SEIKITOKYU KOGYO CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

This quarter resulted in a decline in revenue, operating income, and a significant contraction in net income due to deteriorating profitability in the Construction Business and an increase in the effective tax rate. Revenue was ¥197.3B (down -3.2% YoY), Operating Income was ¥4.6B (down -22.8%), Ordinary Income was ¥4.4B (down -24.6%), and quarterly Net Income attributable to owners of the parent was ¥2.1B (down -49.5%). The decline in Operating Income and below was significantly larger than the decrease in revenue, with Net Income in particular compressed beyond the level implied by earnings progress due to the increased tax burden.

Factors Affecting Earnings

【Revenue】Revenue was ¥197.3B, down -3.2% YoY. The Construction Business, which accounts for 65.0% of revenue, declined by -5.2% and weighed on the overall result, while the Paving Materials Manufacturing and Sales Business, which accounts for 33.9% of revenue, increased by +4.1%, partially offsetting the decline. The decrease in the Construction Business was mainly attributable to lower completed construction revenue, while the Paving Materials Business appears to have benefited from improvements in selling prices and volume.

【Profit and Loss】Operating Income was ¥4.6B, down -22.8% YoY, and the Operating Margin declined to 2.3% (2.9% in the same period last year). The gross margin was nearly flat at 10.7% (10.8% in the same period last year), but the SG&A ratio increased from 7.9% to 8.4%, putting pressure on profits. By segment, Operating Income in the Construction Business declined by -15.5% (margin of 5.9%, compared with 6.7% in the same period last year), indicating deteriorating profitability, while the Paving Materials Manufacturing and Sales Business improved by +20.3% (margin of 7.7%). The profitability trends of the two businesses are therefore contrasting. Ordinary Income declined by 4.4B (-24.6%), broadly in line with the decrease in Operating Income, while Net Income was significantly compressed to 2.1B (-49.5%). The main reason for this difference was the sharp increase in the effective tax rate from 27.9% in the previous year to 51.0%; the impact of extraordinary items, including a loss on disposal of fixed assets of 0.05B, was minor. Overall, this was a decline in both revenue and earnings, reflecting the combined effects of lower revenue, deteriorating core-business profitability, and a higher tax burden.

Segment Analysis

The Construction Business reported revenue of 149.2B (down -5.2% YoY), Operating Income of 8.8B (down -15.5%), and a margin of 5.9% (6.7% in the same period last year), indicating deteriorating profitability. The Paving Materials Manufacturing and Sales Business reported revenue of 77.8B (up +4.1%), Operating Income of 6.0B (up +20.3%), and an improved margin of 7.7% (6.4% in the same period last year), partially offsetting the decline in earnings from the Construction Business. Other Businesses, including the electricity sales business, remained small, with revenue of 2.5B (down -1.2%) and Operating Income of 0.4B (down -21.4%). Adjustments for the head office and administrative divisions (corporate expenses) amounted to △10.7B, widening from △10.0B in the previous year and further weighing on the increase in the segment total.

Key Financial Indicators

【Profitability】The Operating Margin declined to 2.3% (2.9% in the same period last year), while the Net Profit Margin declined to 1.1% (2.1% in the same period last year). The effective tax rate rose to 51.0% (27.9% in the same period last year). 【Cash Flow Quality】Accounts receivable for completed construction contracts decreased to 226.8B (338.9B in the previous year, -33.1%), while advances received on construction contracts in progress increased to 23.6B (16.4B in the previous year, +44.0%). The progress in collections and accumulation of advance payments supported capital efficiency. 【Investment Efficiency】ROE was 0.5%, basic EPS was ¥5.81 (¥11.54 in the previous year, -49.7%), and BPS was ¥1,175.75 (¥1,207.01 in the previous year, -2.6%). 【Financial Soundness】The Equity Ratio was 55.0% (52.3% in the previous year, +2.7pt), and cash and deposits were 193.7B (144.4B in the previous year, +34.2%). Net cash was approximately 126.9B against long-term borrowings of 64.8B and short-term borrowings of 2.0B, indicating a strong liquidity position.

Cash Flow Analysis

Although the Company did not separately disclose a cash flow statement for the quarter, changes in balance sheet items provide insight into cash movements. Cash and deposits were 193.7B, an increase of +49.3B from 144.4B in the same period last year. The primary factor was progress in collections, as accounts receivable for completed construction contracts decreased by -112.1B from 338.9B to 226.8B. In addition, advances received on construction contracts in progress increased by +7.2B from 16.4B to 23.6B, with the strengthening of the advance-payment structure also contributing to the accumulation of funds. Meanwhile, costs incurred on construction contracts in progress increased from 1.2B to 2.6B, indicating that some upfront expenditures associated with construction progress were incurred. Overall, the primary driver of the increase in cash appears to have been a change toward working capital compression.

Quality of Earnings

The quarter’s earnings were driven largely by core-business factors, with the impact of temporary factors limited. Non-operating income was 0.1B and non-operating expenses were 0.3B, both remaining below 0.2% of revenue. Extraordinary losses consisted solely of a loss on disposal of fixed assets of 0.05B, while extraordinary income was nearly zero; these items were not the primary cause of the divergence between Ordinary Income and Net Income. The significantly larger decline in Net Income (2.1B, -49.5%) compared with Ordinary Income (4.4B, -24.6%) was due to the sharp increase in the effective tax rate from 27.9% in the previous year to 51.0%. Comprehensive Income was 1.7B, below Net Income of 2.1B, with the -0.5B adjustment related to retirement benefits exceeding the +0.1B valuation difference on securities, thereby making other comprehensive income negative. Overall, the change in earnings for the period depended heavily on an element with a non-recurring nature, namely changes in the tax burden. It is important to note that tax-related factors, rather than the underlying earning power of the core business, determined the quality of final profit.

Earnings Forecast and Guidance

Progress against the full-year Company plan was 19.2% for revenue (197.3B/1,027.0B), 6.9% for Operating Income (4.6B/67.0B), 6.7% for Ordinary Income (4.4B/66.0B), and 4.5% for Net Income (2.1B/47.0B). Compared with standard quarterly progress of 25%, revenue was -5.8pt behind, while the profit indicators were -18~-21pt behind, indicating particularly significant delays on the earnings front. In the construction industry, completion and handover of projects tend to be concentrated in the second half, and seasonal effects may therefore be expected. However, achieving the full-year plan will require improved profitability and a leveling of the tax burden from Q2 onward. As of the quarter-end, no revisions had been made to the earnings forecast or dividend forecast.

Shareholder Returns

The Company forecasts an annual dividend of ¥75, with no revision to the dividend forecast as of the quarter-end. The Payout Ratio against the Company’s planned EPS of ¥128.3 is approximately 58.5%. Compared with the previous period’s dividend of ¥35, the current plan represents an increase to ¥75. Although Net Income progress remains low at 4.5%, the Equity Ratio of 55.0% and net cash of approximately 126.9B indicate a strong financial buffer, supporting the dividend funding capacity.

Risk Factors

1. Deteriorating profitability in the Construction Business: The Operating Margin of the Construction Business was 5.9%, down -0.8pt from 6.7% in the same period last year. The likely factor was a delay in passing higher costs and subcontracting expenses on to customers, making improvement over the full year a key issue.

2. Pressure on Net Income from the higher effective tax rate: The effective tax rate was 51.0%, up +23.1pt from 27.9% in the previous year. The Net Profit Margin declined to 1.1% (2.1% in the previous year), and if the elevated tax burden continues, it could affect the likelihood of achieving the full-year Net Income plan of 47.0B.

3. Delayed progress against the full-year earnings plan: The progress rate for Operating Income was 6.9% and that for Net Income was 4.5%, both significantly below standard quarterly progress of 25%. Even considering the seasonality of earnings being weighted toward the second half, recovery in profitability from Q2 onward is a prerequisite for achieving the plan.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (construction)

Profitability and Return

Growth and Capital Efficiency

※Source: Company compilation

Key Points from the Earnings Results

1. Profitability in the Construction Business (65.0% of revenue) deteriorated, while profitability in the Paving Materials Manufacturing and Sales Business (33.9% of revenue) improved, creating a clear contrast. Changes in the earnings structure between segments will determine the Company-wide margin going forward.

2. The sharp increase in the effective tax rate from 27.9% in the previous year to 51.0% was the primary factor pushing Net Income down -49.5% YoY. The larger decline in Net Income than in Operating Income and Ordinary Income (-22.8%/-24.6%) can be attributed to the impact of tax-related factors.

3. The conservative financial base, consisting of an Equity Ratio of 55.0% and net cash of approximately 126.9B, provides a near-term buffer against the delayed progress of full-year earnings (Operating Income 6.9%, Net Income 4.5%).

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, explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,225–¥1,294 at ±1% for the Cost of Equity, and ¥1,257–¥1,261 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This figure does not predict or guarantee the future share price)

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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. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

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