YAHAGI CONSTRUCTION CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

This quarter’s results represent a mixed performance of lower revenue and lower operating income but higher net income, with the slowdown in the core business offset by extraordinary gains. Revenue was ¥316.0B (-23.2% YoY), Operating Income was ¥15.4B (-57.8%), and Ordinary Income was ¥16.4B (-55.4%), indicating a significant decline in core earnings. Meanwhile, Net Income increased to ¥29.5B (+15.3% YoY), driven by the recognition of ¥26.2B in extraordinary gains, including a ¥15.5B gain on the sale of investment securities. This increase does not reflect the underlying strength of the core business. The sharp decline in real estate revenue and the slowdown in progress in the Construction segment were the primary causes of the decline in revenue and earnings.

Factors Affecting Earnings

【Revenue】Revenue was ¥316.0B, representing a -23.2% decline YoY. By segment, Construction, which accounts for 67.1% of revenue, slowed significantly to ¥212.6B (-26.4%), weighing on company-wide results. Civil Engineering provided support with double-digit growth of ¥92.99B (+30.0%), but Real Estate declined sharply to ¥11.29B (-79.5%), largely due to the impact of the transfer of the condominium development business in the previous year.

【Profit and Loss】Operating Income was ¥15.4B (-57.8%), and the Operating Income margin declined significantly to 4.9% from 8.9% in the previous year. While the gross margin declined to 14.0% from 15.5%, the SG&A expense ratio increased to 9.1% from 6.7%, indicating that fixed costs could not be absorbed amid the decline in revenue and that operating leverage reversed. Ordinary Income also deteriorated to ¥16.4B (-55.4%). Net Income increased to ¥29.5B (+15.3%) due to extraordinary gains of ¥26.2B, including a ¥15.5B gain on the sale of investment securities and a ¥10.0B gain on the transfer of a business, but it was highly dependent on one-time factors. In summary, the results reflect a structure of lower revenue and lower earnings, while the increase in Net Income was an apparent gain driven by extraordinary gains.

Segment Analysis

The Construction segment reported revenue of ¥212.6B (-26.4%), Operating Income of ¥17.6B (-35.3%), and a profit margin of 8.3%, representing a significant decline in both revenue and profit and becoming a burden on company-wide results. As the largest segment, with a revenue composition ratio of 67.1%, concentration risk has become evident. The Civil Engineering segment was the only segment to post both higher revenue and higher earnings, with revenue of ¥93.0B (+30.0%), Operating Income of ¥8.0B (+29.7%), and a profit margin of 8.6%, supported by the effect of consolidating Aquarius Invesco and other M&A targets. The Real Estate segment declined sharply, with revenue of ¥11.3B (-79.5%) and Operating Income of ¥2.6B (-82.7%). Although its profit margin was 22.8%, higher than those of the other segments, the decline in its contribution to earnings due to the contraction in business scale weighed on the company-wide profit margin.

Key Financial Metrics

【Profitability】The Operating Income margin of 4.9% declined by approximately 4.0pt from 8.9% in the previous year, reflecting the combined effect of the decline in the gross margin to 14.0% from 15.5% and the increase in the SG&A expense ratio to 9.1% from 6.7%. The Net Income margin increased to 9.3% from 6.2%, but this was attributable to dependence on extraordinary gains and must be distinguished from the profitability of the core business.【Cash Flow Quality】Advances received on uncompleted construction contracts of ¥100.9B exceeded costs incurred on uncompleted construction contracts of ¥34.5B, and the structure dominated by advance receipts is supporting cash management.【Investment Efficiency】ROE was 3.9%; despite the increase in the Net Income margin, the decline in the total asset turnover ratio to 0.251 had a negative impact.【Financial Soundness】The Equity Ratio improved to 60.2% from 51.5% in the previous year, while short-term borrowings were sharply reduced to ¥75.3B from ¥235.0B. Cash and deposits of ¥162.5B exceeded short-term borrowings, indicating a high level of liquidity.

Cash Flow Analysis

Although the cash flow statement was not disclosed, the movement of funds can be inferred from changes in the balance sheet. Short-term borrowings were reduced by ¥159.7B, from ¥235.0B in the previous year to ¥75.3B, indicating progress in deleveraging. Cash and deposits were ¥162.5B, maintaining almost the same level as the previous year’s ¥162.6B, and financial stability was preserved. The structure in which advances received on uncompleted construction contracts of ¥100.9B significantly exceed costs incurred on uncompleted construction contracts of ¥34.5B has continued, suggesting that the early collection of progress billings is supporting cash flow. The increase in goodwill to ¥34.9B resulted from investment activities associated with M&A in the Civil Engineering segment, and the outflow of investment cash appears to be reflected in the change in the asset composition.

Earnings Quality

Recurring earnings for the period consisted primarily of Operating Income of ¥15.4B and a positive non-operating balance of ¥0.98B. In contrast, extraordinary gains of ¥26.2B, including a ¥15.5B gain on the sale of investment securities and a ¥10.0B gain on the transfer of a business, substantially increased Profit Before Tax of ¥42.4B and Net Income of ¥29.5B. Extraordinary gains reached 8.3% of revenue, and the gap between Ordinary Income of ¥16.4B and Net Income of ¥29.5B was approximately +80%, primarily due to extraordinary gains and the impact of income taxes and other items. Non-operating income was approximately 0.6% of revenue, was not excessive, and remained at a normal level. Accordingly, the increase in Net Income for the period was heavily dependent on one-time factors and must be evaluated together with the deterioration in Operating Income and Ordinary Income, which better reflect the underlying strength of the core business.

Earnings Forecasts and Guidance

Q1 progress toward the Full Year outlook was 21.1% for Revenue (Full Year ¥1500.0B), 16.2% for Operating Income (Full Year ¥95.0B), and 31.8% for Net Income (Full Year ¥93.0B). Compared with a simple benchmark of 25% progress, Revenue and Operating Income are lagging, with the deterioration in Construction segment profitability having a particularly significant impact on Operating Income. Meanwhile, Net Income is ahead of schedule due to the early recognition of extraordinary gains and cannot be considered progress based on underlying earnings power. The Full Year Operating Income forecast of ¥95.0B represents a -30.9% decline YoY. The key to recovering progress will be whether profitability in Construction improves and the effects of M&A in Civil Engineering become fully visible in the second half of the year.

Shareholder Returns

The Full Year dividend forecast is ¥110 per share, an increase from the previous year’s actual dividend of ¥45. Based on approximately 4,318万 shares as the average number of shares outstanding during the period, the annual dividend amount is calculated at approximately ¥47.5B, resulting in a Payout Ratio of approximately 51% against the Full Year Net Income forecast of ¥93.0B. The increase in earnings for the period attributable to extraordinary gains should not be included when evaluating the sustainability of the dividend funding base. The recovery of Operating Income will be a key point to monitor when assessing future dividend sustainability.

Risk Factors

1. Deterioration in Construction segment profitability: Revenue of ¥212.6B (-26.4%) and Operating Income of ¥17.6B (-35.3%) indicate that the slowdown in progress and rising costs in the core segment, which accounts for 67.1% of revenue, are putting pressure on company-wide earnings. The focus going forward will be the increase in the cost ratio and the strengthening of bidding discipline.

2. One-time nature of Net Income due to dependence on extraordinary gains: Extraordinary gains of ¥26.2B, equivalent to 8.3% of revenue, contributed to the increase in Net Income of ¥29.5B, and the gap with Ordinary Income of ¥16.4B reached approximately 80%. This must be evaluated separately from the recurring earnings power of the core business.

3. Impairment risk associated with the increase in goodwill: Goodwill increased to ¥34.85B, approximately 10 times the previous year’s ¥3.4B, due to M&A in the Civil Engineering segment, including the consolidation of Aquarius Invesco and other entities. Although goodwill currently represents a relatively low 2.8% of total assets, the progress of PMI (integration) will determine future impairment risk.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Operating Income margin is slightly above the industry median, while the Net Income margin is significantly above the industry median due to the impact of extraordinary gains.

Growth and Capital Efficiency

The Revenue growth rate is significantly below the industry median and is at the lowest level within the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. While the core business posted a significant -57.8% decline in Operating Income, Net Income increased by +15.3% due to extraordinary gains. The key feature of these results is the substantial difference in earnings quality between the two measures.

2. The deterioration in the Construction segment’s volume and profitability was the largest headwind, while higher revenue and earnings in the Civil Engineering segment and consolidation expansion through M&A provided support. Variations in performance among segments had a significant impact on company-wide results.

3. Financial soundness improved from the previous year, as indicated by an Equity Ratio of 60.2% and a significant reduction in short-term borrowings (-¥159.7B). However, Operating Income progress against the Full Year forecast was somewhat slow at 16.2%, incorporating execution risk weighted toward the second half of the year.

Theoretical Stock Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type, explicit 5-year fade). It is not a forecast of the market stock price or a recommendation of any specific investment action.

Sensitivity: 1,900円〜2,008円 at a ±1% change in the Cost of Equity, and 1,949円〜1,960円 at a ±0.1 change in ω.

Notes:

• Net assets as of the quarter-end were used (there is a timing difference from the Full Year forecast).
• As non-controlling interests are included in net assets, the theoretical value may be calculated somewhat higher.

（Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee the future stock 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 a professional as necessary.

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