TOA ROAD (1882) FY2026 Q3 Earnings Report

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Executive Summary

The nine months ended Q3 of the fiscal year ending March 2026 resulted in lower revenue and lower earnings. However, the period was characterized by improved profitability at the gross profit level and the fact that the primary reason for the decline in net income was a reduction in temporary factors. Revenue was ¥860.6B (-4.9% YoY), Operating Income was ¥28.8B (-4.2%), Ordinary Income was ¥31.0B (-3.6%), and Net Income was ¥21.5B (-26.1%). Gross profit increased year on year and the gross margin improved to 10.8%; however, the significant decline in net income was primarily due to the reduction in gains on the sale of investment securities and fixed assets (extraordinary income of ¥11.1B) recorded in the same period of the previous year, which fell to ¥1.6B in the current period.

Factors Affecting Results

【Revenue】Revenue was ¥860.6B, down -4.9% YoY, with both the Construction Business (¥509.4B, -4.4%) and the Manufacturing, Sales & Environmental Business and Other Businesses (¥358.1B, -5.7%) recording lower revenue. The revenue composition was 59.2% from the Construction Business and 40.8% from the Manufacturing, Sales & Environmental Business and Other Businesses. The decline in revenue in both segments is presumably attributable to decreases in orders received, construction volume, and product sales volume.

【Profit and Loss】Operating Income was ¥28.8B (-4.2%), and the Operating Income margin was 3.3% (3.3% in the previous year), remaining virtually flat. Despite lower revenue, the gross margin improved to 10.8% (equivalent to 10.2% in the previous year). The segment profit margins for the Construction Business and the Manufacturing, Sales & Environmental Business and Other Businesses improved to 3.5% (3.4% in the previous year) and 7.9% (7.5%), respectively. However, corporate expenses increased to ¥17.5B (¥16.4B in the previous year, +7.0%), offsetting the improvement in segment profits. Net income declined to ¥21.5B (-26.1%), primarily due to the impact of extraordinary income of ¥11.1B in the same period of the previous year (gains on the sale of investment securities and fixed assets) declining to ¥1.6B in the current period. The reversal of temporary factors therefore had a greater impact than the deterioration in core operations. Overall, the results are assessed as lower revenue and lower earnings.

Segment Analysis

The Construction Business recorded Revenue of ¥509.4B (-4.4% YoY), segment profit of ¥17.7B (-1.1%), and a profit margin of 3.5% (3.4% in the previous year), indicating a slight improvement in profitability despite lower revenue. The Manufacturing, Sales & Environmental Business and Other Businesses recorded Revenue of ¥358.1B (-5.7%), segment profit of ¥28.4B (+0.3%), and a profit margin of 7.9% (7.5% in the previous year), making it the core business and accounting for 61.6% of consolidated segment profit of ¥46.1B. Although both businesses showed improved profit margins despite lower revenue, consolidated Operating Income declined by -4.2% due to increased corporate expenses.

Key Financial Indicators

【Profitability】The Operating Income margin was 3.3%, the Ordinary Income margin was 3.6%, and the Net Income margin was 2.5%, all reflecting a low-margin business structure. Although the gross margin improved from the same period of the previous year to 10.8%, it remained below 20%, indicating a low gross-margin level.【Cash Flow Quality】Accounts receivable from completed construction contracts were ¥290.8B, accounting for 32.7% of total assets. While the decline from the same period of the previous year indicates an improving trend in collection, costs on uncompleted construction contracts increased significantly to ¥41.8B (+230.7% YoY), indicating greater accumulation of funds and costs in ongoing projects.【Investment Efficiency】ROE (annualized) was 5.4%, remaining low as a result of the combination of the Net Income margin, total asset turnover, and financial leverage.【Financial Soundness】The Equity Ratio was 59.8%, interest-bearing debt was ¥72.6B, and cash and deposits were ¥125.5B, indicating conservative levels of both liquidity and leverage. However, current liabilities account for the majority of total liabilities, and short-term borrowings increased by +27.8% YoY.

Cash Flow Analysis

Although a standalone cash flow statement has not been disclosed, cash trends can be assessed from changes in the balance sheet. Accounts receivable from completed construction contracts declined by ¥71.5B YoY to ¥290.8B, and the reduction in trade receivables may contribute to improved cash collection. Meanwhile, costs on uncompleted construction contracts increased by ¥29.1B to ¥41.8B (+230.7%), indicating greater accumulation of costs and funds in ongoing projects. Advances received on uncompleted construction contracts increased by ¥16.3B to ¥25.9B (+167.8%), and the increase in advance payments for ongoing projects provides support from a funding perspective. Cash and deposits were ¥125.5B, slightly higher than in the same period of the previous year, and remained above short-term borrowings of ¥69.6B. Overall, the reduction in trade receivables and increase in advance payments are supporting cash resources, while the expansion of costs on uncompleted construction contracts warrants attention as a potential future cash burden.

Quality of Earnings

Of the current-period Profit Before Tax of ¥32.5B, ¥1.6B consisted of extraordinary income (¥1.2B in gains on the sale of investment securities and ¥0.4B in gains on the sale of fixed assets), representing a significant reduction in the contribution of temporary factors from ¥11.1B in the same period of the previous year. Non-operating income was ¥2.8B, primarily consisting of dividend income of ¥1.4B, but its dependence was limited at approximately 0.3% of Revenue. The significant -26.1% YoY decline in Net Income was excessive relative to the moderate -4.2% deterioration in Operating Income, with the difference explained by the reversal of extraordinary income recorded in the same period of the previous year. In other words, when assessed solely on the basis of core operations, the Company’s earnings power has not deteriorated significantly from the previous year, and its recurring earnings base has been broadly maintained. However, the decline in temporary factors was the dominant non-recurring influence on the change in Net Income.

Earnings Forecasts and Guidance

The full-year company forecast is Revenue of ¥1270.0B (+0.3% YoY), Operating Income of ¥65.0B (+29.6%), and Ordinary Income of ¥66.0B (+26.8%). The progress rates for the nine months ended Q3 were 67.8% for Revenue, 44.3% for Operating Income, and 47.0% for Ordinary Income, substantially below the standard 75% progress level. Achieving the full-year forecast requires standalone Q4 Operating Income of approximately ¥36.2B, equivalent to approximately 1.26 times the nine-month cumulative Operating Income of ¥28.8B. Although the construction industry has seasonality in which revenue recognition upon completion of construction tends to be concentrated in Q4, the required level is high, making achievement a key variable in the future assessment of results.

Shareholder Returns

The Q2 dividend was ¥45 per share, while the company’s full-year forecast is an annual dividend of ¥90 per share. Against the company’s forecast EPS of ¥88.72, the Payout Ratio is approximately 101.4%, implying that dividends alone exceed the earnings level. Net assets of ¥531.0B, cash and deposits of ¥125.5B, and interest-bearing debt of ¥72.6B may provide a buffer supporting continued dividend payments. However, Net Income attributable to owners of the parent declined by -27.3% YoY, weakening dividend earnings coverage compared with the previous year. Dividend sustainability will depend on the achievement of the full-year forecast in Q4.

Risk Factors

1. Low-margin structure and construction profitability risk: The Operating Income margin of 3.3% and gross margin of 10.8% are low, while costs on uncompleted construction contracts increased to ¥41.8B, up +230.7% YoY. If material costs, labor costs, or subcontracting expenses rise, or if schedule delays occur, the impact on profit is likely to be significant.

2. Concentration of results in Q4: Achieving the full-year Operating Income forecast of ¥65.0B requires approximately ¥36.2B of Operating Income in Q4, highlighting the gap from the current progress rate of 44.3%. There is a risk of falling short due to timing differences in construction completion and revenue recognition.

3. High Payout Ratio and capital allocation: The forecast-based Payout Ratio is approximately 101.4%. Without earnings growth, this may constrain the accumulation of retained earnings and flexibility for growth investments. Retained earnings declined by -10.2% YoY.

Industry Benchmark (For Reference; Company Research)

Profitability and Returns

As industry median data is not yet available, quantitative assessment of the Company’s relative position is not possible. However, the Company’s Operating Income margin of 3.3% appears to fall within the low-margin structure generally seen in the construction industry.

Growth and Capital Efficiency

Although relative assessment is limited because industry median data is not yet available, the Company’s Revenue growth rate of -4.9% indicates a declining revenue trend.

※Source: Company research

Key Points from the Financial Results

1. Despite lower revenue, the gross margin and profit margins of both segments improved. The increase from the previous year in both the Construction Business (profit margin of 3.5%) and the Manufacturing, Sales & Environmental Business and Other Businesses (profit margin of 7.9%) is notable as a qualitative change in the earnings structure.

2. The -26.1% YoY decline in Net Income was primarily caused by the reduction in extraordinary income recorded in the same period of the previous year, rather than deterioration in core operations (Operating Income -4.2%). Recurring earnings power excluding temporary factors has therefore been relatively maintained.

3. The Operating Income progress rate of 44.3% against the full-year forecast is substantially below standard levels, making the extent to which Q4 results are realized a key factor determining the future assessment of performance.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,086–¥1,144 at ±1% for the cost of equity, and ¥1,114–¥1,115 at ±0.1 for ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference from 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 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, nor does it predict 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 a professional as necessary.

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