PS Construction (1871) FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, the Company reported higher revenue and income due to the expansion of completed construction revenue. However, Operating Cash Flow (OCF) recorded a significant deficit as a result of deteriorating working capital, warranting caution regarding earnings quality. Revenue increased 10.1% year on year to ¥1,493.7B, Operating Income rose 5.0% to ¥129.3B, and Net Income increased 16.8% to ¥93.3B. The primary drivers of revenue growth were the expansion of completed construction revenue in the Civil Engineering Business and Building Construction Business. The factors behind Net Income growth exceeding Operating Income growth included the recognition of extraordinary income and a lower tax burden. Meanwhile, the increase in contract assets coincided with a decrease in contract liabilities, causing OCF to turn negative at ¥174.7B.

Factors Affecting Performance

【Revenue】Revenue was ¥1,493.7B, representing a 10.1% year-on-year increase. The Civil Engineering and Building Construction Business generated revenue of ¥758.1B (+10.5% year on year), accounting for 50.8% of total revenue and serving as the core business driver. The Building Construction Business achieved strong growth, with revenue of ¥629.0B (+19.0%), while the Affiliates and Other Businesses contracted to ¥102.4B (-25.6%).

【Profit and Loss】Operating Income was ¥129.3B (+5.0% year on year). The gross profit margin declined to 16.6% from approximately 17.0% in the previous year due to a higher cost-of-sales ratio, while SG&A expenses also increased 10.3%, causing Operating Income growth to lag Revenue growth. Ordinary Income increased only 3.8% to ¥127.2B, whereas Net Income rose substantially by 16.8% to ¥93.3B. This was attributable to extraordinary income of ¥3.0B, including a gain on the sale of investment securities of ¥1.4B and a gain on the sale of property, plant and equipment of ¥1.6B, exceeding extraordinary losses of ¥2.0B, as well as a reduced income tax burden. Although the Company achieved higher revenue and income, improvement in profitability at the operating level was limited, and it should be noted that Net Income growth includes temporary factors.

Segment Analysis

The Civil Engineering Business maintained the highest profitability among the four segments, with external revenue of ¥758.1B (+10.5% year on year), gross profit of ¥141.7B (+7.5%), and a profit margin of 18.7%. The Building Construction Business achieved strong growth, with external revenue of ¥629.0B (+19.0%), but gross profit was ¥59.5B (+16.3%) and the profit margin remained at 9.5%, 920bp below that of the Civil Engineering Business. Although external revenue in the Affiliates Business declined to ¥102.4B (-25.6% year on year), it maintained high profitability, with gross profit of ¥44.9B and a profit margin of 43.8%, supporting consolidated earnings. The Other Businesses remained small but stable, with revenue of ¥4.1B and a profit margin of 31.0%. Overall, the profitability and progress of the core Civil Engineering Business have a significant impact on consolidated performance.

Key Financial Indicators

【Profitability】The Operating Income margin was 8.7%, down 40bp from 9.1% in the previous year, while the Net Income margin improved slightly to 6.2% from 6.1%. The gross profit margin declined to 16.6% from 17.0% in the previous year, suggesting an increase in construction costs.【Cash Flow Quality】OCF was negative at ¥174.7B, significantly below Net Income of ¥93.3B, indicating that earnings have not been effectively converted into cash. Capital expenditures were ¥12.0B compared with depreciation and amortization of ¥11.1B, remaining at a level slightly above maintenance investment.【Investment Efficiency】ROE was 14.2%, comprising a Net Income margin of 6.2%, total asset turnover of 1.05x, and financial leverage of 2.18x. EPS was ¥199.33 (¥175.92 in the previous year, +13.3% year on year), while BPS was ¥1,398.68.【Financial Soundness】The Equity Ratio improved to 46.0% from 44.2% in the previous year. Current assets of ¥1,136.5B substantially exceeded current liabilities of ¥605.9B, but short-term borrowings increased to ¥151.0B (¥95.0B in the previous year, +58.9%), indicating greater reliance on debt financing.

Cash Flow Analysis

OCF was negative at ¥174.7B, a significant deterioration from positive OCF of ¥159.5B in the previous year. The primary factors were a ¥210.9B increase in contract assets and trade receivables and an ¥86.6B decrease in contract liabilities, as timing differences in billing and collection associated with construction progress placed pressure on working capital. The ¥34.1B increase in trade payables and ¥13.1B decrease in inventories provided partial offsets, but the Company experienced a net cash outflow overall. Investing CF was negative at ¥5.1B, as capital expenditures of ¥12.0B were partially offset by proceeds from the sale of property, plant and equipment and other items. Free CF was negative at ¥179.8B, indicating that dividends and investments were not funded by internally generated cash. Financing CF was positive at ¥52.4B. A net increase of ¥56.0B in short-term borrowings and ¥85.0B in proceeds from long-term borrowings funded ¥43.6B in repayments of long-term borrowings and ¥42.6B in dividend payments. As a result, cash and deposits decreased 57.7% from ¥221.0B in the previous year to ¥93.4B, indicating increased reliance on borrowings for the time being.

Earnings Quality

Of Net Income of ¥93.3B, the net impact of extraordinary income of ¥3.0B—comprising a ¥1.4B gain on the sale of investment securities and a ¥1.6B gain on the sale of property, plant and equipment—and extraordinary losses of ¥2.0B—comprising impairment losses of ¥0.6B and losses on the disposal and sale of property, plant and equipment of ¥1.2B—was a temporary positive factor of ¥1.0B. Non-operating income and expenses consisted of income of ¥3.2B and expenses of ¥5.4B, including ¥3.6B in interest expense, indicating that recurring financial costs pressured Ordinary Income. The fact that OCF was significantly below Net Income is the principal concern regarding earnings quality. Accruals under the accrual basis of accounting, namely the increase in contract assets and decrease in contract liabilities, created a divergence between earnings and cash. Comprehensive Income was ¥119.1B, exceeding Net Income of ¥93.3B, driven by a ¥14.8B valuation difference on securities and an ¥11.6B adjustment related to retirement benefits. The divergence between Net Income and Comprehensive Income was mainly attributable to valuation-related items and should be distinguished from the Company’s recurring earning power.

Earnings Forecast and Guidance

The Company’s forecast for the next fiscal year, ending March 2027, calls for Revenue of ¥1,426.0B (-4.5% year on year), Operating Income of ¥108.0B (-16.5%), Ordinary Income of ¥106.0B (-16.6%), and Net Income of ¥89.0B (+4.8%). While Revenue, Operating Income, and Ordinary Income are all expected to decline, Net Income is projected to increase. This appears to be a plan that incorporates a decline in earnings on a core operating basis after excluding the impact of extraordinary gains and losses and the tax burden recorded in the current period. Operating Income is forecast to decline at a faster rate than Revenue, which can be interpreted as a conservative outlook premised on a further deterioration in construction profitability. Forecast EPS is ¥166.67.

Shareholder Returns

The annual dividend for the current period totaled ¥120, consisting of an interim dividend of ¥40 and a year-end dividend of ¥80. The Payout Ratio was 60.2%, implying total dividend payments of approximately ¥56.9B against Net Income of ¥93.3B. Share repurchases were minimal at ¥0.01B, leaving the Total Return Ratio at approximately the same level as the Payout Ratio. Meanwhile, Free CF was negative at ¥179.8B, meaning that the current-period dividend was funded through borrowings and other financing rather than Free CF. The Company’s forecast dividend for the next period is ¥101, implying a ¥19 reduction from the current period. The forecast Payout Ratio against forecast EPS of ¥166.67 is approximately 60.6%, indicating that the earnings-linked shareholder return policy is expected to remain broadly intact.

Risk Factors

1. Deterioration in Working Capital and Cash Flow Quality: OCF was negative at ¥174.7B, representing a significant divergence from Net Income of ¥93.3B. The key factors were a ¥210.9B increase in contract assets and trade receivables and an ¥86.6B decrease in contract liabilities. Delays in converting earnings into cash will remain a key area for ongoing monitoring.

2. Increased Reliance on Borrowings: Short-term borrowings increased substantially to ¥151.0B (¥95.0B in the previous year, +58.9%), while long-term borrowings rose to ¥99.4B (¥47.0B in the previous year, +111.5%). Cash and deposits declined 57.7% to ¥93.4B, increasing sensitivity to financing conditions and refinancing terms.

3. Concentration in Business Composition and Profitability: The Civil Engineering Business accounts for 50.8% of external revenue and has a significant impact on consolidated performance. Although the Building Construction Business recorded 19.0% revenue growth, its profit margin of 9.5% was below the Civil Engineering Business’s 18.7%. The Company-wide gross profit margin also declined to 16.6%, making its ability to pass on rising costs a key issue.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin both exceed the industry median, placing it at a relatively high level within the industry.

Growth and Capital Efficiency

The Revenue growth rate was approximately in line with the industry median, indicating growth broadly comparable to the industry average.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. Although higher revenue and income and ROE of 14.2% are positive, the Operating Income margin declined 40bp from the previous year. The downward trend in the gross profit margin to 16.6% makes the extent to which rising construction costs are being passed on a key monitoring point.

2. OCF was negative at ¥174.7B and Free CF was negative at ¥179.8B, representing substantial cash outflows. Normalization of cash generation through the collection of contract assets and recovery of contract liabilities (customer advances) will be an area of focus going forward.

3. The Company’s forecast for the next period anticipates lower revenue and income, excluding Net Income, as well as a ¥19 dividend reduction. The results should therefore be interpreted with the understanding that the current period’s earnings growth trend is not assumed to continue unchanged.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,496–¥1,580 at Cost of Equity ±1%, and ¥1,534–¥1,542 at ω±0.1.

Note:

• Goodwill amortization of ¥0.4 per share has been added back to earnings (due to its non-cash nature and for comparability with IFRS companies).

(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 predict 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 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, after consulting with a professional as necessary.

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