TAISEI (1801) FY2026 Q3 Earnings Report

Quick View

Executive Summary

Despite lower revenue resulting from a decline in completed construction revenue, the current period recorded a significant increase in profit owing to improved project profitability. Revenue was ¥1兆4,277.6億（-6.5% YoY）, Operating Income was ¥1,223.6億（+53.0% YoY）, Ordinary Income was ¥1,305.0億（+41.0% YoY）, and Net Income Attributable to Owners of the Parent was ¥1,025.7億（+22.4% YoY）. The primary reason for the decline in revenue was the decrease in completed construction revenue in the Building Business, while the main driver of the profit increase was the improvement in the gross profit margin on completed construction contracts（14.7%, compared with 9.2% in the previous year）.

Factors Affecting Performance

【Revenue】Revenue was ¥1兆4,277.6億, representing a 6.5% YoY decline. By segment, Civil Engineering（Engineering）recorded higher revenue of ¥4,893.0億（+7.5%）, while Building（Construction）declined significantly to ¥8,707.4億（-13.1%）, leading the overall revenue decrease. Development remained solid at ¥1,108.7億（+2.1%）.

【Profit and Loss】Operating Income increased significantly to ¥1,223.6億（+53.0% YoY）. The Operating Margin improved to 8.6% from 5.2% in the same period of the previous year. The primary contributor to the increase was the Building Business, whose Operating Income improved significantly to ¥456.1億（+314.1% YoY）, with a margin of 5.2%. The Civil Engineering Business also contributed ¥642.9億 in profit（+20.3%）, with a margin of 13.1%, making it the largest profit-contributing division company-wide. Ordinary Income was ¥1,305.0億（+41.0%）. Special income of ¥307.7億 was recorded in Profit Before Tax, including a gain on the sale of investment securities of ¥305.7億, indicating that part of Net Income was supported by temporary factors. Even on a core business basis excluding special gains and losses, the upward earnings trend is clear, leading to the conclusion that the company achieved higher profit despite lower revenue.

Segment Analysis

The Civil Engineering Business is the largest profit-contributing segment company-wide, with revenue of ¥4,893.0億（+7.5% YoY）, Operating Income of ¥642.9億（+20.3%）, and a margin of 13.1%. The Building Business reported lower revenue of ¥8,707.4億（-13.1%）, but Operating Income recovered sharply to ¥456.1億（+314.1%）, while its margin improved from 1.1% to 5.2%. The primary contributor to the profit increase was the normalization of profitability in the Building Business. However, the combination of declining revenue and rapid margin improvement may be affected by the composition of completed projects, and sustainability should be verified through future trends in the gross profit margin on completed construction contracts and provisions for losses on construction contracts. The Development Business maintained the highest margin among the reported segments, with revenue of ¥1,108.7億（+2.1%）, profit of ¥177.1億（+10.9%）, and a margin of 16.0%.

Key Financial Indicators

【Profitability】The Operating Margin improved to 8.6% from 5.2% in the same period of the previous year, while the Net Profit Margin also exceeded the previous year's 5.5% at 7.2%. The gross margin improved to 15.3%（10.3% in the previous year）, but remained below the 20% level generally considered standard.【Cash Flow Quality】Accounts receivable from completed construction contracts were ¥9,532.1億, accounting for 36.5% of total assets and increasing by ¥139.5億 YoY. Costs on uncompleted construction contracts were ¥1,279.6億（+85.4% compared with the end of the previous year）, while advances received on uncompleted construction contracts were ¥2,564.6億（+21.5%）, meaning advances exceeded costs and mitigated the funding burden.【Investment Efficiency】ROE（annualized）was 15.8%, and EPS was ¥615.38（¥457.17 in the previous year, +34.6%）.【Financial Soundness】The Equity Ratio declined slightly to 34.5%（35.7% in the previous year）, while interest-bearing debt increased in connection with the consolidation of Toyo Construction as a consolidated subsidiary. The provision for losses on construction contracts was ¥840.7億, down -18.1% from ¥1,026.8億 in the previous year, indicating a reduced provisioning burden for unprofitable construction projects.

Cash Flow Analysis

As direct data from the cash flow statement has not been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥2,644.0億 from ¥2,406.9億 at the end of the previous year, while short-term borrowings increased by ¥1,009.7億 YoY and long-term borrowings increased by ¥817.5億, indicating that the funding needs associated with consolidating Toyo Construction as a consolidated subsidiary may have been financed through borrowings. Accounts receivable from completed construction contracts increased to ¥9,532.1億, and costs on uncompleted construction contracts also expanded to ¥1,279.6億. However, advances received on uncompleted construction contracts of ¥2,564.6億 exceeded these amounts, with advances for work in progress mitigating the working capital burden to a certain extent. Since Net Income includes a gain on the sale of investment securities of ¥305.7億, recurring cash-generation capacity should be evaluated excluding this temporary factor.

Earnings Quality

Profit Before Tax of ¥1,568.6億 included special income of ¥307.7億, primarily consisting of a ¥305.7億 gain on the sale of investment securities, meaning that part of Net Income was boosted by non-recurring factors. At the same time, Ordinary Income increased by +41.0% YoY, indicating that the improvement in core business profitability itself was not dependent on special gains and losses. Non-operating income was ¥122.7億（including dividend income of ¥49.0億）, exceeding non-operating expenses of ¥41.3億（including interest expenses of ¥25.8億）, indicating strong interest coverage capacity. SG&A expenses were ¥955.9億, increasing by +24.4% YoY, substantially faster than the decline in revenue（-6.5%）. It is necessary to monitor whether acquisition-related costs, including amortization of goodwill, are becoming fixed costs. Comprehensive Income was ¥1,218.3億, and the portion attributable to owners of the parent of ¥1,174.2億 exceeded Net Income of ¥1,068.3億, supported by a ¥230.3億 increase in valuation differences on securities.

Earnings Forecasts and Guidance

The full-year earnings forecast is revenue of ¥2兆900.0億（-3.0% YoY）, Operating Income of ¥1,480.0億（+23.2%）, and Ordinary Income of ¥1,520.0億（+13.0%）. The Q3 cumulative progress rates were 68.3% for revenue, 82.7% for Operating Income, and 85.9% for Ordinary Income, all exceeding the standard 75% progress benchmark. Progress in particular for Operating Income and Ordinary Income was strong. The company has not revised either its earnings forecast or dividend forecast, and progress against the initial plan is generally considered favorable. However, the full-year forecast assumes continued profitability improvements despite lower revenue, and the composition of projects completed by the Building Business in Q4 and trends in provisions for losses on construction contracts will determine the final results.

Shareholder Returns

The full-year dividend forecast is ¥250 per share, including an interim dividend of ¥125. Based on forecast full-year Net Income of ¥1,370億（company forecast）and 163,186 thousand shares outstanding, the forecast Payout Ratio is approximately 29.8%. This figure is the Payout Ratio based solely on dividends and is distinct from the Total Return Ratio, which includes share buybacks. The forecast Payout Ratio is substantially below the 60% level generally considered a benchmark for sustainability, indicating that the dividend burden on earnings is limited. Treasury shares declined significantly from a deduction equivalent to ¥731.7億 in the previous year to ¥9.15億, and it should be noted that changes in the share composition are affecting per-share indicators.

Risk Factors

1. Sustainability of Profitability Improvements in the Building Business: While revenue in the Building Business declined by -13.1% YoY, its Operating Margin improved sharply from 1.1% to 5.2%. It is necessary to determine from future trends in the gross profit margin on completed construction contracts and the ¥840.7億 provision for losses on construction contracts whether this improvement is temporary, resulting from the progress and completion mix of individual large-scale projects, or reflects structural improvements in profitability management.

2. Increase in Acquisition-Related Assets and Liabilities: Following the consolidation of Toyo Construction as a consolidated subsidiary, goodwill increased significantly to ¥645.4億（from ¥80.5億 in the previous year）, and intangible assets increased to ¥842.5億. At the same time, short-term borrowings increased by +87.6% YoY and long-term borrowings increased by +64.0%. Future amortization and impairment risks related to goodwill, as well as capital efficiency, should be closely monitored, including the fact that the purchase price allocation remains provisional.

3. Dependence on Short-Term Funding: Cash and deposits of ¥2,644.0億 provide 1.22x coverage against short-term borrowings of ¥2,161.8億, but the proportion of short-term borrowings in the liability structure has increased from the previous year. The impact of changes in the interest rate environment and refinancing terms on funding costs should be monitored.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

Although comparative data for the company's profitability metrics within the industry is limited, the absolute levels are within a favorable range.

Growth and Capital Efficiency

Revenue is trending downward, but comparative data against the industry median is limited, and evaluation should be conducted together with the extent of profitability improvement.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The +53.0% increase in Operating Income despite lower revenue and the 334bp improvement in the Operating Margin are the central facts of the current-period results, with the normalization of profitability in the Building Business serving as the largest driver.

2. Goodwill, intangible assets, and borrowings all increased simultaneously following the consolidation of Toyo Construction as a consolidated subsidiary. The contribution to earnings after integration and trends in goodwill amortization and impairment will be key areas of focus going forward.

3. The progress rate toward the full-year Operating Income forecast is 82.7%, exceeding the standard level. However, Net Income includes the temporary factor of a ¥305.7億 gain on the sale of investment securities, so recurring earnings power should appropriately be assessed primarily based on Operating Income and Ordinary Income.

Theoretical Share Price (Reference Value)

Sensitivity: ¥6,634–¥7,033 at Cost of Equity ±1%, and ¥6,796–¥6,879 at ω±0.1.

Notes:

• Net assets as of the quarter-end are used（there is a timing difference relative to the full-year forecast）.
• Since 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 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）

---

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 responsibility, consulting with professionals as necessary.

---End of Report---