SHIMIZU CORPORATION FY2027 Q1 Earnings Report

Quick View

Executive Summary

The key point of this earnings announcement is that the sharp increases in ordinary income and net income depended on highly non-recurring items—equity in earnings of affiliates accounted for under the equity method and gains on sales of investment securities—while growth in the core business was more moderate. Revenue was ¥4828.3B (+9.3% YoY), and operating income was ¥192.8B (+11.8%), while ordinary income rose substantially to ¥556.8B (+201.0%) and net income attributable to owners of the parent increased significantly to ¥552.6B (+396.5%). The sharp increases in ordinary and bottom-line income were primarily attributable to the recognition of ¥357.9B in equity in earnings of affiliates accounted for under the equity method and ¥117.7B in gains on sales of investment securities. These factors differ in scale and nature from growth at the operating level (+11.8%).

Factors Affecting Earnings

【Revenue】Revenue was ¥4828.3B, up +9.3% YoY. While completed construction revenue drove growth at ¥4388.9B (¥3913.3B in the previous year, +12.2%), revenue from the development business and other operations contracted to ¥439.3B (¥504.7B in the previous year, -12.9%). By segment, the Company’s Construction Business accounted for the largest share at ¥3481.5B (74.7% of the total, YoY +3.0%), followed by Other Businesses, etc. at ¥1103.4B (23.7%, YoY +13.2%), and the Real Estate Business at ¥76.8B (1.6%, YoY -48.2%).

【Profit and Loss】Operating income was ¥192.8B (YoY +11.8%), and the operating margin improved slightly to 4.0% from 3.9% in the previous year. The gross margin improved to 11.0% from 10.8% in the previous year, indicating an improvement in construction project profitability, while the SG&A ratio rose to 7.0% from 6.9%, limiting operating leverage. Ordinary income surged to ¥556.8B (YoY +201.0%), primarily due to the recognition of ¥357.9B in equity in earnings of affiliates accounted for under the equity method, which accounted for the majority of total non-operating income of ¥396.1B. In addition, extraordinary income of ¥125.4B was recorded, including ¥117.7B in gains on sales of investment securities, while no extraordinary losses were incurred. In conclusion, the Company achieved higher revenue and operating income at the operating level, while the substantial increases in ordinary income and net income were primarily driven by non-recurring factors. These should be distinguished from the perspective of earnings quality.

Segment Analysis

The Company’s Construction Business recorded revenue of ¥3481.5B (74.7% of the total, YoY +3.0%) and operating income of ¥155.5B (YoY +158.3%, margin 4.5%), demonstrating a sharp recovery in profit exceeding revenue growth; improved profitability in the core business drove overall earnings. Other Businesses, etc. recorded higher revenue but lower earnings, with revenue of ¥1103.4B (23.7% of the total, YoY +13.2%) and operating income of ¥22.4B (YoY -38.1%, margin 2.0%). The Real Estate Business recorded revenue of ¥76.8B (1.6% of the total, YoY -48.2%) and operating income of ¥18.9B (YoY -66.1%, margin 24.6%). Although it is a high-margin business, its scale contracted due to the timing of project recognition.

Key Financial Indicators

【Profitability】The operating margin was 4.0%, a slight improvement from 3.9% in the previous year. The gross margin improved to 11.0% from 10.8%, while the net profit margin based on net income attributable to owners of the parent improved substantially to 11.4% from 2.5% in the previous year. ROE was 5.4%. 【Cash Quality】Accounts receivable from completed construction contracts decreased to ¥8073.5B, down -15.3% YoY, while advances received on construction contracts in progress increased to ¥2464.7B, up +34.2% YoY, and the provision for loss on construction contracts decreased to ¥548.5B, down -15.0% YoY. Improvements were confirmed in both collection and profitability management. 【Investment Efficiency】ROE remained at 5.4%, while the ¥357.9B in equity in earnings of affiliates accounted for under the equity method, which boosted ordinary income, represented a contribution from investment assets including investment securities of ¥3574.6B (+17.8% YoY). 【Financial Soundness】The equity ratio was 38.8%, cash and deposits increased to ¥3488.5B, up +46.6% YoY, and total interest-bearing debt was approximately ¥3728B (including short-term borrowings of ¥2434.0B, long-term borrowings of ¥1294.4B, and bonds, etc.), resulting in a debt structure with a high short-term component.

Cash Flow Analysis

As cash flow statement items are not included in the data, cash trends are analyzed based on changes in the balance sheet. Cash and deposits increased by +¥1108.5B (+46.6%) from the end of the same period of the previous year to ¥3488.5B. Accounts receivable from completed construction contracts decreased by -¥1458.5B (-15.3%) YoY to ¥8073.5B, indicating progress in receivables collection. Advances received on construction contracts in progress increased by +¥627.6B (+34.2%) YoY to ¥2464.7B, with advance payments supporting liquidity. Investment securities increased by +¥541.1B (+17.8%) YoY to ¥3574.6B; however, gains on sales of investment securities of ¥117.7B were also recorded during the period, indicating progress in portfolio replacement. From a working capital perspective, progress in receivables collection and an increase in advances received contributed to cash generation.

Earnings Quality

Non-operating income was ¥396.1B against operating income of ¥192.8B, equivalent to 8.2% of revenue. Of this amount, ¥357.9B in equity in earnings of affiliates accounted for under the equity method constituted the majority, followed by dividends received of ¥22.0B and interest received of ¥11.3B. Extraordinary income of ¥125.4B was recorded, comprising gains on sales of investment securities of ¥117.7B and gains on sales of fixed assets of ¥7.7B, while no extraordinary losses were incurred. Ordinary income of ¥556.8B and net income attributable to owners of the parent of ¥552.6B depended substantially on these highly non-recurring items—equity in earnings of affiliates accounted for under the equity method and extraordinary income—resulting in growth of a different quality from the increase in operating income (+11.8%). From an accrual perspective, however, the decrease in accounts receivable from completed construction contracts (-15.3%) and the increase in advances received on construction contracts in progress (+34.2%) indicate that earnings were accompanied to a certain extent by supporting cash generation.

Earnings Forecast and Guidance

Progress against the full-year forecast was 20.9% for revenue (¥4828.3B/¥23100.0B), 12.6% for operating income (¥192.8B/¥1530.0B), 30.3% for ordinary income (¥556.8B/¥1835.0B), and 33.4% for net income attributable to owners of the parent (¥552.6B/¥1655.0B). While progress in revenue and operating income was below the simple quarterly run-rate benchmark of 25%, ordinary income and net income exceeded it. This uneven progress was attributable to the recognition of Q1-specific non-operating factors, namely equity in earnings of affiliates accounted for under the equity method and extraordinary income. The earnings forecast was revised during the quarter, while the dividend forecast was unchanged. Achieving full-year operating income growth of +28.9% will require the accumulation of construction volume and the maintenance of profitability in the second half.

Shareholder Returns

The Company’s forecast annual dividend is ¥38.5, representing an expected increase from the previous year’s actual dividend of ¥22. The payout ratio against forecast EPS of ¥243.72 is approximately 15.8% (¥38.5/¥243.72), remaining at a conservative level. The dividend forecast was not revised during the quarter. Given the level of cash and deposits of ¥3488.5B, the Company has sufficient financial capacity to pay dividends.

Risk Factors

1. Risk of dependence on non-recurring earnings: Of ordinary income of ¥556.8B, ¥357.9B was contributed by equity in earnings of affiliates accounted for under the equity method and ¥125.4B by extraordinary income, including ¥117.7B in gains on sales of investment securities. If these items were to fall away, the earnings level could fluctuate substantially relative to operating income of ¥192.8B.

2. Dependence on short-term liabilities: Of total interest-bearing debt of approximately ¥3728B, short-term borrowings of ¥2434.0B account for approximately 65%. The short-term component is high compared with long-term borrowings of ¥1294.4B and bonds of ¥1560B, potentially increasing refinancing burdens depending on interest rate trends.

3. Fluctuations in construction profitability and the cost environment: The provision for loss on construction contracts decreased to ¥548.5B (-15.0% YoY), suggesting improved profitability. However, if inflation in material and labor costs continues, there is a risk that the improving trend in the gross margin of 11.0% could reverse.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

The operating margin is slightly below the industry median, while the net profit margin is substantially above the industry median due to contributions from equity in earnings of affiliates accounted for under the equity method and extraordinary income.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median and is positioned at the upper end of the IQR.

Source: Compiled by the Company

Key Earnings Highlights

1. The substantial increases in ordinary income and net income were largely attributable to highly non-recurring items—¥357.9B in equity in earnings of affiliates accounted for under the equity method and ¥117.7B in gains on sales of investment securities—resulting in a divergence in scale and nature from operating income growth (+11.8%).

2. Operating income in the Construction Business segment recovered to ¥155.5B (YoY +158.3%), with the margin improving to 4.5%. Together with the decrease in the provision for loss on construction contracts (-15.0%), this suggests that project profitability has bottomed out.

3. While full-year progress is ahead for ordinary income at 30.3% and net income at 33.4%, operating income remains at 12.6%. Accumulating construction volume and maintaining profitability in the second half will therefore be key to achieving the full-year plan.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on 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: ¥1,871–¥1,987 at cost of equity ±1%; ¥1,917–¥1,944 at ω±0.1.

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: 2026-06 / This value does not forecast or guarantee the future share price)

---

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 available earnings data. Investment decisions should be made at your own responsibility, and after consulting a professional advisor as necessary.

---End of Report---