (¥0.937bn/¥11.319bn). The step-up in operating income (+157% YoY) versus revenue (+18% YoY) points to strong operating leverage (fixed-cost dilution and/or improved project mix). Non-operating items were a net positive (ordinary income of ¥1.098bn exceeds operating income by ¥0.161bn). Net income declined YoY, implying either higher tax burden, unfavorable one-offs versus prior year, or changes below the operating line. Interest expense is modest at ¥27.9m, yielding interest coverage of 33.6x, confirming low financial drag. Asset efficiency remains a headwind, with 0.240x turnover typical for project-heavy businesses; improving project cycle time and working capital turns would help ROE. Overall profitability improved at the operating level, but translation to bottom line was tempered by taxes/other items.

Growth Assessment

Revenue grew 18.3% YoY to ¥11.319bn, indicating firm demand and/or strong order execution in the period. Operating income growth significantly outpaced sales (+157.2% YoY), suggesting mix improvements, better cost control, and operating leverage. Ordinary income was also strong, aided by positive non-operating balance. Net income fell 8.5% YoY to ¥0.705bn, signaling that below-OP items (taxes or prior-year one-offs) constrained bottom-line growth despite healthy core operations. Sustainability: The magnitude of operating leverage may normalize; sustaining double-digit revenue growth will likely depend on public/private rail infrastructure spend and backlog conversion. Profit quality: With cash flow undisclosed this quarter, we cannot verify earnings-to-cash conversion; working capital dynamics in project businesses often create timing volatility. Outlook: If order intake remains solid and cost discipline persists, operating margin in the high-single digits appears defendable; key swing factors are project mix, input cost trends, and delivery schedules.

Financial Health

Liquidity appears strong with a current ratio of 235% and quick ratio of 208.3%, underpinned by current assets of ¥27.439bn versus current liabilities of ¥11.678bn. Working capital of ¥15.762bn provides a buffer for project execution. Solvency is conservative: total liabilities of ¥16.486bn versus equity of ¥30.616bn implies liabilities/equity of 0.54x, and assets/equity of 1.54x. The implied equity ratio is approximately 65% (recalculated from assets and equity), despite the reported 0.0% placeholder. Interest burden is light (¥27.9m), and interest coverage is strong at 33.6x, indicating low refinancing risk. Inventory stands at ¥3.115bn, which is manageable relative to current assets; however, without turnover data, inventory efficiency cannot be assessed. Overall capital structure is conservative, affording resilience against project timing swings.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed this quarter (zeros reflect nondisclosure), so we cannot compute OCF/NI or free cash flow. Earnings quality therefore cannot be validated via cash conversion metrics. Given the nature of the business, working capital (receivables, contract assets, and inventory) typically drives cash volatility; growth phases can temporarily depress OCF despite higher earnings. The balance sheet shows sizeable working capital capacity (¥15.762bn) that should support execution, but the absence of period cash flow data limits assessment of cash discipline. Depreciation was undisclosed, so EBITDA-based analyses are not available. We will monitor future disclosures for OCF consistency with operating profit and for changes in contract assets/liabilities.

Dividend Sustainability

No dividend per share (DPS) was disclosed for the period, and the payout ratio is shown as 0.0% due to nondisclosure. With EPS at ¥44.56 and a strong balance sheet, capacity for payouts exists in principle, but sustainability cannot be assessed without a stated policy, full-year guidance, or cash flow visibility. Free cash flow was not disclosed, so FCF coverage of dividends cannot be calculated. We will look for management commentary on dividend policy, historical payout norms, and any linkage to earnings or FCF at the full-year stage.

Risk Assessment

Business Risks:

• Project timing and acceptance risk affecting quarterly revenue and margins
• Customer concentration in rail/public infrastructure and related budget cycles
• Input cost and supply chain volatility (electronics/semiconductor components)
• Execution risk on fixed-price projects impacting gross margin
• Regulatory and safety standards changes in signaling systems
• Competition from larger domestic and global signaling/electronics players

Financial Risks:

• Working capital intensity leading to cash flow timing volatility
• Potential rise in effective tax rate impacting net income
• Limited asset turnover constraining ROE absent margin or leverage changes
• Interest rate movements (though current interest burden is low)
• FX exposure on imported components, if applicable

Key Concerns:

• Low ROE at 2.30% despite improved operating profit
• Undisclosed cash flow data limits earnings quality assessment
• Net income declined YoY despite stronger operations, indicating below-OP headwinds

Investment Implications

Key Takeaways:

• Top-line growth of 18.3% YoY with strong operating leverage (+157% YoY OP)
• Operating margin improved to ~8.3%; non-operating income also supportive
• Net income down 8.5% YoY, likely due to higher tax/one-off effects
• Balance sheet conservative with implied equity ratio ~65% and liabilities/equity 0.54x
• Liquidity robust (current ratio 235%, quick 208%) enabling project execution
• ROE modest at 2.30%, constrained by low asset turnover
• Cash flow and DPS not disclosed; dividend capacity cannot be verified this quarter

Metrics to Watch:

• Order intake and backlog to gauge revenue sustainability
• Gross and operating margins (project mix, execution, input costs)
• Working capital trends (receivables/contract assets and inventory turns)
• Operating cash flow versus operating income consistency
• Effective tax rate and non-operating income stability
• Asset turnover and capital efficiency
• Capex requirements and any shift in leverage

Relative Positioning: Operationally improving with stronger margins and positive non-operating contributions, underpinned by a conservative balance sheet; however, ROE trails peers reliant on higher asset turns or more aggressive capital structures, and the lack of disclosed cash flow limits verification of earnings quality.

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