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

Financial Highlights

• Net Sales: ¥3.80B
• Operating Income: ¥12M
• Net Income: ¥85M
• 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

NCN Co., Ltd. (70570) reported FY2026 Q2 consolidated results under JGAAP showing modest topline resilience but material profitability compression and a small net loss. Revenue was ¥3.8bn, down 1.3% YoY, indicating broadly stable demand with slight softness. Gross profit was ¥1.058bn, equating to a gross margin of 27.8%, which remains healthy and suggests core pricing and procurement discipline are intact. However, operating income fell sharply to ¥12m (−85.6% YoY), implying a significant increase in operating expenses and/or project mix headwinds that overwhelmed gross margin. Ordinary income turned negative (−¥12m), and net income was a loss of ¥27m, though the YoY change (+18.5%) indicates some improvement versus the prior-year loss. EBITDA was ¥108m, translating to an EBITDA margin of 2.8%, highlighting subdued operating leverage in the period. DuPont decomposition yields a calculated ROE of −1.22%, driven by a net margin of −0.71%, asset turnover of 0.595x, and financial leverage of 2.89x. Cash generation was notably strong relative to accrual earnings, with operating cash flow (OCF) of ¥633m and an OCF/Net Income ratio of −23.45, indicating substantial working capital release and/or non-cash charges supporting cash. Liquidity appears solid with a current ratio of 172%, quick ratio of 172% (inventories not disclosed), and working capital of ¥1.761bn. Based on disclosed total assets (¥6.388bn) and total equity (¥2.212bn), the implied equity ratio is approximately 34.6%, despite the reported equity ratio field showing 0.0% (unreported). Interest expense was modest at ¥2.0m, with EBIT-based interest coverage of 6.1x, suggesting limited near-term refinancing pressure. Financing cash outflow of ¥117m indicates some deleveraging or shareholder return/lease repayments, while investing cash flow is not disclosed this period, limiting free cash flow (FCF) analysis. No dividend was reported for the period (DPS: ¥0), which aligns with preserving balance sheet strength during earnings volatility. Data limitations include zeros for inventories, cash and equivalents, investing cash flows, and share counts; these should be treated as undisclosed rather than actual zero values. Overall, the company exhibits stable revenue and healthy gross margins but materially compressed operating margins, better-than-earnings cash generation, and a reasonably capitalized balance sheet, with visibility into inventory, cash, and capex needs remaining a key analytical gap.

Profitability Analysis

ROE is −1.22% via DuPont: Net Profit Margin (−0.71%) × Asset Turnover (0.595x) × Financial Leverage (2.89x). The negative ROE is primarily a function of thin operating profitability and non-operating drag tipping ordinary income into a small loss. Gross margin of 27.8% is solid for the sector, implying pricing power and/or efficient procurement, but operating margin compressed to 0.3% (¥12m/¥3.8bn), indicating elevated SG&A or project execution costs. EBITDA margin of 2.8% suggests limited operating leverage in this half; the gap between gross margin and EBITDA margin points to overhead absorption pressure. EBIT-based interest coverage of 6.1x is adequate, and with interest expense at only ¥2.0m, financing costs did not drive the loss; rather, core operating cost escalation or higher fixed costs at lower volumes appear responsible. The shift from operating income to ordinary loss implies non-operating items (e.g., investment P/L or FX) and/or higher non-operating expenses. Despite reported effective tax rate of 0.0%, tax expense of ¥35.1m suggests deferred tax or prior-period adjustments under JGAAP; tax effects did not drive the core profitability trend. Overall, profitability quality is mixed: robust gross margin but weak operating leverage and a negative bottom line.

Growth Assessment

Revenue declined slightly by 1.3% YoY to ¥3.8bn, implying broadly stable demand conditions with marginal softness. Given the steep decline in operating income (−85.6% YoY), the company likely faced higher fixed cost absorption and/or adverse mix (e.g., fewer high-margin projects). The gross margin at 27.8% remains supportive for medium-term margin recovery if operating expenses normalize or if scale improves. Ordinary and net losses highlight sensitivity to non-operating items and limited buffer at current scale. EBITDA is positive but modest, suggesting narrow room for investment-fueled growth without careful cost control. Sustainability of revenue hinges on order backlog quality, pricing discipline, and construction/engineering cycle dynamics—data not disclosed this quarter limit visibility. Profit quality is mixed: OCF is strong relative to earnings, but without investing and cash details, it is unclear if this is structural (working capital discipline) or timing related. Near-term outlook: cautious, with potential for operating margin recovery if cost pressures abate and volume stabilizes, but downside risk remains if demand softens further or overhead remains elevated.

Financial Health

Liquidity is sound: current ratio 172.4%, quick ratio 172.4% (inventories undisclosed), and working capital of ¥1.761bn indicate ample short-term coverage. Total assets are ¥6.388bn versus total liabilities of ¥3.457bn and equity of ¥2.212bn; the implied equity ratio is approximately 34.6% (despite a reported 0.0% placeholder). Debt-to-equity is 1.56x using total liabilities; interest-bearing debt is not disclosed, so leverage could be overstated on this basis. Interest expense is low at ¥2.0m, indicating limited financial risk from borrowing costs presently. Ordinary loss and net loss are small relative to equity, suggesting no immediate solvency concerns if losses remain contained. The absence of reported cash and equivalents constrains assessment of immediate liquidity buffers, but positive OCF and net working capital provide comfort. Financing cash outflow of ¥117m indicates outflows likely for debt service or lease liabilities; specifics are not disclosed.

Cash Flow Quality

OCF of ¥633m versus net income of −¥27m yields an OCF/Net Income ratio of −23.45, indicating cash generation far exceeds accrual earnings due to working capital inflows and non-cash charges (D&A ¥95.8m). EBITDA of ¥108m is well below OCF, underscoring the role of working capital release this period. Investing cash flow is undisclosed (reported as 0), preventing calculation of true free cash flow; reported FCF of 0 should be treated as not determinable. Without capex data, we cannot assess maintenance vs. growth investment or sustainability of cash generation. Working capital dynamics appear favorable in the half (e.g., collections or payables timing), but durability is uncertain without inventory and cash disclosures. Earnings quality, on a cash basis, looks stronger than accruals; however, reliance on timing effects would reduce repeatability. Continued monitoring of receivables turnover, contract assets, and payables is important to confirm structural improvements.

Dividend Sustainability

Annual DPS is reported as ¥0.00 for the period and payout ratio 0.0%, consistent with a net loss and a conservative stance. FCF coverage is shown as 0.00x but is not meaningful because investing cash flows are undisclosed; true FCF cannot be computed. Given modest losses, adequate liquidity, and implied equity ratio near 35%, the balance sheet could support future distributions when profitability normalizes. However, with operating margin pressure and limited visibility into capex and cash balances, maintaining a cautious dividend policy appears prudent. Any resumption or increase in dividends would require clearer evidence of sustainable positive earnings and FCF.

Risk Assessment

Business Risks:

• Operating margin compression due to higher SG&A or fixed cost absorption at lower volumes
• Project mix and pricing risk impacting gross-to-operating margin conversion
• Exposure to construction/engineering cycle and housing-related demand fluctuations
• Execution risk on large or complex projects affecting profitability
• Supplier cost inflation or logistics disruptions pressuring gross margin

Financial Risks:

• Limited visibility into cash and equivalents and investing cash flows
• Potential working capital reversals after a strong OCF half
• Reliance on non-operating items affecting ordinary income volatility
• Tax expense variability under JGAAP despite low reported effective tax rate
• Leverage assessment uncertainty due to lack of breakdown of interest-bearing debt

Key Concerns:

• Sharp decline in operating income (−85.6% YoY) despite stable revenue
• Negative net income and ordinary loss indicating thin buffers
• Inability to assess FCF due to undisclosed investing cash flows
• Inventories and cash balances not disclosed, limiting liquidity granularity

Investment Implications

Key Takeaways:

• Revenue resilience with only a 1.3% YoY decline, but severe operating margin compression
• Gross margin remains healthy at 27.8%, offering a base for recovery if costs normalize
• Strong OCF (¥633m) contrasts with a small net loss, suggesting timing-driven cash support
• Implied equity ratio around 34.6% and adequate EBIT interest coverage (6.1x) mitigate solvency concerns
• Visibility gaps (capex, cash, inventories) constrain confidence in FCF sustainability

Metrics to Watch:

• Operating margin and SG&A ratio trends
• Order backlog, new orders, and pricing/mix indicators
• Working capital components: receivables, contract assets/liabilities, and payables
• Capex and investing cash flows to assess true FCF
• Ordinary income drivers (non-operating gains/losses) and tax effects

Relative Positioning: Within peers exposed to construction/engineering demand, the company shows competitive gross margins but underperforms on operating leverage this period; balance sheet strength appears adequate, while cash flow visibility is weaker due to undisclosed investing and cash balances.

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