KAJIMA CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

The Company reported higher Operating Income, Ordinary Income, and Net Income, primarily due to an improvement in the gross profit margin, while maintaining Revenue at approximately the same level as the previous year. Revenue was ¥6400.9B (-1.5% YoY), Operating Income was ¥405.2B (+7.8%), Ordinary Income was ¥444.3B (+14.4%), and Net Income attributable to owners of the parent was ¥309.3B (+16.6%). The main drivers of the earnings increase were higher Revenue and profit at the Engineering and Overseas Affiliates businesses, together with an improvement in the gross profit margin (13.3%, up +1.7pt from 11.7% in the previous year), which absorbed the downward pressure from the substantial decline in Revenue and earnings in the Construction segment.

Factors Affecting Business Performance

【Revenue】Revenue was ¥6400.9B, representing a 1.5% YoY decline. By segment, Engineering (+13.3%), Overseas Affiliates (+5.1%), Development Business (+23.1%), and Domestic Affiliates (+7.7%) recorded higher Revenue, while Construction declined substantially by -15.2%, weighing on the overall result. The decline in Construction Revenue appears to have resulted from differences in the timing of recognizing completed construction contract Revenue from large-scale projects.

【Profit and Loss】Operating Income was ¥405.2B (+7.8% YoY), and the Operating Income margin improved to 6.3% (up +0.5pt from 5.8% in the previous year). The gross profit margin improved to 13.3% (up +1.7pt from 11.7% in the previous year), absorbing the increase in the SG&A expense ratio (7.0%, up +1.1pt from 5.9% in the previous year). Ordinary Income was ¥444.3B (+14.4%), supported by ¥131.3B in non-operating income, including ¥33.9B in dividend income. Net Income attributable to owners of the parent was ¥309.3B (+16.6%), supported by ¥41.8B in extraordinary income, including ¥40.8B in gains on the sale of investment securities. Although Revenue declined, profit increased at every stage, resulting in a decline in Revenue but an increase in earnings.

Segment Analysis

Engineering generated Revenue of ¥1062.1B (+13.3% YoY) and Operating Income of ¥152.9B (+56.8%), achieving the highest profitability among all segments with a margin of 14.4% and serving as the main earnings growth driver. Overseas Affiliates recorded a substantial increase in earnings, with Revenue of ¥2405.9B (+5.1%) and Operating Income of ¥81.4B (+48.7%), while its margin improved to 3.4%. In contrast, Construction recorded lower Revenue and earnings, with Revenue of ¥2261.6B (-15.2%) and Operating Income of ¥123.0B (-24.0%), causing its margin to decline to 5.4%. Domestic Affiliates (Revenue of ¥869.4B, Operating Income of ¥42.0B, -20.2% YoY) and Development Business (Revenue of ¥113.2B, Operating Income of ¥4.9B, -39.5% YoY) also recorded lower earnings. Thus, three segments, including the core Construction business, reported lower earnings, while two segments, Engineering and Overseas Affiliates, reported higher earnings, indicating increasing polarization in the earnings mix.

Key Financial Metrics

【Profitability】The Operating Income margin improved to 6.3% from 5.8% in the previous year (+0.5pt), the Ordinary Income margin improved to 6.9% from 6.0% (+1.0pt), and the Net Income margin, based on income attributable to owners of the parent, improved to 4.8% from 4.1% (+0.8pt). Profit margins have therefore shown a consistent upward trend at each level.【Cash Flow Quality】Cash and deposits increased by +888.3B to ¥4921.2B from ¥4032.9B at the end of the previous year, while accounts receivable from completed construction contracts decreased by -2931.1B (-26.3%) to ¥8193.0B from ¥11124.1B at the end of the previous year, indicating progress in working capital compression through improved collections.【Investment Efficiency】ROE was 2.4% (quarterly result, before annualization), and the Equity Ratio rose to 41.0% from 39.0% in the previous year (+2.0pt). Interest-bearing debt was ¥8177.0B, slightly down from ¥8331.3B in the previous year, while the ratio of interest-bearing debt to equity remained largely unchanged at approximately 0.60x.【Financial Soundness】The current ratio was 136.1% (current assets of ¥19756.8B / current liabilities of ¥14515.2B), indicating that short-term payment capacity has been secured. Total assets contracted to ¥33844.9B from ¥36243.4B in the previous year, primarily due to the reduction in accounts receivable from completed construction contracts.

Cash Flow Analysis

Although no cash flow statement disclosures are available by category, changes in the balance sheet indicate cash generation through the release of working capital. Accounts receivable from completed construction contracts decreased by -2931.1B (-26.3%) from ¥11124.1B at the end of the previous year to ¥8193.0B, indicating progress in collecting trade receivables. Costs on uncompleted construction contracts also declined by -13.4% to ¥176.2B from ¥203.5B at the end of the previous year, indicating a reduction in work in progress. Meanwhile, advances received on uncompleted construction contracts increased by +3.2% to ¥2317.3B from ¥2245.3B at the end of the previous year, maintaining the advance-payment structure. As a result, cash and deposits increased by +888.3B (+22.0%) to ¥4921.2B from ¥4032.9B at the end of the previous year, indicating favorable cash conversion of earnings.

Quality of Earnings

It should be noted that, in addition to recurring earnings, non-operating income and extraordinary income contributed to higher earnings for the current period. Of the ¥131.3B in non-operating income, ¥33.9B was dividend income, while most of the ¥41.8B in extraordinary income (¥40.8B) consisted of gains on the sale of investment securities. Both are temporary factors whose nature differs from recurring operating income in each period. Extraordinary losses remained limited at ¥1.1B. Comprehensive income was ¥282.9B (including ¥257.8B attributable to owners of the parent), below Net Income attributable to owners of the parent of ¥309.3B. This divergence was mainly attributable to a substantial deterioration in valuation differences on securities of -¥106.4B, while foreign currency translation adjustments remained positive at +¥54.9B. Changes in the fair value of securities held therefore somewhat weighed on earnings quality on a comprehensive-income basis.

Earnings Forecast and Guidance

The Q1 progress rates against the Company’s Full-Year forecasts were 22.1% for Revenue (¥6400.9B/¥29000.0B), 20.3% for Operating Income (¥405.2B/¥2000.0B), and 21.6% for Ordinary Income (¥444.3B/¥2060.0B). Although all were below the simple one-quarter benchmark of 25%, construction companies tend to recognize a disproportionate amount of completed construction contract Revenue in the second half, and progress appears to be in line with seasonality. The Full-Year forecast calls for declines of -5.5% in Revenue, -16.9% in Operating Income, and -14.3% in Ordinary Income on a YoY basis. This differs in direction from the earnings growth trend in Q1 and should be monitored through progress in subsequent quarters. As of the current quarter, no revisions have been made to the earnings or dividend forecasts.

Shareholder Returns

The Company’s planned dividend per share is ¥146.00, implying a Payout Ratio of approximately 39.7% based on the Company’s forecast EPS of ¥368.20. There was no revision to the dividend forecast for the current quarter, and the existing plan remains unchanged. Treasury shares amounted to ¥1461.7B (67,914 thousand treasury shares out of 528,656 thousand issued shares), with continued accumulation from the previous year, contributing to shareholder returns as part of the capital policy in addition to dividends. From the perspective of Total Return, including share repurchases in addition to dividends, the level of shareholder returns may be higher than the Payout Ratio on a dividend-only basis.

Risk Factors

1. Decline in Construction Revenue and earnings: One of the core segments has slowed, with Revenue of ¥2261.6B (-15.2% YoY) and Operating Income of ¥123.0B (-24.0%), while its margin also declined to 5.4%. The Company-wide earnings mix is becoming increasingly dependent on Engineering and Overseas Affiliates.

2. Composition of interest-bearing debt: Interest-bearing debt was ¥8177.0B, of which short-term borrowings accounted for ¥4117.1B, representing more than half. This composition makes the Company susceptible to the impact of refinancing and funding costs if the interest-rate environment changes.

3. Dependence on non-recurring gains: Non-recurring items, including extraordinary income of ¥41.8B, primarily consisting of gains on the sale of investment securities of ¥40.8B, and dividend income of ¥33.9B, boosted Net Income. Excluding these items, growth in recurring earnings power may be slower than the growth rate of total earnings.

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 construction industry.

Growth and Capital Efficiency

The Revenue growth rate is substantially below the industry median, and top-line growth is lagging that of peer companies that are experiencing Revenue growth.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The gross profit margin improved by +1.7pt from 11.7% in the previous year to 13.3%, driven by higher earnings at Engineering and Overseas Affiliates. Whether this change in the earnings structure is sustainable will be a key point to monitor in subsequent quarters, together with a recovery in profitability at the core Construction business.

2. Accounts receivable from completed construction contracts declined by -26.3% from the end of the previous year, while cash and deposits increased by +22.0%, clearly demonstrating progress in the collection of working capital. This is a positive sign indicating the quality of cash conversion of earnings.

3. While the Full-Year progress rates of 22.1% for Revenue and 20.3% for Operating Income were below the simple one-quarter benchmark, the Full-Year plan itself assumes lower earnings YoY. The difference in direction between the earnings growth trend in Q1 and the Full-Year earnings decline plan makes the pace of project execution in the Construction segment in subsequent quarters a key factor.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥3,252–¥3,442 at ±1% in the cost of equity, and ¥3,337–¥3,357 at ±0.1 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 predict or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings release data. It does not recommend investment in any specific security. 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 a professional advisor as necessary.

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