MASARU (1795) FY2026 Q1 Earnings Report

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Executive Summary

Although the loss narrowed due to an improvement in the gross profit margin on completed construction contracts, the operating deficit continued as the decline in revenue reduced fixed-cost absorption. Revenue was ¥16.7B (-19.7% YoY), Operating Income was ¥-1.0B (¥-1.2B in the previous year; the loss narrowed), Ordinary Income was ¥-1.0B (¥-1.2B in the previous year), and Net Income was ¥-0.8B (¥-1.0B in the previous year; a +17.5% improvement). The primary factor was lower revenue and losses in the Construction Business, while the Facilities Construction Business remained profitable.

Factors Affecting Performance

【Revenue】Revenue was ¥16.7B, down 19.7% YoY. By segment, the Construction Business generated ¥13.4B (80.3% of total; -22.5% YoY), making it the primary cause of the significant revenue decline, while the Facilities Construction Business generated ¥3.3B (19.7% of total; -5.8%), with a smaller decline. By revenue recognition category, both point-in-time transfer revenue (¥5.5B, -24.1%) and over-time transfer revenue (¥11.2B, -17.3%) declined, indicating an overall contraction in the volume of completed construction and progress, rather than a decline limited to a specific revenue category.

【Profit and Loss】Gross profit on completed construction contracts increased 8.4% YoY to ¥2.3B, and the gross profit margin on completed construction contracts improved by approximately 3.6pt from 10.2% in the previous year to 13.8%. Meanwhile, SG&A expenses were ¥3.3B, declining only 1.3% YoY and substantially less than the 19.7% revenue decline. Consequently, the SG&A ratio rose to 19.9%, reducing fixed-cost absorption. As a result, the Operating Income margin slightly deteriorated to -6.1% from -6.0% in the previous year, and the Operating Loss was ¥1.0B (¥1.2B in the previous year). Non-operating income and expenses were small, with a limited impact on Ordinary Income. Net Income was ¥-0.8B, narrowing from the previous year. Overall, the company experienced lower revenue and lower profit, although the absolute amount of the loss narrowed.

Segment Analysis

The Construction Business generated revenue of ¥13.4B (80.3% of total), a segment loss of ¥1.2B, and a profit margin of -8.8% (deteriorating from -8.2% in the previous year), making it the primary cause of the consolidated deficit. The Facilities Construction Business generated revenue of ¥3.3B (19.7% of total), segment profit of ¥0.2B, and a profit margin of 4.7% (down from 5.0% in the previous year), remaining profitable and supporting consolidated performance. Although both businesses experienced lower revenue, deterioration in the profitability of the Construction Business was more pronounced.

Key Financial Indicators

【Profitability】The Operating Income margin was -6.1% and the Net Income margin was -4.9%, with both remaining at nearly flat loss levels compared with the same period of the previous year. The gross profit margin on completed construction contracts improved to 13.8% from 10.2% in the previous year, indicating progress in cost management.【Cash Flow Quality】Costs on uncompleted construction contracts increased to ¥13.2B (+53.0% from ¥8.6B in the previous year), while contract assets increased to ¥8.9B (+64.2% YoY), indicating greater cash tied up in line with construction progress. Contract liabilities also increased to ¥12.4B (+51.0%).【Capital Efficiency】Annualized ROE was -6.5% and annualized ROIC was -15.4%, indicating that invested capital is not currently generating returns.【Financial Soundness】The Equity Ratio was 58.5% (59.9% in the previous year), and the Current Ratio remained high at 213.7%. Cash and deposits were substantial at ¥30.4B. Long-term borrowings declined 53.8% from ¥1.3B in the previous year to ¥0.6B, indicating progress in reducing long-term liabilities.

Cash Flow Analysis

Although the company does not disclose a cash flow statement, an analysis of cash trends based on movements in the balance sheet shows that costs on uncompleted construction contracts increased to ¥13.2B (+53.0% from ¥8.6B in the previous year), while contract assets increased to ¥8.9B (+64.2%), indicating greater investment of funds and outstanding uncollected balances associated with construction progress. Meanwhile, contract liabilities, including advance payments, increased 51.0% YoY to ¥12.4B, with customer advances partially supporting working capital. Cash and deposits were ¥30.4B, slightly down from ¥33.6B in the previous year, but remained well above current liabilities of ¥29.9B. The provision for construction contract losses increased 14.2% YoY to ¥0.7B, incorporating profitability risks in ongoing projects. As the operating deficit continues, the trends in these working capital items will be important indicators for assessing the conversion of profit into cash.

Quality of Earnings

The current period’s operating result was a deficit arising from the core business, with no temporary factors such as extraordinary gains or losses identified. Non-operating income was ¥0.1B, only 0.4% of revenue, and the divergence between Ordinary Income and Operating Income was small; the Ordinary Loss (¥-1.0B) was therefore nearly at the same level as the Operating Loss (¥-1.0B). Net Income (¥-0.8B) was consistent with the level obtained after deducting income taxes and other taxes (¥-0.2B) from Profit Before Tax (¥-1.0B), with no notable special tax-related factors. From an accrual perspective, increases in costs on uncompleted construction contracts and contract assets indicate investment of funds and uncollected balances preceding the recognition of profit. Whether the improvement in the gross profit margin on completed construction contracts (13.8%, versus 10.2% in the previous year) translates into actual cash collection will be a key focus in assessing earnings quality. The increase in the provision for construction contract losses (¥0.7B, +14.2% YoY) reflects a degree of conservatism in incorporating the risk of future deterioration in project profitability.

Earnings Forecasts and Guidance

The full-year company forecasts are revenue of ¥107.0B (+0.5% from the previous fiscal year), Operating Income of ¥4.5B (-29.5%), and Ordinary Income of ¥4.8B (-27.1%). Q1 revenue of ¥16.7B represents progress of only 15.6% against the full-year forecast, below the standard quarterly progress rate of 25%. In addition, Q1 recorded an Operating Loss, Ordinary Loss, and Net Loss, meaning that profit progress started from a negative position. Although some allowance for interpretation exists because construction companies tend to recognize completed construction and revenue disproportionately at the fiscal year-end, achieving the full-year targets will depend on accumulating completed construction revenue and securing profitability in subsequent quarters.

Shareholder Returns

The full-year dividend forecast is ¥110.0 per share. Based on the average number of shares outstanding during the period of 889.5 thousand shares, the estimated annual total dividend amount is approximately ¥0.98B, resulting in a Payout Ratio of approximately 35.0% against the full-year Net Income forecast of ¥2.8B. Based solely on dividends, this is below the 60% level generally regarded as an indicator of sustainability. However, Q1 recorded a Net Loss of ¥0.82B, meaning that the annual dividend funding depends on achieving the full-year profit forecast in subsequent quarters. Cash and deposits of ¥30.4B and net assets of ¥50.8B provide a financial buffer for dividend payments. No data concerning share repurchases has been identified.

Risk Factors

1. Deterioration in the profitability of the Construction Business: Against revenue of ¥13.4B, the segment recorded a loss of ¥1.2B and a profit margin of -8.8% (deteriorating from -8.2% in the previous year), making it the primary cause of the consolidated deficit. The company holds ¥13.2B in costs on uncompleted construction contracts and a ¥0.7B provision for construction contract losses. If material or labor costs rise or construction delays occur, additional costs or increases in provisions may result.

2. Low profitability and capital efficiency: The EBIT margin was -6.1% and annualized ROIC was -15.4%, indicating that invested capital is not currently generating returns. While revenue declined 19.7%, SG&A expense reductions were limited to 1.3%, and declining fixed-cost absorption is impeding a return to operating profitability.

3. Expansion of working capital and short-term liability composition: Contract assets of ¥8.9B (+64.2% YoY) and costs on uncompleted construction contracts of ¥13.2B (+53.0%) have increased, and delays in progress billings or collections could place pressure on working capital. In addition, current liabilities account for 62.9% of total liabilities and include bonds and borrowings due for redemption or repayment within one year, making maturity management an ongoing area of attention.

Industry Benchmark (For Reference; Compiled by the Company)

Key Takeaways from the Financial Results

1. The gross profit margin on completed construction contracts improved to 13.8% from 10.2% in the previous year, indicating progress in construction cost management. However, SG&A expense reductions have not kept pace with the decline in revenue, and the operating deficit has continued. The key focus going forward will be whether the improvement in gross profit can be translated into operating profitability.

2. Losses in the Construction Business, which accounts for 80% of consolidated revenue, drove overall company performance, while the Facilities Construction Business remained profitable with a 4.7% profit margin. Given the business mix, recovery in the profitability of the Construction Business is the primary condition for improving consolidated earnings.

3. Against the full-year Operating Income forecast of ¥4.5B, Q1 recorded an Operating Loss of ¥1.0B, with revenue progress limited to 15.6%. With a Current Ratio of 213.7% and an Equity Ratio of 58.5%, the financial base is solid, and short-term liquidity provides a buffer against performance volatility.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,861–¥5,137 at ±1% for the cost of equity, and ¥4,974–¥5,011 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets as of the end of the quarter are used (there is a timing mismatch with 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 / Mechanically calculated solely from publicly disclosed data; this 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 summary data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, consulting a professional as necessary.

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