Makoto Construction CO,Ltd FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥1.01B
• Operating Income: ¥-60M
• Net Income: ¥-45M
• EPS: ¥-22.24

Income Statement

Balance Sheet

Cash Flow Statement

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

Verdict: FY2026 Q2 was weak operationally with a continued operating and ordinary loss, despite modest top-line growth and solid balance sheet liquidity. Revenue rose 1.9% YoY to 10.11, but gross profit of 1.30 (gross margin 12.8%) could not cover SG&A of 1.90, resulting in operating loss of -0.60. Ordinary loss was -0.63 as dividend income (0.09) and other non-operating gains (total non-op income 0.12) were more than offset by non-operating expenses (0.16), largely interest expense. Net loss came in at -0.44, partly cushioned by tax credits of 0.19, with basic EPS at -22.24 yen. Operating margin compressed to -5.9% (operating income -0.60 on sales of 10.11), indicating negative operating leverage as SG&A exceeded gross profit. The gross margin sits at 12.8%, but the EBITDA margin was -5.3%, underscoring limited cost flexibility in the near term. From a margin delta perspective, operating margin deteriorated versus breakeven thresholds by roughly 590 bps relative to zero, while gross margin is insufficient to cover fixed SG&A. ROE was -1.1%, driven by a -4.3% net margin, low asset turnover (0.149x), and moderate leverage (1.71x). Cash flow was also negative with operating CF of -3.60; however, OCF moved in the same direction as net income and the OCF/NI ratio of 8.18x does not flag accrual quality concerns (both are negative), but it does indicate material working capital outflows. Liquidity remains strong: current assets of 53.12 comfortably cover current liabilities of 12.82 (current ratio 414%), and cash and deposits of 10.48 exceed short-term loans of 2.27. Solvency is acceptable with total equity of 39.62 (equity ratio ~58.6%) and D/E of 0.71x, though interest coverage is weak at -3.7x. ROIC of -0.9% sits well below a 5% warning line, signaling value dilution if sustained. Capex was minimal (0.01), and financing CF was an outflow of -2.25, likely debt service or repayments, implying net cash use this half. Forward-looking, margin recovery hinges on improving gross margins and aligning SG&A with scale, while managing working capital intensity to stabilize OCF. With multiple items unreported (e.g., inventories, receivables, backlog), visibility into order momentum and cash conversion remains limited.

Profitability Analysis

ROE decomposition (DuPont): ROE (-1.1%) = Net Profit Margin (-4.3%) × Asset Turnover (0.149x) × Financial Leverage (1.71x). The weakest component is the net margin, which is negative due to operating loss (SG&A of 1.90 exceeding gross profit of 1.30), while asset turnover is low reflecting a balance sheet weighted toward current assets and investments versus revenue scale. Business reason: insufficient gross margin (12.8%) to cover fixed overheads, combined with interest burden (0.16), pushed ordinary profit negative despite some dividend income (0.09). The change driver is primarily operating expense intensity (negative operating leverage) rather than one-time items; non-operating factors are modest and recurring in nature (interest, dividend income). Sustainability: without mix/pricing improvements or SG&A rationalization, the negative margin could persist; dividend income is helpful but insufficient to offset core losses. Concerning trends include: SG&A exceeding gross profit (1.90 > 1.30), EBITDA negative (-0.54), and interest coverage negative (-3.73x), indicating weak operating efficiency at current scale.

Growth Assessment

Top-line grew 1.9% YoY to 10.11, but revenue growth did not translate into profit due to margin compression and fixed cost absorption. Gross profit of 1.30 versus SG&A of 1.90 signals that additional volume at current gross margin is insufficient to achieve operating breakeven; either higher-margin mix or cost reductions are needed. Ordinary loss widened despite non-operating dividend income (0.09), showing limited offset from financial assets. With ROIC at -0.9%, current investments are not covering the cost of capital. Near-term outlook depends on: securing higher-margin orders, controlling subcontracting and materials costs to lift gross margin above the SG&A threshold, and improving working capital to stabilize OCF. Capex is negligible (0.01), so growth is not capex-driven; execution and mix are the key levers. Given unreported data on order backlog, inventories/land bank, and receivables, visibility into second-half recovery is limited, and we assume a gradual margin repair rather than sharp rebound absent evidence of backlog strength.

Financial Health

Liquidity is strong: current assets 53.12 vs current liabilities 12.82 imply a current ratio of 414% and ample working capital of 40.30. Quick ratio matches at 414.3% given limited disclosure on inventories; cash and deposits (10.48) exceed short-term loans (2.27), reducing near-term refinancing pressure. Solvency is moderate: total equity 39.62 vs total liabilities 28.06 yields an equity ratio of ~58.6% and D/E of 0.71x (within conservative range). Interest-bearing debt detail shows long-term loans of 14.44 and short-term loans of 2.27; maturity profile is not disclosed, but the mix suggests a manageable rollover if cash generation improves. Warning thresholds: Current Ratio well above 1.0 (no warning) and D/E below 2.0 (no warning). Maturity mismatch risk appears low near term given cash and current assets coverage, though persistent negative OCF could erode cushions. No off-balance sheet obligations are disclosed in the data provided.

Cash Flow Quality

OCF of -3.60 versus net income of -0.44 yields an OCF/NI ratio of 8.18x; by the numerical threshold (>0.8) this is not a quality flag, but both metrics are negative, indicating cash burn and likely working capital outflows. Free cash flow is not fully calculable due to unreported investing CF; capex is minimal at 0.01, suggesting that cash burn is not investment-led but tied to operations/working capital. Financing CF of -2.25 indicates additional cash use for debt service/repayment or shareholder returns (dividends unreported). Earnings quality: non-operating dividend income (0.09) is recurring but small; core operations drove the loss. Working capital signals: with major current asset/liability components unreported (receivables, inventories, payables), we cannot identify specific drivers, but the scale of OCF relative to NI suggests significant timing effects or growth in work-in-progress. No clear signs of aggressive accruals given NI and OCF move in the same direction.

Dividend Sustainability

Dividend data (DPS, total dividends) is unreported; the calculated payout ratio of -114.3% is not meaningful given losses. With negative NI and negative OCF, dividend capacity (if any) would rely on balance sheet strength rather than internal cash generation in this half. Cash on hand (10.48) and low short-term debt requirements (2.27) provide temporary flexibility, but sustained distributions would not be covered by FCF given current trends. Policy outlook cannot be inferred from the data; sustainability would require return to positive OCF and operating profit or explicit balance sheet deployment.

Risk Assessment

Business Risks:

• Margin risk: gross margin (12.8%) insufficient to cover SG&A, causing operating losses
• Cost inflation for materials and subcontracting pressuring project margins
• Demand cyclicality in construction/real estate-related markets affecting order intake and pricing
• Execution risk on projects leading to cost overruns and delayed collections
• Dependence on non-operating dividend income (0.09) that cannot offset core losses

Financial Risks:

• Negative interest coverage (-3.73x) indicating vulnerability to interest rate increases
• Negative OCF (-3.60), implying reliance on balance sheet to fund operations
• Refinancing risk on 14.44 of long-term loans if profitability does not recover
• Potential working capital build (details unreported) tying up cash

Key Concerns:

• ROIC at -0.9% well below a 5% warning level, signaling value dilution if prolonged
• Operating margin -5.9% and EBITDA negative (-0.54) reflecting weak operating leverage
• Visibility constraints due to unreported items (receivables, inventories, payables, backlog)
• Ordinary loss (-0.63) despite dividend income, showing limited cushion from financial assets

Investment Implications

Key Takeaways:

• Top-line up modestly (+1.9%), but SG&A exceeds gross profit, keeping operating loss intact
• ROE (-1.1%) driven by negative net margin; leverage is moderate and not the core issue
• Liquidity is ample (current ratio 414%), but cash burn from OCF (-3.60) is a headwind
• Interest coverage is weak, elevating sensitivity to finance costs
• ROIC (-0.9%) below cost of capital; improvement needed to justify invested capital

Metrics to Watch:

• Order backlog and book-to-bill to assess revenue visibility
• Gross margin trajectory and SG&A-to-sales ratio for breakeven progress
• Operating cash flow and working capital days (receivables, payables, inventories) when disclosed
• Interest coverage and average borrowing cost as rates evolve
• Debt maturity schedule and refinancing activity
• Any changes in dividend policy or capital allocation

Relative Positioning: Within construction/real estate-linked peers, the company shows stronger liquidity but weaker profitability and cash conversion this quarter; sustained recovery will depend on margin normalization and working capital discipline.

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