TAKAMATSU CONSTRUCTION GROUP (1762) FY2026 Q3 Earnings Report

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Executive Summary

This was a higher-revenue and higher-profit period, with a significant expansion in profit margins in addition to revenue growth, primarily due to improved profitability in the Building Construction Business. Revenue was ¥2,623.2B (+5.9% YoY), Operating Income was ¥119.9B (+75.3%), Ordinary Income was ¥118.0B (+86.1%), and Net Income was ¥71.2B (+124.0%). The ¥51.5B increase in Operating Income grew at a faster pace than the ¥145.5B increase in revenue, confirming strong operating leverage. However, SG&A expenses increased 13.4%, outpacing revenue growth, which warrants attention going forward.

Factors Affecting Earnings

【Revenue】Revenue was ¥2,623.2B (+5.9% YoY). By segment, Building Construction was ¥1,290.1B (49.2% of total), Civil Engineering was ¥751.7B (28.7%, -0.6% YoY), and Real Estate was ¥634.9B (24.2%, +19.0% YoY). The Real Estate Business maintained high growth, while the Civil Engineering Business was the only segment to report a revenue decline.

【Profit and Loss】Operating Income was ¥119.9B (+75.3%), and the Operating Income Margin improved to 4.6% from 2.8% in the same period of the previous year, an improvement of 181bp. By segment, the Building Construction Business was the largest growth driver, with segment profit of ¥71.3B (+77.4%), a profit margin of 5.5%, compared with 2.1% in the previous year. Despite lower revenue, the Civil Engineering Business increased profit to ¥49.7B (+28.5%). The Real Estate Business recorded ¥45.2B (+6.3%), but profit growth lagged revenue growth, and its profit margin declined by 82bp to 7.1%. Gains on sales of investment securities of ¥2.3B were included in extraordinary income, but represented approximately 1.9% of Profit Before Tax of ¥120.3B; therefore, the core driver of profit improvement was improved profitability at the operating level. The effective tax rate was high at 40.8%, partially constraining the conversion of Profit Before Tax into Net Income. Overall, the Company reported higher revenue and higher profit, with improved profitability in the core Building Construction Business being the largest contributing factor.

Segment Analysis

The Building Construction Business was the core of consolidated profit growth, with revenue of ¥1,290.1B (+4.2% YoY), segment profit of ¥71.3B (+177.4%), and a profit margin of 5.5%, an improvement of 340bp from 2.1% in the previous year. The Civil Engineering Business reported lower revenue of ¥751.7B (-0.6%), but segment profit increased to ¥49.7B (+28.5%), with a profit margin of 6.6%, an improvement of 149bp from 5.1% in the previous year, suggesting selective order acceptance and improved project profitability. The Real Estate Business achieved high growth in revenue at ¥634.9B (+19.0%), but segment profit remained limited to ¥45.2B (+6.3%); its profit margin declined by 82bp to 7.1% from 8.0% in the previous year, indicating limited profit growth relative to revenue growth. Corporate adjustments represented an expense of ¥46.4B, partially offsetting the increase in consolidated Operating Income (+75.3%) relative to the increase in total segment profit (+55.4%), due to higher common expenses.

Key Financial Metrics

【Profitability】The Operating Income Margin was 4.6%, improving by 181bp from 2.8% in the previous year; the gross margin was 15.1%, improving by 251bp from 12.6%; and the Net Income Margin was 2.7%, improving by 143bp from 1.3%. Although all indicators are improving, there remains room for improvement in absolute profitability levels for a construction company, with the gross margin below 20% and the Operating Income Margin below 5%. 【Cash Flow Quality】Accounts receivable from completed construction contracts were ¥1,106.8B, representing 38.7% of total assets. Advances received for construction contracts in progress of ¥293.3B substantially exceeded costs on construction contracts in progress of ¥19.7B, and this advance-payment structure is mitigating short-term funding needs. Profit Before Tax includes a non-recurring gain on the sale of investment securities of ¥2.3B. 【Investment Efficiency】Annualized ROE was 6.7%, primarily due to the improvement in the Net Income Margin, but remained below the general benchmark of over 8%. 【Financial Soundness】The Equity Ratio was 49.5% and the current ratio was 178.9%, indicating that financial soundness was maintained. However, short-term borrowings increased significantly to ¥298.3B, up +98.9% YoY, and the short-term liabilities ratio was 100.0%.

Cash Flow Analysis

As a cash flow statement was not disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥338.7B, slightly below ¥357.2B in the same period of the previous year, while short-term borrowings increased to ¥298.3B, up ¥148.3B (+98.9% YoY). This is consistent with increased working capital requirements resulting from real estate for sale increasing by ¥58.2B (+25.7% YoY) to ¥284.8B, as well as the increase in accounts receivable from completed construction contracts (¥1,106.8B, compared with ¥1,090.4B in the previous year). Advances received for construction contracts in progress were ¥293.3B, substantially exceeding costs on construction contracts in progress of ¥19.7B, with advance payments for ongoing projects mitigating funding requirements to a certain extent. Overall, the accumulation of real estate inventory and the timing of collection of construction proceeds appear to have led to increased short-term funding.

Earnings Quality

The primary driver of profit growth was improved profitability at the operating level, with Operating Income increasing +75.3% YoY and the Operating Income Margin improving by 181bp. Profit Before Tax of ¥120.3B included a gain on the sale of investment securities of ¥2.3B, which represented the majority of total extraordinary income of ¥2.5B. However, this gain represented only approximately 1.9% of Profit Before Tax, and the underlying improvement in Operating Income continued to support profit growth even excluding non-recurring factors. Non-operating income was ¥4.8B, including dividend income of ¥1.6B and foreign exchange gains of ¥1.0B, while non-operating expenses were ¥6.7B, mainly consisting of interest expenses of ¥2.5B. Ordinary Income was therefore at a level largely normalized from Operating Income. The effective tax rate was high at 40.8%, limiting to a certain extent the efficiency with which the increase in Profit Before Tax was converted into Net Income. Comprehensive income was ¥65.5B, slightly below Net Income of ¥71.2B, reflecting actual changes in profit after excluding items such as foreign currency translation adjustments of -¥3.9B and valuation differences on available-for-sale securities.

Earnings Forecast and Guidance

The full-year Company plan calls for revenue of ¥3,700.0B (+6.7% YoY), Operating Income of ¥150.0B (+30.9%), Ordinary Income of ¥140.0B (+31.8%), and EPS of ¥224.02. The Q3 cumulative progress rates were 70.9% for revenue, 79.9% for Operating Income, and 84.3% for Ordinary Income. Although revenue progress was below the standard benchmark of 75%, profit progress exceeded this level. In particular, progress toward Net Income attributable to owners of the parent reached ¥71.2B / ¥78.0B (Company forecast), or 91.2%. Even taking into account the inclusion of gains on the sale of investment securities, progress remains positioned to potentially exceed the profit plan. In Q4, the Company would reach its full-year plan with approximately ¥1,076.8B in revenue and approximately ¥30.1B in Operating Income, assuming that profitability in the Building Construction Business is maintained.

Shareholder Returns

The Q2 dividend was ¥45.00 per share. The full-year Company forecast for the annual dividend is ¥90.00 per share, implying an expected year-end dividend of ¥45.00 per share. Based on forecast Net Income attributable to owners of the parent of ¥78.0B and 34,819 thousand shares outstanding, total annual dividends are calculated at approximately ¥31.3B, resulting in an expected Payout Ratio of approximately 40.2%. This Payout Ratio is calculated by dividing dividends only by Net Income and does not represent the Total Return Ratio, which includes share repurchases. Treasury shares are effectively close to zero, and shareholder returns are centered on dividends. Given the high 91.2% progress rate for cumulative Q3 Net Income attributable to owners of the parent, the earnings support for the full-year dividend plan is sound.

Risk Factors

1. Sharp increase in short-term borrowings: Short-term borrowings were ¥298.3B, up +98.9% YoY, and the short-term liabilities ratio reached 100.0%. Cash and deposits of ¥338.7B were only approximately 1.14 times short-term borrowings. In light of the accumulation of real estate for sale of ¥284.8B (+25.7% YoY), cash collection and refinancing management will be important monitoring items.

2. Sustainability of profitability in the core Building Construction Business: The profit margin of the Building Construction Business improved sharply from 2.1% in the same period of the previous year to 5.5%, making it the largest driver of consolidated profit. If profitability reverses due to changes in project mix or cost fluctuations, the impact on consolidated profit could be substantial.

3. High effective tax rate: The effective tax rate was high at 40.8%, limiting to a certain extent the efficiency with which the increase in Profit Before Tax was converted into Net Income. Changes in the tax burden require ongoing monitoring as a factor affecting Net Income and ROE.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

Industry median data is insufficient, and the assessment is based solely on the Company’s own levels.

Growth and Capital Efficiency

Industry median data is insufficient, and the assessment is based solely on the Company’s growth rate.

Source: Compiled by the Company

Key Points from the Earnings Report

1. Profit growth of +75.3% in Operating Income and +124.4% in Net Income was primarily driven by the sharp improvement in the profit margin of the core Building Construction Business from 2.1% in the same period of the previous year to 5.5%. Further quarterly monitoring is necessary to determine whether this improvement is temporary and dependent on project mix or represents structural improvement in profitability.

2. Progress toward the full-year Company plan was 79.9% for Operating Income and 91.2% for Net Income attributable to owners of the parent, exceeding the 70.9% progress rate for revenue. While profit is progressing at a pace that could exceed the plan, attention should be paid to the inclusion of the non-recurring gain on the sale of investment securities of ¥2.3B.

3. The 98.9% YoY increase in short-term borrowings and the resulting short-term liabilities ratio of 100.0%, together with the accumulation of real estate for sale and the level of accounts receivable from completed construction contracts, require monitoring from the perspective of the cash collection cycle.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,557–¥3,761 at ±1% for the Cost of Equity, and ¥3,644–¥3,665 at ±0.1 for ω.

Notes:

• Net Income is significantly compressed relative to Operating Income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (Net Income ÷ Operating Income 52%). This value reflects that compression at face value; if these factors are temporary, the underlying earnings power may be higher.
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end are used, resulting in a timing difference from the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional advisor as necessary.

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