OBAYASHI (1802) FY2027 Q1 Earnings Report

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Executive Summary

The Company delivered a strong set of results, with higher revenue and earnings as well as improved profit margins, driven primarily by improved profitability in domestic construction and substantially higher earnings in the real estate business. 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 was ¥401.4B (+116.1%). Net Income was supported by extraordinary income of ¥201.1B, including a gain on the sale of investment securities of ¥200.6B. In addition to higher operating earnings, non-recurring factors also boosted bottom-line profit.

Factors Affecting Performance

【Revenue】Revenue was ¥6,234.3B, up +19.0% YoY. By segment, domestic construction was the largest at ¥2,714.1B (+16.9%, 43.5% of total revenue), followed by overseas construction at ¥1,310.2B (+14.1%), domestic civil engineering at ¥1,063.8B (+13.8%), and overseas civil engineering at ¥795.9B (+24.5%). Real estate was relatively small at ¥307.0B but posted an exceptional increase of +188.2%. Completed construction revenue was ¥5,774.9B (+16.3%), reflecting steady progress on projects received.

【Profit and Loss】Operating Income was ¥327.0B (+107.0%), with an Operating Margin of 5.2% (3.0% in the same period last year). The profit margin in domestic construction improved from 2.2% to 4.9%, generating ¥132.9B (+156.7%), while real estate, with a high profit margin of 31.0%, drove overall earnings by generating ¥95.3B (+565.4%). In contrast, despite higher revenue, overseas construction saw its profit margin decline to 1.1% (2.5% in the same period last year), resulting in lower earnings of ¥14.2B (-44.1%). Ordinary Income was ¥364.7B (+98.2%), supported by non-operating income including dividend income of ¥26.1B, while Net Income was ¥401.4B (+116.1%), owing to extraordinary income including the ¥200.6B gain on the sale of investment securities. The earnings structure was characterized by higher revenue and earnings, improved profitability on an operating basis, and an additional contribution from non-recurring factors to bottom-line profit.

Segment Analysis

Domestic construction, accounting for 43.5% of total revenue, and real estate, accounting for 4.9%, led profit growth among the six segments. Real estate posted an exceptionally high Operating Margin of 31.0%; its ¥95.3B in profit accounted for 29.1% of the Company-wide Operating Income of ¥327.0B. Overseas construction is a major segment, accounting for 21.0% of total revenue, but its profit margin declined from 2.5% in the same period last year to 1.1%, and Operating Income fell to ¥14.2B (-44.1%), making it the only segment to post a substantial earnings decline amid overall profit growth. Overseas civil engineering remained solid, with revenue of ¥795.9B (+24.5%) and a profit margin of 4.3%. Other businesses (PFI, renewable energy, finance, etc.) posted lower revenue and earnings, with revenue of ¥192.7B (-5.0%) and profit of ¥2.9B (-73.2%).

Key Financial Metrics

【Profitability】The Operating Margin was 5.2%, improving by 2.2pt from 3.0% in the same period last year, while the Net Profit Margin was 6.4%, improving by 2.9pt from 3.5% in the same period last year. The gross profit margin was 12.4% (10.4% in the same period last year), and the gross profit margin on completed construction also improved from 9.8% to 11.1%.【Cash Quality】Cash and deposits increased to ¥4,575.4B from ¥4,308.9B at the end of the previous fiscal year. The funding structure remained favorable, with advances received on construction in progress of ¥3,191.6B substantially exceeding construction costs incurred on construction in progress of ¥567.1B.【Investment Efficiency】ROE (annualized) was high at 12.4%, while basic EPS was ¥56.87 (¥25.59 in the same period last year, +122.2%). Capital efficiency was supported by the combination of total asset turnover and financial leverage.【Financial Soundness】The Equity Ratio improved to 42.4% (40.6% in the same period last year). Interest-bearing debt includes long-term borrowings of ¥1,406.9B, bonds of ¥400.1B, and bonds due for redemption within one year of ¥200.7B; however, cash and deposits exceed these amounts, leaving the Company in a net cash position.

Cash Flow Analysis

As the cash flow statement was not provided for these results, fund flows are assessed based on changes in the balance sheet. Accounts receivable from completed construction declined by ¥595.6B YoY to ¥9,763.7B. The reduction in receivables while revenue increased by 19.0% represents a positive development in terms of cash collection. On the other hand, accounts payable for construction and other liabilities also declined by ¥723.7B to ¥5,219.9B. Accordingly, the assessment of working capital improvement must consider both the collection of receivables and the settlement of payables. Advances received on construction in progress increased by ¥191.8B to ¥3,191.6B, remaining substantially above construction costs incurred on construction in progress of ¥567.1B and providing financial flexibility through advance payments for ongoing projects. Cash and deposits increased from the end of the previous fiscal year. Including cash inflows from the sale of investment securities, whose balance declined by ¥376.3B to ¥3,016.9B, the overall funding base remained stable.

Quality of Earnings

Operating Income of ¥327.0B and Ordinary Income of ¥364.7B represent recurring earnings growth reflecting improved profitability in the core business. However, Net Income of ¥401.4B includes extraordinary income of ¥201.1B, primarily comprising the ¥200.6B gain on the sale of investment securities, and this component should be distinguished as a temporary factor. On a pre-tax income basis excluding extraordinary gains and losses, the recovery in operating performance is confirmed as the primary driver of earnings improvement. Dividend income of ¥26.1B within non-operating income of ¥54.0B represents stable income generated from held shares, although the sustainability assessment of other non-operating income of ¥14.8B will depend on its underlying composition. Comprehensive Income was ¥187.1B, below Net Income attributable to owners of the parent of ¥390.9B, primarily because valuation differences on securities were negative ¥238.0B. Fluctuations in the equity market reduced net assets, and the fact that Net Income growth did not translate into a comparable increase in shareholders’ equity in substance is an important consideration when evaluating earnings quality.

Earnings Forecast and Guidance

The full-year Company plan calls for revenue of ¥2兆9,450B (+13.9% YoY), Operating Income of ¥1,800B (-7.5%), and Ordinary Income of ¥1,830B (-10.4%), representing a conservative plan premised on lower earnings for the full year. Q1 progress rates were 21.2% for revenue, 18.2% for Operating Income, and 19.9% for Ordinary Income; Operating Income and Ordinary Income were below the 25% implied by even quarterly progress. The high Q1 YoY earnings growth rate of +107.0% cannot be extrapolated directly to the full year. Achieving the full-year plan will depend on generating profit over the remaining three quarters, particularly through a recovery in the profitability of overseas construction and effective progress management for construction projects. No revisions were made to the earnings or dividend forecasts during the quarter.

Shareholder Returns

The full-year dividend forecast is ¥94.00 per share, implying a Payout Ratio of 41.2% based on projected full-year EPS of ¥228.39. An increase from the previous year’s actual dividend of ¥41 is planned, and no revision to the dividend forecast had been made as of the end of the quarter. Dividend sustainability is supported by cash and deposits of ¥4,575.4B, an Equity Ratio of 42.4%, and cash and deposits exceeding interest-bearing debt, resulting in a net cash position. The dividend burden is therefore not placing pressure on financial soundness. However, the full-year earnings plan does not include temporary factors such as gains on the sale of investment securities, making the maintenance of recurring earnings levels important when evaluating the source of dividend funding.

Risk Factors

1. Deterioration in the profitability of the overseas construction segment: Revenue increased to ¥1,310.2B (+14.1%), but Operating Income declined to ¥14.2B (-44.1%), and the profit margin fell from 2.5% in the same period last year to 1.1%. Cost overruns and construction schedule management represent risks that could weigh on consolidated earnings.

2. Risk of fluctuations in construction project profitability: A provision for construction loss reserves of ¥78.8B was recorded. Increases in material prices and labor costs, design changes, or project delays could affect the sustainability of the improved profit margin in domestic construction (gross profit margin of 12.4%).

3. Fluctuations in securities valuations and reduction in capital: Net assets declined by ¥167.2B YoY, primarily due to a ¥237.99B decline in valuation differences on securities. Investment securities totaled ¥3,016.9B, representing 9.8% of total assets, and fluctuations in market prices affect Comprehensive Income and net assets.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

Both the Operating Margin and Net Profit Margin exceed the industry median, placing the Company’s profitability among the upper tier of the industry.

Growth and Capital Efficiency

The Revenue Growth Rate substantially exceeds the industry median, representing an exceptional pace of revenue growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Operating Income increased to ¥327.0B, up +107.0% YoY, with improved profitability in domestic construction (profit margin 2.2%→4.9%) and real estate (5.4%→31.0%) driving overall earnings growth. Meanwhile, overseas construction posted higher revenue but lower earnings, and the widening disparity in profitability among businesses is a structural characteristic evident from the financial results.

2. Of Net Income of ¥401.4B, ¥200.6B was attributable to extraordinary income from the gain on the sale of investment securities. Accordingly, the growth rate of bottom-line profit (+116.1%) was affected even more by temporary factors than the growth rate of Operating Income (+107.0%).

3. Q1 progress toward the full-year Operating Income plan of ¥1,800B was 18.2%, below the 25% implied by even quarterly progress. Together with the fact that the full-year plan itself assumes a -7.5% decline in earnings from the previous fiscal year, the results reflect a structure characterized by high quarterly earnings volatility.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,065–¥2,185 at Cost of Equity ±1%; ¥2,118–¥2,132 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• As 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; 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 automatically generated earnings analysis document prepared 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, after consulting professionals as necessary.

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