OBAYASHI CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Obayashi Corporation’s Q1 for the fiscal year ending March 2027 delivered higher revenue and profit, with a significant expansion in net income, driven by improved profitability centered on domestic construction and gains on the sale of investment securities. Revenue was ¥6,234.3B (+19.0% YoY), Operating Income was ¥327.0B (+107.0%), Ordinary Income was ¥364.7B (+98.2%), and Net Income attributable to owners of the parent was ¥390.9B (+116.3%). Revenue growth was driven by expansion in domestic construction, real estate, and overseas civil engineering. On the profit side, improved margins in domestic construction, highly profitable real estate projects, and extraordinary income including a ¥201.1B gain contributed to the increase.

Factors Driving Performance Changes

【Revenue】Revenue was ¥6,234.3B, representing a 19.0% YoY increase. By segment, domestic construction accounted for the largest share at ¥2,714.1B (+16.9%), while real estate grew significantly to ¥307.0B (+188.2%), and overseas civil engineering also expanded to ¥795.9B (+24.5%). Overseas construction increased revenue to ¥1,310.2B (+14.1%), although its growth was more moderate than that of other segments. The gross profit margin on completed construction contracts improved to 11.1% (9.8% in the previous year), while the gross profit margin for development businesses and other operations rose to 28.9% (21.0% in the previous year), indicating that project profitability is improving alongside revenue growth.

【Profit and Loss】Operating Income was ¥327.0B (+107.0%), and the Operating Income margin improved by approximately 2.2pt to 5.2%, from 3.0% in the previous year. The primary drivers of the improvement were Operating Income of ¥132.9B from domestic construction (+156.7%, 4.9% margin) and ¥95.3B from real estate (+565.4%, 31.0% margin). In contrast, overseas construction posted Operating Income of ¥14.2B (-44.1%, 1.1% margin), reflecting deteriorating profitability and partially offsetting the company-wide improvement. Ordinary Income was ¥364.7B (+98.2%), while Net Income was ¥390.9B (+116.3%), supported by ¥201.1B in extraordinary income, including a ¥200.6B gain on the sale of investment securities. The increase from Ordinary Income to Net Income was substantially dependent on extraordinary gains and losses. Thus, although the company achieved higher revenue and profit, earnings quality includes certain temporary factors.

Segment Analysis

By segment profit, domestic construction made the largest contribution to the company at ¥132.9B, with its margin also improving to 4.9%. Real estate generated revenue of ¥307.0B and Operating Income of ¥95.3B, producing the highest profitability among all segments with a 31.0% margin and making a significant contribution to overall profit growth. Domestic civil engineering (¥47.1B, 4.4% margin) and overseas civil engineering (¥34.1B, 4.3% margin) both recorded higher profit and improved margins. Meanwhile, overseas construction deteriorated from the previous year, with Operating Income of ¥14.2B and a 1.1% margin, widening profitability differences among segments. The high profitability of real estate is subject to the timing of revenue recognition, leaving room for monitoring from the perspective of quarterly earnings normalization.

Key Financial Indicators

【Profitability】The Operating Income margin of 5.2% and Net Income margin of 6.3% (Net Income of ¥390.9B / Revenue of ¥6,234.3B) both improved from the previous year, supported by an increase in the gross profit margin to 12.4% (10.4% in the previous year) and the absorption of SG&A expenses. However, the increase in the Net Income margin includes the contribution of extraordinary income and should be distinguished from improvements generated solely by the core business.【Cash Flow Quality】Cash and deposits increased by ¥246.6B from the beginning of the fiscal year to ¥4,575.4B, while advances received on uncompleted construction contracts increased to ¥3,191.6B (+6.4%), indicating continued advance inflows of funds in line with project progress.【Investment Efficiency】ROE was 3.1% and the Equity Ratio was 42.4%, indicating that profit-generating capacity relative to the capital base remains limited.【Financial Soundness】Current assets of ¥17,265.2B compared with current liabilities of ¥14,044.3B resulted in a current ratio of approximately 123%. Interest-bearing debt consists of ¥1,406.9B in long-term borrowings, ¥400.1B in bonds, and ¥200.7B in bonds due for redemption within one year, among other items. Cash and deposits exceed these amounts, leaving the company in a position close to net cash.

Cash Flow Analysis

Because the cash flow statement is not included in the disclosed data, fund movements are assessed based on changes in the balance sheet. Accounts receivable from completed construction contracts decreased to ¥9,763.7B (¥10,832.2B in the previous year), suggesting that the collection of receivables progressed and contributed to cash generation. Meanwhile, costs on uncompleted construction contracts increased to ¥567.1B (+14.0%), potentially reflecting an acceleration of project starts or an increase in work in progress that temporarily absorbed funds. Advances received on uncompleted construction contracts increased to ¥3,191.6B (+6.4%), and the increase in advance payments supported financial flexibility in terms of working capital. Cash and deposits increased to ¥4,575.4B, strengthening the company’s funding base throughout the period. Investment securities decreased to ¥3,016.9B (¥3,393.2B in the previous year), indicating progress in monetization through sales; however, this cash inflow was not derived from operating activities and is a low-repeatability factor that warrants attention.

Earnings Quality

Non-operating income was ¥54.0B, or approximately 0.9% of revenue, and consisted primarily of ¥26.1B in dividend income. It was not large enough to materially distort the profitability of the core business. In contrast, extraordinary income reached ¥201.1B, most of which consisted of a ¥200.6B gain on the sale of investment securities, making a significant contribution to Net Income of ¥390.9B. Extraordinary losses were small at ¥3.0B. The increase from Ordinary Income of ¥364.7B to Net Income was primarily attributable to this extraordinary income. While improvement at the operating level (Operating Income +107.0%) was the central driver of profit growth, the increase in Net Income (+116.3%) also included the contribution of this temporary factor. Accordingly, the increase in profit for the period consisted of both core business improvement and temporary factors, and repeatability on a Net Income basis should be viewed as somewhat limited.

Earnings Forecasts and Guidance

Progress against the full-year plan was 21.2% for Revenue at ¥6,234.3B / ¥29,450.0B, 18.2% for Operating Income at ¥327.0B / ¥1,800.0B, 19.9% for Ordinary Income at ¥364.7B / ¥1,830.0B, and 24.9% for Net Income at ¥390.9B / ¥1,570.0B. Compared with standard quarterly progress of 25%, Net Income was broadly in line, while progress for Operating Income and Ordinary Income was somewhat delayed. The relatively high progress for Net Income was supported by extraordinary income. Given that the full-year Operating Income forecast calls for a 7.5% YoY decline, profitability trends toward the second half of the fiscal year will be the key to achieving the plan.

Shareholder Returns

The company’s annual dividend forecast is ¥94, representing an increase from the previous fiscal year’s annual dividend, including the previous year’s interim dividend of ¥41. Based on the company’s full-year EPS forecast of ¥228.39, the Payout Ratio is approximately 41.2%. With Cash and deposits of ¥4,575.4B exceeding total interest-bearing debt, the company has a financial position close to net cash, and its funding base for dividends is relatively stable.

Risk Factors

1. Declining profitability in the overseas construction business: Operating Income from overseas construction was ¥14.2B (down 44.1% YoY), and its margin declined to 1.1%, becoming a factor that may constrain the sustainability of company-wide margin improvement.

2. Provision for construction losses and cost fluctuations: Although the provision for construction losses declined slightly to ¥78.8B (¥85.8B in the previous year), deterioration in project-level profitability due to fluctuations in material prices and labor costs could again lead to an increase in provisions.

3. Temporarily driven earnings due to dependence on extraordinary income: The ¥200.6B gain on the sale of investment securities was a major contributor to Net Income of ¥390.9B, and there is no guarantee that gains of a similar scale will continue in the future.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceed the industry median, indicating that profitability is relatively high within the industry.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeds the industry median, representing top-tier growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Improved profitability in domestic construction and real estate doubled Operating Income, confirming from the earnings data that margin improvement in the core businesses is progressing.

2. The growth in Net Income was significantly supported by ¥201.1B in extraordinary income, including a ¥200.6B gain on the sale of investment securities. The 24.9% full-year progress rate should therefore be interpreted with the contribution of temporary factors in mind.

3. The margin of overseas construction declined to 1.1%, and profitability differences by region and business remain an ongoing factor requiring attention as a source of volatility in company-wide earnings.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,065–¥2,185 for a ±1% change in the cost of equity, and ¥2,118–¥2,132 for a ±0.1 change in ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value does not forecast or guarantee the future share price)

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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 securities. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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