YONDENKO CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

The first quarter of the fiscal year ending March 2027 resulted in higher revenue and substantially higher profit, driven by growth in the core Electrical and Equipment Construction Business, indicating a structural improvement in profitability. Revenue was ¥240.9B (¥202.6B in the previous year, YoY +18.9%), Operating Income was ¥28.1B (¥14.6B in the previous year, YoY +92.5%), and Ordinary Income was ¥29.3B (¥15.4B in the previous year, YoY +90.3%). Net Income attributable to owners of the parent was ¥19.6B (¥10.5B in the previous year, YoY +86.4%), while consolidated Net Income (including non-controlling interests) was ¥19.7B (YoY +85.7%). The profit growth rate substantially exceeded the revenue growth rate, primarily reflecting operating leverage resulting from improved gross margins and relative restraint in SG&A expenses.

Factors Affecting Results

【Revenue】Revenue increased 18.9% year on year to ¥240.9B. The core Electrical and Equipment Construction Business (external revenue of ¥227.9B, representing 94.6% of the total) grew revenue by 22.5%, supported by growth in revenue from contracted distribution construction work (+5.0%) and other equipment construction revenue (+33.0%), driving overall company growth. Meanwhile, the Solar Power Generation Business reported revenue of ¥5.3B, down 5.2%, while the Leasing Business generated ¥7.8B, remaining broadly flat (+1.0%).

【Profit and Loss】Gross profit was ¥53.8B (gross margin of 22.3%, improving by +335bp from 18.9% in the previous year), supported by cost control and progress on high-margin projects. SG&A expenses were ¥25.6B (SG&A ratio of 10.6%, down -111bp from 11.7% in the previous year), with growth limited to +7.8% compared with revenue growth of +18.9%; revenue growth exceeding the increase in costs generated leverage. As a result, the Operating Income margin improved substantially to 11.7% (from 7.2% in the previous year, +447bp), and Ordinary Income and Net Income also increased at double-digit rates. Extraordinary gains and losses were essentially zero (extraordinary loss of ¥0.02B), indicating that the profit increase was based on improvements in the core business. In conclusion, the company achieved higher revenue and profit, characterized by a trend of improving margins.

Segment Analysis

On a segment profit basis, the Electrical and Equipment Construction Business generated ¥26.4B (¥11.3B in the previous year, YoY +133.1%), almost solely driving the increase in company-wide profit, while its profit margin improved from 8.5% to 11.4%. Although profit in the Solar Power Generation Business declined to ¥1.8B (YoY -19.7%), its profit margin was 34.0%, the highest among all segments, providing support for profitability despite its small scale. The Leasing Business generated profit of ¥0.7B, remaining broadly flat (profit margin of 8.5%), while the Other segment contracted to profit of ¥0.3B (YoY -23.1%). The increase in company-wide profit is almost entirely dependent on improved profitability in the Electrical and Equipment Construction Business. The fact that this business accounts for more than 90% of the revenue mix should be noted as a segment concentration risk.

Key Financial Indicators

【Profitability】The Operating Income margin was 11.7%, improving by +447bt from 7.2% in the previous year. The gross margin also increased to 22.3% (18.9% in the previous year), while the SG&A ratio declined to 10.6% (11.7% in the previous year). The Net Income margin (on a basis attributable to owners of the parent) improved to 8.1% from 5.2% in the previous year.【Cash Flow Quality】Cash and deposits increased to ¥169.2B (¥132.7B in the previous year, +27.5%), while accounts receivable from completed construction contracts declined by 26.6% to ¥201.4B, indicating progress in collections.【Investment Efficiency】ROE was 2.8% (on a quarterly basis). Although the improvement in the Net Income margin and higher total asset turnover contributed positively, the decline in leverage resulting from a year-on-year decrease in total assets was a partial offset.【Financial Soundness】The Equity Ratio increased to 72.9% (68.4% in the previous year). Interest-bearing debt remained light, consisting of short-term borrowings of ¥6.0B, long-term borrowings of ¥44.1B, and bonds of ¥0.3B, all of which were kept low relative to cash holdings.

Cash Flow Analysis

Because the statement of cash flows is not included in this report, cash trends are assessed based on changes in the balance sheet. Cash and deposits increased by ¥36.5B from the end of the previous fiscal year (+27.5%) to ¥169.2B, further strengthening the company’s liquidity position. From a working capital perspective, accounts receivable from completed construction contracts decreased by ¥73.2B (-26.6%) to ¥201.4B, indicating that collection of trade receivables progressed even amid revenue growth. Meanwhile, costs on uncompleted construction contracts increased +23.3% to ¥35.4B, indicating increased upfront investment in projects under construction. Advances received on uncompleted construction contracts also increased +19.9% to ¥29.6B, with the accumulation of advance payments associated with progress billings having a positive effect on cash management. Current liabilities decreased substantially from the end of the previous fiscal year to ¥187.0B, mainly due to a decline in income taxes payable and other liabilities, reflecting payment of taxes for the previous period. Overall, the figures indicate that progress in collections and the increase in advance payments supported the accumulation of cash.

Quality of Earnings

The profit increase for the current period was generated by recurring business activities, while the impact of extraordinary gains and losses was extremely limited, comprising extraordinary gain of ¥0.0B and extraordinary loss of ¥0.02B. Non-operating income was ¥1.3B (including dividend income of ¥0.5B), equivalent to only 0.5% of revenue, and continued to exceed non-operating expenses of ¥0.2B (including interest expenses of ¥0.1B), resulting in a net financial income position that slightly boosted profit. The gap between Ordinary Income of ¥29.3B and Net Income attributable to owners of the parent of ¥19.6B was almost entirely attributable to income taxes and other taxes of ¥9.6B (an effective tax rate of approximately 32.8%), with no significant unexpected divergence. From an accrual perspective, the simultaneous decline in accounts receivable from completed construction contracts and increase in advances received on uncompleted construction contracts indicate that reported profit was well supported by cash. Comprehensive Income was ¥16.4B, below Net Income of ¥19.7B. The primary factors behind the difference were valuation differences on other securities of -¥2.1B and adjustments related to retirement benefits of -¥1.1B.

Earnings Forecast and Guidance

Against the full-year company plan (Revenue of ¥1,080.0B, Operating Income of ¥94.0B, Ordinary Income of ¥99.0B, and EPS of ¥139.43), progress in Q1 was 22.3% for Revenue, 29.9% for Operating Income, 29.6% for Ordinary Income, and 29.7% for EPS. Compared with the simple quarterly allocation benchmark of 25%, Revenue was slightly below that level, while profit-related indicators were approximately 5pt higher. This appears to reflect progress on high-margin projects and SG&A control as of Q1. There were no revisions to either the earnings forecast or dividend forecast, and management has maintained its plan at this time. Construction is subject to significant seasonality in project progress, and it should be noted that the high Q1 progress rate may not continue at the same pace throughout the full year.

Shareholder Returns

The full-year dividend forecast is ¥84.00 per share, implying a Payout Ratio of approximately 60.2% based on full-year forecast EPS of ¥139.43. There has been no revision to the dividend forecast as of the current quarter. Given that interest-bearing debt is relatively light at approximately ¥5.0B against cash and deposits of ¥169.2B, funds for the planned dividend payment appear to be secured. There has been no disclosure regarding share repurchases, and dividends remain the primary form of shareholder returns.

Risk Factors

1. Risk of earnings volatility due to inflation in costs and labor expenses: The gross profit margin on completed construction contracts improved to 21.9% from 18.0% in the previous year, but rising costs due to material price increases and shortages of skilled labor may test the company’s ability to pass costs through to customers.

2. Risk of concentration in segment earnings: The Electrical and Equipment Construction Business accounts for 94.6% of external revenue, creating a structure in which changes in the profitability of this business directly affect company-wide profit. The Solar Power Generation Business has a high margin (34.0%), but both revenue and profit were below the previous year (-5.2% and -19.7%, respectively).

3. Risk of cash flow volatility associated with increased working capital: Costs on uncompleted construction contracts increased +23.3% to ¥35.4B. If upfront working capital investment continues to increase in line with the accumulation of projects under construction, cash conversion may fluctuate.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Growth and Capital Efficiency

Source: Compiled by the Company

Key Takeaways from the Financial Results

1. A continuing improvement in profit margins has been confirmed. The Operating Income margin improved from 7.2% in the previous year to 11.7%, +447bt, with an increase in the gross margin and a decline in the SG&A ratio occurring simultaneously. The margin has reached a level substantially above the industry median (4.5%).

2. Profit progress against the full-year plan was approximately 30%, exceeding revenue progress of 22.3%. Given the seasonality of the construction industry, whether this high progress rate can be maintained throughout the full year will be an important point to monitor.

3. Revenue and earnings remain concentrated in the core Electrical and Equipment Construction Business, which accounts for 94.6% of external revenue. Trends in orders and the sustainability of cost control in this business will determine the quality of company-wide earnings.

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). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,484–¥1,568 at cost of equity ±1%, and ¥1,525–¥1,526 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.

(Model used: Residual Income Model / Interest rate reference month: 2026-06 / 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 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 a professional where necessary.

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