YAHAGI CONSTRUCTION (1870) FY2026 Q3 Earnings Report

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Executive Summary

All segments—Construction, Civil Engineering, and Real Estate—reported higher revenue and earnings, resulting in a substantial improvement in profit margins. Revenue was ¥13.31B (+37.1% YoY), Operating Income was ¥1.196B (+260.5%), Ordinary Income was ¥1.196B (+254.4%), and Net Income was ¥0.732B (+215.4%). The factors behind profit growth outpacing revenue growth were the substantially slower increase in selling, general and administrative expenses than in revenue, as well as the high profitability and earnings contribution of the Real Estate segment.

Factors Affecting Performance

【Revenue】Revenue was ¥13.31B (+37.1% YoY). By segment, Construction was ¥8.972B (67.4% of total, +41.2% YoY), making it the largest segment and the largest contributor to revenue growth; Civil Engineering was ¥2.748B (20.6% of total, +18.8% YoY); and Real Estate was ¥1.591B (12.0% of total, +52.4% YoY). All businesses reported higher revenue. Expansion in the Construction segment is the core driver of company-wide growth.

【Profit and Loss】Operating Income was ¥1.196B (+260.5% YoY), with an Operating Margin of 9.0% (+557bp from 3.4% in the previous year). The gross margin improved to 15.6% (+423bp from 11.4% in the previous year), while SG&A expenses remained at ¥0.876B (+13.4% YoY), substantially below the rate of revenue growth, resulting in greater fixed-cost absorption. Ordinary Income was ¥1.196B (+254.4% YoY), nearly equal to Operating Income, indicating a limited impact from non-operating income and expenses. Meanwhile, extraordinary losses of ¥0.184B (including ¥0.183B in business restructuring losses) reduced Profit Before Tax to ¥1.045B, while Net Income was ¥0.732B (+215.4% YoY). Both revenue and earnings increased.

Segment Analysis

The Construction segment reported external revenue of ¥8.972B (+41.2% YoY), segment profit of ¥0.693B (+312.0%), and a profit margin of 7.7%, demonstrating a marked improvement in profitability in addition to revenue growth. The Civil Engineering segment reported external revenue of ¥2.748B (+18.8% YoY), segment profit of ¥0.407B (+30.8%), and a profit margin of 14.8%, maintaining the most stable profitability among the three businesses. The Real Estate segment reported external revenue of ¥1.591B (+52.4% YoY), segment profit of ¥0.502B (+145.4%), and a notably high profit margin of 30.9%. Although it accounted for 12.0% of revenue, it represented 31.3% of segment profit, making a significant contribution to the improvement in the company-wide profit margin. Adjustments for company-wide expenses and other items increased to -¥0.407B (from -¥0.353B in the previous year), but earnings growth in the three segments more than offset this increase.

Key Financial Indicators

【Profitability】The Operating Margin improved to 9.0% (+557bp from 3.4% in the previous year), the Net Profit Margin improved to 5.5% (+311bp from 2.4% in the previous year), and the gross margin improved to 15.6% (+423bp from 11.4% in the previous year). 【Cash Quality】Against Ordinary Income of ¥1.196B, Net Income was ¥0.732B, representing a divergence of approximately 38.8%. The main factors were extraordinary losses of ¥0.184B (including ¥0.183B in business restructuring losses) and income taxes and other taxes of ¥0.314B. Net non-operating income and expenses amounted to only ¥0.001B in expenses, indicating that earnings power through the ordinary income stage was nearly equal to Operating Income. 【Investment Efficiency】Annualized ROE was 13.3%, and EPS was ¥170.07 (+215.5% from ¥53.90 in the previous year). 【Financial Soundness】The Equity Ratio was 52.5% (improving from 47.7% in the previous year), the Current Ratio was 228.5%, and short-term borrowings declined 36.5% YoY to ¥1.690B, indicating a declining dependence on short-term funding.

Cash Flow Analysis

As no cash flow statement has been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥1.705B from ¥1.567B at the end of the previous year, while short-term borrowings declined by ¥0.970B from ¥2.660B to ¥1.690B, indicating that the Company is reducing its dependence on short-term borrowings while simultaneously increasing cash on hand. Costs on uncompleted construction contracts were ¥0.268B (-19.2% from ¥0.332B at the end of the previous year), while advances received on uncompleted construction contracts were ¥0.713B (-31.1% from ¥1.035B), with both declining in line with construction progress. Balances related to uncompleted construction contracts contracted relative to the growth in completed construction revenue. Accounts receivable from completed construction contracts were ¥5.644B, representing 40.5% of total assets, making the progress of collecting progress billings a key factor that will influence future working-capital trends.

Quality of Earnings

Ordinary Income of ¥1.196B was nearly equal to Operating Income of ¥1.196B, indicating a limited impact from non-operating income and expenses. Non-operating income of ¥0.026B (0.2% of revenue) was primarily composed of ¥0.017B in dividends received, with no dependence on non-recurring income observed. Meanwhile, the divergence between Ordinary Income and Net Income was significant at approximately 38.8%, primarily due to extraordinary losses of ¥0.184B (including ¥0.183B in business restructuring losses) and income taxes and other taxes of ¥0.314B. Extraordinary income of ¥0.033B included a ¥0.021B gain on the sale of fixed assets and a ¥0.006B gain on the sale of investment securities. The effective tax rate was approximately 30.0%, within the normal range. Excluding the temporary impact of business restructuring losses, recurring earnings power can be interpreted as stronger than indicated by the reported figures.

Earnings Forecast and Guidance

The cumulative Q3 progress rates against the Full-Year forecast were 79.2% for revenue, 104.0% for Operating Income, 104.9% for Ordinary Income, and 104.5% for Net Income. Relative to the standard progress rate of 75%, revenue was ahead by +4.2 percentage points, while each profit measure was approximately +29–30 percentage points ahead. Cumulative Operating Income, Ordinary Income, and Net Income have already exceeded the Full-Year forecasts. If the current Full-Year forecasts—revenue of ¥16.80B, Operating Income of ¥1.150B, and Ordinary Income of ¥1.140B—are maintained, the Company would need to record a loss on an Operating Income basis in Q4. This may reflect a conservative forecast that incorporates seasonal fluctuations in construction profitability and the recognition of one-time expenses.

Shareholder Returns

The Q2 dividend was ¥45.00 per share, resulting in a Payout Ratio of 27.4% against cumulative Q3 Net Income of ¥0.732B (based only on the interim dividend). The Full-Year dividend forecast is ¥90.00 (¥45 interim and ¥45 year-end), and the forecast Payout Ratio based on the Full-Year Net Income forecast of ¥0.700B is approximately 55.3%, below the 60% level generally regarded as an indication of sustainability. As cumulative Q3 Net Income has already exceeded the Full-Year forecast, there is considerable earnings headroom relative to the current dividend forecast. Capital accumulation, reflected in retained earnings of ¥6.225B, also supports the Company’s ability to pay dividends.

Risk Factors

1. Construction cost inflation risk: Although the gross margin improved to 15.6% from 11.4% in the previous year, any increase in material, subcontracting, or labor costs could readily worsen the profitability of the Construction segment, which accounts for 67.4% of consolidated revenue, and affect consolidated earnings.

2. Construction receivables collection and working-capital risk: Accounts receivable from completed construction contracts were ¥5.644B, representing 40.5% of total assets. Payment delays by clients or delays in progress billings could affect liquidity. Although short-term borrowings declined 36.5% YoY, the short-term debt ratio remains relatively high within current liabilities, requiring close monitoring of refinancing terms for short-term funding.

3. Real estate market and valuation risk: While the Real Estate segment has a high profit margin of 30.9%, the Company holds ¥1.908B in real estate for sale. Rising interest rates, deterioration in supply and demand, or delays in sales plans could cause fluctuations in valuation losses and gains or losses on sales.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

The Company’s Operating Margin and Net Profit Margin are both improving, but no industry median data is currently available for reference.

Growth and Capital Efficiency

The Company’s revenue growth rate was 37.1%, indicating strong growth; however, comparative data for the industry median is not currently available for reference.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. In addition to higher revenue and earnings across all segments, the substantial underperformance of SG&A expense growth relative to revenue growth drove a significant improvement in the Operating Margin from 3.4% in the previous year to 9.0%. In particular, the Real Estate segment had a high profit margin of 30.9% and contributed significantly to company-wide earnings, accounting for 31.3% of total profit against 12.0% of total revenue.

2. Cumulative Q3 Operating Income, Ordinary Income, and Net Income have all already exceeded the Company’s Full-Year forecasts, with progress rates reaching 104.0% for Operating Income and 104.5% for Net Income. In future earnings disclosures, key points to monitor will be whether the Full-Year forecasts are revised and the factors driving profit fluctuations in Q4.

3. The divergence between Ordinary Income and Net Income was significant at 38.8%, due to extraordinary losses including ¥0.183B in business restructuring losses. Excluding this temporary factor, earnings power at the ordinary income stage can be interpreted as stronger than the reported level of Net Income.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,696–¥1,792 at Cost of Equity ±1%, and ¥1,742–¥1,744 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference 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 (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it does not constitute 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, and you should consult a professional as necessary.

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