RAITO KOGYO CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Despite a decline in revenue, earnings increased significantly due to improved profitability, with qualitative improvements in costs and business mix driving performance. Revenue declined to ¥295.2B (-3.3% YoY), while Operating Income rose to ¥33.3B (+19.5%), Ordinary Income to ¥34.5B (+22.7%), and Net Income (consolidated net income) to ¥23.0B (+18.3%), securing double-digit earnings growth across all measures. The primary factor behind the earnings increase was a +3.0pt improvement in gross margin to 22.6% (19.6% in the previous year), which more than offset the increase in the SG&A ratio (+0.8pt).

Factors Affecting Performance

【Revenue】The Construction Business, which recorded revenue of ¥294.8B, accounted for 99.2% of total company revenue, and its -3.2% YoY revenue decline largely determined the company-wide revenue decrease (¥295.2B, YoY -3.3%). Other segments, including sales of products and materials and leasing, recorded revenue of ¥2.5B (YoY -21.8%), representing an even larger decline.

【Profit and Loss】The gross margin improved by +3.0pt to 22.6% (19.6% in the previous year), apparently reflecting improvements in cost control and project mix. Although the SG&A ratio increased by +0.8pt to 11.3% (10.5% in the previous year), the effect of the improved gross margin more than offset this increase. Consequently, the Operating Income margin improved by +2.2pt to 11.3% (9.1% in the previous year), and Operating Income increased to ¥33.3B (YoY +19.5%). Non-operating income exceeded non-operating expenses, primarily due to dividend income of ¥0.8B, resulting in Ordinary Income of ¥34.5B (YoY +22.7%). Extraordinary income consisted solely of a gain on the sale of non-current assets of ¥0.1B, so the impact of temporary factors was limited. Net Income therefore amounted to ¥23.0B (YoY +18.3%). This was a period of earnings growth despite lower revenue, namely an earnings increase amid a revenue decline.

Segment Analysis

The company has a single-business structure in which the Construction Business accounts for the majority of revenue and profit. Construction Business revenue was ¥294.8B (YoY -3.2%), Operating Income was ¥33.1B (YoY +18.8%), and the profit margin was 11.2% (equivalent to approximately 8.7% in the previous year), securing earnings growth through margin improvement despite lower revenue. Other Businesses, including sales of products and materials and leasing, generated revenue of ¥2.5B (YoY -21.8%), Operating Income of ¥0.2B, and a profit margin of 7.6%. These businesses are small in scale and tended to slightly depress the company-wide profit margin. The difference in profit margins between segments was approximately 3.6pt, clearly illustrating that improved profitability in the Construction Business is driving overall company performance.

Key Financial Metrics

【Profitability】Both the Operating Income margin and Net Income margin improved, to 11.3% (9.1% in the previous year) and 7.8% (6.4% in the previous year; based on consolidated net income), respectively, with the improvement in the gross margin to 22.6% (+3.0pt) serving as the starting point. 【Cash Quality】Non-operating income was 1.0% of revenue, while extraordinary income was also limited to ¥0.1B, indicating that the majority of profit was generated by the core business. 【Investment Efficiency】ROE was 2.7%, and EPS (basic, based on net income attributable to owners of the parent) was ¥55.41 (¥44.36 in the previous year, YoY +24.9%). BPS was ¥2,056.96 (¥2,141.13 in the previous year), declining from the previous year as net assets were reduced through progress in share repurchases. 【Financial Soundness】The Equity Ratio improved to 73.7% (71.5% in the previous year). With cash and deposits of ¥264.6B versus interest-bearing debt (the total of short-term and long-term borrowings) of ¥17.3B, the company was in a net cash position. Current assets were ¥691.1B and current liabilities were ¥281.9B, resulting in a robust current ratio of approximately 245%.

Cash Flow Analysis

Because cash flow statement data have not been disclosed, cash trends were assessed based on changes in balance sheet items. Advances received on construction contracts in progress increased by +133.3%, from ¥18.1B to ¥42.3B, indicating improved working capital through increased customer advances. Meanwhile, accounts receivable for completed construction contracts decreased from ¥407.4B to ¥356.2B, and electronically recorded monetary claims also declined from ¥47.7B to ¥20.3B, indicating progress in reducing trade receivables and improving collection periods. Costs on construction contracts in progress increased by +31.1%, from ¥15.0B to ¥19.7B, reflecting the accumulation of costs invested in ongoing projects. Cash and deposits stood at ¥264.6B, down from ¥299.8B at the end of the previous year, primarily due to the increase in share repurchases from ¥35.7B to ¥73.9B. Overall, working capital efficiency is trending upward, supported by the reduction in trade receivables and the increase in customer advances.

Earnings Quality

The earnings structure is centered on recurring income. Non-operating income was ¥2.97B (1.0% of revenue), consisting of items including dividend income of ¥0.8B and foreign exchange gains of ¥0.2B, while non-operating expenses remained limited to ¥1.8B, including interest expenses of ¥0.3B. Extraordinary income consisted solely of a ¥0.1B gain on the sale of non-current assets, and the impact of temporary factors on total profit was extremely limited. The difference between Ordinary Income of ¥34.5B and Net Income of ¥23.0B was primarily attributable to income taxes of ¥11.6B (an effective tax rate of approximately 33.5%), representing a structural difference only. Comprehensive income was ¥27.2B, exceeding Net Income, with the difference attributable to OCI items related to other securities and foreign currency, including a valuation difference on securities of +¥3.0B and foreign currency translation adjustments of +¥1.3B. These items do not materially distort earnings quality.

Earnings Forecast and Guidance

Q1 progress toward the full-year plan was 21.4% for Revenue (¥295.2B/¥1,380B), 19.8% for Operating Income (¥33.3B/¥168.5B), 19.9% for Ordinary Income (¥34.5B/¥173.0B), and 19.5% for Net Income (¥22.95B attributable to owners of the parent/¥118.0B), all below the simple progress benchmark of 25%. The full-year plan itself assumes declines of Revenue YoY -0.9%, Operating Income YoY -2.0%, and Ordinary Income YoY -2.3%. No revision was made to the earnings forecast for the current quarter, although the dividend forecast was revised. The Construction Business tends to be weighted toward the second half due to the timing of revenue recognition under the percentage-of-completion method, and the insufficient progress as of Q1 is considered to be within the range of seasonal variation.

Shareholder Returns

A 4-for-1 stock split of common shares, effective October 1, 2026, is scheduled, making the period-end and annual dividend forecasts not directly comparable on a simple basis. Without considering the stock split, the period-end dividend forecast is ¥106.00 and the annual dividend forecast is ¥146.00, and the dividend forecast was revised during the current quarter. Based on an annual dividend of ¥146 (without considering the split) and an average number of shares outstanding during the period of 41,419 thousand shares, the estimated total dividend amount is approximately ¥60.5B, resulting in a Payout Ratio of approximately 51% against the full-year Net Income plan (attributable to owners of the parent) of ¥118.0B. With cash and deposits of ¥264.6B versus interest-bearing debt of ¥17.3B, the company remains in a net cash position, and its financial foundation supporting dividend sustainability is robust. Treasury shares increased from ¥35.7B at the end of the previous year to ¥73.9B, indicating progress in share repurchases as part of shareholder returns.

Risk Factors

1. Business Concentration Risk: The Construction Business accounts for 99.2% of revenue (¥294.8B/¥295.2B) and nearly all Operating Income, resulting in a high degree of dependence on a single business. Trends in orders and profitability fluctuations in this business are directly reflected in overall company performance.

2. Cost Volatility Risk: Although the gross margin improved to 22.6% (19.6% in the previous year), costs on construction contracts in progress increased by +31.1%, from ¥15.0B to ¥19.7B. Future profitability may fluctuate depending on trends in material costs, subcontracting expenses, and labor costs. The provision for losses on construction contracts was ¥2.0B, remaining broadly flat from the previous year.

3. Downside Risk to Full-Year Progress: Q1 progress toward the full-year plan was 21.4% for Revenue and 19.8% for Operating Income, below the simple progress benchmark of 25%. Even taking into account the seasonal weighting toward the second half, the pace of work-volume recognition and the maintenance of profitability in the second half will be key to achieving the full-year plan.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin significantly exceed the industry median, placing profitability in the upper tier of the industry.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median, placing the company at a relative disadvantage within the industry in terms of top-line growth.

Source: Compiled by the Company

Key Takeaways from the Results

1. Despite lower revenue, the company secured increases of +19.5% in Operating Income and +22.7% in Ordinary Income through a +3.0pt improvement in gross margin, clearly demonstrating the effects of project profitability and cost management in the financial results.

2. Advances received on construction contracts in progress increased by +133.3%, from ¥18.1B to ¥42.3B, while accounts receivable for completed construction contracts decreased from ¥407.4B to ¥356.2B, indicating structural changes in working capital through increased advances and reduced trade receivables.

3. Treasury shares increased from ¥35.7B to ¥73.9B, and multiple shareholder-return measures, including the stock split and dividend forecast revision, were announced during the current quarter. While maintaining a financial foundation with an Equity Ratio of 73.7% and a net cash position, ROE of 2.7% remains an area to monitor regarding future capital efficiency.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on 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: ¥1,676–¥1,773 at ±1% for the cost of equity, and ¥1,713–¥1,731 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).

(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 through analysis of 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 with a professional as necessary.

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