Daiei Kankyo Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥39.98B
• Operating Income: ¥8.93B
• Net Income: ¥6.63B
• EPS: ¥61.70

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

Daiei Kankyo (93360) delivered FY2026 Q2 consolidated results indicating resilient top-line growth but pressured profitability, alongside strong cash generation and a solid balance sheet. Revenue rose 4.8% year on year to ¥39.98bn, evidencing steady demand in its environmental services portfolio. Gross profit reached ¥17.02bn, with a robust gross margin of 42.6%, suggesting healthy pricing and mix at the gross level. However, operating income declined 12.1% YoY to ¥8.93bn, implying higher SG&A or other operating costs offsetting gross margin strength. Ordinary income of ¥9.04bn slightly exceeded operating income, indicating a modest non-operating income contribution net of interest. Net income fell 8.4% YoY to ¥6.08bn, with net profit margin at 15.2%, still solid for a capital-intensive sector. DuPont analysis yields an ROE of 6.14%, driven by a 15.2% net margin, low asset turnover of 0.198x, and financial leverage of 2.04x; the asset intensity of the business continues to cap ROE. Operating cash flow was strong at ¥12.29bn (OCF/NI 2.02x), underscoring high earnings quality and effective collections/working capital management in the period. Liquidity is ample: current assets of ¥69.78bn and current liabilities of ¥29.11bn imply a current ratio of about 2.40x and working capital of ¥40.67bn. The capital structure is conservative-to-moderate with total liabilities of ¥90.22bn versus equity of ¥98.92bn (D/E ≈0.91x), and interest coverage is very comfortable at 62x based on operating income. Using reported balance sheet totals, the implied equity ratio is around 49% (98.92/201.70), even though a separate “Equity Ratio” field shows 0.0% and should be treated as unreported. Effective tax rate as computed from provided taxes and net income is approximately 37–38%, despite a reported 0.0% field that is unreported. EBITDA was ¥11.78bn with a margin of 29.5%, consistent with strong cash earnings capacity. The decline in operating profit despite revenue growth points to negative operating leverage this half, likely from higher SG&A, energy/logistics costs, or business mix. Investment cash flow is shown as 0 (unreported), preventing a precise free cash flow calculation; nevertheless, OCF strength and negative financing CF (−¥13.88bn) suggest debt repayments and/or other financing outflows were funded internally. No dividends are shown (DPS 0 and payout 0% likely unreported), implying either a reinvestment stance or absence of disclosure; EPS is provided at ¥61.70. Several items (inventories, cash and equivalents, equity ratio, investing cash flow, share count, BVPS) are shown as zero and should be considered unreported in XBRL rather than actual zeros; conclusions focus on disclosed non-zero values.

Profitability Analysis

ROE_decomposition: ROE 6.14% = Net margin 15.20% × Asset turnover 0.198 × Financial leverage 2.04. The ROE is mid-single-digit, constrained primarily by low asset turnover typical of capital-intensive waste/environmental infrastructure. margin_quality: Gross margin is high at 42.6%, evidencing pricing power and/or high value-added processing. Operating margin is 22.3% (¥8.93bn/¥39.98bn), but down YoY given operating income fell 12.1% against +4.8% revenue, indicating SG&A or other operating costs rose. Net margin of 15.2% remains strong after modest non-operating items (interest expense ¥144m) and a normalized tax burden (~37–38% inferred). operating_leverage: Negative operating leverage this period: revenue +4.8% YoY while operating income −12.1% YoY. This suggests cost inflation, increased maintenance/overhaul, or business mix shifts offsetting top-line growth. Maintaining gross margin strength but weaker operating profit implies SG&A intensity increased.

Growth Assessment

revenue_sustainability: Top-line growth of 4.8% appears steady, likely supported by contracted volumes, waste treatment demand, and potential pricing. Asset turnover of 0.198x indicates growth is supported by a sizable asset base; incremental growth may require continued capacity utilization improvements or capex. profit_quality: EBITDA margin of 29.5% and OCF/NI of 2.02x indicate robust cash conversion from earnings. The gap between stable gross margin and declining operating profit signals near-term mix or cost headwinds rather than structural demand weakness. outlook: Absent segment data, base-case outlook is for stable to modest revenue growth with a focus on restoring operating leverage via SG&A control and pricing. Ordinary income exceeding operating income suggests limited, non-core boosts; sustainability hinges on core margin recovery. ROE improvement will depend on lifting asset turnover (utilization, throughput) and protecting margins.

Financial Health

liquidity: Current assets ¥69.78bn vs current liabilities ¥29.11bn yields a current ratio ~2.40x and working capital of ¥40.67bn. Quick ratio is reported equal to current due to unreported inventories; underlying liquidity appears strong. solvency: Total liabilities ¥90.22bn and equity ¥98.92bn imply D/E of ~0.91x and an implied equity ratio ~49% (using balance sheet totals). Interest coverage is 62.0x on operating income, indicating low refinancing risk at current earnings levels. capital_structure: Financial leverage 2.04x (assets/equity) reflects a balanced use of debt for a capital-intensive model. Financing CF of −¥13.88bn suggests net repayments or other outflows funded by OCF; cash and equivalents are unreported, limiting detailed analysis of liquidity buffers.

Cash Flow Quality

earnings_quality: OCF ¥12.29bn vs net income ¥6.08bn gives OCF/NI of 2.02x, indicating strong accrual quality and effective working capital management. EBITDA of ¥11.78bn coheres with strong cash earnings. FCF_analysis: Investing CF is shown as 0 (unreported), preventing reliable FCF calculation. In this asset-heavy sector, maintenance and regulatory capex are typically material and can exceed D&A (¥2.85bn); thus true FCF is likely below OCF but cannot be quantified with provided data. working_capital: High OCF implies positive contribution from working capital or stable collections. Specific components (inventories, receivables, payables) are unreported, so the durability of working capital tailwinds cannot be assessed.

Dividend Sustainability

payout_ratio_assessment: DPS and payout ratio are shown as 0.00, likely unreported. Based on EPS ¥61.70, any implied payout cannot be computed without actual DPS. FCF_coverage: FCF is shown as 0 due to unreported investing cash flows; coverage analysis is not possible. OCF strength suggests capacity to fund maintenance capex and potentially distributions, pending actual capex levels. policy_outlook: Given growth needs in environmental infrastructure and negative operating leverage this half, reinvestment remains a plausible priority. Formal dividend policy cannot be inferred from available data.

Risk Assessment

Business Risks:

• Regulatory changes in waste treatment, recycling, and emissions standards affecting costs and capacity.
• Capacity and utilization risk at treatment and landfill assets, including maintenance shutdowns.
• Input cost inflation (energy, fuel, chemicals) pressuring margins and operating leverage.
• Volume cyclicality tied to industrial activity and construction waste generation.
• Contract/pricing risk on collection and treatment agreements amid cost pass-through lags.
• Project execution and capex overrun risk in expansions and facility upgrades.
• Environmental, safety, and incident risks leading to remediation costs or operational suspension.

Financial Risks:

• Potentially high maintenance and compliance capex reducing free cash flow.
• Refinancing and interest rate risk despite current high interest coverage.
• Working capital swings from receivables/payables in large contracts.
• Asset retirement obligations and long-term provisions typically associated with landfill operations (not disclosed here).

Key Concerns:

• Negative operating leverage despite revenue growth, pointing to cost pressure or mix headwinds.
• Low asset turnover (0.198x) suppressing ROE to 6.14%, requiring utilization gains for improvement.
• Data limitations (capex, cash, dividend details) constrain visibility on FCF and capital allocation.

Investment Implications

Key Takeaways:

• Revenue growth of 4.8% YoY with strong gross and EBITDA margins, but operating income down 12.1% indicates cost/mix pressure.
• ROE at 6.14% is chiefly constrained by low asset turnover; leverage is moderate at 2.04x assets/equity.
• Cash generation is strong (OCF/NI 2.02x), supporting balance sheet resilience and financing outflows.
• Liquidity robust with current ratio ~2.40x and working capital ¥40.67bn; interest coverage 62x.
• Capex and cash balance unreported, leaving FCF and dividend capacity uncertain.

Metrics to Watch:

• Operating margin trajectory and SG&A intensity versus revenue growth.
• Capex (maintenance vs growth) and resulting FCF after OCF.
• Asset turnover improvements via utilization and throughput.
• Pricing pass-through to offset energy and logistics cost inflation.
• Leverage (D/E) and interest coverage as financing conditions evolve.

Relative Positioning: Within domestic environmental services peers, Daiei Kankyo shows above-average margins and solid balance sheet strength, but lower asset turnover yields a mid-single-digit ROE; improving utilization and sustaining pricing discipline are key to closing the ROE gap.

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
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