TAISEI CORPORATION FY2026 FY Earnings Report

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Executive Summary

For the consolidated fiscal year ended March 2026, Revenue was ¥2兆0,890B (YoY -¥651B -3.0%), a decline, while Operating Income was ¥1,880B (YoY +¥678B +56.4%), Ordinary Income was ¥1,958B (YoY +¥613B +45.6%), and Net Income attributable to owners of the parent was ¥1,700B (YoY +¥634B +37.3%), representing a large profit increase. Revenue declined for the first time in three periods due to a Revenue decrease in the Architectural Business (-9.0%), but Operating Margin improved to 9.0% (prior year 5.6%) — a 3.4pt improvement — driving the profit increase through significant margin improvement. The main drivers were a reversal of construction loss provisions in the Architectural Business (-¥267B) and completion of high-margin projects in the Civil Engineering Business (Operating Margin 13.3%), lifting Completed Contract Gross Margin to 15.4% (prior year 9.8%), up 5.6pt. Ordinary Income reflected operating gains, and Pre-tax Income reached ¥2,464B thanks to recognition of Extraordinary Gains ¥552B (gain on sales of marketable securities ¥547B). ROE at 14.7% exceeded the prior year level, though precise change magnitude from prior-year data cannot be fully confirmed due to limited information.

Drivers of Performance

[Revenue] Revenue was ¥2兆0,890B (-3.0%), the first decline in three periods. By segment, Civil Engineering expanded steadily to ¥7,202B (+8.5%), and Development was ¥1,543B (+5.1%) maintaining growth, but the core Architectural Business declined materially to ¥1兆2,745B (-9.0%), weighing on the total. The Architectural revenue decline is likely due to stronger order selection and a gap period for large projects. Revenue from Completed Construction Contracts decreased to ¥1兆8,958B (prior year ¥1兆9,752B), while Revenue from Development and other activities increased to ¥1,933B (prior year ¥1,791B), reducing reliance on completed construction. Segment revenue composition was Architecture 61.0%, Civil Engineering 34.5%, Development 7.4%, Other 1.0%, indicating sustained concentration in Architecture.

[Profitability] Operating Income was ¥1,880B (+56.4%), Operating Margin improved significantly to 9.0% (prior year 5.6%). The primary reason for the profit increase was a 5.6pt improvement in Completed Contract Gross Margin (9.8% → 15.4%), driven by a ¥267B decrease in construction loss provisions during the period (prior year saw a ¥60B increase) and high-margin project realization in Civil Engineering. By segment, Civil Engineering delivered Operating Income ¥956B (+9.1%, margin 13.3%) with stable growth; Architecture achieved Operating Income ¥784B (from prior year ¥113B, +590.6%), turning substantially profitable; Development posted ¥240B (+2.0%, margin 15.5%) with stable performance. SG&A increased to ¥1,421B (prior year ¥1,110B), raising the SG&A-to-Revenue ratio to 6.8% (prior year 5.2%), indicating deterioration in fixed-cost absorption amid Revenue decline. Ordinary Income ¥1,958B included Non-operating Income ¥146B (mainly dividend income ¥56B and equity-method investment gains ¥57B) and Non-operating Expenses ¥68B (mainly interest expense ¥42B), roughly maintaining operating-level gains. Extraordinary Gains ¥552B (gain on sales of marketable securities ¥547B) lifted Pre-tax Income to ¥2,464B, but this is a temporary uplift and recurring earning power should be assessed at the Ordinary Income level. After deducting Corporate Taxes and Other ¥716B, Net Income attributable to owners of the parent was ¥1,700B (+37.3%), Net Margin improved to 8.1% (prior year 5.8%) — up 2.3pt. In conclusion, the result was revenue down with profit up, supported by Architectural margin recovery and high profitability in Civil Engineering.

Segment Analysis

The Civil Engineering Business recorded Revenue ¥7,202B (+8.5%) and Operating Income ¥956B (+9.1%), maintaining a high Operating Margin of 13.3% and becoming the largest contributor to company profits. Construction loss provisions increased by only ¥9B, indicating continued strong margin management. The Architectural Business saw Revenue of ¥1兆2,745B (-9.0%) but Operating Income improved substantially to ¥784B (from prior year ¥113B, +590.6%), with Operating Margin recovering to 6.1% (prior year 0.8%). Construction loss provisions decreased by ¥276B during the period, boosting profits; however, excluding the effect of provision reversals, assessing the sustainability of recurring profitability is necessary. The Development Business reported Revenue ¥1,543B (+5.1%) and Operating Income ¥240B (+2.0%) with a stable Operating Margin of 15.5%. Other businesses posted Revenue ¥207B (+18.0%) and Operating Income ¥24B (+1.4%), yielding an Operating Margin of 11.4% and generally satisfactory performance. High profitability in Civil Engineering and Development stands out across segments, while Architecture remains on a recovery path.

Key Financial Metrics

[Profitability] Operating Margin improved to 9.0% (prior year 5.6%), a 3.4pt gain, primarily due to a large rise in Completed Contract Gross Margin to 15.4% (prior year 9.8%). Development and other businesses’ Gross Margin was 20.0% (prior year 21.1%), slightly lower but still high. SG&A ratio rose to 6.8% (prior year 5.2%), up 1.6pt, making fixed-cost absorption under declining Revenue a challenge. ROE is 14.7%, above the prior year level, though detailed historical comparison is limited. Return on Total Assets (based on Ordinary Income) was 7.6% (prior year 5.4%), up 2.2pt, indicating improvements in both asset efficiency and profitability. Equity-method investment gains were ¥57B (prior year ¥102B), down but still a positive contributor. [Cash Quality] Operating Cash Flow (OCF) was ¥1,473B, which is 0.87x of Net Income ¥1,700B — reasonably good but not fully covering Net Income. OCF/EBITDA (Operating Income + Depreciation = ¥2,048B base) was 0.72x, indicating somewhat weak cash conversion; working capital movements (Accounts Payable decrease -¥806B, Advances Received increase +¥621B, Accounts Receivable decrease +¥610B, Increase in Contract Work in Progress advances -¥164B) had mixed effects. Depreciation ¥168B accounted for 8.2% of EBITDA, a minor burden. [Investment Efficiency] Total Asset Turnover was 0.77x (Revenue ¥2兆0,890B / Average Total Assets ¥2兆7,146B), down from about 0.89x, mainly due to asset buildup from M&A (goodwill +¥679B, intangible assets +¥887B) and Revenue decline. Investments in marketable securities were ¥4,663B (prior year ¥4,283B), up 5.6%, and balances increased despite recorded gains. Inventory turnover days, based on Contract Work in Progress advances ¥894B for completed construction, are about 17 days, maintaining short cycle. [Financial Soundness] Equity Ratio was 36.5% (prior year 35.7%), up 0.8pt but still neutral. Interest-bearing Debt was ¥3,674B (Short-term borrowings ¥1,620B, Long-term borrowings ¥2,054B), Debt/EBITDA 1.79x, and Interest Coverage 48x (Operating Income ¥1,880B / Interest Expense ¥42B), showing healthy credit metrics. Current Ratio 118.7% and Quick Ratio 118.7% are acceptable but not abundant; Short-term Debt Ratio 44.1% is relatively high, creating some refinancing sensitivity, while Cash/Short-term Debt 1.72x (Cash ¥2,783B / Current Liabilities ¥13,797B) provides a buffer. Goodwill rose to ¥759B (from ¥81B prior year) following large M&A, but goodwill/EBITDA 0.37x, goodwill/Equity 7.7%, and Amortization ¥58B / EBITDA 2.8% indicate limited burden.

Cash Flow Analysis

Operating Cash Flow was ¥1,473B (improving from prior year -¥138B), supported by higher Operating Income and working capital improvements. Pre-tax profit before tax adjustments was ¥2,464B; after adjusting non-cash items — Depreciation ¥168B, Impairment Losses ¥35B, Goodwill Amortization ¥58B, equity-method investment loss -¥57B, etc. — the subtotal of Operating Cash Flow was ¥2,097B. Working capital contributed via Accounts Receivable decrease +¥610B, Advances Received increase +¥621B, and decrease in Retirement Benefit Liabilities -¥15B, while Accounts Payable decrease -¥806B and Increase in Contract Work in Progress advances -¥164B were negative; after paying Corporate Taxes and Other -¥684B, final CF generated was ¥1,473B. OCF/Net Income was 0.87x, indicating overall acceptable quality but not full coverage; OCF/EBITDA 0.72x shows somewhat weak cash conversion, driven mainly by working capital fluctuations. Investing Cash Flow was -¥1,959B, large mainly due to acquisitions of Property, Plant and Equipment and Intangible Assets -¥776B and acquisition of subsidiary shares -¥1,505B, reflecting large M&A activity. Partially offsetting were proceeds from sale of marketable securities +¥905B and proceeds from subsidiary sales +¥134B. Free Cash Flow was -¥486B (Operating CF ¥1,473B + Investing CF -¥1,959B), negative, meaning internal funds alone did not cover dividends and investments. Financing Cash Flow was +¥244B, funded by long-term borrowings +¥1,322B and increase in short-term borrowings +¥48B, while repaying long-term borrowings -¥514B, paying dividends -¥455B, and share buybacks -¥780B. As a result, Cash and Cash Equivalents at period-end were ¥2,730B (from ¥2,960B at period-start, -¥230B), and liquidity remained stable due to supplementation by interest-bearing debt. Sustainability of cash generation depends on continued improvement in Operating CF and working capital management; advances-receipts-led cash cycles are expected to continue, but attention is required on the trend of Accounts Payable decreases and the pace of increases in Contract Work in Progress advances.

Quality of Earnings

Core earnings are operating-based, with Operating Income ¥1,880B forming the bulk of Ordinary Income ¥1,958B. Non-operating Income ¥146B centered on dividend income ¥56B and equity-method investment gains ¥57B; Non-operating Expenses ¥68B were mainly interest expense ¥42B — both modest and within ordinary range. However, Extraordinary Gains ¥552B (mainly gain on sales of marketable securities ¥547B) substantially boosted Pre-tax Income ¥2,464B, meaning part of Net Income ¥1,700B depended on one-off items. Extraordinary Losses were limited at ¥46B (impairment losses ¥35B, loss on disposal of fixed assets ¥5B, etc.), though impairment losses increased from ¥13B prior year. The divergence between Ordinary Income and Net Income reflects special items and tax effects totaling +¥506B (Net Income ¥1,700B - Ordinary Income ¥1,958B + Taxes and Other ¥1,209B - Extraordinary items ¥506B), moving positively. Operating CF ¥1,473B is 0.87x of Net Income ¥1,700B; the accrual ratio ((¥1,700B - ¥1,473B) / ¥1,700B) ≈ 13% — somewhat elevated but acceptable. OCF/EBITDA 0.72x suggests weak cash conversion, mainly due to working capital shifts (notably Accounts Payable decrease -¥806B). The mid-period reduction of construction loss provisions -¥267B boosted profits but resulted from completion and reassessment of prior provisioned projects; potential reversals in future should be monitored. Comprehensive Income was ¥2,093B, ¥393B above Net Income, mainly from valuation gains on other marketable securities ¥138B and actuarial adjustments related to retirement benefits ¥202B, which are valuation gains not directly reflected in earnings. Overall, operating-level earning power is substantive, but part of current Net Income is non-recurring due to Extraordinary Gains; caution is warranted for potential reversals in subsequent periods. Recurring earning power should be evaluated at Ordinary Income ¥1,958B, and sustainability at that level is a key focus going forward.

Forecasts & Guidance

The company’s forecast for the fiscal year ending March 2027 projects Revenue ¥2兆4,200B (vs. current period +15.8%), while Operating Income is forecast at ¥1,880B (flat), Ordinary Income ¥1,870B (down -4.5%), and Net Income attributable to owners of the parent ¥1,510B (down -11.2%). Operating Margin is planned to decline from 9.0% to 7.8% (about -1.2pt), reflecting normalization from this period’s elevated profitability (including effects of construction loss provision reversals). The decline in Ordinary Income is expected from margin compression at the operating level as well as potential variability in non-operating items. The larger decline in Net Income primarily reflects the reversal of this period’s Extraordinary Gains ¥552B (gain on sales of marketable securities ¥547B); on a recurring earnings basis, results are judged to be roughly flat. Progress toward the forecast at the half-year point stands at: Revenue 86.3% (¥2兆0,890B / ¥2兆4,200B), Operating Income 100.0% (¥1,880B / ¥1,880B), Net Income 112.6% (¥1,700B / ¥1,510B) — indicating some targets are already achieved and that down-the-year conservatism may include buffer for environmental changes or additional provisions. Maintaining high margins in Civil Engineering and continued price pass-through and cost control in Architecture are keys to plan achievement; balancing order unit prices against rising costs is critical. Depreciation and goodwill amortization increases following large investments may weigh on operating-level profit, so stabilization of Architectural gross margins and the quality of new orders will determine sustainability.

Shareholder Returns

Annual Dividend is ¥310 per share (interim ¥125, year-end ¥185), a large increase of ¥245 YoY. The Payout Ratio relative to Net Income attributable to owners of the parent ¥1,700B is 30.8% (based on total dividends ¥522B), within a sustainable range. Share buybacks of ¥780B were conducted during the period, making total shareholder returns ¥1,302B (Dividends ¥522B + Buybacks ¥780B), equivalent to 76.6% of Net Income. Although Total Return Ratio is high, Free Cash Flow is -¥486B, so internal funds alone did not cover returns; funding was supplemented by interest-bearing debt (long-term borrowings +¥1,322B, etc.). Dividend sustainability depends on continued accumulation of Operating CF; current Operating CF ¥1,473B covers dividends ¥522B by 2.8x, indicating sufficient coverage for dividends alone. Share buybacks can be seen as an active shareholder-return measure, but going forward optimizing the balance between investment and returns (particularly simultaneous M&A and capital expenditure execution) is a challenge. Forecast dividend next period is ¥190 per share (forecast Payout Ratio 20.5%), a cut, reflecting the reduction in Net Income after the loss of this period’s Extraordinary Gains; on a recurring basis, the dividend level is on an upward trend YoY. Cash and cash equivalents ¥2,783B support dividend payment capacity, but given the high Short-term Debt Ratio 44.1% and ongoing investment needs, further Operating CF improvement is desirable to sustain total returns.

Risk Factors

1. Risk from fluctuations in construction loss provisions: This period’s ¥267B decrease in construction loss provisions boosted profits but was a one-off effect from completion/reassessment of previously provisioned projects. If fixed-price contract projects experience raw material or labor cost inflation or schedule delays going forward, additional provisioning may be required, posing downside risk to profits. Architectural Business margin of 6.1% has improved, but sustainability excluding provision reversal effects needs monitoring. Provision balance is ¥764B (prior year ¥1,027B), reduced but still material, making individual project margin control important.

2. Concentration of short-term liabilities and refinancing risk: Short-term Debt Ratio 44.1% (Current Liabilities ¥13,797B / Total Liabilities ¥17,246B) is relatively high; if interest rates rise or funding conditions deteriorate upon refinancing, financing costs could increase and liquidity could be pressured. Short-term borrowings ¥1,620B and bonds maturing within one year ¥100B are concentrated in the near term, making maturity management and extension important. Cash/Short-term Debt 1.72x offers some buffer and Interest Coverage 48x indicates sufficient service capacity, but ongoing large investments and shareholder returns require maintaining financing flexibility.

3. Dependence on Extraordinary Gains and Net Income volatility: Part of current Net Income ¥1,700B depends on Extraordinary Gains ¥552B (gain on sales of marketable securities ¥547B); if similar Extraordinary Gains are not realized next period, Net Income could fall markedly. The company’s forecast (next period Net Income ¥1,510B) already factors in this reversal, but the marketable securities balance ¥4,663B remains large and market fluctuations could materially affect future valuation gains/losses and Net Income. Recurring earning power should be evaluated on Ordinary Income ¥1,958B, but volatility in Extraordinary items could destabilize shareholder return resources.

Industry Benchmark (Reference – Company Compilation)

Profitability & Return

The company’s Operating Margin 9.0% exceeds the industry median 5.5% by 3.4pt, placing it in the upper tier within the industry. Net Margin 7.0% also substantially exceeds the median 3.5%, driven by high profitability in Civil Engineering and improved margins in Architecture.

Growth & Capital Efficiency

Revenue Growth Rate -3.0% lags the industry median 9.8% by 12.8pt, indicating inferior growth within the industry. The decline in Architecture Revenue (-9.0%) is the main cause, but this may reflect temporary slowdown due to stronger order selection; next period’s plan (+15.8% Revenue) aims to return to a growth trajectory.

※ Source: Company compilation based on public financial statements

Key Points from the Financial Results

1. Assessing structural change in margin improvement and sustainability: The 3.4pt improvement to Operating Margin 9.0% (prior year 5.6%) was mainly driven by a 5.6pt increase in Completed Contract Gross Margin (9.8%→15.4%) and a ¥267B reversal of construction loss provisions. Civil Engineering’s high margin (Operating Margin 13.3%) has stayed in double digits for three consecutive periods, suggesting a structural strength. Conversely, Architecture’s Operating Margin of 6.1% improved greatly from 0.8% but the extent to which recurring profitability is established excluding provision reversals is a key focus. The company’s guidance assuming Operating Margin contraction to 7.8% next year implies recognition that this period’s high margins include temporary factors. Stabilizing Architecture gross margins and maintaining order unit prices are critical to sustaining margin improvement.

2. Balancing active M&A and integration risk: Goodwill rose materially to ¥759B (from ¥81B prior year) and ¥1,505B was spent on acquisition of subsidiary shares, reflecting active M&A. Goodwill/EBITDA 0.37x and Goodwill/Equity 7.7% indicate limited burden and sufficient financial resilience. Goodwill amortization ¥58B (from ¥5B prior year) increased and will gradually add to profit pressure. Realizing post-acquisition synergies and containing impairment risk will determine investment returns. Strategy appears aimed at strengthening technical capabilities and market position in both Civil Engineering and Architecture, but progress of integration and cross-sell effects will be important to monitor.

3. Room for improvement in short-term liability ratio and OCF coverage: Short-term Debt Ratio 44.1% is relatively high within the industry and sensitive to refinancing risks. Operating CF ¥1,473B is 0.87x of Net Income ¥1,700B and while quality is generally acceptable, it does not fully cover Net Income and working capital changes (e.g., Accounts Payable decrease -¥806B) are a main driver. Advances-receipt-led cash generation can be expected to continue, but if Accounts Payable trends downward persist, OCF growth may slow. Long-term borrowings increased to ¥2,054B (+61%), improving the maturity profile, but managing refinancing of short-term borrowings ¥1,620B and further improving Operating CF (recovering OCF/Net Income to ≥1.0x) are keys to enhancing financial stability and sustaining shareholder returns.

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This report is an earnings analysis document automatically generated by AI from XBRL earnings release data. It is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company from public financial statements. Investment decisions are your responsibility; please consult a professional advisor as necessary.