Quick View
| Metric | Current Period | Same Period Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥205.3B | ¥168.5B | +21.9% |
| Operating Income | ¥14.1B | ¥10.0B | +41.2% |
| Ordinary Income | ¥12.6B | ¥11.2B | +12.1% |
| Net Income | ¥7.5B | ¥7.3B | +3.2% |
| ROE | 2.0% | 1.9% | - |
Executive Summary
During Q1, the Company achieved substantial revenue growth and an increase in operating income. However, equity-method investment losses and a higher effective tax rate restrained the growth of ordinary income and net income, resulting in significant differences in growth rates among the profit items. Revenue was ¥205.3B (+21.9% YoY), operating income was ¥14.1B (+41.2%), ordinary income was ¥12.6B (+12.1%), and net income attributable to owners of the parent was ¥7.35B (+0.3%; consolidated net income including non-controlling interests was ¥7.50B, +3.2%). Revenue growth was driven by high utilization in the ground improvement business and expanded orders in the civil engineering business, while the increase in operating income resulted from an improvement in the SG&A ratio (13.0% in the previous year → 10.9%). Conversely, the recognition of an equity-method investment loss of ¥2.23B and an increase in the effective tax rate to 40.7% (35.2% in the previous year) offset the earnings improvement at the operating level, leaving final profit nearly flat.
Factors Affecting Business Performance
【Revenue】Revenue was ¥205.31B (+21.9% YoY), primarily consisting of completed construction revenue of ¥200.77B. By segment, the Ground Improvement Business was the largest segment and led overall performance, with revenue of ¥115.34B (+25.4%, 56.2% of total), followed by the Civil Engineering Business at ¥88.81B (+18.1%, 43.3% of total) and the Block Business at ¥2.53B (-25.4%, 1.2% of total). High utilization in ground improvement and expanded orders in civil engineering were the primary drivers of revenue growth.
【Profit and Loss】Operating income increased to ¥14.10B (+41.2%), and the operating margin improved to 6.9% (5.9% in the previous year, +94bp), supported by a decline in the SG&A ratio (13.0% → 10.9%). By segment, the Ground Improvement Business generated ¥14.42B in segment profit (+42.5%, 12.5% margin), accounting for the majority of Company-wide profit. Meanwhile, despite higher revenue, the Civil Engineering Business’s operating income declined sharply to ¥0.45B (-84.3%, 0.5% margin), while the Block Business continued to post an operating loss of ¥1.55B. In non-operating items, the recognition of an equity-method investment loss of ¥2.23B (investment income of ¥0.28B in the previous year) and an increase in interest expense (¥0.27B → ¥0.43B) weighed on results. Consequently, ordinary income was ¥12.60B (+12.1%), and the ordinary income margin was 6.1% (6.7% in the previous year, -53bp). Extraordinary income and losses were immaterial, consisting solely of a gain on the sale of fixed assets of ¥0.05B. Against profit before income taxes of ¥12.65B, income taxes amounted to ¥5.15B. As the effective tax rate rose to 40.7% (35.2% in the previous year), net income attributable to owners of the parent was ¥7.35B (+0.3%), essentially flat. Although revenue and operating income increased, the improvement at the operating level was offset by the equity-method loss and higher tax burden, resulting in revenue and profit growth with net income effectively stagnating.
Segment Analysis
The Ground Improvement Business recorded revenue of ¥115.34B (+25.4%), operating income of ¥14.42B (+42.5%), and a 12.5% margin, improving in both volume and profitability and serving as the primary driver of Company-wide earnings. The Civil Engineering Business grew revenue to ¥88.81B (+18.1%), but operating income fell sharply to ¥0.45B (-84.3%), with the margin declining to 0.5%, suggesting the impact of project mix and cost overruns. The Block Business continued to operate at a loss, with revenue of ¥2.53B (-25.4%) and an operating loss of ¥1.55B, indicating that economies of scale are not being realized. Company-wide adjustments shifted from -¥1.65B in the previous year to +¥0.78B, reflecting contributions from the containment of Company-wide expenses and adjustments related to equity-method investments and foreign exchange gains and losses. Profitability disparities among businesses have widened, making the rising dependence on ground improvement and the restoration of profitability in civil engineering key areas of focus going forward.
Key Financial Indicators
【Profitability】The operating margin improved to 6.9% (5.9% in the previous year, +94bp), while the ordinary income margin declined to 6.1% (6.7% in the previous year, -53bp), and the net profit margin (on a basis attributable to owners of the parent) fell to 3.6% (4.3% in the previous year, -77bp). This indicates that the improvement at the operating level has not flowed through to final profit. Quarterly ROE was 2.0%, with the tax burden and equity-method loss weighing on capital efficiency. 【Cash Quality】Cash and deposits declined to ¥91.7B (¥104.3B in the previous year, -12.2%), while the increase in contract liabilities (+214%) and reduction in accounts receivable from completed construction contracts (-31.7%) supported working capital. 【Investment Efficiency】The total asset turnover ratio (revenue/total assets) improved to 0.329x (0.237x in the previous year), with capital efficiency improving through both the reduction in total assets (¥624.1B, -12.3% YoY) and revenue growth. 【Financial Soundness】The equity ratio was 60.3% (equivalent to 54.2% in the previous year), and the current ratio was 193.6% (170.0% in the previous year). Interest-bearing debt was substantially reduced to ¥79.5B (¥154.5B in the previous year, -48.5%), indicating a conservative financial foundation.
Cash Flow Analysis
Although the cash flow statement was not disclosed, the trend in the balance sheet provides insight into cash movements. Cash and deposits declined to ¥91.7B (¥104.3B in the previous year, -12.2%), while short-term borrowings were halved from ¥150.0B to ¥75.0B, indicating progress in reducing interest-bearing debt. From a working capital perspective, contract liabilities increased substantially from ¥12.08B to ¥38.01B (+214%), with the accumulation of advances supporting liquidity. Accounts receivable from completed construction contracts declined from ¥46.3B to ¥31.8B (-31.7%), while electronically recorded monetary claims declined from ¥18.8B to ¥13.1B (-30.7%), with progress in receivables collection contributing to improved cash efficiency. Based on these factors, the reduction in short-term borrowings appears to have been supported by cash generation from operating activities and an increase in advances, indicating that the quality of working capital is relatively strong.
Quality of Earnings
Extraordinary income and losses consisted solely of a gain on the sale of fixed assets of ¥0.05B, indicating a limited impact from non-recurring factors on the current period’s profit level. Non-operating income of ¥1.3B (0.6% of revenue) consisted primarily of dividend income of ¥1.0B and was strongly recurring in nature. Meanwhile, non-operating expenses of ¥2.8B included interest expense of ¥0.43B and an equity-method investment loss of ¥2.23B (investment income of ¥0.28B in the previous year), which was the primary factor suppressing the growth of ordinary income (+12.1%) relative to operating income (+41.2%). The effective tax rate rose to 40.7% (35.2% in the previous year), further reducing the earnings improvement between ordinary income and net income attributable to owners of the parent. Comprehensive income was ¥8.51B (¥8.35B attributable to owners of the parent), exceeding net income of ¥7.35B by ¥1.0B, supported by increases in other comprehensive income, including foreign currency translation adjustments of +¥0.46B and adjustments related to retirement benefits of +¥0.45B.
Earnings Forecast and Guidance
Progress against the full-year plan was 25.3% for revenue (plan: ¥810.0B), 29.4% for operating income (plan: ¥48.0B), 25.7% for ordinary income (plan: ¥49.0B), and 23.0% for net income attributable to owners of the parent (plan: ¥32.0B). Operating income was slightly ahead of the quarterly even-progress benchmark of approximately 25%, while net income was somewhat behind, with the higher effective tax rate and equity-method investment loss restraining progress. Neither the earnings forecast nor the dividend forecast was revised during the quarter, and the Company’s plans remain unchanged. Going forward, the restoration of profitability in the Civil Engineering Business and earnings trends at equity-method investees will be key factors affecting achievement of the plans.
Shareholder Returns
Under the Company’s plan, the annual dividend forecast is ¥115 per share, including a ¥30 dividend commemorating the 20th anniversary of the merger in the Q2-end dividend. The payout ratio against the full-year EPS forecast of ¥211.23 is approximately 54.4% (¥115 ÷ ¥211.23), based on the single dividend forecast. No share repurchase has been disclosed, and shareholder returns are centered on dividends. Given cash and deposits of ¥91.7B and an equity ratio of 60.3%, the Company has sufficient capacity to execute its dividend plan, including the commemorative dividend.
Risk Factors
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Segment concentration risk: The Ground Improvement Business accounts for 56.2% of revenue and the majority of segment profit (¥14.42B), resulting in high sensitivity to supply, demand, and pricing trends in a specific business.
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Deterioration in civil engineering profitability: Although revenue increased by +18.1%, operating income declined to ¥0.45B (-84.3%) and the margin fell sharply to 0.5%, with variations in project profitability becoming a factor affecting earnings volatility.
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Volatility in tax burden and equity-method earnings: The effective tax rate rose to 40.7% (35.2% in the previous year), while an equity-method investment loss of ¥2.23B (investment income of ¥0.28B in the previous year) compressed profit at and below the ordinary income level. Although interest-bearing debt was reduced to ¥79.5B, short-term borrowings accounted for 94.3% of the total, resulting in a maturity profile concentrated in the short term.
Industry Benchmark (For Reference; Compiled by the Company)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 6.9% | 4.5% (2.7%–6.6%) | +2.4pt |
| Net Profit Margin | 3.7% | 3.8% (-1.1%–4.4%) | −0.1pt |
The operating margin exceeds the industry median, while the net profit margin remains approximately in line with the median due to the impact of the tax burden and equity-method earnings and losses.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 21.9% | 4.8% (3.4%–10.1%) | +17.1pt |
The revenue growth rate significantly exceeds the industry median and represents a high growth rate within the industry.
Source: Compiled by the Company
Key Takeaways from the Financial Results
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The operating margin improved to 6.9% (5.9% in the previous year, +94bp), exceeding the industry median of 4.5%. The primary drivers were the lower SG&A ratio and highly profitable projects in the Ground Improvement Business, suggesting a qualitative improvement in the earnings structure.
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At the ordinary income and net income levels, the equity-method investment loss of ¥2.23B and the increase in the effective tax rate to 40.7% offset the earnings improvement, leaving net income attributable to owners of the parent essentially flat (+0.3%). Whether the improvement at the operating level will be sufficiently reflected in final profit will be a key area to monitor.
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The +214% increase in contract liabilities and the -48.5% reduction in short-term borrowings indicate an improvement in working capital. Together with the high financial soundness represented by an equity ratio of 60.3% and a current ratio of 193.6%, these figures suggest that the financial foundation is stabilizing.
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 5-year fade). It is not a forecast of the market price or a recommendation of any specific investment action.
| Scenario | Theoretical Share Price |
|---|---|
| bear | ¥2,398 |
| base | ¥2,465 |
| bull | ¥2,514 |
| Calculation Assumption | Value |
|---|---|
| Book Value per Share (BPS) | ¥2,484 |
| Adjusted Forecast EPS | ¥235.9 |
| Cost of Equity r | 9.77% (10-year Japanese government bond 2.77% + equity risk premium 6.00% + size premium 1.00%) |
| Residual Income Persistence Factor ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 54.4% |
| Forecast EPS Confidence Adjustment | ×1.117 (based on the historical guidance achievement rate of peer companies) |
| Implied PBR / PER | 0.99x / 10.5x |
Sensitivity: ¥2,399–¥2,534 at a ±1% change in the cost of equity, and ¥2,464–¥2,465 at a ±0.1 change in ω.
Notes:
- Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
- 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)
This report is an earnings analysis document automatically generated by AI based on XBRL financial results summary data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed financial results data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.
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AI Financial Analysis
Executive Summary
FY2027 Q1 was operationally strong, with revenue and operating income growth exceeding the company’s full-year trajectory, although net-profit conversion was held back by higher below-the-line costs and taxation. Revenue increased 21.9% YoY to ¥20.53bn, led by the ground improvement business. Operating income rose 41.2% to ¥1.41bn, producing positive operating leverage as SG&A increased only 2.5% to ¥2.25bn. The operating margin expanded by 94bp YoY to 6.9% from 5.9%. Gross profit increased 14.6% to ¥3.66bn, but the gross margin declined by 112bp to 17.8% from 18.9%. This gross-margin compression indicates that project cost pressure remains relevant despite the strong top-line environment. Ordinary income grew a more modest 12.1% to ¥1.26bn because non-operating expenses increased substantially. Profit attributable to owners of parent was effectively flat at ¥0.74bn, up only 0.3% YoY. The effective tax rate rose to 40.7%, leaving the tax burden at 0.581 and materially reducing conversion from pre-tax profit to net income. The ground improvement business was the core earnings contributor, generating segment profit of ¥1.44bn and a 12.9% margin. In contrast, civil engineering revenue increased but segment profitability weakened sharply, while the block business remained loss-making. The Q1 operating-income progress rate was 29.4% against the unchanged full-year forecast of ¥4.80bn, above the standard 25% seasonal benchmark. Revenue progress was 25.3% against the ¥81.0bn forecast, broadly in line with the benchmark. Net-income progress was 23.0% against the ¥3.20bn forecast, modestly below the benchmark and reflecting the weak Q1 earnings conversion. The balance sheet remains liquid, with a 193.7% current ratio and cash equivalent to 1.22x short-term borrowings. Short-term loans were reduced by ¥7.50bn YoY, materially improving leverage and refinancing flexibility. Forward performance depends on maintaining ground-improvement margins, recovering civil-engineering project profitability, and containing labor and material-cost inflation on construction contracts.
Profitability Analysis
Annualized DuPont ROE was 7.8%, comprising a 3.6% net profit margin, 1.316x asset turnover, and 1.66x financial leverage. The main positive change in the earnings structure was operating profitability: the operating margin rose 94bp to 6.9%, as revenue growth of 21.9% substantially outpaced SG&A growth of 2.5%. However, the net margin fell by approximately 77bp YoY from 4.3% to 3.6%, showing that the operating improvement did not fully reach shareholders. Gross-margin compression was the principal operating-quality concern, with the gross margin declining 112bp to 17.8%; this is below the 20% quality-alert threshold and reflects the sensitivity of construction earnings to project mix and execution costs. The tax burden of 0.581 was also a meaningful drag, as the 40.7% effective tax rate exceeded 40%. Interest burden remained sound at 0.897, and interest coverage was very strong at 32.79x, indicating that financing costs are not the principal constraint on profitability. The ground improvement segment was the core business by operating-income contribution, with revenue of ¥11.21bn (+30.0% YoY) and segment profit of ¥1.44bn (+42.5%), lifting its margin to 12.9% from 11.7%. Civil engineering revenue rose 15.1% to ¥9.04bn, but segment profit fell 84.3% to ¥0.05bn and margin contracted to 0.5% from 3.7%, pointing to project-level margin pressure. The block business reported revenue of ¥0.25bn (-25.4% YoY) and a segment loss of ¥0.16bn, versus a ¥0.15bn loss a year earlier. The improved consolidated operating result also benefited from the segment-adjustment line moving to a ¥0.78bn positive adjustment from a ¥1.65bn negative adjustment. The annualized ROE of 7.8% is at the lower end of the stated benchmark range, so sustained margin recovery rather than higher leverage is required for a stronger return profile.
Growth Assessment
Revenue growth was broad enough to support a constructive near-term demand reading, with completed construction revenue rising to ¥20.08bn from ¥16.41bn. The ground improvement segment supplied the largest absolute revenue increase, adding ¥2.59bn YoY, while civil engineering added ¥1.19bn. Ground improvement’s combination of 30.0% revenue growth and 42.5% segment-profit growth suggests favorable execution and operating leverage in the company’s most important earnings engine. Civil engineering’s revenue growth without commensurate profit growth is less favorable and indicates that volume alone is not sufficient to support earnings quality. The full-year forecast remains unchanged, calling for revenue of ¥81.0bn (-0.9% YoY), operating income of ¥4.80bn (-18.9%), ordinary income of ¥4.90bn (-20.0%), and profit attributable to owners of ¥3.20bn. Q1 revenue progress of 25.3% is essentially in line with the 25% standard benchmark. Operating-income progress of 29.4% exceeds the benchmark by 4.4 percentage points, providing an initial cushion against the planned full-year decline. Ordinary-income progress is 25.7%, also broadly in line. Net-income progress of 23.0% trails the benchmark by 2.0 percentage points, consistent with elevated tax expense and non-operating pressure. Growth sustainability will be determined by whether ground improvement can retain its double-digit segment margin and whether civil engineering can normalize its currently depressed 0.5% margin. For a construction contractor, labor scarcity, subcontractor pricing, steel and cement inflation, weather-related delays, and fixed-price contract exposure remain key determinants of revenue-to-profit conversion.
Financial Health
Financial health is sound on headline liquidity and solvency measures. The current ratio and quick ratio were both 193.7%, while working capital was ¥21.19bn, providing ample coverage of current liabilities. Total equity was ¥37.63bn and represented 60.3% of total assets, supporting a solid capital base. Debt-to-equity was conservative at 0.66x, debt-to-capital was 17.4%, and neither metric approaches the stated high-leverage warning thresholds. Interest-bearing debt totaled ¥7.95bn, against cash and deposits of ¥9.17bn, resulting in net cash of approximately ¥1.22bn. Short-term loans declined by ¥7.50bn, or 50.0% YoY, to ¥7.50bn, materially reducing balance-sheet funding pressure. This deleveraging is a positive development because it lowers refinancing needs and interest-rate exposure. The principal funding risk is nevertheless the maturity profile: 94.3% of interest-bearing debt is short term, well above the 40% refinancing-risk alert threshold. The root cause is the concentration of ¥7.50bn of borrowings in short-term loans versus only ¥0.45bn of long-term loans. This structure can be common in construction businesses that use revolving working-capital facilities, but it requires reliable bank access and disciplined management of contract-related cash movements. The impact is mitigated by the 1.22x cash-to-short-term-debt ratio and strong quick ratio, but a tightening in credit availability or a delayed collection cycle would make refinancing more important. Contract liabilities increased by ¥25.93bn YoY to ¥38.01bn, which supports near-term project funding through customer advances. Lease obligations of ¥0.36bn are modest relative to equity, and non-current provisions were limited at ¥0.11bn.
Notable B/S Changes
Total assets: -¥8.75bn (-12.3%) YoY to ¥62.41bn - primarily reflects a lower current-asset base and reduces balance-sheet scale. Short-term loans: -¥7.50bn (-50.0%) YoY to ¥7.50bn - significant deleveraging improves net cash and financing flexibility, though debt remains concentrated in short-term maturities. Contract liabilities: +¥25.93bn (+2,047%) YoY to ¥38.01bn - substantially higher customer advances support project funding but make execution and revenue-recognition timing important. Current provisions: -¥18.85bn (-73.6%) YoY to ¥6.76bn - materially lower short-term provision balances reduce current liabilities and should be monitored in relation to project-risk coverage. Contract assets: -¥3.65bn (-13.2%) YoY to ¥23.98bn - lower unbilled construction balances, alongside higher contract liabilities, are supportive of working-capital funding.
Cash Flow Quality
Dividend Sustainability
The unchanged FY2027 dividend forecast is ¥115 per share, including a planned ¥30 per-share 20th-anniversary dividend at the FY2027 second-quarter end. Based on forecast EPS of ¥211.23, the forecast dividend payout ratio is 54.4%. This is below the 60% sustainability benchmark for dividends and leaves a reasonable earnings retention buffer. The Q1 EPS of ¥48.50 represents 23.0% of forecast full-year EPS, modestly below a straight-line quarterly run rate, so maintaining the full-year earnings forecast remains important for dividend coverage. The anniversary component makes the FY2027 distribution temporarily higher than a purely recurring dividend framework, and the durability of the ¥115 level should therefore be assessed against normalized future earnings. The net-cash position, low debt-to-capital ratio, and strong liquidity provide balance-sheet support for the planned distribution.
Risk Assessment
Business risks include Construction-cost inflation risk: the 17.8% gross margin, down 112bp YoY, is below the 20% alert threshold. Labor shortages, subcontractor cost increases, and higher steel, cement, and fuel prices can further compress margins, particularly on fixed-price contracts., Civil-engineering execution risk: civil engineering segment revenue increased 15.1% YoY, but segment profit declined 84.3% to ¥0.05bn and margin fell to 0.5%. The weak conversion implies heightened sensitivity to individual-project cost overruns, scheduling, and contract mix., Ground-improvement concentration risk: the segment generated more than the consolidated segment-profit pool and carried a 12.9% margin. Any slowdown in private construction activity, geotechnical demand, or deterioration in project mix would have an outsized effect on group profitability., Block-business turnaround risk: the segment remained loss-making at ¥0.16bn despite a smaller revenue base, limiting diversification benefits..
Financial risks include Refinancing risk: 94.3% of interest-bearing debt is short term. The ¥7.50bn short-term borrowing balance requires ongoing access to bank facilities, although ¥9.17bn of cash and a 1.22x cash-to-short-term-debt ratio provide meaningful mitigation., Tax-conversion risk: the effective tax rate was 40.7%, producing a 0.581 tax burden. The elevated tax charge was a central reason net income increased only 0.3% despite 41.2% operating-income growth., Non-operating earnings volatility: ordinary-income growth of 12.1% lagged operating-income growth because non-operating expenses rose to ¥2.78bn. Equity-method losses of ¥2.23bn in the segment reconciliation highlight affiliate-related volatility..
Key concerns include Low gross margin is the most immediate earnings-quality concern because it can offset the benefits of revenue growth and SG&A leverage., The gap between operating-income growth and flat profit attributable to owners indicates that Q1 earnings conversion was weak., The full-year plan implies lower YoY operating and ordinary income despite Q1 outperformance, making subsequent-quarter project margins and cost control decisive., Weather disruptions, natural disasters, public-infrastructure budget cycles, and safety or building-regulation changes are industry-specific factors that can delay construction progress and alter project profitability..
Investment Implications
Key takeaways include Q1 operating performance exceeded the quarterly run-rate implied by the unchanged full-year plan, with operating income up 41.2% YoY and at 29.4% of the full-year forecast., Ground improvement is the principal earnings driver, delivering ¥1.44bn of segment profit and a 12.9% margin., Civil engineering requires close attention because its margin fell to 0.5% despite higher revenue., Balance-sheet risk is contained by net cash, 193.7% liquidity ratios, and a 0.66x debt-to-equity ratio, although debt maturity remains heavily short term., The ¥115 forecast dividend implies a manageable 54.4% payout ratio based on forecast EPS, including the planned anniversary dividend..
Metrics to watch include Ground improvement segment revenue growth and margin versus the Q1 12.9% level, Civil engineering segment-margin recovery from 0.5%, Gross margin relative to the Q1 17.8% level, Progress toward ¥4.80bn full-year operating income and ¥3.20bn profit attributable to owners, Short-term loans, cash-to-short-term-debt coverage, and contract-liability movements, Effective tax rate and the conversion of ordinary income into profit attributable to owners.
Regarding relative positioning, The company combines a conservatively capitalized balance sheet and strong interest-service capacity with a mixed operating profile: ground improvement demonstrates attractive double-digit segment profitability, while civil engineering and the loss-making block business reduce consolidated margin quality. Relative earnings resilience will depend more on project execution and cost pass-through than on financial leverage.