HOKURIKU ELECTRICAL CONSTRUCTION CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Revenue and profit both significantly exceeded the same period of the previous year, resulting in higher revenue and higher profit. The key feature of the quarter was the impact of operating leverage driven by an improved cost ratio. Revenue was ¥14.32B (+18.6% YoY), Operating Income was ¥0.81B (+108.8%), Ordinary Income was ¥0.89B (+85.4%), and Net Income was ¥0.58B (+84.7%). The decline in the cost-of-sales ratio (81.3%, compared with 83.3% in the previous year) and improvement in the SG&A ratio (13.1%, compared with 13.5% in the previous year) progressed simultaneously, resulting in an Operating Income margin of 5.6%, an improvement of +2.4pt from 3.2% in the previous year.

Factors Affecting Results

【Revenue】Revenue in the single segment (Equipment Construction Business) was ¥14.32B, representing an 18.6% YoY increase. Costs on uncompleted construction contracts increased to ¥0.80B (¥0.57B in the previous year, +40.7%), suggesting that the accumulation of ongoing projects supported the growth in completed construction revenue.

【Profit and Loss】The cost-of-sales ratio declined to 81.3% (83.3% in the previous year), improving the gross profit margin to 18.7% (16.7% in the previous year). The SG&A ratio also declined to 13.1% (13.5% in the previous year). As cost control and fixed-cost absorption progressed simultaneously, the Operating Income margin expanded to 5.6% (3.2% in the previous year). Non-operating income and expenses resulted in a modest gain of ¥0.09B. After deducting income taxes and other taxes of ¥0.31B (an effective tax rate of approximately 35.2%) from Profit Before Tax of ¥0.89B, Net Income was ¥0.58B. Extraordinary items were minor, consisting solely of an extraordinary loss of ¥0.002B. Higher revenue and higher profit.

Key Financial Indicators

【Profitability】The Operating Income margin was 5.6% (an improvement of +2.4pt from 3.2% in the previous year), the Net Income margin was 4.0% (improved from 2.6% in the previous year), and the gross profit margin was 18.7% (16.7% in the previous year), indicating simultaneous progress in lowering the cost ratio and improving SG&A efficiency.【Cash Flow Quality】Comprehensive Income of ¥0.77B was approximately at the same level as Net Income of ¥0.58B. The main factor behind the difference was a ¥0.19B increase in the valuation difference on securities, and the divergence between profit and Comprehensive Income was small.【Investment Efficiency】ROE was 1.3% (on a quarterly basis), while the total asset turnover ratio remained low at 0.242, indicating room for improvement in capital efficiency.【Financial Soundness】The Equity Ratio rose to 77.9% (from 74.3% in the previous year), while long-term borrowings were ¥0.01B (-50.0% YoY). Interest-bearing debt was therefore nearly zero, and the company maintained ample liquidity, with current assets of ¥35.98B significantly exceeding current liabilities of ¥9.15B.

Cash Flow Analysis

Cash and deposits were ¥20.45B, remaining broadly flat at +2.2% compared with the same period of the previous year, and continued to significantly exceed current liabilities of ¥9.15B. Accounts receivable for completed construction contracts were ¥13.92B, down ¥4.59B (-24.8%) from ¥18.50B in the previous year, suggesting improved collection efficiency for sales proceeds. Meanwhile, costs on uncompleted construction contracts were ¥0.80B, up ¥0.23B (+40.7%) from ¥0.57B in the previous year, indicating increased short-term investment of funds in ongoing projects. Construction accounts payable and other liabilities were ¥5.41B, down ¥1.79B (-24.9%) from ¥7.20B in the previous year, while total current liabilities also decreased by ¥2.86B (-23.8%) to ¥9.15B from ¥12.01B in the previous year. This included a ¥1.42B decrease in income taxes payable and other liabilities (-96.1%, reflecting the payment of taxes finally assessed for the previous period). Long-term borrowings also declined to ¥0.01B, and no factors indicating funding pressure were identified.

Earnings Quality

Extraordinary loss was only ¥0.002B, and the impact of temporary factors on profit and loss was minor. Non-operating income was ¥0.09B (0.6% of Revenue), including dividend income of ¥0.02B, but it was not large enough to distort the assessment of the core business. The difference between Ordinary Income of ¥0.89B and Net Income of ¥0.58B was primarily attributable to income taxes and other taxes of ¥0.31B (an effective tax rate of approximately 35.2%), while divergence arising from financial expenses and extraordinary items was small. Comprehensive Income of ¥0.77B exceeded Net Income of ¥0.58B, primarily due to a ¥0.19B increase in the valuation difference on securities. However, the divergence between the two was limited, and current-period profit can be viewed as high quality, reflecting improved profitability in the core business.

Earnings Forecast and Guidance

Progress toward the full-year plan was 20.5% for Revenue (¥14.32B/¥70.00B), 13.4% for Operating Income (¥0.81B/¥6.00B), 14.4% for Ordinary Income (¥0.89B/¥6.20B), and 14.1% for Net Income (¥0.58B/¥4.10B). Although all were below the evenly paced quarterly rate of 25%, there were no revisions to the earnings forecast or dividend forecast. Given the seasonality specific to the construction industry, in which inspections and handovers are concentrated in the second half of the fiscal year, progress is considered to be within the scope of the plan. Whether the pace of progress accelerates from the next quarter onward will be a key point in assessing achievement of the full-year plan.

Shareholder Returns

The company’s forecast dividend per share is ¥24, representing a planned ¥2 increase from the previous-period actual dividend of ¥22. The Payout Ratio against forecast EPS of ¥149.07 is approximately 16.1%, and no revision has been made. Given the company’s nearly debt-free financial foundation, with cash and deposits of ¥20.45B and long-term borrowings of ¥0.01B, sufficient financial capacity for dividend payments has been secured.

Risk Factors

1. Cost fluctuation risk: Although the gross profit margin improved to 18.7%, it remains below 20%. If material prices or labor costs rise again, profit margins may come under pressure.

2. Working capital fluctuation risk: Costs on uncompleted construction contracts increased to ¥0.80B (+40.7% YoY), and fluctuations in working capital accompanying project progress may affect short-term funding requirements. Accounts receivable for completed construction contracts also remain substantial at ¥13.92B, making continued monitoring of collection conditions important.

3. Risk of seasonally uneven progress: Progress toward the full-year plan was 20.5% for Revenue and 13.4% for Operating Income, both below the evenly paced rate of 25%. The plan therefore relies heavily on inspections concentrated in the second half of the fiscal year.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceed the industry median, placing the company’s profitability in the middle-to-upper range of the industry.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeds the industry median, demonstrating a high growth rate within the industry.

※Source: Compiled by the Company

Key Points in the Financial Results

1. The Operating Income margin improved from 3.2% in the previous year to 5.6%, an improvement of +2.4pt. The simultaneous improvement in both the gross profit margin and SG&A ratio suggests that project profitability enhancement and cost efficiency improvements may be progressing structurally.

2. The Equity Ratio rose from 74.3% to 77.9%, while interest-bearing debt declined to ¥0.01B. Although financial soundness has been further strengthened, ROE remains at 1.3%, making capital efficiency an ongoing area of focus.

3. Progress toward the full-year plan was 20.5% for Revenue and 13.4% for Operating Income, below the evenly paced rate. However, no revisions have been made to the earnings forecast or dividend forecast, and whether the plan can be achieved on the assumption of second-half concentration will be the focus going forward.

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

Sensitivity: ¥1,642–¥1,741 at Cost of Equity ±1%, and ¥1,690–¥1,691 at ω±0.1.

Notes:

• Net assets as of the end of the quarter are used (there is a time lag relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest rate reference month: 2026-06 / This value does not predict or guarantee the future stock price)

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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. 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.

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