Mori-Gumi (1853) FY2026 Q3 Earnings Report

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Executive Summary

Morigumi reported lower revenue and lower profit for the cumulative Q3 period, primarily due to deteriorating profitability resulting from a decline in the gross profit margin. Revenue was ¥211.9B (down -5.6% YoY), Operating Income was ¥6.1B (down -22.8%), Ordinary Income was ¥6.2B (down -19.0%), and Net Income was ¥4.5B (down -13.2%). The gross profit margin on completed construction contracts improved to 9.1% (8.7% in the previous year) on a standalone segment basis, but the company-wide gross profit margin remained at 8.6%. Selling, general and administrative expenses increased to ¥12.1B (¥11.2B in the previous year), resulting in a decline in the Operating Income margin to 2.9%.

Factors Affecting Performance

【Revenue】Revenue was ¥211.9B, representing a YoY decline of -5.6%. By segment, Construction accounted for ¥208.8B, or 98.5% of total revenue, and the decrease in orders received and construction progress from the previous year appears to have been the primary cause of the revenue decline. CrushedStone generated ¥2.9B in revenue and, despite its small scale, recorded an Operating Loss of -¥0.9B (margin of -31.7%), putting pressure on overall profitability. RealEstate was small in scale at ¥0.2B in revenue but highly profitable, with a margin of 32.0%.

【Profit and Loss】The gross profit margin on completed construction contracts improved to 9.1% (8.7% in the previous year); however, Selling, general and administrative expenses increased to ¥12.1B (¥11.2B in the previous year, +8.3%), resulting in a significant decline in Operating Income to ¥6.1B (down -22.8%). The provision for construction loss decreased substantially to ¥0.4B from ¥1.6B in the previous year, indicating a trend toward a reduction in unprofitable projects. The recognition of ¥0.4B in extraordinary income (gain on business transfer) raised Profit Before Tax to ¥6.7B, but Net Income remained at ¥4.5B (down -13.2%). In conclusion, although the gross profit margin on completed construction contracts improved, lower revenue and lower profit resulted from increased Selling, general and administrative expenses and losses in the CrushedStone Business.

Segment Analysis

The Construction segment is the earnings pillar, generating revenue of ¥208.8B (98.5% of total revenue) and Operating Income of ¥16.2B (margin of 7.8%). CrushedStone recorded an Operating Loss of ¥0.9B (margin of -31.7%) against revenue of ¥2.9B, weighing down company-wide profitability. RealEstate was small in scale at ¥0.2B in revenue but had a high margin of 32.0%, positioning it as a highly profitable niche business. Reducing losses in the CrushedStone Business will be key to improving the company-wide profit margin going forward.

Key Financial Metrics

【Profitability】The Operating Income margin was 2.9%, the Net Income margin was 2.1%, and the gross profit margin on completed construction contracts was 9.1% (8.7% in the previous year). Although construction profitability improved modestly, company-wide profit margins declined from the previous year.【Cash Quality】Cash and deposits increased substantially to ¥68.7B (up +53.7% from ¥44.7B in the previous year), while the current ratio remained high at approximately 222.7%, indicating sound short-term payment capacity. However, details of Operating Cash Flow have not been disclosed, making it impossible to directly assess the extent to which earnings have been converted into cash.【Investment Efficiency】ROE (annualized) was 4.0%, and EPS decreased to ¥13.59 (¥15.66 in the previous year). Intangible fixed assets increased to ¥3.3B (¥2.0B in the previous year, +65.0%), while tangible fixed assets declined to ¥10.4B (¥17.2B in the previous year, -39.5%), indicating a change in the asset composition.【Financial Soundness】The Equity Ratio improved slightly to 59.5% (58.9% in the previous year), indicating a stable financial base. Fixed liabilities were small at ¥1.7B, while current liabilities accounted for most of total liabilities at ¥100.0B.

Cash Flow Analysis

Although detailed disclosures for the cash flow statement are unavailable, an analysis of funding trends based on changes in the balance sheet shows that cash and deposits increased to ¥68.7B, up +¥24.0B (+53.7%) from ¥44.7B at the end of the previous year. At the same time, notes and accounts receivable—trade and accounts receivable for completed construction contracts declined to ¥146.2B (¥153.6B in the previous year), while accounts receivable also decreased to ¥1.1B (¥1.9B in the previous year, -44.4%). Progress in collecting trade receivables is therefore considered one factor behind the increase in cash. Advances received on uncompleted construction contracts increased to ¥19.7B (¥15.8B in the previous year, +24.7%), and the accumulation of advance funds associated with construction contracts may also have contributed to the increase in cash balances. Tangible fixed assets declined to ¥10.4B, suggesting that large-scale capital investment was limited, while intangible fixed assets increased to ¥3.3B, indicating that a certain level of investment activity took place.

Earnings Quality

Current-period profit includes the temporary factor of ¥0.4B in extraordinary income (gain on business transfer); excluding this item, the underlying Profit Before Tax would be close to the ¥6.2B level of Ordinary Income. Non-operating income was ¥0.3B, mainly comprising dividends received and insurance dividends, indicating a low dependence on financial income. The provision for construction loss declined substantially from ¥1.6B in the previous year to ¥0.4B, and the reduced concern over unprofitable construction projects is a positive factor in terms of earnings quality. On the other hand, accounts receivable for completed construction contracts were substantial relative to the asset base at ¥146.2B. Care is therefore required, as a certain divergence exists between revenue recognition based on the percentage-of-completion method and the timing of cash collection.

Earnings Forecasts and Guidance

The full-year forecast is revenue of ¥288.0B (down -2.2% YoY), Operating Income of ¥10.2B (down -5.7%), Ordinary Income of ¥10.2B (down -2.6%), and Net Income of ¥6.8B (down -26.2%). Cumulative Q3 revenue of ¥211.9B represents progress of 73.6% against the full-year forecast, while Net Income of ¥4.5B represents a progress rate of 66.2% against the full-year forecast. The progress rate for Net Income is below the progress rate for revenue, suggesting that a further decline in the profit margin may be anticipated toward Q4.

Shareholder Returns

The dividend forecast remains unchanged at a year-end dividend of ¥14.00 (the same amount as the previous year). Based on the full-year forecast EPS of ¥20.76, the Payout Ratio is calculated at approximately 67.4%; however, based on cumulative Q3 actual EPS of ¥13.59, the Payout Ratio exceeds 100%. No disclosure regarding share repurchases has been made, and shareholder returns consist solely of dividends. Cash and deposits are ample at ¥68.7B, securing dividend resources for the immediate future; however, the outlook for full-year Net Income is down -26.2% YoY, which warrants attention in terms of the balance between dividends and earnings.

Risk Factors

1. Construction profitability risk: Although the gross profit margin on completed construction contracts improved to 9.1% from the previous year, the company-wide gross profit margin remained at 8.6%. The CrushedStone segment recorded a loss, with an Operating Income margin of -31.7%, and variations in profitability arising from the business composition represent a risk.

2. Collection risk for accounts receivable for completed construction contracts: Accounts receivable for completed construction contracts amounted to ¥146.2B (¥153.6B in the previous year), representing 58.2% of total assets of ¥251.0B. Changes in the collection cycle for construction payments could affect cash management.

3. Divergence between dividends and earnings: The year-end dividend forecast is ¥14.00 against cumulative Q3 EPS of ¥13.59, meaning that the Payout Ratio exceeds 100% on a quarterly actual-results basis. Given the outlook for full-year Net Income to decline -26.2% YoY, the balance between earnings and dividends requires monitoring.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

As industry median data have not been prepared, the assessment is limited to a standalone review of the company’s levels.

Growth and Capital Efficiency

As industry median data have not been prepared, the assessment is limited to a standalone review of the company’s levels.

※Source: Compiled by the Company

Key Earnings Highlights

1. The gross profit margin on completed construction contracts improved to 9.1% from the previous year, while the provision for construction loss decreased from ¥1.6B to ¥0.4B, suggesting progress in addressing unprofitable construction projects. However, increased Selling, general and administrative expenses and losses in the CrushedStone Business reduced company-wide Operating Income, highlighting differences in profitability across the business portfolio.

2. Cash and deposits increased +53.7% YoY to ¥68.7B, while the current ratio remained at approximately 222.7%, maintaining ample liquidity. Intangible fixed assets increased (+65.0%) while tangible fixed assets declined (-39.5%), and the simultaneous changes may suggest a shift in the investment strategy reflected in the asset composition.

3. The full-year forecast calls for Net Income to decline -26.2% YoY, while the dividend forecast remains unchanged at ¥14.00, the same as the previous year. The Payout Ratio based on quarterly actual results exceeds 100%, making the trend in earnings recovery and the level of cash available for dividends key areas of focus going forward.

Theoretical Share Price (For Reference)

Sensitivity: ¥378–¥399 at Cost of Equity ±1%, and ¥387–¥390 at ω±0.1.

Notes:

• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 experts as necessary.

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