Nishimatsu Construction (1820) FY2027 Q1 Earnings Report

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Executive Summary

Revenue and profit increased substantially, driven by higher completed construction revenue and improved project profitability. Revenue was ¥10.263B (+23.8% YoY), Operating Income was ¥0.699B (+130.8%), Ordinary Income was ¥0.701B (+176.1%), and Net Income was ¥0.454B (+180.9%). In addition to the improvement in the gross profit margin compared with the same period of the previous year, SG&A expenses grew more slowly than Revenue, resulting in operating leverage and a profit growth rate substantially exceeding the rate of revenue growth.

Factors Affecting Performance

【Revenue】Revenue was ¥10.263B (+23.8% YoY). By segment, the Building Business was the largest at ¥5.495B (53.6% of total, +16.4%), followed by the Civil Engineering Business at ¥3.026B (29.5%, +17.8%), the Environmental and Urban Development Business at ¥0.912B (8.9%, +114.3%), and the International Business at ¥0.916B (8.9%, +48.7%). Completed construction revenue was ¥9.334B (+19.7%), while development businesses and other operations were ¥0.929B (+88.2%); both contributed to the increase in Revenue.

【Profit and Loss】Operating Income was ¥0.699B (+130.8%), and the Operating Margin was 6.8% (equivalent to approximately 3.7% before the prior-year 6.8% adjustment, representing a substantive improvement of +3.1pt). The gross profit margin of the completed construction business improved to 12.2% (9.6% in the previous year), while the gross profit margin of development businesses and other operations declined to 26.4% (32.2% in the previous year). Ordinary Income was ¥0.701B (+176.1%), as the non-operating income and expenses were nearly balanced (non-operating income of ¥0.069B and non-operating expenses of ¥0.067B), allowing the improvement in Operating Income to flow through almost directly. Extraordinary income and losses were immaterial in aggregate, and their impact on Net Income of ¥0.454B (+180.9%) was limited. By segment, the Building Business led overall performance with Operating Income of ¥0.433B (+95.0%), while the International Business recorded an Operating Loss of ¥0.040B (a loss of ¥0.009B in the previous year), indicating a widening deficit. In conclusion, both Revenue and profit increased.

Segment Analysis

The Building Business is the largest profit-contributing business, with Revenue of ¥5.495B (+16.4%), Operating Income of ¥0.433B (+95.0%), and a profit margin of 7.9%, accounting for approximately 62% of consolidated Operating Income. The Civil Engineering Business generated Revenue of ¥3.026B (+17.8%) and Operating Income of ¥0.174B (+366.6%), showing a substantial improvement in profitability; its profit margin appears to have increased from approximately 1.5% to 5.8%. The Environmental and Urban Development Business generated Revenue of ¥0.912B (+114.3%) and Operating Income of ¥0.101B (+99.0%), maintaining the highest level of profitability company-wide at a profit margin of 11.1%. Despite its Revenue increasing to ¥0.916B (+48.7%), the International Business was the only segment to post a widening deficit, with an Operating Loss of ¥0.040B (a loss of ¥0.009B in the previous year), making it a key area to monitor regarding the sustainability of the improvement in the company-wide profit margin.

Key Financial Metrics

【Profitability】The Operating Margin was 6.8% and the Net Profit Margin was 4.4%, both representing substantial improvements from the same period of the previous year. The gross profit margin was 13.5%, with differences among businesses: 12.2% for the completed construction business and 26.4% for development businesses and other operations.【Cash Flow Quality】Comprehensive Income was ¥0.219B, below Net Income of ¥0.454B, mainly due to the deterioration of the valuation difference on other securities (▲¥0.211B).【Investment Efficiency】Annualized ROE was 9.0%; the Equity Ratio was 30.9%, and the total asset turnover ratio was approximately 0.63 times on an annualized basis, reflecting a business structure with a substantial working capital burden.【Financial Soundness】The Equity Ratio improved from 28.4% in the same period of the previous year to 30.9%; however, the capital structure and liquidity profile remain unchanged, with a debt-to-equity ratio above 2x and a short-term debt ratio above 70%. Interest coverage exceeded 10x, indicating sufficient debt-servicing capacity.

Cash Flow Analysis

Although the cash flow statement has not been directly disclosed, an examination of fund movements based on changes in the balance sheet shows that accounts receivable for completed construction decreased by ▲¥3.559B (▲13.4%) year on year, suggesting that progress in collecting construction payments may have contributed to the reduction in working capital. Meanwhile, advances received for uncompleted construction were ¥4.035B, exceeding costs on uncompleted construction of ¥2.017B, indicating that the excess-advance position for work in progress continues. Cash and deposits were ¥4.809B, broadly flat year on year, indicating that on-hand liquidity has been maintained even as total asset size contracted. Total assets decreased by ¥3.439B year on year, while total liabilities also decreased by ¥3.131B, indicating simultaneous progress in balance sheet contraction and working capital efficiency.

Earnings Quality

The increase in profit for the current period was primarily attributable to an improvement in operating results. Extraordinary income and losses (income of ¥0.001B and loss of ¥0.001B) were immaterial, with a limited impact on Net Income, indicating an improvement in recurring earning power. Non-operating income of ¥0.069B included foreign exchange gains of ¥0.026B and dividends received of ¥0.021B, while non-operating expenses of ¥0.067B were primarily interest expenses of ¥0.061B; these items were broadly offset, meaning that the increase in Ordinary Income was attributable to the improvement in Operating Income. Meanwhile, Comprehensive Income was ¥0.219B, ¥0.246B below Net Income of ¥0.454B, with the deterioration of the valuation difference on other securities (▲¥0.211B) due to changes in the valuation of investment securities representing a point of caution from an accrual perspective. The divergence between Net Income and Comprehensive Income indicates that profit growth during the period did not necessarily translate into an increase in total net assets.

Earnings Forecasts and Guidance

The Full-Year forecast is Revenue of ¥44.00B (+11.1%), Operating Income of ¥2.850B (+1.7%), and Ordinary Income of ¥2.650B (▲3.2%), with no revision to the earnings forecasts. Q1 progress rates were 23.3% for Revenue, 24.5% for Operating Income, 26.5% for Ordinary Income, and 22.7% for Net Income, all tracking near the standard 25% level. Despite the high profit growth rate in Q1, the increase projected for Full-Year Operating Income is only 1.7%, suggesting conservative assumptions incorporating factors such as cost increases and the loss trend in the International Business toward the second half of the fiscal year.

Shareholder Returns

The Full-Year dividend forecast is ¥250 per share, with no revision to the dividend forecast. The forecast Payout Ratio against the Full-Year EPS forecast of ¥519.19 is approximately 48.2%; this Payout Ratio is based solely on dividends. There is no data regarding the implementation of share buybacks, and no assessment has been made of the Total Return Ratio. The Payout Ratio is below 50%, and the dividend burden relative to the Full-Year Net Income forecast is not excessive.

Risk Factors

1. Cost escalation risk: The gross profit margin of the completed construction business remains at 12.2%, leaving limited room to absorb increases in material prices, labor costs, and subcontracting expenses, which could pressure the profitability of fixed-price projects.

2. International Business profitability risk: The International Business recorded an Operating Loss of ¥0.040B against Revenue of ¥0.916B, with the deficit widening from ¥0.009B in the previous year. Cost control and project delays in overseas projects could weigh on consolidated profit.

3. Capital structure and liquidity risk: The debt-to-equity ratio is above 2x and the short-term debt ratio is above 70%, while dependence on accounts receivable for completed construction of ¥22.915B (35.2% of total assets) is also high. Delays in collecting construction payments or changes in the financing environment could affect liquidity management.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Margin and Net Profit Margin exceed the industry median, placing profitability at a relatively high level within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate substantially exceeds the industry median, representing an outstanding pace of revenue growth within the industry.

※Source: Compiled by the Company

Key Points in the Financial Results

1. The Operating Income growth rate of 130.8%, exceeding the Revenue growth rate of 23.8%, indicates the emergence of operating leverage driven by an improved gross profit margin and a lower SG&A ratio. The improvement in the gross profit margin of the completed construction business from 9.6% in the previous year to 12.2% is observable as a structural change.

2. The International Business saw its Operating Loss widen despite higher Revenue, in contrast to the improved profitability of the Building and Civil Engineering Businesses. The profit and loss trend of the International Business remains an ongoing monitoring point when assessing the sustainability of the company-wide profit margin.

3. While progress rates for the major Full-Year indicators are generally near 25%, the Full-Year Operating Income forecast growth rate (+1.7%) is substantially below the Q1 profit growth rate. Cost trends toward the second half of the fiscal year and a recovery in the profitability of the International Business will be factors influencing the level of Full-Year results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥5,255–¥5,558 at a ±1% change in the Cost of Equity, and ¥5,396–¥5,413 at a ±0.1 change in 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 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 discretion and responsibility, after consulting a professional as necessary.

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