WAKACHIKU CONSTRUCTION CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

For Q1 of the fiscal year ending March 2027, revenue and earnings increased, primarily due to improved profitability in the Construction Business, with Operating Income recovering substantially by +917.0% YoY. Revenue was ¥271.7B (¥202.4B in the same period last year, YoY +34.2%), Operating Income was ¥17.7B (¥1.7B, YoY +917.0%), and Ordinary Income was ¥18.2B (¥2.0B, YoY +782.5%). Net Income (consolidated, including non-controlling interests) was ¥12.2B (¥1.1B, YoY +1010.9%), of which Net Income attributable to owners of the parent was ¥11.96B (¥1.04B, YoY +1050.0%). The primary driver of earnings growth was the improvement in gross profit margin, with the absorption of fixed costs accompanying revenue growth and the normalization of construction project profitability lifting earnings.

Factors Affecting Performance

【Revenue】Revenue was ¥271.7B, representing a YoY increase of +34.2%. The Construction Business led overall performance with revenue of ¥270.1B (+34.6%), accounting for 99.6% of total revenue. Revenue from completed construction contracts was ¥264.0B, while Development Business and other revenue was ¥7.7B. Meanwhile, the Real Estate Business declined modestly to ¥1.3B (-9.9%), and Other Businesses declined to ¥0.5B (-5.7%), resulting in a further concentration of the business portfolio in the Construction Business.

【Profit and Loss】The gross profit margin was 14.4%, improving by +4.0pt from 10.4% in the same period last year, while the gross profit margin on completed construction contracts rose to 13.9% (9.7% in the prior year, +4.2pt). However, the gross profit margin of the Development Business and other operations declined slightly to 33.1% (36.1% in the prior year, -3.0pt). SG&A expenses were ¥21.6B, declining to 7.9% of revenue (9.6% in the prior year, -1.6pt), reflecting progress in fixed-cost absorption from higher revenue. The Operating Income margin expanded to 6.5% (0.9% in the prior year, +5.6pt), and Operating Income was ¥17.7B (YoY +917.0%). Ordinary Income was ¥18.2B (YoY +782.5%). Non-operating income of ¥1.6B (including dividend income of ¥1.0B) made a modest contribution to the increase at the Ordinary Income level, while interest expense increased to ¥0.9B (¥0.3B in the prior year). Special items consisted solely of a ¥0.01B extraordinary loss, and temporary factors were immaterial. The difference between Ordinary Income and Net Income (¥11.96B on an attributable-to-owners-of-the-parent basis) was primarily due to tax expense recognized at an effective tax rate of approximately 32.7%. Overall, the quarter delivered higher revenue and earnings, and the improvement in profitability can be assessed as structural, driven by the recovery of core business profitability.

Segment Analysis

The Construction Business generated revenue of ¥270.1B (YoY +34.6%), Operating Income of ¥24.0B (YoY +280.5%), and an 8.9% profit margin (equivalent to 3.1% in the prior year), driving company-wide earnings through both revenue growth and improved profitability. The Real Estate Business generated revenue of ¥1.3B (YoY -9.9%) and Operating Income of ¥0.7B (YoY -12.8%), while maintaining a high profit margin of 53.5%. Although small in scale, it serves as a complementary, highly profitable business. Other Businesses (including ship management operations) generated revenue of ¥0.5B (YoY -5.7%) and recorded an Operating Loss of ¥0.3B, widening from the prior-year loss of ¥0.1B. Corporate expense adjustments were -¥6.7B (-¥5.2B in the prior year), resulting in consolidated Operating Income of ¥17.7B after deducting corporate expenses from total reported segment profit of ¥24.7B. Both revenue and profit are highly dependent on the Construction Business, creating a structure in which the profitability trend of this business determines overall performance.

Key Financial Indicators

【Profitability】The Operating Income margin was 6.5%, improving by +5.6pt from 0.9% in the same period last year. The consolidated Net Income margin rose significantly to 4.5% (0.5% in the prior year), while the margin attributable to owners of the parent was 4.4% (0.5% in the prior year). ROE was 2.3%, improving from approximately 0.2% in the same period last year, although the absolute level remains low. 【Cash Quality】Cash and deposits were ¥153.8B, and the current ratio was 177.4% (current assets of ¥897.0B/current liabilities of ¥505.6B), maintaining ample short-term payment capacity. Accounts receivable from completed construction contracts were ¥605.3B (¥597.9B in the prior year, +1.2%), representing only a moderate increase relative to revenue growth. 【Investment Efficiency】Total asset turnover was 0.23x (revenue of ¥271.7B/average total assets of ¥1179.5B), while Return on Invested Capital (ROIC, estimated on an NOPAT basis) was approximately 2.3%, indicating room for improvement in capital efficiency. 【Financial Soundness】The Equity Ratio was 47.5%, up +3.4pt from 44.1% in the same period last year, while short-term borrowings were substantially reduced to ¥75.8B (¥161.2B in the prior year, -53.0%). Although interest expense increased to ¥0.9B (¥0.3B in the prior year), the reduction in borrowings has maintained resilience to interest-rate movements.

Cash Flow Analysis

Although no statement of cash flows has been disclosed, an examination of funding trends based on changes in the balance sheet indicates that cash and deposits declined by ¥42.6B (-21.7%) to ¥153.8B from ¥196.4B in the same period last year. At the same time, short-term borrowings were reduced by ¥85.4B (-53.0%) from ¥161.2B to ¥75.8B, suggesting that interest-bearing debt repayments were made using cash on hand. Accounts receivable from completed construction contracts were ¥605.3B (¥597.9B in the prior year, +1.2%), representing only a moderate increase relative to revenue growth, with no sharp accumulation of working capital observed. Deposits received, corresponding to advances received, increased to ¥134.4B (¥109.1B in the prior year, +23.2%), with receipt of construction commencement and interim payments supporting liquidity. Overall, the sharp recovery in Operating Income and the increase in advances received supplemented working capital and enabled the reduction of borrowings through financing activities.

Quality of Earnings

Non-operating income was limited to ¥1.6B, or 0.6% of revenue, against Ordinary Income of ¥18.2B. Since the ¥1.0B in dividend income represents recurring income from investment securities, most earnings were generated by the core business. Special items consisted solely of a ¥0.01B extraordinary loss, and the impact of temporary factors was immaterial. Meanwhile, comprehensive income was ¥8.1B, below consolidated Net Income of ¥12.2B. Other comprehensive income of -¥4.2B, primarily comprising a -¥3.4B valuation difference on other securities and a -¥0.8B adjustment related to retirement benefits, accounted for the difference. This was mainly attributable to non-recurring valuation losses resulting from changes in the market value of securities held. While it does not indicate impairment of the income-generating capacity reported in the current period’s income statement, it warrants ongoing monitoring as a fluctuation in unrealized gains and losses on the asset side.

Earnings Forecast and Guidance

Progress against the full-year company plan was 23.4% for Revenue (¥271.7B/¥1160.0B), 24.9% for Operating Income (¥17.7B/¥71.0B), 27.9% for Ordinary Income (¥18.2B/¥65.0B), and 27.2% for Net Income attributable to owners of the parent (¥11.96B/¥44.0B). Compared with the 25% benchmark for even quarterly progress in Q1, Revenue was slightly below the benchmark, while Ordinary Income and Net Income were progressing ahead of plan. The earnings impact of improved gross profit margins and a lower SG&A ratio is leading the full-year plan. During the quarter, there were no revisions to either the earnings forecast or the dividend forecast, and the current trend is consistent with the full-year plan.

Shareholder Returns

The full-year dividend forecast is ¥145, resulting in a Payout Ratio of 41.9% against forecast EPS of ¥345.71. There was no revision to the dividend forecast as of the end of the quarter, and the initial plan has been maintained. As short-term borrowings were substantially reduced (-53.0%) and the Equity Ratio improved (44.1%→47.5%), the stability of the funds available for dividends can be assessed as having improved compared with the same period last year. There is no disclosure regarding share repurchases.

Risk Factors

1. Profitability volatility risk: The gross profit margin on completed construction contracts improved to 13.9% (9.7% in the prior year, +4.2pt), but remains below the level of more than 15% generally regarded as favorable in the industry. There remains scope for margin contraction if material prices and outsourcing costs rise again.

2. Working capital burden risk: Accounts receivable from completed construction contracts remain high at ¥605.3B (¥597.9B in the prior year, +1.2%), and a lengthening collection cycle could affect liquidity.

3. Rising funding cost risk: Interest expense increased to ¥0.9B (¥0.3B in the prior year, +167.6%). Although short-term borrowings were reduced to ¥75.8B, they still represent a portion of current liabilities of ¥505.6B. In a rising interest-rate environment, refinancing costs could increase financial expenses.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

Both the Operating Income margin and Net Income margin exceed the median for the construction industry, positioning profitability relatively favorably compared with peers.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeds the industry median, representing an outstanding pace of revenue growth among peers.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Quality of earnings growth: Positive operating leverage resulting from a +4.0pt YoY improvement in gross profit margin and a -1.6pt improvement in the SG&A ratio was the primary driver of earnings growth. Since the contribution from special items was immaterial (extraordinary loss of ¥0.01B), the improvement in profitability can be viewed as a structural change originating in the core business.

2. Asymmetry in guidance progress: While Revenue progress was 23.4%, Operating Income, Ordinary Income, and Net Income progress was 24.9%, 27.9%, and 27.2%, respectively. Profit indicators are leading, and consistency with the full-year plan is high on the earnings front.

3. Changes in the financial structure: Short-term borrowings declined by -53.0% YoY (¥161.2B→¥75.8B), and the Equity Ratio improved from 44.1% to 47.5%. While an improvement in financial soundness has been confirmed, interest expense is trending upward, making continued monitoring of interest-rate movements useful.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type model with an explicit five-year fade period). It is not a forecast of the market share price or a recommendation to undertake any specific investment action.

Sensitivity: ¥3,994–¥4,224 at ±1% for the cost of equity, and ¥4,105–¥4,108 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 end of the quarter are used (there is a timing gap relative to the full-year forecast).

(Calculation model: residual income model / Interest rate reference month: 2026-07 / This value does not predict or guarantee a future share price)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings release 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 advisor as necessary.

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