DAISUE CONSTRUCTION (1814) FY2027 Q1 Earnings Report

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Executive Summary

This quarter recorded significant increases in revenue and profit, primarily due to growth in completed construction revenue and improved construction profitability. Revenue was ¥277.9B (+29.5% year on year), Operating Income was ¥21.0B (+165.7%), Ordinary Income was ¥21.0B (+161.9%), and Net Income (quarterly net income attributable to owners of the parent) was ¥14.3B (+188.5%). Profit growth substantially exceeding revenue growth indicates the emergence of operating leverage through improved gross margins and restrained growth in selling, general and administrative expenses.

Factors Driving Performance Changes

【Revenue】Revenue of ¥277.9B represented a 29.5% year-on-year increase. Completed construction revenue was ¥275.8B, accounting for 99.3% of total revenue, with expanded construction progress and project handovers in the Construction Business single segment driving the revenue increase. Development Business and other activities remained at ¥2.0B, indicating an extremely concentrated revenue composition centered on the Construction Business.

【Profit and Loss】Gross profit was ¥34.0B (¥20.5B in the previous year), resulting in a gross margin of 12.2%, a significant improvement from 9.5% in the previous year. The gross profit margin on completed construction also improved, confirming enhanced cost management and construction profitability. SG&A expenses were ¥13.0B, up only 3.4% year on year and substantially below the rate of revenue growth; consequently, the SG&A ratio declined to 4.7% (5.8% in the previous year). The impact of non-operating and extraordinary gains and losses was limited, and the increases in Ordinary Income and Net Income were primarily attributable to improvements in the core business. Revenue and profit increased.

Segment Analysis

The Construction Business and ancillary operations constitute a single reportable segment, and segment-level numerical disclosures are not available. By business category, the company is divided into completed construction (revenue of ¥275.8B, gross margin of 12.2%, improved from 9.4% in the previous year) and Development Business and other activities (revenue of ¥2.0B, gross margin of 18.1%, down from 20.7% in the previous year). Improved profitability in completed construction was the primary driver of the improvement in the overall profit margin, while the relatively small composition of Development Business and other activities limited its impact on total results.

Key Financial Metrics

【Profitability】The Operating Income margin was 7.6%, a significant improvement from 3.7% in the previous year, while the Net Income margin rose to 5.2% (2.3% in the previous year). The gross margin was 12.2% (9.5% in the previous year), and the SG&A ratio was 4.7% (5.8% in the previous year), with both cost improvements and fixed-cost containment contributing to the improvement.【Cash Flow Quality】Profit Before Tax of ¥21.0B and Operating Income of ¥21.0B were nearly identical. Non-operating income of ¥0.2B and extraordinary income of ¥0.0B indicate that temporary factors were limited and that most profit was generated by the core business.【Investment Efficiency】Annualized ROE was high at 22.4%, while basic EPS increased by +192.4% to ¥139.03 (¥47.54 in the previous year).【Financial Soundness】The Equity Ratio was 42.8% (42.3% in the previous year), representing a broadly stable improvement. Current assets of ¥532.6B exceeded current liabilities of ¥301.3B, indicating secured liquidity; however, short-term borrowings surged from ¥1.0B in the previous year to ¥30.0B, while cash and deposits declined by 43.0% year on year to ¥61.4B, necessitating monitoring of funding conditions.

Cash Flow Analysis

As individual figures from the statement of cash flows have not been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits declined by ¥46.4B (-43.0%) year on year to ¥61.4B, while short-term borrowings increased by ¥29.0B from ¥1.0B to ¥30.0B, indicating greater reliance on external funding. Advances received on construction contracts of ¥25.6B exceeded costs on uncompleted construction contracts of ¥4.7B by ¥20.9B, with customer advances providing a certain degree of support for working capital. Electronic accounts payable were ¥80.0B, down ¥10.2B year on year, and progress in payments to suppliers and subcontractors may also have contributed to cash outflows. Given that cash declined despite profit growth, increased working capital and changes in payment cycles are considered to have generated funding needs; confirming the company’s future ability to generate Operating Cash Flow is important.

Quality of Earnings

The current period’s profit is strongly supported by improvements in the core business, and earnings quality can be evaluated as high. Operating Income of ¥21.0B, Ordinary Income of ¥21.0B, and Profit Before Tax of ¥21.0B were nearly identical, with the impact of non-operating income and expenses being minimal (non-operating income of ¥0.2B and non-operating expenses of ¥0.2B). Extraordinary income consisted solely of a gain on the sale of non-current assets of ¥0.0B, indicating almost no reliance on temporary factors. The difference between Net Income of ¥14.3B and Profit Before Tax of ¥21.0B was attributable to income taxes of ¥6.7B (an effective tax rate of approximately 31.9%), with no unusual accounting factors identified. Comprehensive income of ¥13.8B was slightly below Net Income of ¥14.3B, due to negative other comprehensive income, including a deterioration of ¥0.4B in the valuation difference on securities; however, the divergence was small.

Earnings Forecast and Guidance

The full-year company plan calls for Revenue of ¥984.0B (-6.8% year on year), Operating Income of ¥57.5B (-12.6%), and Ordinary Income of ¥56.5B (-14.5%), implying lower revenue and profit compared with the previous fiscal year’s actual results. Progress rates in Q1 were 28.2% for Revenue, 36.6% for Operating Income, and 37.1% for Ordinary Income, all exceeding the simple progress benchmark of 25%. The company has not revised its earnings forecast and has maintained its plan, suggesting an assumption that strong profitability in the first half will normalize over the full year, given the construction industry’s characteristic fluctuations in construction progress and project handover timing. Trends in completed construction revenue and profitability in subsequent quarters will be key to achieving the plan.

Shareholder Returns

The full-year dividend forecast is ¥186.00 per share. Using the period-average number of shares outstanding of 10,296,466 shares, the forecast total dividend is approximately ¥19.2B, resulting in a forecast Payout Ratio of approximately 49.6% against forecast full-year Net Income of ¥38.6B. The dividend forecast has not been revised. Treasury shares were ¥8.2B (317 thousand shares), broadly unchanged from ¥8.2B in the same period of the previous year, and no notable share repurchase activity was observed.

Risk Factors

1. Construction profitability and cost pass-through risk: Although the gross margin improved to 12.2%, it remains below the general level of 20%. Since completed construction revenue accounts for 99.3% of total revenue, failure to pass increases in material prices, labor costs, and outsourcing expenses on to contract prices could readily result in a decline in profit margins.

2. Short-term funding risk: Short-term borrowings surged from ¥1.0B in the same period of the previous year to ¥30.0B, and the short-term liabilities ratio has increased. Cash and deposits were ¥61.4B, down 43.0% year on year, and the simultaneous increase in borrowings and decline in cash warrants monitoring of funding conditions.

3. Risk of fluctuations in construction progress and project handover timing: The Q1 Operating Income progress rate was 36.6%, exceeding the simple progress benchmark, while the company maintained its full-year plan. Construction progress and the timing of completion and handover are prone to fluctuate by quarter, and actual results must be monitored to determine whether the high profitability in the first half can be maintained throughout the full year.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

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

Growth and Capital Efficiency

The Revenue growth rate substantially exceeded the industry median, indicating a high rate of revenue growth within the industry.

※Source: Compiled by the company

Key Points in the Financial Results

1. Operating Income increased by +165.7% against a +29.5% increase in Revenue, accompanied by an improvement in the gross margin (9.5%→12.2%) and a decline in the SG&A ratio (5.8%→4.7%). The key feature is that profit growth was accompanied not only by revenue growth but also by improved profitability.

2. The progress rate against the full-year Operating Income plan was 36.6%, exceeding the simple progress benchmark of 25%; however, the company has maintained its plan, requiring confirmation in light of the construction industry’s characteristic seasonality in construction progress and project handover timing.

3. Short-term borrowings increased sharply (¥1.0B→¥30.0B) while cash and deposits declined (¥107.8B→¥61.4B), indicating simultaneous changes in working capital and the funding structure despite profit growth. This remains an item requiring continued monitoring.

Theoretical Share Price (Reference Value)

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

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