DAITO TRUST CONSTRUCTION CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In Q1, Revenue was nearly flat, while improved profitability in the major segments led to double-digit increases in Operating Income and Ordinary Income. However, Net Income attributable to owners of the parent declined due to the recognition of extraordinary losses. Revenue was ¥4,801.2B (+0.4% YoY), Operating Income was ¥393.8B (+15.5%), and Ordinary Income was ¥398.1B (+13.4%), while Net Income attributable to owners of the parent was limited to ¥236.8B (¥241.0B in the same period of the previous year, -1.8%). The primary drivers of profit growth were improved profitability in the Real Estate Leasing, Construction, and Real Estate Development businesses. The gross profit margin declined to 18.3%, the SG&A expense ratio declined to 10.1%, and the Operating Income margin improved to 8.2% (7.1% in the previous year). The decline in Net Income was attributable to the recognition of ¥43.2B in extraordinary losses, including an impairment loss on investment securities of ¥42.5B. Profitability through the Ordinary Income level remains on an improving trend.

Factors Affecting Results

【Revenue】Revenue was ¥4,801.2B, essentially flat at +0.4% YoY. The core Real Estate Leasing Business secured a 4.0% increase in Revenue to ¥3,108.4B through the accumulation of master lease income. In contrast, the Construction Business reported Revenue of ¥1,280.7B (-3.5%), while the Real Estate Development Business reported ¥301.6B (-10.2%), both declining due to timing factors related to the completion of construction projects and property handovers. The Financial Business (+1.9%) and Other Businesses (+5.6%) maintained Revenue growth, albeit on a small scale. Overall Revenue growth was limited to a slight increase as growth in some segments was offset by declines in others.

【Profit and Loss】Operating Income increased 15.5% to ¥393.8B, while Ordinary Income increased 13.4% to ¥398.1B, substantially exceeding the growth in Revenue. Profitability improved across the major segments: Real Estate Leasing (+15.7% in Operating Income, 8.9% margin), Construction (+16.9%, 7.7% margin), and Real Estate Development (+52.3%, 14.0% margin). The decline in the gross profit margin to 18.3% and the SG&A expense ratio to 10.1% contributed to Operating Leverage. However, due mainly to the recognition of ¥43.2B in extraordinary losses, including an impairment loss on investment securities of ¥42.5B, Profit Before Tax was limited to ¥354.9B, and Net Income attributable to owners of the parent declined to ¥236.8B (¥241.0B in the previous year, -1.8%). The Company achieved higher Revenue and profit at the Operating Income and Ordinary Income levels, while only Net Income was depressed by the temporary factor of extraordinary losses.

Segment Analysis

By segment, the core Real Estate Leasing Business generated Revenue of ¥3,108.4B (+4.0%), Operating Income of ¥275.1B (+15.7%), and an 8.9% margin, serving as the central contributor to company-wide profit. The Construction Business reported Revenue of ¥1,280.7B (-3.5%), but achieved Operating Income of ¥99.0B (+16.9%) and a 7.7% margin, with profit growth despite lower Revenue due to an improvement in the gross profit margin on completed construction projects. The Real Estate Development Business generated Revenue of ¥301.6B (-10.2%), while Operating Income increased 52.3% to ¥42.2B, producing a 14.0% margin, the highest profitability level among all segments. The Financial Business recorded Revenue of ¥79.1B (+1.9%), Operating Income of ¥6.4B (+4.3%), and an 8.0% margin, representing slight increases in both Revenue and profit. Other Businesses, which are outside the reportable segments, generated Revenue of ¥200.5B (+5.6%) but Operating Income of ¥19.0B (-30.5%) and a 9.5% margin, making it the only segment to report a profit decline. Overall, a distinctive feature is the ability to secure profit growth through margin improvements even in segments with declining Revenue. Cost control and an improved business mix were the primary drivers of the increase in the company-wide profit margin.

Key Financial Indicators

【Profitability】The Operating Income margin was 8.2%, improving by approximately 1.1pt from 7.1% in the same period of the previous year. The Net Income margin, based on Net Income attributable to owners of the parent, was 4.9%, nearly flat from 5.0% in the previous year. ROE was 4.8% on a quarterly basis, while EPS was ¥72.68 (¥72.72 in the previous year, -0.1%), with the decrease in the number of shares outstanding resulting from share buybacks supporting earnings per share. 【Cash Flow Quality】Operating Cash Flow was -¥411.2B, substantially below Net Income attributable to owners of the parent of ¥236.8B, primarily due to an increase in working capital associated with real estate for sale and construction in progress. 【Investment Efficiency】Capital expenditures were ¥69.3B, exceeding depreciation and amortization of ¥56.1B. Investment securities increased by +22.5% YoY (an increase of approximately ¥100B), indicating continued accumulation. 【Financial Soundness】The Equity Ratio was 35.7%, down 0.8pt from 36.5% in the previous year. While short-term borrowings increased significantly YoY (+¥613B), the Company maintained Cash and deposits of ¥2,499.9B, and Financial Leverage is showing a slight upward trend.

Cash Flow Analysis

Operating Cash Flow was -¥411.2B (－¥251.2B in the previous year), with the magnitude of the deficit increasing. The primary factors were deterioration in working capital, including an increase in real estate for sale (-¥168.2B), an increase in costs on construction contracts in progress (-¥28.8B), and a decrease in advances received on construction contracts in progress (-¥86.0B). Income taxes paid of ¥266.5B also constituted a cash outflow. Investing Cash Flow was -¥267.2B, with capital expenditures of ¥69.3B as well as movements in investment securities and time deposits acting as downward factors. Financing Cash Flow was +¥414.5B. The increase in short-term borrowings (+¥613.0B) provided funding exceeding repayments of long-term borrowings (-¥153.9B), dividend payments (-¥267.5B), and the acquisition of treasury shares (-¥134.0B). As a result, Free Cash Flow (Operating CF + Investing CF) was -¥678.4B, indicating that investment and shareholder returns during the quarter were primarily funded through short-term borrowings.

Earnings Quality

The recurring earnings base consists of Operating Income from the Real Estate Leasing, Construction, and Real Estate Development businesses. Non-operating income was ¥19.8B (0.4% of Revenue), while non-operating expenses were ¥15.5B, including ¥11.5B in interest expenses, indicating limited non-recurring impact. Meanwhile, extraordinary losses of ¥43.2B consisted almost entirely of the ¥42.5B impairment loss on investment securities, a temporary factor that depressed Profit Before Tax and Net Income. Although there was a significant gap between Operating Income of ¥393.8B and Net Income attributable to owners of the parent of ¥236.8B, the primary cause was extraordinary losses, and earnings quality through the Ordinary Income level remains sound. Comprehensive Income was ¥232.7B, broadly comparable to Net Income of ¥236.8B. However, an unrealized gain or loss on securities of -¥17.3B exceeded foreign currency translation adjustments of +¥15.8B, resulting in a slight negative divergence. On the other hand, Operating Cash Flow was -¥411.2B, substantially below Net Income, and attention is warranted regarding the conversion of earnings into cash generation, as the Company recorded significant accruals associated with increased working capital.

Earnings Forecast and Guidance

Progress against the Full-Year forecast was 23.4% for Revenue, 27.7% for Operating Income, 28.4% for Ordinary Income, and 21.9% for Net Income (based on Net Income attributable to owners of the parent; ¥236.8B against the Full-Year forecast of ¥1,080B). Compared with simple quarterly progress on an even basis (25%), Operating Income and Ordinary Income are progressing ahead of schedule, supported by improved profitability in the Real Estate Leasing, Construction, and Real Estate Development businesses. Net Income, meanwhile, is progressing somewhat more slowly due to the recognition of extraordinary losses. No revisions were made to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The Full-Year dividend forecast is ¥163 per share, implying a Payout Ratio of approximately 50.0% against forecast EPS of ¥326. The Company conducted a 5-for-1 stock split of its common shares effective October 1, 2025, and the impact of the split must be considered when comparing dividend amounts across periods. During the quarter, the Company acquired treasury shares for ¥134.0B, providing capital returns in addition to dividends. However, Operating Cash Flow was -¥411.2B and Free Cash Flow was -¥678.4B during the quarter, indicating that these returns utilized available liquidity, including Cash and deposits of ¥2,499.9B.

Risk Factors

1. Cash Flow and Working Capital Risk: Operating Cash Flow was -¥411.2B, representing a significant divergence from Net Income attributable to owners of the parent of ¥236.8B, with a ratio of -1.74x. The primary cause was an increase in working capital, including real estate for sale and construction in progress. The future pace of cash conversion will be a key focus.

2. Funding Structure and Leverage Risk: Short-term borrowings increased sharply by +¥613.0B YoY. Together with long-term borrowings of ¥1,776.8B and bonds of ¥115.0B, this indicates greater dependence on interest-bearing debt. The Equity Ratio declined to 35.7% from 36.5% in the previous year. Although a liquidity buffer of ¥2,499.9B in Cash and deposits has been secured, the funding structure requires monitoring.

3. Risk of Recurrence of Extraordinary Losses and Impairment Losses: During the quarter, the Company recorded extraordinary losses of ¥43.2B, including an impairment loss on investment securities of ¥42.5B, depressing Profit Before Tax and Net Income. The balance of investment securities increased to ¥548.8B (+22.5% YoY), and changes in market values may affect temporary gains and losses going forward.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

The Company's Operating Income margin and Net Income margin both exceed the industry median, indicating that profitability is relatively high within the industry.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median, placing the Company's top-line growth among the relatively slower rates within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Operating Income margin improved to 8.2% from 7.1% in the previous year, with profitability improving across the major Real Estate Leasing, Construction, and Real Estate Development segments. In particular, the Real Estate Development Business achieved a 14.0% profit margin and a +52.3% increase in Operating Income despite lower Revenue, suggesting a qualitative change in the earnings structure.

2. While Ordinary Income continued to post double-digit growth, Net Income declined due to extraordinary losses primarily attributable to the impairment loss on investment securities. The growth trend at the Ordinary Income level and the temporary downward pressure on Net Income should be assessed separately.

3. The expansion of the Operating Cash Flow deficit and the sharp increase in short-term borrowings reflect an increase in working capital, including inventory and construction in progress. These developments provide indicators for monitoring the time lag between profit growth and cash generation.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using the Residual Income Model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,103–¥2,226 at Cost of Equity ±1%, and ¥2,147–¥2,187 at ω±0.1.

Notes:

• Goodwill amortization of ¥3.7 per share is added back to earnings (due to its nature as a non-cash expense and to improve comparability with IFRS companies).
• Net assets as of the end of the quarter are used (there is a timing difference relative to the Full-Year forecast).

(Calculation model: Residual Income Model / Interest rate reference month: 2026-06 / This value does not predict or guarantee the future share price)

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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 discretion and responsibility, after consulting with a professional as necessary.

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