SHINNIHON (1879) FY2027 Q1 Earnings Report

Quick View

Executive Summary

The Company secured higher revenue and profit, primarily driven by substantial revenue growth and improved profitability in the Construction Business; however, lower profit in the Development Business and other operations pushed down the Company-wide profit margin. Revenue was ¥33.03B (+29.0% YoY), Operating Income was ¥3.85B (+5.4%), Ordinary Income was ¥4.05B (+7.9%), and Net Income was ¥2.78B (+4.4%). While the expansion in completed construction revenue led the Company-wide revenue growth, the increase in the tax burden restrained Net Income growth.

Factors Affecting Business Performance

【Revenue】Revenue was ¥33.03B, up +29.0% YoY. By segment, the Construction Business generated ¥27.39B (+45.7% YoY), accounting for 82.9% of total Company revenue and serving as the core driver of revenue growth. Meanwhile, the Development Business and other operations contracted to ¥5.66B (-17.1%), with significant fluctuations attributable to the timing of project recognition.

【Profit and Loss】Operating Income was ¥3.85B (+5.4%), Ordinary Income was ¥4.05B (+7.9%), and Net Income was ¥2.78B (+4.4%). Segment profit in the Construction Business was ¥3.71B (+130.1%), with a profit margin of 13.6% (8.6% in the same period last year), indicating a significant improvement in construction profitability. In contrast, the Development Business and other operations saw profit plunge to ¥0.396B (-82.7%), with the profit margin falling to 7.0% (33.4% in the same period last year). This change in the business mix contributed to the decline in the consolidated gross profit margin to 15.1% (18.3% in the same period last year). The effective tax rate increased to 31.2% (28.9% in the same period last year), restraining Net Income growth relative to the increase in Profit Before Tax. In conclusion, the Company achieved higher revenue and profit led by the Construction Business.

Segment Analysis

The Construction Business achieved substantial revenue and profit growth and improved profitability, with revenue of ¥27.39B (+45.7% YoY), segment profit of ¥3.71B (+130.1%), and a profit margin of 13.6% (8.6% in the same period last year). It is the core business, accounting for approximately 90% of total segment profit. The Development Business and other operations contracted significantly, with revenue of ¥5.66B (-17.1%), segment profit of ¥0.396B (-82.7%), and a profit margin of 7.0% (33.4% in the same period last year). Performance in the Development Business and other operations is susceptible to the timing of property handovers, and the decline in profit during the current period is believed to have resulted from the recognition of revenue from highly profitable projects being concentrated in the prior year.

Key Financial Indicators

【Profitability】The Operating Income margin was 11.7%, down 262bp from 14.3% in the same period last year, but remained within the generally favorable range of 8–15%. The Net Income margin was 8.4%, down 198bp from 10.4% in the same period last year.【Cash Flow Quality】Cash and deposits were ¥72.96B, a significant decline from ¥95.82B at the end of the prior year, but remained well above current liabilities of ¥44.49B. Accounts receivable for completed construction contracts increased to ¥19.88B, up +57.1% YoY, apparently reflecting the increase in receivables accompanying revenue growth.【Investment Efficiency】ROE (annualized) was 8.2%, indicating that an improvement in total asset turnover offset the decline in the Net Income margin. EPS was ¥47.61 (¥45.59 in the same period last year, +4.4%).【Financial Soundness】The Equity Ratio remained high at 74.4% (72.6% in the same period last year), while the current ratio was approximately 376% and the debt-to-equity ratio remained at 0.34x.

Cash Flow Analysis

As individual data from the statement of cash flows are not provided in this material, cash trends are analyzed based on changes in the balance sheet. Cash and deposits decreased by ¥22.86B from ¥95.82B at the end of the prior year to ¥72.96B, while accounts receivable for completed construction contracts increased by ¥7.23B to ¥19.88B. The collection of construction proceeds outstanding in connection with revenue growth is believed to have been one factor behind the decline in cash balances. Advances received on uncompleted construction contracts were ¥6.29B, a decrease of ¥1.94B from the end of the prior year, and the utilization of advance payments in line with construction progress is also considered a factor in the decline in cash balances. Cash and deposits represented approximately 164% of current liabilities of ¥44.49B, indicating that the Company maintained substantial liquidity headroom even after the decline in cash balances.

Quality of Earnings

The increase in profit during the current period was based on recurring business activities, and no temporary factors such as extraordinary gains or losses were identified. Non-operating income was only ¥0.19B, equivalent to 0.6% of revenue, of which interest income accounted for ¥0.17B. Accordingly, the increase in Ordinary Income was not dependent on non-operating income. While Profit Before Tax increased +7.9% YoY, the increase in Net Income was limited to +4.4% because the effective tax rate rose from 28.9% to 31.2%, indicating that changes in the tax burden affected earnings quality. The increase in accounts receivable for completed construction contracts (+57.1%) appears to be a natural consequence of revenue growth, but monitoring collection progress is advisable.

Earnings Forecasts and Guidance

The full-year Company forecast calls for revenue of ¥156.00B (+12.7% YoY), Operating Income of ¥25.50B (+25.0%), and Ordinary Income of ¥26.00B (+25.2%). As of Q1, progress toward the full-year forecast was 21.2% for revenue, 15.1% for Operating Income, and 15.6% for Ordinary Income, below the standard 25%. To achieve the full-year Operating Income forecast, an Operating Income margin of 17.6% will be required on the remaining revenue of ¥122.97B from Q2 onward. Both the earnings forecast and dividend forecast were revised during the current quarter. Achieving the revised plan will depend critically on maintaining profitability in the Construction Business and restoring profit recognition in the Development Business and other operations.

Shareholder Returns

The full-year dividend forecast is ¥80.0 per share, while the full-year EPS forecast is ¥299.2, resulting in a Payout Ratio of approximately 26.7% (dividends only). This is below the generally accepted sustainability benchmark of 60%. Retained earnings were ¥127.52B and cash and deposits were ¥72.96B, providing accumulated resources supporting the Company’s dividend-paying capacity. The dividend forecast for the current period was revised, including a review from the ¥30.0 per share dividend in the same period last year based on the current-quarter results. As the amount of treasury stock acquired during the current period has not been disclosed, the Total Return Ratio has not been calculated.

Risk Factors

1. Performance volatility risk in the Development Business and other operations: Revenue decreased -17.1% YoY and segment profit declined -82.7%. The business structure is highly susceptible to the timing of property handovers and project profitability recognition, creating a substantial impact on the consolidated profit margin.

2. Construction cost inflation risk: The consolidated gross profit margin was 15.1%, down from 18.3% in the prior year. If increases in material prices, labor costs, and subcontracting expenses cannot be sufficiently passed on to contract prices, growth in construction volume may not translate into profit growth.

3. Collection risk for accounts receivable for completed construction contracts: Accounts receivable for completed construction contracts increased to ¥19.88B, up +57.1% YoY. Although this appears to be a natural increase accompanying revenue growth, billing and collection progress require continuous monitoring.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (construction)

Profitability and Returns

The Company’s profitability is substantially above the industry median and is relatively high within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate substantially exceeds the industry median, demonstrating high growth within the industry.

※Source: Company analysis

Key Earnings Highlights

1. The Construction Business achieved substantial revenue and profit growth, with revenue of ¥27.39B and segment profit of ¥3.71B. Its profit margin also improved to 13.6% (8.6% in the same period last year), making it the central driver of consolidated profit growth during the current quarter.

2. The consolidated Operating Income margin was 11.7%, a relatively favorable level within the industry, but declined 262bp YoY. The structural impact of the change in the business mix, namely the lower profit contribution from the Development Business and other operations, is an important point of observation.

3. The financial foundation remains strong, with an Equity Ratio of 74.4% and a current ratio of approximately 376%. Securing an Operating Income margin of 17.6% from Q2 onward will be the key test for achieving the full-year forecast.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,562–¥2,715 for ±1% in the Cost of Equity, and ¥2,629–¥2,648 for ±0.1 in ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing gap with the full-year forecast).
• Because 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 / Mechanically calculated value based solely on 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.)

---

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.

---End of Report---