DAISUE CONSTRUCTION CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The first quarter got off to a strong start, with improved profitability on completed construction projects and cost control driving higher revenue and earnings, accompanied by a significant improvement in profit margins. Revenue was ¥27.79B (¥21.46B in the same period of the previous year, YoY+29.5%), Operating Income was ¥2.10B (¥0.79B, YoY+165.7%), Ordinary Income was ¥2.10B (¥0.80B, YoY+161.9%), and Net Income was ¥1.43B (¥0.50B, YoY+188.5%). The substantially higher earnings growth rate than revenue growth reflects the effect of operating leverage: the gross profit margin on completed construction projects improved to 12.2% (9.4% in the previous year), while the increase in SG&A expenses was restrained relative to the increases in revenue and gross profit.

Factors Affecting Earnings Performance

【Revenue】Revenue was ¥27.79B (YoY+29.5%), driven by construction revenue of ¥27.58B (YoY+29.8%). Development and other businesses declined slightly to ¥0.20B (YoY-4.2%), resulting in a revenue growth structure highly dependent on construction revenue.

【Profit and Loss】The gross profit margin on completed construction projects improved by +2.8pt to 12.2%, compared with 9.4% in the same period of the previous year, while the overall gross profit margin expanded to 12.2% (previous year 12.2% (overall 9.5%)). The SG&A ratio declined to 4.7% from 5.9% in the previous year, and the relatively modest increase in SG&A expenses compared with revenue growth contributed to the expansion of the Operating Income margin to 7.6% (3.7% in the previous year, +3.9pt). Non-operating income and expenses were nearly balanced (non-operating income of ¥0.02B and non-operating expenses of ¥0.02B), resulting in Ordinary Income of ¥2.10B, approximately the same level as Operating Income. Since extraordinary income was also negligible at ¥0.001B, the earnings increase was attributable to improvements in the core business. In conclusion, the Company achieved higher revenue and earnings, and given that the earnings growth rate substantially exceeded the revenue growth rate, this was an earnings result led by margin improvement.

Segment Analysis

The Group treats the Construction Business and its related ancillary operations as a single reportable segment and does not disclose performance by segment.

Key Financial Indicators

【Profitability】The Operating Income margin was 7.6%, improving by +3.9pt from 3.7% in the same period of the previous year, while the Net Income margin also expanded to 5.1% (2.3% in the previous year). ROE was 5.6%. Breaking this down into a Net Income margin of 5.1%, total asset turnover, and financial leverage of 2.34x (total assets of ¥59.75B ÷ equity of ¥25.58B), the primary driver of the improvement was the increase in profit margins rather than asset efficiency or the capital structure. 【Cash Flow Quality】Comprehensive income was ¥1.38B, approximately the same level as Net Income of ¥1.43B. The effects of non-recurring valuation gains and losses were limited, including a valuation difference on securities of -¥0.04B and adjustments related to retirement benefits of -¥0.01B, indicating that earnings were derived from the core business. 【Investment Efficiency】While total assets of ¥59.75B were nearly flat year on year (+0.2%), revenue increased by +29.5%, suggesting an improvement in asset efficiency. 【Financial Soundness】The Equity Ratio was 42.8%, improving by +0.5pt from 42.3% in the same period of the previous year. The Current Ratio was a solid 176.8% (current assets of ¥53.26B ÷ current liabilities of ¥30.13B). Cash and deposits of ¥6.14B exceeded interest-bearing debt of ¥5.57B (short-term borrowings of ¥3.00B, current portion of long-term borrowings of ¥0.35B, and long-term borrowings of ¥2.22B), resulting in a net cash position (approximately +¥0.58B). The Interest Coverage Ratio, calculated as Operating Income ÷ interest expense, was a solid approximately 123.8x, indicating that the actual impact of interest expense was immaterial.

Cash Flow Analysis

Because a statement of cash flows has not been disclosed, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥6.14B, down -43.0% from ¥10.78B in the same period of the previous year, while short-term borrowings increased substantially to ¥3.00B from ¥0.10B in the same period of the previous year, suggesting a change in the financing structure to address heightened working capital requirements. Advances received on construction in progress were ¥2.56B (-1.6% from the end of the previous fiscal year), compared with construction costs incurred on construction in progress of ¥0.47B (-28.7% from the end of the previous fiscal year), indicating that the structure in which advances exceed costs incurred remains intact. Meanwhile, the scale of trade payables, including electronically recorded obligations of ¥8.00B (-11.3% year on year), remains significant, and management of the timing of progress billings and collections will be important for smoothing cash management. Cash and deposits of ¥6.14B exceeded interest-bearing debt of ¥5.57B, and the maintenance of net cash indicates balance sheet resilience.

Quality of Earnings

The contribution of extraordinary income and losses to current-period earnings was extremely limited (extraordinary income of only ¥0.001B and no extraordinary loss). Ordinary Income of ¥2.10B and profit before tax of ¥2.10B were therefore nearly identical, indicating a high degree of earnings repeatability and recurring quality. Non-operating income and expenses were nearly offset, comprising non-operating income of ¥0.02B (including dividends received of ¥0.01B) and non-operating expenses of ¥0.02B (interest expense of ¥0.02B), leaving only a minimal difference between Ordinary Income and Operating Income. Income taxes were ¥0.67B, resulting in a tax burden ratio of approximately 31.9%, within a typical range. Comprehensive income of ¥1.38B was close to Net Income of ¥1.43B, and because valuation-related changes, such as valuation differences on securities and adjustments related to retirement benefits, were small, the quality of earnings can also be considered sound from an accrual perspective (the divergence between accounting profit and actual cash generation).

Earnings Forecast and Guidance

The full-year Company forecast calls for revenue of ¥98.40B (YoY-6.8%), Operating Income of ¥5.75B (YoY-12.6%), and Ordinary Income of ¥5.65B (YoY-14.5%), representing a conservative plan that anticipates lower revenue and earnings compared with the previous fiscal year’s results. Against this backdrop, Q1 progress rates were 28.2% for revenue, 36.6% for Operating Income, 37.2% for Ordinary Income, and 37.1% for Net Income (actual Net Income of ¥1.43B compared with forecast Net Income of ¥3.86B), indicating progress substantially ahead of the simple quarterly allocation of 25%. Given that Q1 earnings increased substantially even though the full-year plan anticipates lower earnings, the extent to which improved profitability in the first half will be reflected in the full-year plan will be a key point to monitor. No revision to the earnings forecast was made during this quarter.

Shareholder Returns

The dividend forecast for the current fiscal year is ¥186 annually, a substantial increase from the previous fiscal year’s actual dividend of ¥87. The Payout Ratio against forecast EPS of ¥371.4 is approximately 50.1% (¥186 ÷ ¥371.4), suggesting an expansion of shareholder returns in line with earnings growth. There has been no disclosure regarding share repurchases, and returns consist solely of dividends; accordingly, they should be evaluated using the Payout Ratio rather than the Total Return Ratio. Since cash and deposits of ¥6.14B exceed interest-bearing debt of ¥5.57B, the Company is in a net cash position, providing financial support for the execution of the dividend forecast. No revision to the dividend forecast was made during this quarter.

Risk Factors

1. Working Capital Volatility Risk: While cash and deposits declined -43.0% year on year, short-term borrowings increased +2,900% year on year, making the synchronization of progress billings and collections a challenge for future cash management.

2. Profitability Volatility Risk: Although the gross profit margin on completed construction projects improved to 12.2%, it remains a tight level within the construction industry, and a renewed increase in labor or material costs could lead to deterioration in project profitability due to cost pressures.

3. Scale of Payment Obligations: Electronically recorded obligations amounted to ¥8.00B and represented a significant portion of current liabilities. If payment terms were shortened, additional funding requirements could arise.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Return

Both the Operating Income margin and Net Income margin exceeded the industry median, indicating that profitability is relatively high within the construction industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeded the industry median, indicating a high pace of revenue growth even among peers.

※Source: Compiled by the Company

Key Earnings Highlights

1. The improvement in the gross profit margin on completed construction projects from 9.4% in the same period of the previous year to 12.2%, together with the expansion of the Operating Income margin to 7.6% (3.7% in the previous year), indicates that improved project profitability and cost control are driving profit growth in the core business.

2. While the full-year Company plan anticipates lower revenue and earnings (revenue -6.8%, Operating Income -12.6%), Q1 Operating Income progress was 36.6%, exceeding the standard Q1 pace. The resulting gap between the full-year plan and quarterly results is a notable characteristic of the earnings data.

3. The decline in cash and deposits (-43.0% year on year) and increase in short-term borrowings (+2,900% year on year) reflect an expansion in working capital during a period of revenue growth. The timing of cash generation and changes in the financial structure will require ongoing monitoring in future quarters.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly available data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,821–¥2,980 at ±1% for the cost of equity, and ¥2,890–¥2,913 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat on the high side.

(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 based on 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 responsibility, after consulting with professionals as necessary.

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