| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥1352.1B | ¥1233.5B | +9.6% |
| Operating Income / Operating Profit | ¥71.5B | ¥23.2B | +208.4% |
| Ordinary Income | ¥65.7B | ¥19.4B | +237.5% |
| Net Income / Net Profit | ¥49.7B | ¥22.3B | +122.9% |
| ROE | 7.0% | 3.4% | - |
The fiscal year ended May 2026 closed with Revenue of ¥1,352.1B (YoY +¥118.6B +9.6%), Operating Income of ¥71.5B (YoY +¥48.3B +208.4%), Ordinary Income of ¥65.7B (YoY +¥46.2B +237.5%), and Net Income attributable to owners of the parent of ¥54.5B (YoY +¥41.3B +308.9%), delivering higher sales and a large profit increase. Operating margin improved by 3.4pp from 1.9% to 5.3%, and gross margin rose by 2.2pp to 12.1% (prior year 9.9%), reflecting notable margin improvement in core construction operations. The Architectural / Construction Business (Construction) generated Revenue of ¥924.7B (+23.9%) and Operating Income of ¥69.9B (+170.6%), producing the majority of company profits as the flagship segment; the Civil Engineering / Engineering Business (Engineering) turned to higher profits, while the Energy Business contracted sharply (Revenue ▲53.4%, profit ▲63.6%) and Real Estate Business shrank significantly (Revenue ▲52.3%, profit ▲79.1%). Non-operating items included dividend income ¥2.9B and foreign exchange gains ¥2.9B, while interest expense rose by ¥4.9B; extraordinary income included ¥6.8B gain on sale of investment securities among ¥20.1B total extraordinary gains, extraordinary losses totaled ¥20.8B including impairment losses of ¥9.1B, resulting in a negligible net effect. Profit quality is healthy driven by operating improvements, but Operating Cash Flow was negative at ▲¥45.7B due to expansion of contract assets (completed construction accounts receivable), and Free Cash Flow was ▲¥41.1B, leaving concerns over cash generation.
[Revenue] Revenue amounted to ¥1,352.1B (prior year ¥1,233.5B, +9.6%). The primary driver was the Construction segment (Construction) at ¥924.7B (+23.9%), led by progress on large building projects and strong order intake. Revenue recognized from completed construction contracts was ¥1,269.2B (prior year ¥1,075.6B, +18.0%), while development and related sales were ¥82.9B (prior year ¥157.9B, ▲47.5%), reflecting contraction in Real Estate and Energy businesses. The Engineering segment (Engineering) showed a slight increase to ¥380.3B (+2.6%), Energy was ¥34.7B (▲53.4%), and Real Estate was ¥25.2B (▲52.3%). By geography, domestic sales were ¥121,492 million and Asia ¥13,715 million, with overseas ratio about 10%, indicating domestic construction demand is the main driver. Segment composition is concentrated: Construction 68.4%, Engineering 28.1%, indicating increased focus on core construction operations.
[Profitability] Operating Income rose significantly to ¥71.5B (prior year ¥23.2B, +208.4%). Gross margin improved to 12.1% (prior year 9.9%, +2.2pp), SG&A ratio improved to 6.8% (prior year 8.0%, ▲1.2pp), lifting operating margin to 5.3% (prior year 1.9%, +3.4pp). The main cause was margin improvement in the Construction segment (Operating margin 7.6%, prior year 2.6%, +5.0pp) driven by tighter cost control and successful price pass-through. Engineering increased Operating Income to ¥3.2B (prior year ¥1.5B, +107.0%), while Energy Operating Income contracted to ¥13.3B (prior year ¥36.6B, ▲63.6%). SG&A was ¥91.6B (prior year ¥98.8B, ▲7.3%), with restrained advertising ¥0.9B, depreciation ¥4.8B, and R&D ¥4.8B. Non-operating items included dividend income ¥2.9B and FX gains ¥2.9B, while interest expense rose to ¥4.9B (prior year ¥3.6B, +¥1.3B) due to increased interest-bearing debt, resulting in Ordinary Income of ¥65.7B (prior year ¥19.4B, +237.5%). Extraordinary items were almost offset: extraordinary gains ¥20.1B (gain on sale of investment securities ¥6.8B, negative goodwill ¥0.3B, subsidy income ¥10.5B, etc.) and extraordinary losses ¥20.8B (impairment losses ¥9.1B, fixed asset write-downs ¥10.5B, etc.), leaving Pre-tax Income of ¥65.0B. After deducting income taxes of ¥10.3B, Net Income attributable to owners of the parent was ¥54.5B (prior year ¥13.3B, +308.9%), concluding with higher sales and a large profit increase.
The Construction segment (Construction) posted Revenue ¥924.7B (prior year ¥746.4B, +23.9%), Operating Income ¥69.9B (prior year ¥25.8B, +170.6%), and Operating Margin 7.6% (prior year 3.5%, +4.1pp), indicating substantial margin improvement. Progress on large building projects and tighter cost management were effective, with gross margin on completed construction improving from 4.9% to 10.7%. Sales to major customer Nomura Real Estate accounted for ¥159.9B (11.8% of company Revenue), indicating somewhat high customer concentration. The Engineering segment (Engineering) reported Revenue ¥380.3B (prior year ¥370.6B, +2.6%) and Operating Income ¥3.2B (prior year ¥1.5B, +107.0%), improving operating margin to 0.8% (prior year 0.4%). The Real Estate segment (RealEstate) saw Revenue ¥25.2B (prior year ¥52.8B, ▲52.3%) and Operating Income ¥5.1B (prior year ¥24.2B, ▲79.1%), with margin down to 20.1% (prior year 45.9%) due to slower turnover of inventory for sale. The Energy segment (Energy) contracted to Revenue ¥34.7B (prior year ¥74.5B, ▲53.4%) and Operating Income ¥13.3B (prior year ¥36.6B, ▲63.6%) but maintained a high margin of 38.3% (prior year 49.1%); the decline was mainly due to fewer solar power plant sale transactions. Other segments recorded Revenue ¥10.4B and an Operating Loss ¥1.7B, reflecting startup costs for new businesses. Inter-segment transfers and adjustment items include corporate expenses of ¥18.2B, reducing aggregated reportable-segment Operating Income of ¥89.6B to consolidated Operating Income of ¥71.5B.
[Profitability] Operating margin 5.3% (prior year 1.9%, +3.4pp), Net Margin 4.0% (prior year 1.1%, +2.9pp), Gross Margin 12.1% (prior year 9.9%, +2.2pp) — profitability improved substantially. Gross margin on completed construction 10.7% (prior year 4.9%, +5.8pp); gross margin on development and related business 33.2% (prior year 43.8%, ▲10.6pp). ROE 7.6% (prior year 2.0%) exceeds historical results; DuPont decomposition shows Net Margin 4.0% × Total Asset Turnover 0.856 × Financial Leverage 2.21x. [Cash Quality] Operating Cash Flow / Net Income is ▲0.84x, a quality concern. The main drivers are an increase in completed construction accounts receivable (sales receivables ▲¥102.8B within OCF items) and accumulation of inventory for sale (Real Estate inventory ▲¥33.3B), indicating a pronounced expansion of working capital. EBITDA was ¥87.2B (Operating Income ¥71.5B + Depreciation ¥15.7B) while OCF was ▲¥45.7B, yielding a cash conversion of ▲0.52x, which is weak. [Investment Efficiency] Total Asset Turnover is 0.856x/year (prior year 0.877x/year), slightly down; estimated ROIC (NOPAT / (Interest-bearing debt + Equity)) is 6.1%, showing improvement. Capital expenditure was ¥21.4B, 1.6% of sales, exceeding Depreciation ¥15.7B. [Financial Soundness] Equity Ratio 45.2% (prior year 47.2%, ▲2.0pp), slightly lower; current ratio 208.8% and quick ratio 208.8%, indicating sound short-term liquidity. Interest-bearing debt increased to ¥359.3B (prior year ¥286.1B, +25.6%), with Debt/EBITDA 4.12x indicating somewhat heavy leverage. Short-term borrowings ¥156.0B (prior year ¥130.0B) and long-term borrowings ¥203.3B (prior year ¥156.1B) result in a short-term debt ratio of 43.4%, which is relatively high and increases refinancing pressure. Cash and deposits ¥199.2B are 1.28x short-term borrowings, providing a minimal buffer. Provision for expected losses on construction contracts decreased to ¥2.3B (prior year ¥10.3B, ▲77.6%), indicating improved cost estimation accuracy.
Operating Cash Flow turned negative to ▲¥45.7B (prior year ¥37.9B, ▲220.5%). The main reasons were an increase in completed construction accounts receivable (sales receivables ▲¥102.8B) and accumulation of inventory for sale (Real Estate inventory ▲¥33.3B), highlighting working capital expansion. Advances received on construction contracts contributed +¥17.7B, but could not offset the increases in receivables and inventory. With Pre-tax Income ¥65.0B versus OCF ▲¥45.7B, cash conversion is weak and profit quality has deteriorated. Investing Cash Flow was an inflow of ¥4.6B, with proceeds from sale of investment securities ¥35.2B exceeding capital expenditures ▲¥21.4B and intangible asset acquisitions ▲¥2.0B. Free Cash Flow was ▲¥41.1B (prior year ▲¥0.8B), widening the deficit and indicating weak core cash generation. Financing Cash Flow raised ¥52.6B, funded by long-term borrowings +¥78.6B and net increase in short-term borrowings +¥41.2B, which covered long-term borrowings repayments ▲¥46.6B, dividends ▲¥17.7B, and share buybacks ▲¥19.4B. Ending cash and deposits rose to ¥199.2B (prior year ¥181.4B, +9.8%), ensuring short-term liquidity, but continued negative OCF raises concerns about increased interest-bearing debt and higher interest expense. Interest received was ¥0.4B, interest paid ¥4.9B, net interest expense ▲¥4.5B, and interest expense is trending up with rising interest-bearing debt.
Earnings quality is generally good, relying on operating-level improvement. Most of the ¥71.5B Operating Income derives from margin improvement in Construction (Operating Income ¥69.9B, Operating Margin 7.6%), supported by stronger cost control and price pass-through. Non-operating income totaled ¥7.1B, mainly dividend income ¥2.9B and FX gains ¥2.9B, representing about 0.5% of revenue and a minor impact. Non-operating expenses were ¥13.0B, dominated by interest expense ¥4.9B and including FX losses ¥0.9B. Extraordinary items had a net effect of ▲¥0.7B, minor overall: extraordinary gains ¥20.1B (gain on sale of investment securities ¥6.8B, subsidy income ¥10.5B, etc.) versus extraordinary losses ¥20.8B (impairments ¥9.1B, fixed asset compression losses ¥10.5B, etc.). Subsidy income and fixed asset compression losses are related to accounting entries for subsidies to renewable energy projects and have limited substantive profit impact. The accrual ratio is (Net Income ¥49.7B − Operating CF ▲¥45.7B) / Total Assets ¥1,579.8B = 6.0%, indicating a neutral-to-somewhat-caution level as OCF trails net income, showing divergence between accounting profit and cash generation. Comprehensive income was ¥67.0B (Net Income ¥49.7B + Other Comprehensive Income ¥12.3B), primarily valuation difference on available-for-sale securities ¥4.5B and actuarial adjustments related to retirement benefits ¥6.7B. From the perspective of recurring earnings, operating income improvement is central and non-operating/extraordinary effects are limited, so overall earnings quality can be assessed as broadly good.
Full-year forecast (FY2027 ending May 2027) projects Revenue ¥1,370.0B (YoY +1.3%), Operating Income ¥63.0B (YoY ▲11.9%), Ordinary Income ¥57.0B (YoY ▲13.2%), Net Income ¥33.0B (YoY ▲33.6%), and EPS ¥50.00 yen. Compared with current results, Revenue ¥1,352.1B is ▲1.3% versus forecast (slight shortfall), Operating Income ¥71.5B outperformed forecast ¥63.0B by +13.5%, Ordinary Income ¥65.7B (+15.2% vs forecast), and Net Income ¥54.5B (+65.2% vs forecast) — all exceeded guidance. The company’s plan appears to assume margin deterioration next year, likely reflecting anticipated decline in Construction margins and cost pressures. Dividend forecast is ¥10.00 yen, below the current period actual ¥25.00 yen (ordinary dividend ¥20.00 yen + special dividend ¥5.00 yen); company presentation materials indicate potential increase of ordinary dividend to ¥25.00 yen, so note the discrepancy with the ¥10.00 yen forecast. Progress rate is not applicable as the current period is the fiscal year final result; whether next year’s profit plan is conservative depends on order trends and cost-estimate accuracy.
Annual dividend was ¥25.00 yen per share (interim ¥10.00 yen, year-end ¥15.00 yen), a +150.0% increase from prior year ¥10.00 yen. Composition was ordinary dividend ¥20.00 yen plus special dividend ¥5.00 yen, with payout ratio 40.9% (total dividends approx. ¥17.7B / Net Income ¥54.5B), within a reasonable range. Total dividends ¥17.7B exceeded Operating CF ▲¥45.7B, meaning returns were made under Free Cash Flow ▲¥41.1B and relied on external funding (borrowings). Share buybacks amounted to ¥19.4B, making total capital return about ¥37.1B and Total Return Ratio 68.1%, a high level but funded by debt due to negative FCF. DOE is approx. 2.5% (total dividends ¥17.7B / beginning equity ¥664.3B), indicating an aggressive shareholder-return stance when combined with the payout ratio. Presentation materials suggest company guidance of ordinary dividend ¥25.00 yen (no special dividend) for next fiscal year, implying continued dividend increases, but sustained returns depend on normalization of OCF and reduction of interest-bearing debt. Shares outstanding 89,255k, treasury shares 9,458k, ending shareholders’ equity ¥712.0B, and Book Value per Share (BPS) ¥892.21 yen.
Working Capital Expansion Risk: Completed construction accounts receivable ¥564.9B (prior fiscal year-end ¥461.6B, +22.4%) and inventory for sale ¥192.9B (prior fiscal year-end ¥159.7B, +20.8%) increases caused OCF to turn negative at ▲¥45.7B. Days Sales Outstanding (DSO) estimated at 153 days (¥564.9B ÷ (¥1,352.1B / 365 days)) indicates lengthening collection periods, raising concerns over delayed collections and customer credit risk. Real estate inventory turnover period is about 52 days (¥192.9B ÷ (¥1,352.1B / 365 days)), but valuation losses or sales delays may occur in volatile markets. If working capital normalization is delayed, cash flow pressure and the need for additional borrowings will increase.
Leverage and Interest Burden Risk: Interest-bearing debt increased to ¥359.3B (prior year ¥286.1B, +25.6%), with Debt/EBITDA 4.12x exceeding the high-yield threshold (3.5x). Short-term borrowings ¥156.0B (43.4% of interest-bearing debt) result in a high short-term debt ratio, increasing refinancing and rollover cost risks in a rising-rate environment. Interest expense rose to ¥4.9B (prior year ¥3.6B, +36.1%), and interest burden relative to operating income rose to 6.9%. Long-term borrowings increased to ¥203.3B (+30.2%), lengthening maturity composition, but if OCF remains negative, debt-service coverage (OCF / interest-bearing debt) may deteriorate.
Segment Concentration and Margin Volatility Risk: The Construction segment (Construction) accounts for 68.4% of Revenue and 97.7% of Operating Income, creating a high-concentration structure where margin fluctuations in this segment directly affect consolidated results. Although this year Operating Margin improved to 7.6%, next year the company forecasts Operating Income ▲11.9%, signaling downside risk from order environment changes or rising costs. Sales to a major customer (Nomura Real Estate) amounted to ¥159.9B (11.8% of Revenue), implying elevated customer concentration and higher order variability risk. Energy and Real Estate segments have substantially contracted in sales and profits, reducing portfolio diversification. Provision for expected losses on construction contracts decreased to ¥2.3B (prior year ¥10.3B, ▲77.6%), but if cost estimate variances occur on large projects, there is risk of extraordinary loss recognition.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 5.3% | 5.5% (3.5%–7.2%) | -0.3pp |
| Net Margin | 3.7% | 3.5% (2.5%–4.4%) | +0.2pp |
Operating Margin at 5.3% is slightly below the industry median of 5.5% by ▲0.3pp, placing the company near the industry middle. Net Margin 3.7% exceeds the median 3.5% by +0.2pp, and the limited impact of non-operating and extraordinary items supports favorable earnings quality.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 9.6% | 9.8% (-2.1%–15.1%) | -0.3pp |
Revenue growth 9.6% is roughly in line with the industry median 9.8%, representing a standard growth pace within the industry. This reflects robust construction demand, though contraction in Energy and Real Estate partially dampened growth.
※ Source: Company aggregation
Margin improvement in core construction and earnings quality: Operating Margin improved to 5.3% from 1.9% ( +3.4pp) and Gross Margin rose to 12.1% (prior year 9.9%, +2.2pp). Construction Operating Margin improved to 7.6% (prior year 3.5%), confirming stronger cost control and price pass-through, while the net effect of extraordinary items was minor (▲¥0.7B), supporting that earnings quality improvements are driven by operations. The company’s forecast for next fiscal year assumes Operating Income decline of ▲11.9%, but the current-year outperformance relative to guidance demonstrates execution capability. If order conditions and cost stability continue, the sustainability of margin improvement is reasonably favorable.
Most critical issues are cash generation and normalization of working capital: Operating CF was ▲¥45.7B and OCF/Net Income ▲0.84x, clearly showing weak cash conversion. The main causes are Completed Construction accounts receivable ¥564.9B (prior year-end +¥103.3B) and inventory for sale ¥192.9B (prior year-end +¥33.2B), indicating pronounced working capital expansion. Free Cash Flow is ▲¥41.1B, and total returns (dividends ¥17.7B + buybacks ¥19.4B = ¥37.1B) were funded by external borrowings. For sustainable returns next fiscal year, prerequisites are: (1) progress in recovering completed construction accounts receivable, (2) turnover of real estate inventory, and (3) return to positive Operating CF.
Monitor rising leverage and interest burden: Interest-bearing debt rose to ¥359.3B (prior year ¥286.1B, +25.6%), Debt/EBITDA 4.12x is somewhat heavy. Short-term borrowings ¥156.0B (43.4% of interest-bearing debt) elevate refinancing risk in a rising-rate environment. Interest expense increased to ¥4.9B (prior year ¥3.6B, +36.1%), raising the interest burden relative to operating income to 6.9%. Cash and deposits ¥199.2B are 1.28x short-term borrowings, offering a minimum buffer, but persistent negative OCF would worsen debt-service coverage and increase the need for additional borrowings.
This report is an earnings analysis document automatically generated by AI analyzing XBRL results disclosure data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information aggregated by our firm based on public financial statements. Investment decisions are your responsibility; consult a professional advisor as needed.