Nishimatsu Construction (1820) FY2026 Q3 Earnings Report

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Executive Summary

Driven by an increase in completed construction revenue and improved profitability in the Building Business, the Company posted higher revenue and income, with the rate of income growth significantly exceeding the rate of revenue growth. Revenue was ¥2765.3B (+4.5% YoY), Operating Income was ¥168.5B (+18.0%), Ordinary Income was ¥166.1B (+18.9%), and Net Income attributable to shareholders of the parent for the quarter was ¥130.3B (+18.2%). The primary driver of earnings growth was an approximately 120bp improvement in gross profit margin resulting from improved profitability in the Building Business, which absorbed the increase in the SG&A expense ratio (+50bp).

Factors Affecting Performance

【Revenue】Revenue increased 4.5% YoY to ¥2765.3B. Completed construction revenue was ¥2633.0B (+8.1% YoY) and served as the core contributor, while revenue from the Development Business and other operations declined significantly to ¥132.3B (-37.3% YoY). By segment, the Building Business expanded to ¥1524.1B (55.1% composition ratio, +6.8% YoY), and the Civil Engineering Business expanded to ¥887.6B (32.1% composition ratio, +13.4% YoY). In contrast, the International Business declined to ¥237.8B (-4.8% YoY), and the Asset Value-Added Business contracted to ¥110.7B (-39.8% YoY).

【Profitability】Operating Income increased 18.0% YoY to ¥168.5B, substantially outpacing revenue growth. Gross profit margin improved from 11.5% to 12.6%, absorbing the increase in the SG&A expense ratio from 6.1% to 6.5%. Segment profit in the Building Business increased to ¥93.3B (+140.5% YoY), with its profit margin improving from 2.7% to 6.1%, making it the largest earnings growth driver. Meanwhile, the Civil Engineering Business’s profit margin declined from 8.0% to 7.2%; the International Business (-¥5.8B) and the Regional Environmental Solutions Business (-¥4.9B) remained loss-making. Profit Before Tax includes a gain on the sale of investment securities of ¥11.4B, which should be identified as a temporary factor affecting Net Income. The divergence between Ordinary Income and Net Income was small, and the effective tax rate was approximately 26.5% after recording ¥47.0B in income taxes and other taxes. In conclusion, the Company achieved higher revenue and income, with the recovery in Building Business profitability leading consolidated performance.

Segment Analysis

The Building Business recorded revenue of ¥1524.1B (55.1% composition ratio) and Operating Income of ¥93.3B (6.1% profit margin), representing an improvement of approximately 340bp from the same period last year’s 2.7% profit margin and making it the largest contributor to consolidated earnings. The Civil Engineering Business recorded revenue of ¥887.6B (32.1% composition ratio) and Operating Income of ¥63.7B (7.2% profit margin); although revenue increased, its profit margin declined by approximately 90bp from 8.0% in the prior year. The International Business recorded revenue of ¥237.8B, down 4.8% YoY, while its segment loss expanded to ¥5.8B. The Asset Value-Added Business recorded revenue of ¥110.7B (-39.8% YoY) and profit of ¥18.2B (-64.3%), maintaining a high profit margin of 16.4% but contracting in both scale and profit. The Regional Environmental Solutions Business remains loss-making, with a loss of ¥4.9B despite its small scale. The core Building and Civil Engineering businesses account for 87.2% of consolidated revenue, creating a structure in which the sustainability of Building Business profitability determines consolidated earnings power.

Key Financial Indicators

【Profitability】Operating margin was 6.1% (+70bp from 5.4% in the same period last year), Net Income margin was 4.7% (+60bp from 4.1%), and gross profit margin was 12.6% (an improvement of +120bp from 11.5%). 【Cash Quality】Profit Before Tax of ¥177.3B includes a ¥11.4B gain on the sale of investment securities, meaning that a non-recurring factor contributed to income attributable to shareholders of the parent. Comprehensive income was ¥193.0B, exceeding Net Income of ¥130.3B, primarily due to the ¥59.7B contribution from valuation differences on other securities. 【Investment Efficiency】ROE (annualized) was 9.1%, consisting of a combination of Net Income margin of 4.8%, total asset turnover, and financial leverage of 3.51x. Financial leverage made a significant contribution to the increase in ROE. 【Financial Soundness】The Equity Ratio was 28.5%, a slight decline from 28.6% in the prior year, while the current ratio was 119.1%, with current assets of ¥3853.4B against current liabilities of ¥3235.5B. Short-term borrowings increased 125.4% YoY to ¥965.8B, while long-term borrowings declined 38.6% to ¥247.8B, indicating a shift toward shorter-term financing.

Cash Flow Analysis

As cash flow statement data was not separately disclosed in this earnings report, funding trends are analyzed based on changes in the balance sheet. Cash and deposits increased 23.9% from the end of the prior year to ¥538.3B, while accounts receivable from completed construction increased 25.7% YoY to ¥2568.5B, and total current assets expanded by ¥861.98B (+28.8%). This increase resulted from the growth in uncollected receivables within the collection cycle corresponding to the expansion in completed construction revenue, rather than being attributable solely to the increase in cash. From a financing perspective, short-term borrowings increased by ¥537.4B, while long-term borrowings decreased by ¥155.9B, resulting in a shorter-term financing structure. The increased reliance on short-term funding should be closely monitored from a liquidity management perspective, together with the collection trends for accounts receivable from completed construction.

Quality of Earnings

The growth in Operating Income and Ordinary Income (+18.0% and +18.9%, respectively) was driven primarily by the recurring factor of improved gross profit margin, indicating relatively high earnings quality. However, Profit Before Tax of ¥177.3B includes a ¥11.4B gain on the sale of investment securities, a major component of extraordinary income, which should be distinguished as a non-recurring factor. Even excluding this temporary factor, Operating Income and Ordinary Income remain on an upward trend; however, it should be noted that Net Income includes a partial contribution from this factor. Non-operating income of ¥17.1B consisted primarily of dividend income of ¥4.8B and foreign exchange gains of ¥5.8B, including items that should be distinguished from the earnings power of the core business. Meanwhile, interest expenses of ¥15.5B were the largest component of non-operating expenses of ¥19.5B, and the increase in financial expenses accompanying the rise in interest-bearing debt could affect future earnings quality. The divergence between Comprehensive Income of ¥193.0B and Net Income of ¥130.3B was primarily attributable to valuation differences on securities of ¥59.7B, representing a market price fluctuation factor rather than an accrual-related factor.

Earnings Forecast and Guidance

Progress against the full-year Company forecast was 69.1% for Revenue, 64.8% for Operating Income, 66.4% for Ordinary Income, and 69.8% for Net Income. Operating Income progress was 10.2 percentage points below the standard Q3 progress rate of 75%, requiring Operating Income of ¥91.5B in Q4 to achieve the full-year Operating Income forecast of ¥260.0B. Progress for Revenue and Net Income was relatively high, and, given the seasonality of the construction industry, there is room for recovery through the concentration of completed construction in Q4. However, maintaining profitability in the Building Business will be the key to achieving the Operating Income target.

Shareholder Returns

The Q2 dividend was ¥100.00 per share, and the Payout Ratio based on cumulative actual earnings through Q3 was 31.8%. Based on the full-year Company forecast of an annual dividend of ¥220.00 and forecast EPS of ¥476.17, the forecast Payout Ratio was approximately 46.2%, with both levels below 60%. Assuming the forecast earnings are achieved, the dividend burden from an earnings perspective is not excessive. However, the progress rate for full-year Operating Income was 64.8%, making the realization of Q4 earnings supporting the year-end dividend an important point to monitor.

Risk Factors

1. Reliance on short-term funding: Short-term borrowings increased 125.4% YoY to ¥965.8B, while long-term borrowings declined 38.6% to ¥247.8B. The short-term liabilities ratio reached 79.6%, indicating a financing structure concentrated on the short-term side; changes in refinancing conditions could affect funding costs and liquidity.

2. Concentration of profit in the Building Business: Segment profit in the Building Business was ¥93.3B, representing more than half of consolidated Operating Income and serving as the largest profit source. This creates a structure in which deterioration in construction profitability or cost overruns on large projects in this business would directly affect consolidated earnings.

3. Delayed progress toward full-year Operating Income: Progress against the full-year Operating Income forecast of ¥260.0B was 64.8%, 10.2 percentage points below the standard progress rate of 75%. Operating Income of ¥91.5B is required in Q4, and the key issue is whether improved profitability in the Building Business can offset the decline in the Civil Engineering Business’s profit margin and continued losses in the International Business.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

Median data is currently insufficient to determine the Company’s relative positioning within the industry.

Growth and Capital Efficiency

Median data is currently insufficient to determine the Company’s relative positioning within the industry.

Source: Compiled by the Company

Key Points from the Earnings Report

1. Operating margin improved to 6.1%, with the recovery in Building Business profitability (+approximately 340bp YoY) confirmed as the largest structural change in current-period performance. The fact that the improvement in gross profit margin absorbed the increase in the SG&A expense ratio is also noteworthy from an earnings quality perspective.

2. ROE of 9.1% was significantly supported by financial leverage of 3.51x and includes the amplifying effect of debt utilization in addition to improvements in Net Income margin and asset efficiency. This point should be assessed together with the 125.4% increase in short-term borrowings and the change in financial structure represented by the short-term liabilities ratio of 79.6%.

3. Profit Before Tax includes a ¥11.4B gain on the sale of investment securities; however, Operating Income and Ordinary Income remain on an upward trend even excluding this gain. Based on the Company forecast of an annual dividend of ¥220.00, the forecast Payout Ratio is approximately 46.2%, indicating that the dividend burden is not excessive assuming the full-year forecast is achieved.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,945–¥5,232 at cost of equity ±1%; ¥5,080–¥5,093 at ω±0.1.

Notes:

• Net assets as of the quarter-end are used (there is a timing mismatch with the full-year forecast).
• As 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 / This is a mechanically calculated value based solely on publicly disclosed data and is not a forecast of the market share price, a recommendation of any specific investment action, or a prediction or guarantee of future share prices.)

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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 discretion and responsibility, after consulting professionals as necessary.

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