FUKUDA (1899) FY2026 Q1 Earnings Report

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Executive Summary

This was a revenue and earnings growth quarter, with profit growth significantly outpacing revenue growth, primarily due to improved profitability in the Construction Segment. Revenue was ¥418.6B (+4.0% YoY), Operating Income was ¥28.7B (+26.4%), Ordinary Income was ¥30.0B (+26.6%), and Net Income attributable to owners of the parent was ¥20.1B (+30.6%). The gross profit margin improved to 12.9% from 11.6% in the same period of the previous year, while the Operating Income margin expanded to 6.9%. Against the full-year Operating Income forecast of ¥76.0B (△2.2% YoY), the Q1 progress rate was high at 37.8%. Although the start of the fiscal year was strong, management forecasts a full-year decline in earnings, making the sustainability of profitability in subsequent quarters a key focus.

Factors Affecting Results

【Revenue】Revenue was ¥418.6B, up +4.0% YoY. The core Construction Segment accounted for the majority at ¥412.1B (+3.9%), with Building Construction increasing to ¥222.4B (+9.4%), while Civil Engineering Construction declined to ¥154.3B (△6.4%). The Real Estate Segment posted ¥5.1B (+2.4%), while Other Businesses posted ¥1.7B (+7.7%), representing modest revenue growth.

【Profit and Loss】Operating Income increased to ¥28.7B (+26.4%), substantially outpacing revenue growth. Construction Segment profit was ¥28.8B (+29.9%), with a profit margin of 7.0%, improving from 5.6% in the previous year, and was the primary driver of consolidated earnings growth. Meanwhile, Real Estate Segment profit declined to ¥0.6B (△20.5%), and Other Businesses declined to ¥0.1B (△12.5%), indicating somewhat weaker earnings power outside the Construction Business. Non-operating and extraordinary items were only marginally affected by the temporary gain on the sale of fixed assets of ¥0.2B. Ordinary Income and Net Income grew at approximately the same rates as Operating Income, indicating limited dependence on non-operating and extraordinary gains and losses. In conclusion, this was a revenue and earnings growth quarter led by improved profitability in Building Construction.

Segment Analysis

The Construction Segment recorded revenue of ¥412.1B (+3.9%), profit of ¥28.8B (+29.9%), and a profit margin of 7.0%, up from 5.6% in the previous year, confirming a significant improvement in profitability. It accounted for 98.4% of consolidated revenue and 97.4% of total segment profit, indicating that consolidated performance is almost entirely dependent on this business. The Real Estate Segment generated revenue of ¥5.1B (+2.4%), while profit declined to ¥0.6B (△20.5%); its profit margin remained high at 12.1% but decreased. Other Businesses also posted lower profit of ¥0.1B (△12.5%) despite revenue growth to ¥1.7B (+7.7%), indicating a trend of higher revenue but lower profit in businesses outside Construction.

Key Financial Indicators

【Profitability】The 6.9% Operating Income margin improved from 5.6% in the same period of the previous year, while the Net Income margin also increased to 4.8% from 3.8%. The gross profit margin improved to 12.9% from 11.6%, with better construction project profitability being the primary factor behind the improvement in profitability.【Cash Flow Quality】Dependence on extraordinary and non-operating gains and losses is limited, and non-operating income amounted to only 0.4% of revenue. Accounts receivable from completed construction contracts of ¥618.5B accounted for 41.4% of total assets, meaning that collection trends will affect working capital efficiency.【Investment Efficiency】Annualized ROE of 8.9% consists of a 4.8% Net Income margin, total asset turnover of 1.12x, and financial leverage of 1.66x, indicating limited dependence on leverage.【Financial Soundness】The Equity Ratio was high at 60.4%, and the current ratio was 211.5%. Interest-bearing debt was extremely low at ¥9.1B, while cash and deposits of ¥312.0B substantially exceeded short-term borrowings, indicating a stable financial foundation.

Cash Flow Analysis

As the company did not disclose a cash flow statement in this earnings release, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits increased to ¥312.0B from ¥308.2B at the end of the previous fiscal year, indicating no material liquidity pressure. Costs on uncompleted construction contracts increased +41.2% to ¥26.3B from ¥18.6B at the end of the previous fiscal year, suggesting that the accumulation of input costs associated with construction progress is placing pressure on working capital. Meanwhile, accounts receivable from completed construction contracts decreased to ¥618.5B from ¥635.7B in the same period of the previous year, suggesting that collections are progressing. Current assets were ¥1090.7B and current liabilities were ¥515.8B, maintaining a high current ratio of 211.5%. The company’s ability to generate funds through operating activities is therefore considered stable.

Quality of Earnings

Current-period earnings were derived from recurring business activities, particularly improved construction project profitability in the Construction Segment, with limited dependence on temporary factors. Extraordinary income consisted solely of a ¥0.2B gain on the sale of fixed assets, while extraordinary losses were immaterial; consequently, the impact on profit before tax was limited. Non-operating income was ¥1.5B, primarily consisting of dividend income of ¥0.7B, and represented only 0.4% of revenue. Accordingly, earnings were not materially boosted by non-operating or non-recurring items. Comprehensive income was ¥22.2B, slightly exceeding Net Income of ¥20.1B, with the difference largely attributable to gains on valuation of other securities, including valuation difference on securities of ¥1.8B. The gap between Net Income and comprehensive income was modest, and earnings quality can also be assessed as relatively high from an accruals perspective.

Earnings Forecast and Guidance

The full-year company forecasts are revenue of ¥1756.0B (+4.5% YoY), Operating Income of ¥76.0B (△2.2%), and Ordinary Income of ¥78.0B (△4.0%). No revisions to the earnings forecasts were made during the quarter. Q1 progress rates were 23.8% for revenue, 37.8% for Operating Income, 38.5% for Ordinary Income, and 40.2% for Net Income, representing a strong start in which profit progress significantly exceeded revenue progress. Although management projects a full-year decline in Operating Income, Q1 delivered substantial earnings growth, suggesting that lower profitability or higher company-wide expenses may be factored into subsequent quarters. Construction businesses experience significant quarterly fluctuations depending on construction progress and completion timing, making it difficult to assess full-year results based solely on the high progress rates.

Shareholder Returns

The dividend forecast was revised during the quarter. The dividend forecast for the fiscal year ending December 2026 is ¥130 per share, taking into account the planned 2-for-1 stock split scheduled for July 1 of the same year. The year-end dividend without taking the split into account is ¥260. The Payout Ratio against forecast EPS of ¥301.87 is approximately 43.1%, calculated using a single consistent standard. Q1 Net Income attributable to owners of the parent was ¥20.1B, representing 40.2% progress against the full-year forecast of ¥50.0B and providing a level of earnings support for the dividend forecast. The conservative financial structure, with cash and deposits of ¥312.0B and interest-bearing debt of ¥9.1B, also supports the continuation of dividend payments.

Risk Factors

1. Concentration of profit in the Construction Segment: The Construction Business accounts for 97.4% of segment profit. Any cost overruns or delays in major construction projects would therefore have a direct and significant impact on consolidated profit.

2. Gross profit margin and sustainability of profitability: Although the gross profit margin improved to 12.9% YoY, the key focus is whether the improvement in the Construction Segment profit margin, from 5.6% to 7.0%, can be maintained throughout the full year. Consistency with the full-year plan, which forecasts a decline in profit YoY, should also be monitored.

3. Scale of accounts receivable from completed construction contracts: At ¥618.5B, these receivables account for 41.4% of total assets, and any delays in billing or collection could affect working capital efficiency. Costs on uncompleted construction contracts have also increased +41.2% from the end of the previous fiscal year.

Industry Benchmark (For Reference; Compiled by the Company)

Key Takeaways from the Earnings Release

1. Q1 revenue increased +4.0%, while Operating Income and Net Income increased +26.4% and +30.6%, respectively. The earnings release data indicates revenue and earnings growth accompanied by an improvement in the Construction Segment profit margin from 5.6% to 7.0%.

2. While the full-year Operating Income forecast calls for a decline of △2.2% YoY, the Q1 progress rate was high at 37.8%. This structural gap between management’s plan and actual results provides a basis for monitoring quarterly trends going forward.

3. The financial structure—an Equity Ratio of 60.4%, a current ratio of 211.5%, and interest-bearing debt of ¥9.1B—remained conservative even during the earnings growth phase and merits attention from the perspective of financial soundness.

Theoretical Share Price (Reference Value)

Sensitivity: ¥8,699–¥9,197 at cost of equity ±1%; ¥8,880–¥8,983 at ω±0.1.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used, resulting in a timing mismatch with the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and 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. Industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and, where necessary, after consulting with a professional advisor.

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