TOMOE (1921) FY2026 Q3 Earnings Report

Quick View

Executive Summary

Cumulative results for FY2026 Q3 resulted in lower revenue and lower profit, mainly due to a decline in completed construction revenue in the Steel Structure Construction Business. Revenue was ¥204.6B (¥260.4B in the previous year, YoY -21.4%), Operating Income was ¥17.8B (¥29.4B in the previous year, YoY -39.6%), Ordinary Income was ¥25.1B (¥37.3B in the previous year, YoY -32.6%), and Net Income attributable to owners of the parent was ¥16.2B (¥144.1B in the previous year, YoY -88.7%). Net Income in the same period of the previous year included the one-time gains of ¥5.25B from the recognition of negative goodwill and ¥6.07B from the gain on step acquisitions associated with the conversion of a subsidiary into a consolidated subsidiary. Accordingly, it should be noted that a simple comparison with the current period makes the deterioration in the underlying business appear excessively severe.

Factors Affecting Performance

【Revenue】Revenue was ¥204.6B, a 21.4% year-on-year decrease. External customer revenue in the core Steel Structure Construction Business was ¥177.5B, down 25.0% year-on-year, with revenue from government agencies at ¥82.7B (down 36.4%) and private-sector revenue at ¥94.8B (down 11.0%). Both declined, although the decline on the public-works side was more pronounced. Meanwhile, external customer revenue in the Real Estate Business was ¥27.1B, up 13.6% year-on-year, and served to support earnings despite accounting for 13.3% of the revenue mix.

【Profit and Loss】Operating Income was ¥17.8B (down 39.6% year-on-year), and the Operating Income margin was 8.7%, narrowing by approximately 2.6pt from 11.3% in the previous year. The Operating Income margin of the Steel Structure Construction Business fell to 4.7% from 8.6% in the previous year, a decline of approximately 3.9pt, and was the primary cause of the company-wide profit decline. In contrast, the Real Estate Business maintained an Operating Income margin of 34.6% and became the core profit segment, accounting for 52.8% of Operating Income. While Revenue declined 21.4%, SG&A expenses increased by approximately 2.0% year-on-year to ¥19.8B, and the burden of fixed costs worsened operating leverage. Extraordinary losses totaled ¥3.3B, including an impairment loss of ¥2.2B, while extraordinary income was minimal; the large one-time gains recorded in the previous year were absent in the current period. Overall, the company experienced lower revenue and lower profit, with deteriorating profitability in the Steel Structure Construction Business weighing on company-wide performance.

Segment Analysis

The Steel Structure Construction Business recorded Revenue of ¥177.5B (86.7% of the revenue mix) and Operating Income of ¥8.4B (margin of 4.7%), a significant decline from the previous year’s margin of 8.6%. The gross profit margin on completed construction work was also subdued at 14.9%, indicating a pronounced deterioration in project profitability. The Real Estate Business maintained high profitability, with Revenue of ¥28.6B (13.3% of the revenue mix) and Operating Income of ¥9.4B (margin of 32.8–34.6%), making it the primary source of profit and accounting for 52.8% of total-company Operating Income of ¥1.78B. The balance of profit contributions from the two businesses indicates a structure in which the Real Estate Business mitigates fluctuations in the Steel Structure Construction Business.

Key Financial Indicators

【Profitability】The Operating Income margin of 8.7% declined from 11.3% in the same period of the previous year, while the gross profit margin of 18.3% declined by approximately 45bp from 18.7% in the previous year. Although the Net Income margin was 7.9%, it is important to note that dividend income accounted for 97.3% of the ¥11.3B in non-operating income, indicating that approximately 44% of Ordinary Income depends on dividend income from investment securities.【Cash Flow Quality】Comprehensive Income of ¥91.8B substantially exceeded Net Income of ¥16.2B, primarily due to ¥75.4B in valuation differences on securities. This divergence indicates that, separately from the profitability of the core business, fluctuations in the market prices of held shares have a significant impact on net assets.【Investment Efficiency】Annualized ROE was 2.9%, and asset turnover was low. Since investment securities of ¥478.7B and property, plant and equipment of ¥475.5B account for the majority of total assets, the efficiency of core-business earnings relative to the asset base is limited.【Financial Soundness】The Equity Ratio was 62.8%. The company held cash and deposits of ¥103.2B against interest-bearing debt of ¥133.1B, while short-term borrowings declined 62.1% year-on-year, indicating a conservative funding base.

Cash Flow Analysis

Although individual data from the cash flow statement were not provided, funding trends can be inferred from changes in the balance sheet. Cash and deposits were ¥103.2B, slightly down from ¥111.3B in the previous year, while short-term borrowings declined substantially from ¥62.2B to ¥23.6B, reducing dependence on short-term funding. Investment securities increased by ¥121.0B year-on-year to ¥478.7B, suggesting that a portion of funds was allocated to securities investments. Long-term borrowings increased from ¥91.1B to ¥109.5B, potentially indicating that funding needs for asset acquisitions or the conversion of a subsidiary into a consolidated subsidiary were covered with long-term funds. Overall, the allocation of funds reflects a reduction in dependence on short-term borrowings while increasing investment assets.

Quality of Earnings

Of the current-period Ordinary Income of ¥25.1B, dividend income accounted for 97.3% of non-operating income of ¥11.3B, indicating a high degree of dependence on non-core earnings. Extraordinary losses totaled ¥3.3B, including an impairment loss of ¥2.2B, while extraordinary income was negligible. The large one-time gains recorded in the same period of the previous year—¥5.25B from the recognition of negative goodwill and ¥6.07B from the gain on step acquisitions—were absent in the current period. Accordingly, the year-on-year comparison of Net Income (YoY -88.5%) strongly reflects the elimination of one-time factors. For assessing recurring earnings power, it is therefore appropriate to focus primarily on Operating Income, Ordinary Income, and segment profitability. The divergence between Comprehensive Income of ¥91.8B and Net Income of ¥16.2B was attributable to the market-related factor of ¥75.4B in valuation differences on securities, representing a substantial accrual-like element not accompanied by cash flows.

Earnings Forecast and Guidance

The full-year company forecast is Revenue of ¥340.0B (YoY -1.9%), Operating Income of ¥41.0B (YoY +4.3%), and Ordinary Income of ¥48.0B (YoY +1.8%). Progress rates against cumulative Q3 results are 60.2% for Revenue, 43.3% for Operating Income, and 52.4% for Ordinary Income, all below the standard progress rate of 75%. The delay is particularly significant for Operating Income, implying that revenue recognition and profitability improvement are concentrated in Q4. Since the full-year forecast Operating Income margin of 12.1% exceeds the cumulative Q3 margin of 8.7%, the extent to which construction completion revenue can be recognized and profitability improved toward the fiscal year-end will be key to achieving the plan.

Shareholder Returns

The company’s full-year dividend forecast is ¥24.00 per share, unchanged from the previous year, resulting in a Payout Ratio of 27.7% against forecast EPS of ¥86.72. This level is below the general sustainability benchmark of 60% and represents a restrained dividend policy. Treasury stock of 3.866 million shares, valued at ¥4.45B, is recorded, but no additional purchases during the current period have been confirmed; therefore, the assessment is based solely on dividends. Cash and deposits of ¥103.2B and the low level of interest-bearing debt support the company’s capacity to pay the forecast dividend.

Risk Factors

1. Deterioration in profitability of the Steel Structure Construction Business: Revenue declined 25.0% year-on-year, and the Operating Income margin fell from 8.6% to 4.7%. The gross profit margin on completed construction work was also only 14.9%, and construction progress, project mix, and increases in material and labor costs could hinder the achievement of the high Q4 profit plan.

2. Delayed progress toward the full-year forecast: The progress rate for Operating Income is 43.3%, 31.7pt below the standard progress rate of 75%. Q4 Operating Income of ¥2.32B, approximately 1.3 times cumulative Q3 results, is required, indicating a high degree of dependence on year-end-weighted recognition.

3. Dependence on investment securities: Investment securities of ¥478.7B account for 39.2% of total assets, and approximately 44% of Ordinary Income depends on dividend income. Stock-market fluctuations may affect Comprehensive Income and net assets, as well as Ordinary Income through dividend income.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (construction)

Profitability and Return

The company’s Operating Income margin of 8.7% is at a certain level for the construction industry, but relative assessment is limited because industry median data have not been established.

Growth and Capital Efficiency

The Revenue growth rate is significantly negative. If comparative data against the industry median are established, its relative positioning can be assessed in greater detail.

※Source: Company compilation

Key Earnings Highlights

1. The Real Estate Business, with an Operating Income margin of 34.6%, accounts for 52.8% of total-company Operating Income and is the core profit-generating business, creating a structure that mitigates fluctuations in the profitability of the Steel Structure Construction Business. This diversification of the business portfolio contributes to the stability of company-wide performance.

2. The sharp decline in Net Income in the same period of the previous year was primarily due to the elimination of one-time factors, namely the gain from the recognition of negative goodwill and the gain on step acquisitions. For assessing recurring earnings power, it is necessary to focus primarily on Operating Income, Ordinary Income, and segment profitability.

3. Achieving the full-year forecast requires substantial revenue and profit recognition in Q4, and the 43.3% progress rate for Operating Income is below the standard progress rate of 75%. Trends in the gross profit margin on completed construction work in the Steel Structure Construction Business will be a key factor determining whether the plan can be achieved at the fiscal year-end.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,692–¥1,789 at ±1% for the cost of equity, and ¥1,729–¥1,746 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference from 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 value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices)

---

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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

---End of Report---