TOA CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

Despite a decline in revenue, the Company reported increases in Ordinary Income and Net Income due to improved profitability. Revenue was ¥761.9B (-8.7% YoY), while Operating Income was ¥51.2B (-0.9% YoY), remaining nearly flat. Ordinary Income was ¥52.2B (+3.8% YoY), and Net Income attributable to owners of the parent was ¥36.8B (+6.7% YoY). The primary cause of the revenue decline was a substantial decrease in the Domestic Construction Business (-37.3%) due to a trough in construction progress, partially offset by growth in the Overseas Business (+23.1%). The gross profit margin improved to 12.5%, up +1.7pt from 10.8% in the same period of the previous year, while an improvement in non-operating income and expenses, including lower interest expenses and improved foreign exchange gains and losses, contributed to increases in Ordinary Income and Net Income.

Factors Affecting Business Performance

【Revenue】Revenue was ¥761.9B, representing a decline of -8.7% YoY. By segment, the Domestic Civil Engineering Business was the largest at ¥332.2B (43.6% of total, YoY -4.1%). The Domestic Construction Business recorded ¥174.9B (23.0% of total, YoY -37.3%), a substantial decline due to a gap in construction progress. The Overseas Business grew to ¥224.9B (29.5% of total, YoY +23.1%), supporting revenue. Other Businesses, including real estate and construction machinery, remained solid at ¥52.5B (YoY +8.5%).

【Profit and Loss】Gross profit was ¥95.0B, and the gross profit margin improved to 12.5% from 10.8% in the same period of the previous year, an improvement of +1.7pt. Operating Income was ¥51.2B (Operating Income margin of 6.7%, up +0.5pt from 6.2% in the previous year), remaining nearly at the previous-year level. SG&A expenses increased +13.7% to ¥43.8B from ¥38.5B in the previous year, but this was absorbed by the improvement in gross profit. By segment, the Overseas Business recovered sharply to ¥13.1B in segment profit (YoY +406.6%, profit margin 5.8%), while the Domestic Construction Business maintained a high margin at ¥20.3B (YoY +4.9%, profit margin 11.6%). In contrast, the Domestic Civil Engineering Business declined to ¥28.9B (YoY -23.5%, profit margin 8.7%), indicating slower profitability in the core business. Ordinary Income was ¥52.2B (YoY +3.8%), with lower interest expenses (¥1.1B versus ¥1.6B in the previous year) and a shift to foreign exchange gains (¥0.3B, compared with a foreign exchange loss in the previous year) improving non-operating income and expenses. Extraordinary gains and losses were a temporary net positive factor of +¥1.2B, mainly reflecting a gain on the sale of non-current assets of ¥1.5B, resulting in Profit Before Tax of ¥53.4B (YoY +6.2%). Net Income attributable to owners of the parent was ¥36.8B (YoY +6.7%), also supported by non-controlling interests shifting from income in the previous year to a loss. Overall, the Company reported a “declining revenue, increasing profit” result, with revenue down but Ordinary Income and Net Income up.

Segment Analysis

Growth in the Overseas Business was particularly notable. The Overseas Business recorded revenue of ¥224.9B (YoY +23.1%) and Operating Income of ¥13.1B (YoY +406.6%), representing a substantial increase in profit. Its profit margin also improved to 5.8%, apparently supported by the benefits of yen depreciation and progress on profitable projects. The Domestic Construction Business experienced a substantial revenue decline to ¥174.9B (YoY -37.3%), but Operating Income increased to ¥20.3B (YoY +4.9%), and its profit margin remained at the highest level among the four segments at 11.6%, reflecting the success of selective order acceptance and cost management. The Domestic Civil Engineering Business recorded revenue of ¥332.2B (YoY -4.1%, the largest segment with a 43.6% share), but Operating Income declined to ¥28.9B (YoY -23.5%), with the profit margin falling to 8.7%. Changes in cost progress and project mix may have placed pressure on profit. Other Businesses remained solid, with revenue of ¥52.5B (YoY +8.5%), Operating Income of ¥4.9B (YoY +62.2%), and a profit margin of 9.4%.

Key Financial Metrics

【Profitability】The Operating Income margin was 6.7%, improving +0.5pt from 6.2% in the previous year, while the Net Income margin, based on income attributable to owners of the parent, was 4.8%, up +0.7pt from 4.1% in the previous year. The primary factor was the improvement in the gross profit margin to 12.5% from 10.8% in the previous year.【Cash Flow Quality】Cash and deposits were ¥458.7B (¥493.8B in the previous year, -7.1%). Progress in collecting accounts receivable from completed construction contracts and the accumulation of advances received on construction contracts in progress contributed to working capital efficiency, while cash declined partially due to payments of corporate taxes payable.【Investment Efficiency】ROE was 3.1% on a quarterly basis, and total assets contracted to ¥2809.4B (¥3054.3B in the previous year, -8.0%). In addition to continued earnings growth, improving asset efficiency remains a challenge for enhancing capital efficiency.【Financial Soundness】The Equity Ratio was 41.8%, up +3.2pt from 38.6% in the previous year. The current ratio was favorable at 151.4% (current assets of ¥2168.5B/current liabilities of ¥1432.7B), and interest coverage was high at 46.98x based on Operating Income. However, short-term borrowings increased to ¥158.6B (up +57.8% YoY), indicating a modest increase in dependence on short-term funding.

Cash Flow Analysis

The Company does not separately disclose a cash flow statement for the quarter, but changes in the balance sheet provide insight into cash movements. Cash and deposits were ¥458.7B, down -¥35.1B (-7.1%) from ¥493.8B at the end of the same period of the previous year. Accounts receivable from completed construction contracts declined by -¥240.1B to ¥1337.7B (¥1577.8B in the previous year), indicating progress in receivables collection. Meanwhile, advances received on construction contracts in progress increased by +¥53.7B (+31.2%) to ¥225.6B (¥171.9B in the previous year), with the accumulation of advance payments supporting working capital. On the other hand, accounts payable for construction and other payables fell substantially by -¥158.9B to ¥339.9B (¥498.8B in the previous year), indicating that payments preceded collections. Corporate taxes payable also declined substantially due to the reversal of the prior-period tax payment, and these factors reduced cash. Short-term borrowings increased by +¥58.1B (+57.8%) to ¥158.6B (¥100.5B in the previous year), covering part of working capital needs. Interest expenses declined to ¥1.1B from ¥1.6B in the previous year, reducing the interest burden.

Quality of Earnings

The majority of quarterly profit was generated by operating activities, while the impact of extraordinary gains and losses was limited. Extraordinary income was ¥1.5B, representing a gain on the sale of non-current assets, and extraordinary losses were ¥0.3B, representing a loss on the disposal of non-current assets. The net amount of +¥1.2B represented only 2.2% of Profit Before Tax of ¥53.4B, indicating a limited contribution from temporary factors. Of ¥2.8B in non-operating income, dividends received were the largest item at ¥1.6B. The shift to a foreign exchange gain of ¥0.3B and the decline in interest expenses (¥1.6B → ¥1.1B) contributed to the increase in Ordinary Income, although these are variable factors affected by foreign exchange and interest rate conditions. Comprehensive income was ¥45.0B (¥45.5B attributable to owners of the parent). The +¥8.7B difference from Net Income of ¥36.8B was primarily due to +¥10.0B in valuation differences on securities, partially offset by -¥1.4B in adjustments related to retirement benefits. This difference was mainly attributable to the non-recurring factor of changes in the market value of held equities and should be distinguished from the earnings power of the core business.

Earnings Forecast and Guidance

Progress against the full-year Company forecast was 21.2% for revenue (¥761.9B/¥3600B), 24.3% for Operating Income (¥51.2B/¥211.0B), 25.1% for Ordinary Income (¥52.2B/¥208.0B), and 25.4% for Net Income attributable to owners of the parent (¥36.8B/¥145.0B). Revenue progress was slightly below the quarterly average of 25%, while profit progress was generally around 25%, a standard level. Whereas the Company forecasts full-year declines of -12.8% in Operating Income and -15.5% in Ordinary Income, Ordinary Income increased +3.8% in Q1, suggesting that the plan may incorporate deterioration in profitability toward the second half of the fiscal year. Neither the earnings forecast nor the dividend forecast had been revised as of the end of the quarter.

Shareholder Returns

The Company’s full-year dividend forecast is ¥77.00 per share (¥38 per share actual for the same period of the previous year). The dividend-related notes disclose a regular dividend of ¥77 plus a special dividend of ¥23 as the breakdown of the annual dividend for the fiscal year ended March 2026. Based on approximately 77,331 thousand shares, calculated by deducting 10,648 thousand treasury shares from 87,978 thousand issued shares, the annual total dividend calculated using only the regular dividend of ¥77 is approximately ¥59.6B. The resulting Payout Ratio against the full-year Net Income forecast of ¥145.0B is approximately 41.1%. Considering cash and deposits of ¥458.7B and the accumulation of advances received on construction contracts in progress, the Company appears to have a certain degree of flexibility in its dividend funding for the time being. No disclosure regarding share buybacks has been identified.

Risk Factors

1. Slowing profitability in the Domestic Civil Engineering Business: The core Domestic Civil Engineering Business generated revenue of ¥332.2B (43.6% of total), while Operating Income was ¥28.9B (YoY -23.5%) and the profit margin was 8.7%, down from the previous year. Changes in cost progress and project mix may be placing pressure on profit.

2. Increased dependence on short-term funding: Short-term borrowings increased by +¥58.1B (+57.8% YoY) to ¥158.6B, increasing the proportion of short-term funding within current liabilities of ¥1432.7B. Although interest expenses have declined, attention should be paid to the potential increase in funding costs if interest rate conditions change.

3. Impact of the Overseas Business and foreign exchange fluctuations: The Overseas Business improved substantially, with revenue of ¥224.9B (YoY +23.1%) and Operating Income of ¥13.1B (YoY +406.6%). However, foreign exchange gains and losses shifted from a foreign exchange loss in the previous year to a foreign exchange gain of ¥0.3B in the current period, and foreign exchange fluctuations are likely to continue having a significant impact on earnings.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceed the industry median, indicating that profitability is relatively high within the industry.

Growth and Capital Efficiency

The Revenue Growth Rate is substantially below the industry median, placing the Company in a declining-revenue phase within an industry where revenue growth has continued.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Despite declining revenue, the gross profit margin improved +1.7pt and the Operating Income margin improved +0.5pt, resulting in increases in Ordinary Income and Net Income. The decline in revenue was absorbed by an improvement in gross profit that exceeded the increase in SG&A expenses, indicating that progress in cost management and project selection is reflected in margin trends.

2. By segment, the sharp recovery in the Overseas Business (Operating Income +406.6%) and the maintenance of high margins in the Domestic Construction Business (profit margin 11.6%) supported earnings. Meanwhile, the core Domestic Civil Engineering Business recorded a decline in Operating Income of -23.5%, making changes in the earnings structure among segments a key focus going forward.

3. While short-term borrowings increased +57.8%, shortening the maturity structure of current liabilities, advances received on construction contracts in progress accumulated +31.2%. Future cash flow trends will therefore be closely monitored from both the perspectives of working capital and order trends.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type 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: ¥1,647–¥1,743 at Cost of Equity ±1%, and ¥1,690–¥1,700 at ω±0.1.

Notes:

• Net assets as of the end of the quarter 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 / Interest rate reference month: 2026-07 / This value does not forecast 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 responsibility, after consulting with a professional as necessary.

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