FUKUDA CORPORATION FY2026 Q2 Earnings Report

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Executive Summary

During the interim period, the expansion of construction work and improved profitability combined to produce higher revenue and earnings, while profit progress against the full-year plan was also ahead of schedule. Revenue was ¥888.6億 (up +14.7% YoY), Operating Income was ¥58.2億 (up +61.8%), Ordinary Income was ¥60.7億 (up +59.8%), and Net Income attributable to owners of the parent was ¥43.8億 (up +71.4%). The fact that the earnings growth rate significantly exceeded the revenue growth rate was attributable to the improvement in the gross profit margin on completed construction contracts from 9.9% to 11.8%, together with operating leverage generated as revenue growth (+14.7%) outpaced the increase in SG&A expenses (+4.5%).

Factors Driving Performance Changes

【Revenue】Revenue was ¥888.6億, representing an increase of +14.7% YoY. By segment, Construction accounted for ¥871.4億 (98.0% of the total, +14.3% YoY), with building construction serving as the primary growth driver at ¥491.1億 (+24.8% YoY), while civil engineering construction remained at ¥321.6億 (+2.7% YoY). Although small in scale, the Real Estate segment posted strong growth of +36.5% YoY, with revenue of ¥14.3億.

【Profit and Loss】Operating Income was ¥58.2億 (+61.8% YoY), representing growth significantly above the revenue growth rate. The gross profit margin on completed construction contracts improved to 11.8% from 9.9% a year earlier, while SG&A expenses remained restrained relative to revenue growth at ¥51.8億 (+4.5% YoY), generating operating leverage. Non-operating income and expenses resulted in net income of ¥3.0億, primarily from dividend income of ¥1.8億, while extraordinary income and expenses resulted in net profit of ¥2.7億, mainly from gains on the sale of fixed assets. Both were limited in scale, indicating low dependence on temporary factors. The difference between Ordinary Income of ¥60.7億 and Net Income of ¥43.8億 was primarily attributable to income taxes and other taxes of ¥19.6億, with the tax burden at approximately a standard level. In conclusion, the Company achieved higher revenue and earnings, with the quality of earnings supported by improved profitability in its core business.

Segment Analysis

The Construction segment generated revenue of ¥871.4億 (+14.3% YoY, 98.0% of the total) and Operating Income of ¥56.6億 (+63.5% YoY, 6.5% margin), driving the majority of consolidated earnings. The Real Estate segment generated revenue of ¥14.3億 (+36.5% YoY) and Operating Income of ¥2.2億 (+14.3% YoY, 15.1% margin), securing the highest margin among all segments, although its small scale limits its contribution to the Company as a whole. The Other segment posted revenue of ¥3.4億 (+3.3% YoY) and Operating Income of ¥0.2億 (-12.5% YoY, 6.1% margin), representing a decline in earnings and comprising a small-scale category that includes welfare-related businesses. The Company remains highly dependent on Construction for both revenue and earnings, and the segment’s profitability trends determine consolidated performance.

Key Financial Indicators

【Profitability】The Operating Income margin was 6.5%, improving by +1.9pt from 4.6% a year earlier, while the Net Income margin also increased by +1.6pt to 4.9% from 3.3%. ROE was 4.7%; improvements in the Net Income margin and total asset turnover contributed to the increase, while the high Equity Ratio constrained leverage.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥149.5億, equivalent to 3.4 times Net Income of ¥43.8億, indicating strong cash-generation capacity supporting earnings.【Investment Efficiency】Total assets increased by +5.8% to ¥1,559.7億 from ¥1,474.8億 a year earlier. Although total asset turnover was essentially flat, improved margins contributed to the increase in ROE. Capital expenditures were ¥7.4億, remaining at approximately the same level as depreciation and amortization expense of ¥7.0億, indicating that the Company is not in a phase of large-scale investment.【Financial Soundness】The Equity Ratio was 59.6%, down -1.3pt from 60.9% a year earlier, because the increase in total assets (+5.8%) exceeded the increase in net assets (+3.1%). Nevertheless, the level remains high. Cash and deposits increased to ¥425.6億, while interest-bearing debt remained minimal, maintaining a financial structure close to net debt-free.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥149.5億, an increase of +113.3% from ¥70.1億 a year earlier, and significantly exceeded Net Income of ¥43.8億. The primary drivers of the increase were improvements in working capital, including the collection of trade receivables (+¥40.6億), an increase in trade payables (+¥39.2億), and an increase in advances received. Inventories, including costs on uncompleted construction contracts, reduced OCF by only -¥7.7億. Investing CF was -¥7.9億, mainly reflecting capital expenditures of ¥7.4億, resulting in ample free cash flow of ¥141.6億. Financing CF was -¥24.2億, primarily due to dividend payments of ¥21.7億, while share repurchases were minimal at ¥0.01億. As free cash flow significantly exceeded dividends and capital expenditures, cash and deposits accumulated to ¥425.6億. Attention is required regarding the normalization of cash flow levels should the improvement in working capital reverse.

Quality of Earnings

Recurring earnings were the primary driver of the increase in profit, and dependence on temporary factors was limited. Non-operating income of ¥3.0億 represented only approximately 0.3% of revenue, with dividend income of ¥1.8億 accounting for the majority. Extraordinary income of ¥2.7億, primarily gains on the sale of fixed assets, was not substantially offset by extraordinary losses of ¥0.0億, and its impact on Net Income was immaterial. The difference between Ordinary Income of ¥60.7億 and Net Income of ¥43.8億 was attributable to income taxes and other taxes of ¥19.6億; excluding tax effects, there were no particularly unusual items. OCF reached 3.4 times Net Income, indicating low accruals and strong cash support for earnings. Comprehensive income was ¥49.9億, exceeding Net Income of ¥43.8億. The difference between Net Income and comprehensive income was positive, supported by a ¥5.7億 gain in the valuation difference on securities.

Earnings Forecasts and Guidance

Progress against the full-year plan was 46.6% for revenue, 62.6% for Operating Income, 63.3% for Ordinary Income, and 68.4% for Net Income, with profit items significantly exceeding the simple half-year benchmark of 50%. Net Income progress was particularly pronounced at +18.4pt, as profitability improvements in the first half contributed to achieving the plan ahead of the second half. During the interim period, the Company revised its earnings and dividend forecasts. The full-year plan—revenue of ¥1,905.0億, Operating Income of ¥93.0億, Ordinary Income of ¥96.0億, and EPS of ¥390.24—has already been updated to reflect first-half results. Upside potential remains in the second half depending on the cost environment and project progress, while attention is required regarding a possible reversal of the first-half improvement in working capital.

Shareholder Returns

During the period, the Company implemented a 2-for-1 stock split effective July 1, 2026, and disclosed its dividend forecast on a post-split basis. The interim dividend was ¥0, while the full-year dividend forecast is ¥140 per share on a post-split basis (the year-end dividend would be ¥280 without taking the split into account). The Payout Ratio is approximately 35.9%, calculated by dividing the DPS forecast of ¥140 by the EPS forecast of ¥390.24, representing a sustainable level. Share repurchases were minimal at ¥0.01億, and shareholder returns are centered on dividends. Free cash flow of ¥141.6億 significantly exceeded dividend payments of ¥21.7億, indicating strong cash-based capacity to maintain dividend payments.

Risk Factors

1. Concentration in the Construction segment: The Construction segment accounts for 98.0% of revenue and approximately 96% of Operating Income, creating a structure in which deterioration in project profitability within the segment can easily affect Company-wide performance directly.

2. Risk of reversal in working capital: First-half OCF of ¥149.5億 was supported by improvements in working capital, including the collection of trade receivables (+¥40.6億) and increases in advances received. If these factors reverse from the second half onward, cash flow levels may normalize.

3. Cost inflation and construction schedule management risk: Although the gross profit margin on completed construction contracts improved to 11.8%, costs on uncompleted construction contracts increased to ¥24.5億 (¥18.6億 at the end of the previous fiscal year, +31.5%). Trends in material prices and labor costs, as well as management of construction progress, will be key to maintaining profitability.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin both exceed the industry median, placing its profitability among the higher levels within the industry.

Growth and Capital Efficiency

Although the revenue growth rate exceeds the industry median, it remains within the industry’s upper range (IQR upper limit of 18.3%).

※Source: Compiled by the Company

Key Points in the Financial Results

1. The gross profit margin on completed construction contracts improved from 9.9% to 11.8%, while the Operating Income margin expanded from 4.6% to 6.5%, indicating a structural improvement trend in profitability. Progress against the full-year plan also reached the high 60% range for profit items, with first-half improvements contributing to performance ahead of plan.

2. Cash and deposits increased to ¥425.6億, while interest-bearing debt remained minimal, maintaining a financial base close to net debt-free. OCF was ¥149.5億, or 3.4 times Net Income, indicating cash-generation capacity supporting the quality of earnings.

3. The Company’s business composition is structurally dependent on the Construction segment for approximately 98% of revenue and earnings. Project profitability and construction schedule progress within this segment are therefore key variables affecting fluctuations in performance.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥5,192–¥5,493 at ±1% for the cost of equity, and ¥5,328–¥5,347 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 quarter-end are used (there is a timing difference relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee future share prices)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific issue. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, consulting professionals as necessary.

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