DAISUE CONSTRUCTION (1814) FY2026 Q3 Earnings Report

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Executive Summary

Driven primarily by an increase in completed construction revenue and improved project profitability, Operating Income and Net Income expanded significantly relative to the increase in Revenue. Revenue was ¥74.63B (+15.5% YoY), Operating Income was ¥4.50B (+134.8%), Ordinary Income was ¥4.56B (+129.7%), and Net Income was ¥3.07B (+134.8%). The primary reason that profit growth substantially exceeded revenue growth was the improvement in the gross profit margin on completed construction from 8.0% in the previous-year period to 10.9%.

Factors Affecting Performance

【Revenue】Revenue of ¥74.63B represented a +15.5% increase YoY. The breakdown was completed construction revenue of ¥73.98B (99.1% of the total, +15.7% YoY) and development business and other revenue of ¥0.65B (0.9% of the total, +0.8% YoY). The increase in Revenue was attributable to expanded construction progress in the core Construction Business.

【Profit and Loss】Gross profit was ¥8.23B, an increase of +56.7% YoY, and the gross profit margin improved by 289bp from 8.1% to 11.0%. The gross profit margin in the completed construction division rose to 10.9% from 8.0% in the previous-year period, serving as the primary driver of the improvement in consolidated profitability. SG&A expenses were ¥3.73B, increasing by only +11.8% YoY, below the revenue growth rate; consequently, the SG&A ratio declined from 5.2% to 5.0%. Non-operating income and expenses resulted in net income of ¥0.06B, mainly due to dividend income of ¥0.06B and foreign exchange gains of ¥0.06B, and Ordinary Income was primarily supported by Operating Income. Extraordinary income and expenses were virtually zero, indicating limited contribution from temporary factors. Corporate income taxes and other taxes of ¥1.49B (effective tax rate of 32.7%) were deducted from Profit Before Tax of ¥4.56B, resulting in Net Income of ¥3.07B. Overall, the Company recorded increases in both Revenue and profit.

Segment Analysis

The Company treats the Construction Business and related operations as a single reportable segment and does not disclose segment-level operating income or loss. By type of construction, completed construction generated Revenue of ¥73.98B with a gross profit margin of 10.9% (8.0% in the previous year), while the development business and other operations generated Revenue of ¥0.65B with a gross profit margin of 23.7% (19.4% in the previous year). Profitability improved in both categories; however, development business and other operations accounted for only 0.9% of consolidated Revenue, and improved profitability in the completed construction division led consolidated performance.

Key Financial Metrics

【Profitability】The Operating Income margin was 6.0% (3.0% in the previous year), and the Net Income margin was 4.1% (2.0% in the previous year), with both improving. The gross profit margin increased by 289bp to 11.0% (8.1% in the previous year). 【Cash Flow Quality】Comprehensive income was ¥3.18B, only ¥0.11B above Net Income of ¥3.07B. The primary factors behind the difference were valuation gains on other securities, including ¥0.10B in valuation difference on securities, indicating stable earnings quality. 【Investment Efficiency】Annualized ROE was 16.9%, decomposed into a Net Income margin of 4.1% × total asset turnover of 1.706x × financial leverage of 2.41x. EPS was ¥294.25 (¥125.22 in the previous year, +135.0%). 【Financial Soundness】The Equity Ratio was 41.4%, unchanged from the previous year. Cash and deposits increased substantially to ¥9.46B (+112.2% YoY), while short-term borrowings halved to ¥0.10B. Interest-bearing debt is limited, and the financial foundation has remained stable.

Cash Flow Analysis

Although the Company does not disclose a statement of cash flows, an analysis of funding trends based on changes in the balance sheet indicates that cash and deposits increased substantially to ¥9.46B at the end of the current period (a +112.2% increase compared with ¥0.45B in the previous-year period), expanding financial flexibility. Advances received on construction projects in progress declined by -32.5% from the end of the previous year to ¥3.53B, while costs on construction projects in progress also declined by -45.0% to ¥0.52B. This suggests that, as construction progressed and projects were completed, advances were released and work-in-progress assets were reduced. Short-term borrowings decreased by -50.0% to ¥0.10B, while long-term borrowings remained broadly unchanged at ¥2.39B, indicating a declining dependence on interest-bearing debt. Electronically recorded obligations increased to ¥11.43B, reflecting an increase in settlement liabilities to suppliers and subcontractors associated with the expansion in construction volume, which was reflected in working capital. Treasury stock increased by +337.2% to ¥0.82B, also suggesting that shareholder returns using internal funds progressed.

Earnings Quality

The improvement in earnings for the current period was primarily attributable to an increase in the gross profit margin on completed construction (8.0%→10.9%), representing an improvement in recurring project profitability; extraordinary income and expenses were virtually zero, and the contribution from temporary factors was limited. Non-operating income consisted of dividend income of ¥0.06B, foreign exchange gains of ¥0.06B, and other income of ¥0.02B, for a total of ¥0.14B. Non-operating expenses totaled ¥0.08B, including interest expenses of ¥0.05B and commission expenses of ¥0.03B. The difference between Ordinary Income and Operating Income was small at ¥0.06B, indicating that Ordinary Income was of high quality and supported by Operating Income. Comprehensive income of ¥3.18B was only slightly above Net Income of ¥3.07B. Although valuation-related items, including ¥0.10B in valuation difference on other securities, were added, the gap remained limited, and earnings distortion from accrual factors appears to have been small.

Earnings Forecast and Guidance

The Q3 cumulative progress rates against the full-year Company plan (Revenue of ¥101.00B, Operating Income of ¥5.12B, and Ordinary Income of ¥5.13B) were 73.9% for Revenue, 87.9% for Operating Income, and 88.9% for Ordinary Income. Profit progress was 10~14 points above the standard 75% level. Operating Income required in Q4 to achieve the plan is only ¥0.62B, corresponding to a required Operating Income margin of 2.3%, a premise that is substantially below the Q3 cumulative Operating Income margin of 6.0%. This difference suggests that the full-year forecast (Revenue +13.4%, Operating Income +38.5%) may conservatively incorporate the substantial profitability improvement achieved through Q3. Construction progress and the trend in cost re-estimates in Q4 will therefore be key factors determining the final results.

Shareholder Returns

The Q2 dividend was ¥87.00 per share, and the full-year dividend forecast is ¥174.00. The Company’s stated Payout Ratio against Net Income attributable to owners of the parent of ¥3.07B was 30.1%, based solely on dividends. The forecast Payout Ratio, calculated using the full-year Net Income forecast of ¥3.62B and the average number of shares during the period, is approximately 50.1%. Treasury stock increased from ¥0.19B in the previous-year period to ¥0.82B, meaning that the Total Return Ratio, including share buybacks in addition to dividends, could be higher than the dividend-only Payout Ratio. Retained earnings of ¥19.91B and cash and deposits of ¥9.46B provide substantial financial capacity, and a forecast Payout Ratio of approximately 50% is within an acceptable range considering the Company’s financial strength.

Risk Factors

1. Project profitability fluctuation risk: The gross profit margin on completed construction improved from 8.0% to 10.9%; however, the gross profit margin of 11.0% remains sensitive, in the construction industry, to fluctuations in material, labor, and subcontracting costs, and upward revisions to cost estimates could put pressure on the profit margin. The provision for construction project losses is small at ¥0.02B, but there is a risk of additional recognition if the profitability of individual projects deteriorates.

2. Risk of divergence between the full-year plan and Q4 profitability: The Q4 Operating Income margin required to achieve the full-year Operating Income plan is 2.3%, substantially below the Q3 cumulative level of 6.0%. Q4 profitability and the full-year results may fluctuate depending on whether the high profitability through Q3 is temporary or sustainable.

3. Concentration risk from the single-segment structure: The Construction Business is treated as a single reportable segment, limiting the diversification benefits of the business portfolio. Electronically recorded obligations increased +64.4% YoY to ¥11.43B, and the increase in working capital liabilities associated with expanded construction volume could affect funding conditions.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (construction)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin both improved substantially from the previous year, positioning profitability at an elevated level within the industry.

Growth and Capital Efficiency

Revenue growth of +15.5% represents a high growth rate for the construction industry.

※Source: Company compilation

Key Takeaways from the Earnings

1. Operating Income increased substantially by +134.8% against Revenue growth of +15.5%. The primary factor was the improvement in the gross profit margin on completed construction from 8.0% to 10.9%. Whether this improvement is temporary and attributable to the project mix or represents a structural enhancement in cost management capabilities will be a key point in assessing the sustainability of future profitability.

2. Progress toward the full-year Operating Income plan was high at 87.9%, but the Q4 Operating Income margin required to achieve the plan is only 2.3%, representing a significant gap from the Q3 cumulative margin of 6.0%. How this gap is resolved will be a key item to confirm in the Q4 earnings results.

3. Cash and deposits increased +112.2% YoY, while short-term borrowings declined -50.0%, indicating improved financial flexibility and soundness. Meanwhile, treasury stock increased +337.2%. In addition to the approximately 50.1% Payout Ratio, the trend in the Total Return Ratio, including share buybacks, will be an important point in evaluating the shareholder return policy.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,654〜¥2,803 at ±1% for the Cost of Equity, and ¥2,718〜¥2,739 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because 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 earnings analysis document automatically generated by AI through analysis of XBRL earnings summary 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 discretion and responsibility, after consulting with professionals as necessary.

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