NITTOC CONSTRUCTION CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The quarter recorded increases in both revenue and earnings, with the key highlight being the improvement in the operating margin, primarily driven by greater efficiency in SG&A expenses. Revenue was ¥185.3B (+7.1% YoY), Operating Income was ¥7.7B (+52.2%), Ordinary Income was ¥8.4B (+47.7%), and Net Income was ¥4.8B (+32.5%). In addition to growth in completed construction revenue, the decline in the SG&A ratio to 12.7% (14.0% in the previous year) contributed to the earnings increase. However, a foreign exchange loss of ¥0.3B and an impairment loss of ¥0.6B weighed on profit before tax.

Factors Affecting Performance

【Revenue】Revenue increased 7.1% YoY to ¥185.3B. Completed construction revenue grew to ¥184.9B (+7.3%), primarily due to an increase in construction progress. The Company has a single segment, the Construction Business, and does not disclose a breakdown by business.

【Profit and Loss】The gross margin was 16.8%, virtually unchanged from 16.9% in the previous year. However, the improvement in the SG&A ratio to 12.7% (14.0% in the previous year) lifted the operating margin to 4.1% (approximately 3.0% in the previous year). In non-operating items, dividend income of ¥0.9B supported Ordinary Income, while an impairment loss of ¥0.6B was recorded as an extraordinary loss, limiting the growth in profit before tax to the 32.5% increase in Net Income. Both revenue and earnings increased.

Key Financial Indicators

【Profitability】The operating margin improved to 4.1%, while the net profit margin rose to 2.6% (2.1% in the previous year). The gross margin was 16.8%, virtually unchanged from 16.9% in the previous year, indicating that structural improvement on the cost side remains limited. 【Cash Flow Quality】Dividend income of ¥0.9B represents a stable source of revenue, while the foreign exchange loss of ¥0.3B and impairment loss of ¥0.6B placed pressure on profit before tax as non-recurring items. 【Investment Efficiency】ROE was 1.3%, and the Equity Ratio was 62.6% (60.4% in the previous year), indicating a conservative financial foundation despite low capital efficiency. EPS was ¥11.16 (¥8.68 in the previous year, +28.6%), and BPS was ¥886.43. 【Financial Soundness】Against cash and deposits of ¥186.9B, long-term borrowings stood at only ¥3.1B, indicating a substantial net cash position. Current assets of ¥411.0B significantly exceeded current liabilities of ¥176.8B, and there are no concerns regarding short-term liquidity.

Cash Flow Analysis

As the Company does not disclose a cash flow statement, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥186.9B, an increase of ¥9.5B from ¥177.3B at the end of the previous fiscal year. Accounts receivable for completed construction decreased to ¥174.2B (¥207.7B in the previous year), suggesting that progress in collections contributed to cash generation. Meanwhile, advances received on construction in progress increased to ¥12.3B (¥8.4B in the previous year, +46.0%), with advance payments for contracted projects strengthening short-term liquidity. No significant burden from capital expenditures was observed. Property, plant and equipment was ¥102.8B, virtually unchanged from the previous year, suggesting that the accumulation of cash was attributable more to collections and advances received than to investment activity.

Earnings Quality

The quality of current-period earnings is centered on recurring earnings supported by improved profitability in the core business. The decline in the SG&A ratio appears to reflect the results of structural cost management and represents a sustainable improvement factor. Meanwhile, dividend income of ¥0.9B from investment securities held at ¥60.1B provides stable non-operating income and can be considered a recurring support factor. On the other hand, the foreign exchange loss of ¥0.3B and impairment loss of ¥0.6B are strongly non-recurring in nature and contributed to the reduction from profit before tax of ¥7.7B to Net Income of ¥4.8B. Comprehensive income was ¥4.6B, approximately in line with Net Income of ¥4.8B, with no significant divergence attributable to valuation differences on securities or foreign currency translation adjustments. The increase in the provision for construction loss to ¥0.8B (¥0.3B in the previous year, +179.3%) suggests a review of the profitability of specific projects and warrants monitoring when assessing future earnings quality.

Earnings Forecast and Guidance

Progress toward the full-year earnings forecast was 23.0% for Revenue against the forecast of ¥805.0B, 13.9% for Operating Income against the forecast of ¥55.0B, and 15.2% for Ordinary Income against the same forecast of ¥55.0B. The full-year forecast calls for declines in both revenue and earnings YoY (Revenue -3.9%, Operating Income -5.6%, Ordinary Income -8.9%), differing in direction from the revenue and earnings growth recorded in Q1. In the construction industry, construction progress tends to be concentrated in the second half of the fiscal year, so comparisons with a simple one-quarter progress benchmark require consideration of seasonality. No revisions have been made to the earnings forecast or dividend forecast.

Shareholder Returns

The Company plans to pay an annual dividend of ¥50.00 per share (the previous year's actual dividend of ¥22 is considered equivalent to an interim dividend, and no simple comparison is made). Based on 41,775 thousand shares outstanding, total dividends are calculated at approximately ¥2.09B, resulting in a Payout Ratio of approximately 56.5% against the full-year Net Income forecast of ¥3.70B. Given the Company's financial capacity, including cash and deposits of ¥186.9B and substantial net cash of approximately ¥184B, the current dividend level does not represent an excessive burden relative to cash holdings and earnings.

Risk Factors

1. Construction profitability risk: The provision for construction loss increased to ¥0.8B (¥0.3B in the previous year, +179.3%), suggesting that increases in labor and material costs under fixed-price contracts may be putting pressure on the profitability of specific projects.

2. Occurrence of temporary losses: The Company recorded an impairment loss of ¥0.6B and a foreign exchange loss of ¥0.3B during the period. These losses are equivalent in scale to approximately 12% of profit before tax of ¥7.7B and represent non-recurring earnings volatility factors.

3. Low capital efficiency: ROE was 1.3% and the operating margin was 4.1%. Although both are improving, their absolute levels remain low, leaving room to improve profitability relative to the asset composition, which includes investment securities of ¥60.1B.

Industry Benchmark (For Reference; Based on Our Analysis)

Profitability and Returns

Profitability is slightly below the industry median, positioning the Company below the midpoint.

Growth and Capital Efficiency

The Revenue growth rate exceeds the industry median and is positioned in the upper range of the IQR.

Source: Based on our analysis

Key Points from the Earnings Results

1. The decline in the SG&A ratio (12.7%, compared with 14.0% in the previous year) was the primary driver of the improvement in the operating margin, suggesting that structural efficiency gains may be progressing in cost management.

2. While non-recurring factors, namely the impairment loss and foreign exchange loss, weighed on profit before tax, core business profitability excluding these factors is trending upward, indicating a favorable trend in core earnings power.

3. Although the full-year forecast anticipates declines in both revenue and earnings, Q1 recorded increases in both. In addition, the provision for construction loss increased, making the trend in construction profitability through the second half a key focus in assessing earnings quality.

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 five-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥896–¥946 at ±1% for the cost of equity, and ¥920–¥922 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing mismatch with the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value 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 summary 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 adviser as necessary.

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