| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥418.6B | ¥402.6B | +4.0% |
| Operating Income | ¥28.7B | ¥22.7B | +26.4% |
| Ordinary Income | ¥30.0B | ¥23.7B | +26.6% |
| Net Income | ¥20.1B | ¥15.8B | +27.4% |
| ROE | 2.2% | 1.8% | - |
FY2026 Q1 results: Revenue ¥418.6B (YoY +¥16.0B +4.0%), Operating Income ¥28.7B (YoY +¥6.0B +26.4%), Ordinary Income ¥30.0B (YoY +¥6.3B +26.6%), Net Income ¥20.1B (YoY +¥4.3B +27.4%). Improvement in gross margin in the Construction Business lifted company-wide profitability; completed-contract gross profit margin improved to 11.2% (prior 10.5%), +0.7pt. Revenue increased for the third consecutive quarter; operating margin improved to 6.9% (prior 5.6%) +1.3pt, indicating a clear improvement in profitability. Versus full-year guidance (Revenue ¥1,756B, Operating Income ¥76B, Net Income ¥50B), progress rates are Revenue 23.8%, Operating Income 37.8%, Net Income 40.2%, indicating profits are being realized ahead of schedule. Operating leverage manifested via gross margin improvement and SG&A control, producing a strong start of revenue and profit growth.
[Revenue] Revenue was ¥418.6B (+4.0%), with the Construction Business accounting for ¥412.1B (+3.9%), or 98.4% of the total. Construction breakdown: Civil works ¥154.3B, Building works ¥222.4B, Other (non-completed-contract) ¥30.9B, with Building works as the main revenue driver. Real estate was ¥5.1B (+2.4%), Other ¥1.7B (+7.7%) — small but growing. Cost of sales was ¥364.8B, yielding a gross margin of 12.9% (prior 11.6%) +1.3pt. Completed-contract gross margin improved to 11.2% (prior 10.5%) +0.7pt, driven by improved project mix quality and strengthened cost management.
[Profitability] Gross profit was ¥53.9B (prior ¥46.8B, +15.0%) versus SG&A ¥25.1B (prior ¥24.1B, +4.2%), with SG&A ratio contained at 6.0% in line with prior year, producing a large increase in Operating Income to ¥28.7B (+26.4%). Operating margin improved to 6.9% (prior 5.6%) +1.3pt. Non-operating income totaled ¥1.5B (dividends received ¥0.7B, equity-method profit ¥0.1B, etc.) and non-operating expenses ¥0.2B (interest expense ¥0.1B, etc.), resulting in Ordinary Income of ¥30.0B (+26.6%). Extraordinary income ¥0.2B (gain on sale of fixed assets) and extraordinary losses ¥0.0B were immaterial, yielding income before income taxes ¥30.2B (+28.4%). After deducting income taxes ¥10.1B (effective tax rate 33.4%), Net Income was ¥20.1B (+27.4%), net margin 4.8% (prior 3.9%) +0.9pt. In conclusion, operating leverage from gross margin improvement drove the revenue-and-profit growth.
Construction segment: Revenue ¥412.1B (+3.9%), Operating Income ¥28.8B (+29.9%), Operating Margin 7.0% (prior 5.6%) +1.4pt. Improvement in completed-contract gross margin and rigorous cost control raised margins; this core business generates over 97% of consolidated operating profit. Real Estate: Revenue ¥5.1B (+2.4%), Operating Income ¥0.6B (-20.5%), margin 12.1% (prior 15.6%) — high level but small in scale and limited contribution. Other: Revenue ¥1.7B (+7.7%), Operating Income ¥0.1B (-12.5%), margin 8.3% (prior 10.3%) — includes welfare-related businesses, with negligible consolidated impact. Corporate expenses increased to ¥0.8B (prior ¥0.4B, +100.0%) but were absorbed by Construction profit growth, yielding consolidated Operating Income of ¥28.7B.
[Profitability] Operating margin improved to 6.9% (prior 5.6%) +1.3pt; Net margin improved to 4.8% (prior 3.9%) +0.9pt, indicating clear improvement in profitability. ROE improved to 2.2% (prior 1.7%) +0.5pt; ROA improved to 1.3% (prior 1.1%) +0.2pt. Improvement in completed-contract gross margin to 11.2% (prior 10.5%) is the primary driver of earnings improvement. [Cash Quality] Current ratio 211.5% (prior 217.3%) remains high; quick ratio 211.5% (prior 217.3%) indicates solid short-term liquidity. Cash and deposits ¥312.0B versus interest-bearing debt ¥9.1B — effectively net cash; interest coverage 261x (Operating Income ¥28.7B ÷ interest expense ¥0.1B) shows extremely strong interest-rate resilience. [Investment Efficiency] Total asset turnover 0.280x (annualized 1.12x) is stable, but completed-contract receivables ¥618.5B and construction-in-progress payments ¥26.3B are large, maintaining construction-industry working-capital constraints. ROIC 3.2% (after-tax operating profit ¥20.5B ÷ invested capital ¥640B, estimated) is low; raising capital productivity is a medium-term task. [Financial Soundness] Equity Ratio 60.4% (prior 60.9%) is stable; debt-to-capital ratio 0.66x (prior 0.64x) indicates conservative capital structure. Debt/Equity ratio 1.0% is minimal, financial safety very high. Defined benefit obligation ¥21.2B versus pension assets ¥30.6B (net assets ¥3.1B) is appropriate.
Operating Cash Flow data not disclosed, but funding trends inferred from BS movements. Cash and deposits rose slightly to ¥312.0B (prior ¥308.2B, +¥3.8B), and despite profit generation some cash absorption is observed. Completed-contract receivables decreased to ¥618.5B (prior ¥635.7B, -¥17.2B), indicating improved collections, while construction-in-progress payments increased substantially to ¥26.3B (prior ¥18.6B, +¥7.7B +41.2%), reflecting WIP expansion due to project progress and constraining working capital. Notes payable and construction payables increased to ¥306.9B (prior ¥294.6B, +¥12.3B), with increased trade payables from higher construction volume partially offsetting cash absorption. Short-term provisions surged to ¥13.4B (prior ¥2.2B, +¥11.2B), possibly reflecting recognition of construction loss reserves that temporarily tie up cash. Interest-bearing debt slightly decreased to ¥9.1B (prior ¥10.1B, -¥1.0B), a level easily covered by on-hand funds. Investment securities increased to ¥78.3B (prior ¥75.7B, +¥2.6B), likely reflecting valuation gains. Overall, while profits increased cash, WIP growth and provisions temporarily absorbed cash, modestly restraining cash generation. Given ample net cash, liquidity risk is minimal and working-capital constraints are assessed as temporary and manageable.
Ordinary Income ¥30.0B versus Net Income ¥20.1B yields a gap of ¥9.9B, mainly income taxes ¥10.1B, consistent with structure. Non-operating income ¥1.5B is minor as a share of revenue (0.4%), mainly dividends received ¥0.7B and equity-method profit ¥0.1B. Non-operating expenses ¥0.2B are also minor; interest expense ¥0.1B reflects low interest-bearing debt and minimal interest burden. Extraordinary income ¥0.2B (gain on sale of fixed assets) and extraordinary losses ¥0.0B (loss on disposal of fixed assets) are both immaterial, so one-off impacts are limited. Most profit growth stems from core business gross margin improvement, with operating margin +1.3pt driving Net Income +27.4%. On accruals, reduction in completed-contract receivables (-¥17.2B) indicates healthy cash collection, while increase in construction-in-progress payments (+¥7.7B) is a natural WIP-related accounting movement due to project progress. Comprehensive income ¥22.2B exceeded Net Income ¥20.1B by ¥2.1B, contributed by valuation differences on available-for-sale securities ¥1.8B and actuarial adjustments related to retirement benefits ¥0.4B. Valuation gains are limited; earnings quality is judged good and based on recurring revenue.
Full-year guidance: Revenue ¥1,756B (+4.5%), Operating Income ¥76B (-2.2%), Ordinary Income ¥78B (-4.0%), Net Income ¥50B. Q1 progress rates versus guidance: Revenue 23.8% (standard 25% -1.2pt), Operating Income 37.8% (+12.8pt), Net Income 40.2% (+15.2pt), indicating profit realization materially ahead of schedule. Continued gross margin improvement and strict cost management have produced higher-than-expected profit generation. If full-year guidance was conservatively set at the start of the period, upward revisions are possible. Monitor YTD progress at Q2 (standard 50%) and sustainability of profit margins.
The company plans a 2-for-1 stock split on July 1, 2026; the year-end dividend forecast for FY2026 (not adjusted for the split) is ¥260. Based on full-year EPS forecast ¥301.87, payout ratio is approximately 86%, but the post-split effective per-share level will be ¥130. Using outstanding shares 8,988 thousand minus treasury stock 706 thousand yields 8,282 thousand shares at fiscal year-end, estimating total dividends at approximately ¥2,150M and implying a payout ratio versus full-year Net Income ¥50B of about 43%. Given cash and deposits ¥312.0B and strong net cash position plus profit progress ahead of schedule, dividend sustainability is good. No share buybacks have been disclosed; total return ratio is not evaluated. Improved liquidity after the stock split and policy to continue dividends form the basis of shareholder returns.
Project mix and cost volatility risk: High concentration in Construction (98.4% of revenue) means profit margins (gross margin 12.9%) could deteriorate if large projects underperform or low-margin projects increase in share. Rising raw material, subcontracting, or labor costs could challenge cost control and pressure Operating margin 6.9%. Completed-contract gross margin 11.2% lags top industry peers and is sensitive to cost inflation.
Working capital constraint and collection risk: Completed-contract receivables ¥618.5B and construction-in-progress payments ¥26.3B together account for 43% of total assets, so construction-industry working-capital constraints persist. Construction-in-progress payments rose sharply YoY +41.2%, indicating temporary cash absorption from project progress. Short-term provisions ¥13.4B (prior ¥2.2B, +506%) suggest recognition of potential future construction costs, which could become a cash absorption factor.
Capital efficiency and scope for profit improvement: ROIC 3.2% is low; structural improvement in capital productivity remains unachieved. Although Operating margin 6.9% and gross margin 12.9% improved, they remain below top industry levels (gross margin >20%), so qualitative project mix improvement and faster working-capital turnover are medium-term tasks. ROE 2.2% is low; improving capital efficiency is key to enhancing shareholder value.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 6.9% | – | – |
| Net Margin | 4.8% | – | – |
Company Operating Margin 6.9% and Net Margin 4.8% have clearly improved YoY, indicating an improving profitability trend.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 4.0% | – | – |
Revenue growth 4.0% is a stable expansion pace; Operating Income growth +26.4% substantially outpaced revenue, demonstrating operating leverage.
※ Source: Company compilation
Sustainability of momentum from gross margin improvement: Completed-contract gross margin improvement to 11.2% (prior 10.5%) +0.7pt drove Operating margin to 6.9% (+1.3pt), suggesting that a profit-improving structure is taking hold. Q1 Operating Income progress 37.8% and Net Income progress 40.2% significantly exceed the standard 25%, increasing confidence in achieving full-year guidance. Continued gross margin improvement and qualitative project-mix enhancements are key to potential upward revisions and mid-term profit growth.
Balance between financial safety and working-capital management: Net cash position (Cash ¥312.0B, Interest-bearing debt ¥9.1B) and Current ratio 211.5% ensure financial safety, but working-capital constraints from completed-contract receivables ¥618.5B and construction-in-progress payments ¥26.3B persist. Rapid increase in construction-in-progress payments (+41.2%) and surge in short-term provisions (+506%) are temporary cash absorption factors; timing of collections and leveling project execution will aid capital efficiency. Raising ROIC 3.2% requires faster working-capital turnover and further margin improvement.
This report was automatically generated by AI analyzing XBRL financial disclosure data to produce an earnings analysis document. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the firm from public financial statements. Investment decisions are your responsibility; consult a professional advisor as needed.