New Constructor's Network Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥3.80B
• Operating Income: ¥12M
• Net Income: ¥-18M
• EPS: ¥-9.09

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 weak FY2026 Q2 with operating margin collapse and a swing to ordinary loss, partially cushioned by solid operating cash generation and ample liquidity. Revenue slipped 1.3% YoY to 38.0, while gross profit reached 10.82 (GPM 28.5%). SG&A held at 10.69, leaving operating income at just 0.12 (down 85.6% YoY), implying operating margin of 0.3%. Non-operating items were a material drag: income 0.08 versus expenses 0.34 (net -0.26), turning operating profit into ordinary loss of -0.12. Net income deteriorated to -0.27 (though YoY loss narrowed by 18.5%), with net margin at -0.7%. Operating margin compressed by roughly 184 bps YoY (from ~2.2% to ~0.3%), while net margin compressed by ~12 bps (from ~-0.6% to ~-0.7%). EBITDA was 1.19 (margin 3.1%) and interest expense minimal at 0.01, yielding strong interest coverage of 15.9x. Cash and deposits of 26.53 underpin a healthy current ratio of 153% and working capital of 16.78. Importantly, OCF was 1.63 despite the net loss, implying cash conversion outpaced accounting earnings this quarter. DuPont shows ROE at -1.2%, driven by negative margin (-0.7%), modest asset turnover (0.595), and leverage of 2.89x. Calculated equity ratio is approximately 34.6% (22.12 equity / 63.88 assets), indicating a moderate capital base. ROIC at -3.0% is well below a 5% warning threshold, signaling sub-par capital efficiency. Forward-looking, management must restore operating leverage by aligning SG&A with revenue and mitigating non-operating losses; near-term focus should be on stabilizing margins and preserving cash while demand remains soft.

Profitability Analysis

ROE decomposition (DuPont): ROE (-1.2%) = Net Profit Margin (-0.7%) × Asset Turnover (0.595) × Financial Leverage (2.89x). The largest adverse change YoY is in margin: operating income fell 85.6% with operating margin compressing ~184 bps to ~0.3%, while net margin worsened ~12 bps to -0.7%. Business driver: SG&A (10.69) effectively absorbed nearly all gross profit (10.82), leaving little operating surplus; additionally, net non-operating loss (-0.26) turned operating profit into ordinary loss, likely reflecting items such as FX losses or other expenses. Sustainability: the SG&A/revenue imbalance is structural unless costs flex lower or pricing/mix improves; the non-operating drag may be partly one-off but cannot be assumed recurring without disclosure. Concerning trends: negative operating leverage (SG&A not adjusting to lower revenue), and ROIC at -3.0% indicates investments are not earning their cost of capital. Monitor if SG&A growth outpaces revenue in subsequent quarters; with revenue -1.3% YoY and operating profit -85.6% YoY, the cost base appears too rigid.

Growth Assessment

Top-line contracted 1.3% YoY to 38.0, indicative of soft demand or project timing slippage. Profitability weakened sharply: operating income collapsed to 0.12 and ordinary income turned negative (-0.12) as non-operating expenses (0.34) outweighed non-operating income (0.08). Net loss of -0.27 narrowed YoY by 18.5%, but the improvement is optical given the very small base and persistent ordinary loss. Revenue sustainability near term appears challenged given the margin structure (SG&A ~99% of gross profit), implying limited buffer against further revenue softness. Profit quality is mixed: cash generation was positive (OCF 1.63) despite a net loss, suggesting working capital tailwinds or non-cash charges (D&A 1.07) supported cash. Outlook hinges on cost discipline and restoring operating leverage; even modest gross margin or SG&A efficiency gains could swing operating profit back to a healthier level. Non-operating volatility is a watchpoint, as small swings can tip overall profitability into loss at current margin levels.

Financial Health

Liquidity is adequate: current ratio 152.8% and quick ratio 152.8% both above healthy thresholds; no warning for current ratio (not <1.0). Cash and deposits (26.53) plus receivables (11.82) cover current liabilities (31.77), limiting maturity mismatch risk. Solvency: total liabilities 41.77 vs equity 22.12 imply a liabilities-to-equity of ~1.89x (elevated versus a conservative benchmark but below the 2.0x explicit red-flag level). Interest-bearing debt disclosure is limited (long-term loans 0.35, short-term loans unreported), but interest burden is light (interest expense 0.01) and coverage strong (15.9x). Equity ratio (calculated) is ~34.6%, providing a moderate cushion. No off-balance sheet obligations are disclosed in the data provided.

Cash Flow Quality

OCF was 1.63 against net income of -0.27, yielding OCF/NI of -6.05 (<0.8, a formal flag), although the direction is cash-positive due to non-cash D&A (1.07) and likely working capital release. Free cash flow proxy (OCF - Capex) is approximately 1.42, as investing CF details were unreported beyond capex (-0.21). Earnings quality appears better in cash terms than accrual terms this quarter, but sustainability is uncertain if working capital normalizes. No clear signs of working capital manipulation can be identified from the limited breakdown, but the large gap between OCF and NI should be monitored in subsequent quarters.

Dividend Sustainability

Dividend data were largely unreported; payout ratio calculated at -346% is not meaningful with a net loss. On a cash basis, FCF proxy is positive (~1.42), which could theoretically support modest shareholder returns, but visibility is low without actual dividend figures and with ROIC at -3.0%. Until profitability normalizes, sustaining or growing dividends would rely on cash reserves (cash 26.53) rather than earnings. Policy outlook cannot be assessed from the data; monitor guidance, payout policy, and year-end DPS announcements.

Risk Assessment

Business Risks:

• Demand softness leading to revenue decline (-1.3% YoY) and weak operating leverage
• High SG&A intensity (SG&A ~99% of gross profit) compressing operating margin
• Non-operating loss (-0.26 net) tipping ordinary income negative
• Execution risk in cost control and pricing/mix to restore margins
• Industry exposure to housing/construction cycles and project timing

Financial Risks:

• ROIC at -3.0% indicating sub-par capital efficiency
• Elevated liabilities-to-equity (~1.89x) though below critical 2.0x threshold
• Profit sensitivity to small non-operating swings given thin operating margin
• Potential working capital volatility affecting OCF consistency

Key Concerns:

• Operating margin collapse (~184 bps YoY compression to ~0.3%)
• Ordinary and net losses despite positive EBITDA
• Limited disclosure on investing CF and dividends limiting visibility
• Dependency on cost actions for near-term profit recovery

Investment Implications

Key Takeaways:

• Quarter characterized by sharp operating deleverage and ordinary loss driven by non-operating expenses
• Liquidity is solid (current ratio 153%, cash 26.53) and interest burden minimal (coverage 15.9x)
• Cash generation outpaced accounting earnings (OCF 1.63 vs NI -0.27), but durability is uncertain
• Capital efficiency is weak (ROE -1.2%, ROIC -3.0%); improvement hinges on margin repair
• Non-operating volatility is a key swing factor at current low operating margins

Metrics to Watch:

• Operating margin and SG&A-to-sales ratio each quarter
• Gross profit trend and pricing/mix effects
• Non-operating income/expense breakdown (FX, valuation losses, etc.)
• OCF conversion versus NI and working capital movements
• ROIC trajectory toward >5% and equity ratio stability (~35%)

Relative Positioning: Within small-cap construction/engineering-adjacent peers, NCN currently shows weaker profitability (negative NI, thin operating margin) but comparatively sound liquidity and low interest burden; improvement potential exists via cost normalization, though ROIC underperformance places it below sector averages near term.

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