TAKAMATSU CONSTRUCTION GROUP CO.,LTD. FY2026 FY Earnings Report

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Executive Summary

FY2026 (Apr 2025–Mar 2026) Full Year results: Revenue ¥3576.8B (YoY +¥110.0B +3.2%), Operating Income ¥179.0B (YoY +¥64.4B +56.2%), Ordinary Income ¥175.1B (YoY +¥68.9B +64.9%), Net Income ¥114.4B (YoY +¥49.8B +77.0%) — revenue up and substantial profit increase. Completed-construction gross profit margin improved to 15.9% (prior 12.4%) +3.5pt, and operating margin improved to 5.0% (prior 3.3%) +1.7pt. The Architectural Business drove profitability with Operating Income ¥124.7B (+229.9%). Total assets increased to ¥3147.3B (YoY +¥450.1B +16.7%), and shareholders’ equity increased to ¥1469.3B (YoY +¥91.7B +6.7%). ROE improved to 7.8% (prior 4.7%) +3.1pt, EPS ¥328.18 (prior ¥185.32) +77.1%. Dividends for the year were ¥130.00 (payout ratio 44.2%).

Drivers of Performance

Revenue: Revenue ¥3576.8B (+3.2%), marking the third consecutive year of revenue growth. Completed-construction sales were ¥2735.8B, a slight increase YoY; the Real Estate Business remained solid despite market changes. By segment, the Architectural Business was strong at ¥1786.5B (+8.6%), Civil Engineering ¥1007.7B (-0.7%) slightly down, and Real Estate ¥852.7B (+2.2%). Architecture drove revenue growth through capture of private CAPEX demand and progress on large projects; civil engineering dipped slightly due to project timing. Completed-construction accounts receivable increased to ¥1272.0B (prior year-end ¥1090.4B) +¥181.6B, widening the timing gap between project progress and collections. Real estate for sale increased to ¥381.4B (prior year-end ¥226.6B) +¥154.8B, indicating inventory build-up.

Profitability: Gross profit ¥552.0B (+23.7%), gross profit margin improved to 15.4% (prior 12.9%) +2.5pt. Completed-construction gross profit margin improved to 15.9% (prior 12.4%) +3.5pt, driven by improved bidding accuracy and stronger on-site margin controls. SG&A ¥373.0B (+12.5%), SG&A ratio rose to 10.4% (prior 9.6%) +0.8pt, driven by higher general administrative expenses and labor costs. Operating Income ¥179.0B (+56.2%), operating margin 5.0% (prior 3.3%) +1.7pt. Segment operating income: Architecture ¥124.7B (margin 7.0%, +229.9%) outstanding; Civil Engineering ¥65.1B (margin 6.5%, +10.9%) steady; Real Estate ¥60.8B (margin 7.1%, -15.4%) declined due to delayed profit recognition while in inventory build-up. Non-operating income ¥5.9B (dividends received ¥1.6B, foreign exchange gains ¥1.4B, etc.), non-operating expenses ¥9.8B (interest expense ¥3.9B, equity-method losses ¥3.8B, etc.), resulting in Ordinary Income ¥175.1B (+64.9%). Extraordinary gains ¥2.6B (gain on sale of investment securities ¥2.4B), extraordinary losses ¥0.4B (loss on disposal of fixed assets) had minor effect on Net Income. Income taxes ¥62.9B (effective tax rate 35.5%) booked, Net Income ¥114.4B (+77.0%). Conclusion: revenue up and materially higher profits.

Segment Analysis

Architectural Business: Revenue ¥1786.5B (+8.6%), Operating Income ¥124.7B (+229.9%), margin 7.0%. Operating Income surged ~3.3x YoY, driven by capture of private CAPEX demand and strict project margin management. Civil Engineering Business: Revenue ¥1007.7B (-0.7%), Operating Income ¥65.1B (+10.9%), margin 6.5%. Revenue slightly down due to order timing, but margin improved thanks to higher proportion of high-margin projects. Real Estate Business: Revenue ¥852.7B (+2.2%), Operating Income ¥60.8B (-15.4%), margin 7.1%. In a build-phase for properties for sale, profit recognition timing lagged causing lower profits, while inventory accumulation (¥381.4B, +68.3%) is building next-period earnings potential. Consolidated operating income after corporate adjustments was ¥179.0B, with Architecture accounting for roughly 70% of company profit as the core segment.

Key Financial Metrics

Profitability: Operating margin 5.0% (prior 3.3%, +1.7pt), Net margin 3.2% (prior 1.9%, +1.3pt) improved. Completed-construction gross profit margin 15.9% (prior 12.4%, +3.5pt) reflects better order accuracy and cost control. ROE 7.8% (prior 4.7%, +3.1pt) benefited from higher net income and increased financial leverage (2.14x, prior 1.96x). ROA improved to 5.6% (prior 3.9%, +1.7pt). Cash quality: Operating Cash Flow / Net Income -1.48x, OCF/EBITDA -0.84x indicate weak cash conversion. Working capital increase (Completed-construction accounts receivable +¥181.6B, inventory +¥270.2B) is the main cause. Accrual ratio 9.0% is neutral-to-somewhat-cautionary. Investment efficiency: Total asset turnover 1.14x (prior 1.29x) declined due to asset increases from inventory and receivables. Fixed asset turnover 7.7x indicates light equipment burden. Financial soundness: Equity Ratio 46.7% (prior 51.1%, -4.4pt), current ratio 166.6% is healthy. Debt/EBITDA 2.33x, Interest Coverage 52.0x show adequate debt resilience. Short-term borrowings ¥470.0B (+¥320.0B, +213.3%) increased short-term liability dependence; Cash / Short-term Debt 0.72x heightens refinancing sensitivity.

Cash Flow Analysis

Operating Cash Flow was -¥168.9B (prior +¥51.3B), a large swing to negative. Main causes: profit before tax adjustment ¥177.3B vs. increases in completed-construction accounts receivable -¥181.6B and inventory -¥270.2B — large working capital deterioration. Advances received on uncompleted construction contracts increased +¥46.0B, a positive contribution, but increases in receivables and inventory outweighed it. Income taxes paid -¥55.1B also reduced cash. Operating CF subtotal (before working capital changes) was -¥113.9B, including depreciation ¥22.9B and decrease in allowance for doubtful accounts -¥1.4B. Investing CF was -¥35.9B: capital expenditures -¥10.0B, intangible asset acquisitions -¥3.3B, acquisition of investment securities -¥31.8B, proceeds from sales +¥7.9B. Financing CF was +¥187.6B, mainly net increase in short-term borrowings +¥320.0B, bond redemptions -¥100.0B, dividend payments -¥29.0B. FCF was -¥204.8B, largely covered by short-term borrowings. Cash and cash equivalents were ¥339.2B (opening ¥357.2B, -¥18.0B). Operating CF / Net Income -1.48x and cash conversion rate -0.84x point to issues converting profits to cash; recovery of receivables and inventory handover next year is urgent for operating CF normalization.

Quality of Earnings

Recurring income is the core; extraordinary gains ¥2.6B (gain on sale of investment securities ¥2.4B, gain on sale of fixed assets ¥0.2B) represent ~2.3% of Net Income ¥114.4B, minor impact. Non-operating income ¥5.9B (dividends received ¥1.6B, foreign exchange gains ¥1.4B, other ¥1.7B), non-operating expenses ¥9.8B (interest expense ¥3.9B, equity-method losses ¥3.8B, other ¥2.0B) are each below 1% of Revenue and composition is healthy. The gap between Ordinary Income ¥175.1B and Net Income ¥114.4B is mainly due to income taxes ¥62.9B (effective tax rate 35.5%) and is within a reasonable range. Accrual ratio 9.0% is neutral-to-somewhat-cautionary; because Operating CF is well below Net Income, cash backing is weak. Operating CF / Net Income -1.48x, OCF/EBITDA -0.84x show divergence between profits and cash due to working capital increases. Increases in completed-construction receivables and inventory are temporary factors, but if collection delays or inventory valuation risks materialize, earnings quality could be affected. Comprehensive income ¥121.7B (attributable to owners of parent ¥121.6B) is ¥7.3B above Net Income ¥114.4B; Other Comprehensive Income breakdown: actuarial gains/losses on retirement benefits +¥8.7B, valuation differences on available-for-sale securities +¥1.1B, foreign currency translation adjustments -¥2.1B, share of OCI of equity-method affiliates -¥0.3B. The divergence between comprehensive income and net income is minor and within temporary valuation gain ranges.

Forecasts & Guidance

Company plan: Revenue ¥4000.0B (YoY +11.8%), Operating Income ¥200.0B (YoY +11.8%), Ordinary Income ¥195.0B (YoY +11.4%), Net Income ¥125.0B, EPS ¥359.00, Dividend ¥72.00. FY results were Revenue ¥3576.8B (plan achievement 89.4%), Operating Income ¥179.0B (89.5%), Ordinary Income ¥175.1B (89.8%), Net Income ¥114.4B (91.5%). The plan assumes Revenue +11.8% and Operating Income +11.8% next year. Key to achieving targets: maintain high profitability in Architecture, progress handover of Real Estate inventory (¥381.4B), and digest Civil Engineering order backlog. Elevated SG&A ratio (10.4%) and delays in working capital recovery pose downside risks to plan achievement. Forecast dividend ¥72.00 implies payout ratio ~40%; this is a slight reduction from this year’s ¥130.00 (payout ratio 44.2%), but if profits exceed plan there is room for dividend increase.

Shareholder Returns

Dividends paid: interim ¥45.00, year-end ¥85.00, total ¥130.00 (prior year total ¥41.00, payout ratio 44.2%). On a profit basis, payout ratio 44.2% is appropriate, but FCF was -¥204.8B so dividend payments ¥29.0B were not covered by cash flows and were funded by net short-term borrowings +¥320.0B. No share buybacks (¥0), so Total Return Ratio equals payout ratio. Next-year dividend forecast ¥72.00 per share represents a ¥58.00 decline versus this year on a per-share basis, but with no change in outstanding shares this corresponds to ~40% payout ratio; the company maintains a policy to continue dividends in line with profit growth. Restoration of cash generation (normalization of Operating CF) is a prerequisite for dividend sustainability. Cash and deposits ¥339.2B, interest-bearing debt ¥620.0B (bonds ¥50.0B, bonds due within 1 year ¥100.0B, short-term borrowings ¥470.0B), Interest Coverage 52.0x indicate sufficient financial strength, but ongoing improvement in working capital management remains important.

Risk Factors

1. Liquidity pressure from working capital increases: Completed-construction accounts receivable +¥181.6B, properties for sale +¥154.8B expand working capital and Operating CF is -¥168.9B. Short-term borrowings ¥470.0B (+¥320.0B, +213.3%) increase short-term liability dependence, and Cash / Short-term Debt 0.72x raises refinancing sensitivity. If market deterioration or interest rate hikes impede rollover, liquidity risk could materialize. Continued delays in collection of completed-construction receivables or sluggish sales of properties for sale would necessitate additional borrowings and raise financing costs.

2. Valuation losses and earnings deterioration from slow real estate inventory turnover: Properties for sale ¥381.4B (prior year-end ¥226.6B, +68.3%) increased materially. If real estate market shifts or rising interest rates delay transfers at assumed prices, inventory valuation losses and holding costs could pressure profits. Real Estate operating income ¥60.8B (-15.4%) and margin 7.1% declined; if inventory turnover stalls, earnings contribution will remain delayed and could cause plan shortfalls.

3. Construction cost inflation and margin deterioration risk: SG&A ¥373.0B (+12.5%) and SG&A ratio 10.4% (+0.8pt) show upward trend. Labor shortages, rising labor costs, and renewed rises in material prices (steel, cement, etc.) could cause cost overruns on fixed-price contracts and lead to construction loss recognition. Although Architecture margin improved to 7.0%, continued cost inflation would pressure margins and cloud the sustainability of an operating margin around 5.0%.

Industry Benchmarks (reference, company compilation)

Profitability & Returns

Profitability is slightly below the industry median at a mid-level. Completed-construction gross profit margin 15.9% improved, but rising SG&A ratio 10.4% reduced operating margin by -0.5pt versus the median.

Growth & Capital Efficiency

Revenue growth is well below the industry median of 9.8%, indicating relatively weak growth. Strong Architecture performance was offset by Civil Engineering and Real Estate, leaving overall growth at +3.2%.

※ Source: Company compilation

Earnings Highlights to Watch

1. Sustainability of margin improvement and ROE increase: Completed-construction gross profit margin 15.9% (+3.5pt), operating margin 5.0% (+1.7pt), ROE 7.8% (+3.1pt) show clear profitability improvement. Architecture operating margin 7.0% improved substantially YoY and is driving consolidated profit. However, SG&A ratio 10.4% (+0.8pt) and SG&A growth +12.5% outpaced revenue growth +3.2%; continued increase in fixed cost burden would raise concerns about sustainability of margin improvements. Monitoring the balance between cost inflation and margin management is key next fiscal year.

2. Progress in working capital and cash flow normalization: Operating CF -¥168.9B (prior +¥51.3B) swung to negative, with Operating CF / Net Income -1.48x and OCF/EBITDA -0.84x indicating cash conversion issues. Increases in completed-construction receivables +¥181.6B and properties for sale +¥154.8B drove working capital growth, financed by short-term borrowings +¥320.0B. Next year, improvement in receivables collection and handover of inventory (properties for sale ¥381.4B) should normalize Operating CF, but market and interest conditions leave rotation delay risks. Cash / Short-term Debt 0.72x and higher short-term borrowing dependence increase refinancing sensitivity and warrant attention.

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This report is an earnings analysis document automatically generated by AI analyzing XBRL earnings release data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are company-compiled reference information based on public financial statements. Investment decisions are your responsibility; consult professionals as needed before acting.