PS Construction Co.,Ltd. FY2027 Q1 Earnings Report

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Executive Summary

This quarter saw a double-digit decline in revenue, while Operating Income, Ordinary Income, and Net Income all increased by double digits due to an improvement in the gross margin and the containment of SG&A expenses. Revenue was ¥30.66B (-10.1% YoY), Operating Income was ¥3.01B (+21.4%), Ordinary Income was ¥2.87B (+16.0%), and Net Income was ¥1.75B (+22.2%). The primary driver of earnings growth was the increase in the gross margin to 19.9% (up +4.5pt from 15.4% in the same period of the previous year). Improved profitability in the Civil Engineering Business and higher revenue from the high-margin Affiliates Business contributed, while the Construction Business was relatively weak in both revenue and profitability.

Factors Affecting Performance

【Revenue】Revenue was ¥30.66B, a 10.1% YoY decline. By segment, both core businesses reported lower revenue: the Civil Engineering Business declined to ¥17.00B (-10.4%), while the Construction Business declined to ¥11.76B (-16.4%). Meanwhile, the Affiliates Business increased to ¥4.66B (+29.0%), partially offsetting the overall decline.

【Profitability】Operating Income was ¥3.01B (+21.4%), Ordinary Income was ¥2.87B (+16.0%), and Net Income was ¥1.75B (+22.2%), securing earnings growth despite the revenue decline. The gross margin improved by +4.5pt YoY to 19.9%. SG&A expenses increased to ¥3.09B (10.1% of revenue, up from 8.1% in the previous year), but this was more than offset by the improvement in gross profit. Non-operating expenses were ¥0.19B, including interest expense, which increased to ¥0.12B from ¥0.05B in the previous year; nevertheless, Ordinary Income maintained growth of +16.0%. Extraordinary income and losses were ¥0.02B and ¥0.01B, respectively, resulting in only a slight net gain, and the impact of temporary factors was limited. Net Income was ¥1.75B after deducting approximately 39.4% in effective tax expenses (corporate income taxes and other taxes of ¥1.14B) from pre-tax income of ¥2.89B. In conclusion, the Company achieved earnings growth despite lower revenue.

Segment Analysis

The Civil Engineering Business was the primary driver of overall earnings growth, with revenue of ¥17.00B (-10.4%), segment profit (on a gross profit basis) of ¥3.88B (+25.4%), and a gross margin of 22.8% (up +6.5pt from 16.3% in the previous year). The Construction Business reported revenue of ¥11.76B (-16.4%), segment profit of ¥1.27B (-0.7%), and a gross margin of 10.8% (up +1.7pt from 9.1% in the previous year). Although profitability improved, it remained low relative to the other segments. The Affiliates Business increased revenue to ¥4.66B (+29.0%) and segment profit to ¥0.94B (+12.2%), but its gross margin declined slightly to 20.2% (down -3.0pt from 23.2% in the previous year). Other Businesses recorded revenue of ¥0.10B and profit of ¥0.03B. Improved profitability in the Civil Engineering Business was the core driver of overall earnings growth, while the profitability level of the Construction Business remains a constraint on the ceiling for the Company-wide margin.

Key Financial Metrics

【Profitability】The Operating Income margin improved by +2.5pt to 9.8% from 7.3% in the previous year, while the Net Income margin expanded by +1.5pt to 5.7% from 4.2%. The improvement in the gross margin to 19.9% from 15.4% in the previous year was the starting point for the increases in both profit margins.【Cash Flow Quality】Comprehensive Income of ¥2.34B exceeded Net Income of ¥1.75B by ¥0.58B, primarily due to a gain of +¥0.61B in the valuation difference on other securities, and the divergence from Net Income was limited.【Investment Efficiency】ROE was 2.7% (which can be decomposed into a Net Income margin of 5.7% × total asset turnover of 0.224 times × financial leverage of 2.13 times), improving from an estimated 2.2% in the previous year. However, total asset turnover declined from 0.240 times in the previous year, limiting the improvement in capital efficiency.【Financial Soundness】The Equity Ratio improved slightly to 46.9% from 46.0% in the previous year. Cash and deposits of ¥20.20B compared with short-term borrowings of ¥13.50B indicate sufficient cash coverage. Interest coverage, measured as Operating Income relative to interest expense, was approximately 24.3 times, demonstrating strong resilience to interest rates.

Cash Flow Analysis

As individual items in the cash flow statement are not disclosed, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits increased by ¥10.86B to ¥20.20B from ¥9.34B in the same period of the previous year. Contract liabilities increased substantially to ¥6.32B (+31.2% from ¥4.81B in the previous year), while deposits received rose to ¥6.04B (+108.0% from ¥2.91B in the previous year). Inflows of advance payments associated with awarded projects are considered the primary driver of the increase in cash. At the same time, costs on uncompleted construction contracts increased to ¥3.38B (+41.8% from ¥2.38B in the previous year), indicating an expansion in funds advanced in line with construction progress. The increase in property, plant and equipment was modest, suggesting that the burden of capital expenditure was limited. This can be characterized as a quarter in which liquidity expanded significantly, driven by the accumulation of advance payments.

Quality of Earnings

Non-operating income was ¥0.06B compared with non-operating expenses of ¥0.19B, indicating that the contribution from recurring non-operating income was limited and that the Company remained highly dependent on core Operating Income. Interest expense increased to ¥0.12B from ¥0.05B in the previous year, but Ordinary Income still increased by +16.0%. Extraordinary income of ¥0.02B and extraordinary losses of ¥0.01B were small, and the impact of temporary factors on Net Income was immaterial. The effective tax rate was approximately 39.4% (corporate income taxes and other taxes of ¥1.14B / pre-tax income of ¥2.89B), representing the primary reason for the gap between Ordinary Income of ¥2.87B and Net Income of ¥1.75B. Comprehensive Income was ¥2.34B, exceeding Net Income by ¥0.58B, primarily due to an increase of +¥0.61B in the valuation difference on other securities. Accordingly, the divergence from Net Income can be viewed as resulting from changes in the market value of held shares. The accumulation of contract liabilities and deposits received indicates a structure in which cash flows precede revenue recognition, and the quality of earnings can be assessed as generally sound.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year plan (Revenue of ¥142.60B, Operating Income of ¥10.80B, and Ordinary Income of ¥10.60B) were 21.5% for Revenue, 27.9% for Operating Income, and 27.1% for Ordinary Income. Compared with the 25% benchmark based on even quarterly allocation, revenue progress was slightly behind schedule, while profit progress was ahead. The delay in revenue progress appears to have been primarily due to slower execution in the Construction Business, while the early progress in profit appears to reflect improved profitability in the Civil Engineering Business and Affiliates Business. The full-year earnings forecast calls for lower revenue and lower profit YoY (Revenue -4.5%, Operating Income -16.5%, and Ordinary Income -16.6%). Neither the earnings forecast nor the dividend forecast has been revised for the current quarter.

Shareholder Returns

The full-year dividend forecast remains unchanged at ¥101 per share. The payout ratio based on the Company’s forecast EPS of ¥166.67 is approximately 60.6%. With cash and deposits of ¥20.20B and an Equity Ratio of 46.9%, the financial base remains stable, and no revision has been made to the dividend forecast for the current quarter. Simple comparison with the previous year’s actual dividend of ¥40 requires caution because of differences in the interim and year-end dividend periods.

Risk Factors

1. Relatively low profitability of the Construction Business: The gross margin of the Construction Business is 10.8%, below 22.8% for the Civil Engineering Business and 20.2% for the Affiliates Business. The Construction Business accounts for slightly less than approximately 40% of total Company revenue, meaning that its profitability trend represents a constraint on the ceiling for the Company-wide margin.

2. Dependence on short-term funding and refinancing sensitivity: Short-term borrowings of ¥13.50B exceed long-term borrowings of ¥9.88B, and the short-term portion of interest-bearing debt is high at approximately 58%. Interest expense increased from ¥0.05B in the previous year to ¥0.12B, indicating relatively high sensitivity to future changes in the interest-rate environment.

3. Increased dependence on advance payments for awarded projects: Contract liabilities of ¥6.32B and deposits received of ¥6.04B both increased substantially from the previous year. While these balances support future revenue, delays in the progress of large projects or cancellations could result in a reversal of cash flow trends.

Industry Benchmark (For Reference; Compiled by the Company)

Both the Operating Income margin and Net Income margin substantially exceeded the industry median, indicating that profitability was relatively high within the industry.

Revenue growth was substantially below the industry median, placing the Company at a relative disadvantage within the industry in terms of top-line growth.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Shift to earnings growth despite lower revenue: While Revenue declined by -10.1%, Operating Income increased by +21.4% as the gross margin improved by +4.5pt. Improved profitability in the Civil Engineering Business and higher revenue from the Affiliates Business were the primary drivers, with changes in the project mix serving as the main factor behind the improvement in profitability.

2. Profit progress outpaced revenue progress at the start of the fiscal year: The full-year progress rate was 27.9% for Operating Income versus 21.5% for Revenue, making this a quarter in which profitability led revenue. The accumulation of contract liabilities and deposits received can be viewed as an indication of potential revenue recognition in the future.

3. Profitability of the Construction Business remains a key focus: The Construction Business gross margin of 10.8% was lower than those of the Civil Engineering Business and Affiliates Business, and the segment’s profitability trend could affect the trajectory of the Company-wide profit margin.

Theoretical Share Price (Reference Value)

The following is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: ¥1,477–¥1,560 at ±1% for the cost of equity, and ¥1,514–¥1,522 at ±0.1 for ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast 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. 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 professionals as necessary.

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