Nishimatsu Construction Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

Nishimatsu Construction's Q1 of the fiscal year ending March 2027 delivered higher revenue and higher profit, with profitability improving alongside revenue growth. Revenue increased to ¥1026.3B (¥829.1B in the same period of the previous year, +23.8%), Operating Income to ¥69.9B (¥30.3B, +130.8%), Ordinary Income to ¥70.1B (¥25.4B, +176.1%), and Net Income to ¥45.4B (¥16.2B, +180.9%), representing substantial increases across all measures. The gross margin improved to 13.5%, while the SG&A ratio also declined, resulting in an Operating Income margin of 6.8%, a significant expansion from the previous year.

Factors Affecting Performance

【Revenue】Revenue increased by double digits to ¥1026.3B (+23.8%). By segment, the Building Business was the largest, at ¥549.5B (53.5% composition ratio, +16.4%), followed by the Civil Engineering Business at ¥302.6B (+17.8%), the Overseas Business at ¥91.6B (+48.7%), and the Environment and Urban Development Business at ¥91.2B (+114.3%), with revenue increasing across all segments.

【Profit and Loss】Operating Income was ¥69.9B (+130.8%), Ordinary Income was ¥70.1B (+176.1%), and Net Income was ¥45.4B (+180.9%). The gross margin improved to 13.5% (approximately +2.5pt year on year), while the SG&A ratio was contained at 6.7% (down year on year), resulting in an Operating Income margin of 6.8%. Non-operating items included dividend income of ¥2.1B and foreign exchange gains of ¥2.6B, but these were largely offset by interest expense of ¥6.1B. Accordingly, the expansion in Ordinary Income was primarily attributable to improved profitability in the core business. Both extraordinary gains and extraordinary losses were approximately ¥0.1B and immaterial, with a limited impact on earnings. In conclusion, the company achieved higher revenue and higher profit.

Segment Analysis

The Building Business, with revenue of ¥549.5B (+16.4%) and Operating Income of ¥43.3B (+95.0%, margin of 7.9%), was the main contributor to consolidated profit. The Civil Engineering Business recorded revenue of ¥302.6B (+17.8%) and Operating Income of ¥17.4B (+366.6%, margin of 5.8%), reflecting a sharp improvement in profitability. The Environment and Urban Development Business achieved both scale expansion and high margins, with revenue of ¥91.2B (+114.3%) and Operating Income of ¥10.1B (+99.0%, margin of 11.1%). Meanwhile, although the Overseas Business increased revenue to ¥91.6B (+48.7%), it posted an Operating Loss of ¥4.0B (deteriorating from a profit of ¥1.8B in the previous year), making it a factor weighing on the consolidated margin.

Key Financial Indicators

【Profitability】The Operating Income margin of 6.8% improved substantially from 3.7% in the previous year, while the Net Income margin also rose to 4.4%.【Cash Flow Quality】Extraordinary gains and losses were immaterial, and non-operating income and expenses were broadly offset by dividend income, foreign exchange gains, and interest expense. Accordingly, most of the profit can be viewed as originating from the core business.【Investment Efficiency】ROE was 2.3%, with the improvement in the Net Income margin and an increase in total asset turnover serving as positive factors.【Financial Soundness】The Equity Ratio was 30.9% (improving from 28.4% in the previous year). Total assets were ¥6516.3B, contracting year on year, while net assets were ¥2013.5B and remained broadly flat, suggesting a structure in which efficiency is improving while the asset base is being streamlined.

Cash Flow Analysis

Although disclosure of the cash flow statement is limited, an analysis of funding trends based on changes in the balance sheet indicates that accounts receivable from completed construction contracts declined to ¥2291.5B (▲13.4% from the end of the previous fiscal year), suggesting progress in converting assets into cash. Meanwhile, advances received on uncompleted construction contracts declined to ¥403.5B (▲11.6% from the end of the previous fiscal year), indicating a slight reduction in the short-term funding cushion. Cash and deposits stood at ¥480.9B, remaining at approximately the same level as at the end of the previous fiscal year, and no significant funding strain is evident. The provision for losses on construction contracts declined to ¥8.8B (¥9.7B in the previous year), indicating that the risk of deterioration in project profitability is limited.

Earnings Quality

Extraordinary income and extraordinary loss were both immaterial at ¥0.1B, indicating that current-period profit was primarily generated by recurring earnings. Non-operating income was ¥6.9B, equivalent to approximately 0.7% of revenue, and included dividend income of ¥2.1B and foreign exchange gains of ¥2.6B. However, these were largely offset by interest expense of ¥6.1B, meaning that the increase in Ordinary Income was primarily attributable to improved profitability in the core business. The effective tax rate was relatively high at approximately 35.2%, serving as a factor compressing Net Income from pre-tax profit of ¥70.1B to ¥45.4B. The gap between Ordinary Income and Net Income was primarily attributable to the tax burden, and no structural issue with earnings quality is evident.

Earnings Forecast and Guidance

Progress against the full-year plan in Q1 was 23.3% for revenue (company plan: ¥4400.0B), 24.5% for Operating Income (same: ¥285.0B), and 26.5% for Ordinary Income (same: ¥265.0B). All were around the 25% level representing simple progress, indicating that results were generally on track with the plan. The full-year plan assumes a conservative outlook contrasting with the substantial profit growth in Q1, including a projected 3.2% year-on-year decline in Ordinary Income. Overseas profit and loss and cost trends from the second half onward will therefore be key to achieving the plan. No revisions were made to the earnings or dividend forecasts during the quarter.

Shareholder Returns

The company forecasts an annual dividend of ¥250, representing an increase from the previous year's dividend of ¥100 (a portion of the combined interim and year-end dividends). The Payout Ratio against forecast full-year EPS of ¥519.19 is approximately 48.1%. As the return to shareholders consists solely of dividends without share repurchases, it is classified as the “Payout Ratio.” No revision has been made to the dividend forecast at this time.

Risk Factors

1. Continued losses in the Overseas Business: Although the Overseas segment increased revenue to ¥91.6B (+48.7%), it recorded an Operating Loss of ¥4.0B, deteriorating from the profit of ¥1.8B in the same period of the previous year. Continued monitoring is necessary as this remains a factor weighing on the consolidated margin.

2. Concentration in the Building Business: The Building Business accounts for 53.5% of revenue and approximately 62% of consolidated Operating Income, indicating a high degree of dependence on a single segment. Changes in the order environment and cost trends in this business could materially affect consolidated performance.

3. Inflation in material and labor costs and changes in working capital: Advances received on uncompleted construction contracts declined by ▲11.6% from the end of the previous fiscal year, reducing the short-term funding cushion. As material, subcontracting, and labor costs continue to rise, the impact on construction project profitability needs to be monitored.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (construction)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceed the industry median, placing profitability in the upper tier of the industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median, indicating a high pace of revenue growth within the industry.

※Source: Company analysis

Key Points from the Earnings Results

1. The Operating Income margin improved to 6.8% (3.7% in the previous year). Progress in efficiency improvements in both the gross margin and SG&A ratio is a key point in assessing earnings quality.

2. While all three major segments—the Building, Civil Engineering, and Environment and Urban Development Businesses—achieved higher revenue and higher profit, the Overseas Business continued to incur losses despite revenue growth, confirming an imbalance in profitability within the business portfolio.

3. Progress against the full-year plan was generally at a standard level for both revenue and profit. In comparison with the company's full-year plan, which forecasts a year-on-year decline in Ordinary Income, overseas profit and loss and cost trends toward the second half of the year will be factors determining the trajectory of actual results.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥5,255–¥5,558 for ±1% in the cost of equity capital, and ¥5,396–¥5,413 for ±0.1 in ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing gap relative to the full-year forecast).
• As 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 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 release data. It does not recommend investment in any specific security. 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 professionals as necessary.

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