Or Shay in the First Quarter: Top Capital Profit Meets a Jump in Construction-Credit Risk
Or Shay opened 2026 with net profit of NIS 6.6 million and nearly balanced profit contribution from its two segments. But the construction-finance book grew alongside a jump in loans classified as higher risk, so the quarter shows operating progress that still has to pass through credit quality and covenant headroom.
Or Shay delivered in the first quarter of 2026 the first proof that Top Capital is not only a balance-sheet asset consolidated at the end of 2025, but a business that can already contribute profit to the group. Consolidated net profit was NIS 6.6 million, and the construction-finance segment contributed NIS 3.7 million compared with NIS 4.0 million from the business-credit segment. That is real progress against the question left open after the prior annual coverage: whether the acquired business would become only balance-sheet volume or also earnings. But the quarter does not close the risk question. The gross construction-finance book grew from NIS 599 million at the end of 2025 to NIS 664 million at the end of March, while loans with a significant increase in credit risk plus loans in default jumped from NIS 34.2 million to NIS 108.4 million. At the same time, the Series E bond-deed amendment moved the bond away from an accounting pressure point, but some bank covenants inside Pitronot Layazam remain closer to their thresholds. The quarter improves the operating story, but shifts the main focus from credit-book size to underwriting quality, collateral, and funding sources.
The Company Has Changed: Two Credit Books and a Bond-Led Market Read
Or Shay is now a non-bank lender with two different engines. The legacy business provides credit to small and medium-sized businesses, mainly against deferred checks and with short duration. The new business, added through the acquisition of control in Top Capital in December 2025, finances real-estate developers and construction projects, mainly through Pitronot Layazam.
At the end of March 2026, net customer credit totaled NIS 1.15 billion, of which NIS 652.9 million came from construction finance and NIS 497.9 million from business credit. By segment assets, construction finance is already larger than the legacy business: NIS 683.0 million versus NIS 513.5 million. The company should therefore no longer be read only through credit-book growth, but through whether the new segment adds profit without pulling credit losses and funding needs higher.
There is also a practical market constraint. This is not an actively traded equity story that can be read through a normal market-cap lens. The public market reference point is mainly Series E bonds, so the quarter should be read through two layers: whether the company is earning more, and whether the layer supporting public and bank debt remains comfortable enough.
Top Capital Is Earning, but Cost Rises With Income
The positive headline is that Top Capital is already participating in profit. The construction-finance segment generated NIS 20.7 million in financing income, NIS 10.7 million in financing expenses, and NIS 10.0 million in net financing income. After NIS 706 thousand in credit-loss expense, selling and marketing expenses, and general and administrative expenses, the segment ended the quarter with NIS 3.7 million in profit.
That is almost equal to the legacy business contribution. The business-credit segment posted NIS 4.0 million in profit, so for the first time since the acquisition the group shows two real earnings engines rather than only balance-sheet consolidation. The adjusted comparison base supports that direction: compared with the corresponding quarter as if Top Capital had also been consolidated then, financing income rose from NIS 30.3 million to NIS 37.0 million, and net profit rose from NIS 5.3 million to NIS 6.6 million.
Still, these earnings do not come without growth costs. Financing expenses rose faster than financing income versus the adjusted comparison base, and credit-loss expense almost doubled from NIS 533 thousand to NIS 1.1 million. General and administrative expenses rose to NIS 8.0 million, compared with NIS 5.9 million on the adjusted base, partly because of employee additions and amortization of purchase-price allocation assets created in the Top Capital transaction. The quarter proves Top Capital can earn, but it does not yet prove these earnings arrive without a parallel rise in risk cost and operating cost.
The Construction Book Grew, and Risk Classifications Grew Much Faster
The most important figure sits in the construction-credit breakdown, not in the income statement. The gross credit book in the segment rose from NIS 598.9 million at the end of 2025 to NIS 663.9 million at the end of March 2026, up about 11%. That is meaningful growth for one quarter, and it explains why the segment has already become a central earnings engine.
Inside that book, however, risk classification moved much faster. Loans with a significant increase in credit risk rose from NIS 22.3 million to NIS 84.8 million. Loans in default rose from NIS 11.9 million to NIS 23.6 million. Together, these two categories reached NIS 108.4 million, about 16.3% of the construction-finance book, compared with NIS 34.2 million and about 5.7% at the end of 2025.
This is not proof of final deterioration in the book. In construction finance, payment-schedule changes, absorption capacity, and project duration are part of the business. The absorption-capacity split is not one-sidedly negative either: 58% of the book was in projects with absorption capacity above 35%, and only 10% was below 20%. In addition, 68% of the book is senior debt and 32% is subordinated debt.
But the move from NIS 34.2 million to NIS 108.4 million in higher-risk categories is not noise. The allowance for expected credit losses in construction finance increased from NIS 2.45 million to NIS 3.86 million, but the total allowance rate remains only 0.58% of the book. That can be reasonable if collateral and absorption capacity hold. It becomes a much heavier warning sign if the higher-risk categories keep growing over the next quarters, or if allowances start chasing a book that has already changed.
The Bonds Are Farther Away, the Banks and Cash Flow Are Closer
The main financing event in the quarter was the amendment to the Series E bond deed. The amendment increased the annual interest rate on outstanding principal by 0.2%, raised the equity-to-balance-sheet threshold from 15.7% to 16%, and changed the balance-sheet definition so that subsidiaries whose debts are not guaranteed by the company are deducted. The result is clear: for deed purposes, NIS 197 million of equity against a NIS 595 million balance sheet creates a 33% ratio, far above the threshold.
That closes a point that was open after the annual report, but it does not mean all funding pressure has disappeared. Inside Pitronot Layazam, the tangible equity-to-balance-sheet covenant was revised from 20% to 15%, and the actual ratio at quarter-end was 17.0% to 17.4% across banks. At one bank, the ratio of Pitronot Layazam’s bank debt to customer credit stood at 82.6%, compared with an 85% cap.
| Funding Layer | Threshold or Limit | March 2026 Figure | Economic Meaning |
|---|---|---|---|
| Series E bonds | Equity to balance sheet no lower than 16% | 33% | The amendment moved the series away from immediate measurement pressure |
| Business credit with banks | Tangible equity to balance sheet no lower than 17% | 21.4% to 21.5% | The legacy business remains more comfortable |
| Pitronot Layazam with banks | Tangible equity to balance sheet no lower than 15% | 17.0% to 17.4% | Headroom exists, but it is narrower |
| Pitronot Layazam with Bank C | Bank debt no higher than 85% of customer credit | 82.6% | Further growth requires leverage discipline |
Cash flow clarifies who funds the growth. Operating cash flow was negative NIS 10.3 million, mainly because customer credit increased by NIS 69.0 million. Against that, bank loans increased by NIS 68.2 million, while loans from others fell by NIS 16.0 million. After a NIS 4.0 million investment to acquire minority interests in Pitronot Layazam and NIS 141 thousand of lease repayments, consolidated cash fell from NIS 20.8 million to NIS 6.3 million.
That is not unusual when a lender grows its book, but it sets the next read. The first quarter gives a partial positive answer: Top Capital is already contributing profit, and the bond layer gained more measurement headroom after the amendment. The next proof point is stability in credit quality and funding sources: fewer or stable higher-risk loans, allowances that do not jump, and preserved covenant headroom at Pitronot Layazam. If those arrive together with continued profitability, the acquisition will look like an expanded earnings engine. If not, the same profitable quarter will look more like leveraged growth that bought income at the cost of tighter credit risk.
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