CHUDENKO (1941) FY2026 Q3 Earnings Report

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Executive Summary

Despite lower revenue, operating income increased due to improved project profitability, with earnings quality supported not by sales volume but by higher project margins. Revenue was ¥149.57B (-2.5% YoY), operating income was ¥17.56B (+18.7% YoY), ordinary income was ¥18.48B (+14.5% YoY), and net income attributable to owners of the parent was ¥12.40B. The primary driver of higher earnings was an improvement in the gross profit margin resulting from a reduction in the cost of sales. The gross profit margin rose to 20.2% from the previous year, while the decline in net income resulted from the normalization of the effective tax rate from the low level recorded in the same period of the previous year.

Factors Affecting Earnings

【Revenue】Revenue was ¥149.57B, down 2.5% YoY. Progress against the full-year forecast of ¥232.00B was 64.5%, below the standard 75% progress level, indicating a high degree of reliance on the recognition of completed construction revenue in Q4. Costs on uncompleted construction contracts increased to ¥14.09B (+68.1% from the end of the previous fiscal year), indicating that costs are being incurred ahead of revenue on ongoing projects.

【Profit and Loss】As the cost of sales contracted at a faster pace than the decline in revenue, gross profit increased to ¥30.21B (+13.0% YoY), and the gross profit margin was 20.2%. SG&A expenses increased to ¥12.65B (+5.1% YoY), resulting in a higher ratio to revenue, but the improvement in gross profit absorbed this increase. Operating income therefore rose to ¥17.56B (+18.7% YoY), and the operating margin reached 11.7%. Ordinary income was ¥18.48B (+14.5% YoY), supported in part by non-operating income, including dividend income of ¥0.87B. Net income, however, declined to ¥12.40B (-17.8% YoY) as the effective tax rate normalized from the low level recorded in the same period of the previous year (income taxes of ¥0.98B). In conclusion, this was an earnings report characterized by lower revenue but higher profit.

Key Financial Indicators

【Profitability】The operating margin improved by 2.1pt to 11.7% from 9.6% in the same period of the previous year, while the gross profit margin also increased to 20.2% from 17.4%. The net profit margin was 8.2%, down from 9.8% in the same period of the previous year. This reflected the reversal of the low effective tax rate recorded in the same period of the previous year; the current-period effective tax rate of 32.8% against pre-tax income of ¥18.46B can be interpreted as having normalized to a standard level. 【Cash Flow Quality】Comprehensive income was ¥18.79B, exceeding net income of ¥12.40B, with increases in other comprehensive income, including valuation differences on securities, boosting net assets. 【Investment Efficiency】Annualized ROE was 6.8%, reflecting a structure in which the high equity ratio suppresses capital efficiency. 【Financial Soundness】The equity ratio was 79.7%, and current assets of ¥130.23B substantially exceeded current liabilities of ¥46.47B, indicating a conservative and robust financial base.

Cash Flow Analysis

Although individual data from the statement of cash flows have not been disclosed, trends in the balance sheet provide insight into the use of funds. Cash and deposits declined slightly to ¥26.68B from ¥27.74B at the end of the previous fiscal year, while investment securities increased to ¥105.09B, and valuation differences on securities also expanded. Costs on uncompleted construction contracts increased 68.1% from the end of the previous fiscal year to ¥14.09B, with costs incurred on ongoing projects creating funding needs. At the same time, advances received on uncompleted construction contracts increased 42.5% to ¥9.14B, with advances from customers providing some support from a funding perspective. Overall, even as funds continued to be allocated to business investment and securities investment, the high equity ratio and ample current assets supported stable liquidity management.

Earnings Quality

Current-period profit was primarily generated by operating activities, while extraordinary income of ¥0.06B and extraordinary losses of ¥0.09B were both small, indicating limited impact from one-time factors. Dividend income of ¥0.87B and interest income of ¥0.40B accounted for the majority of non-operating income of ¥1.95B. These items amounted to approximately 1.3% of revenue and did not constitute a structure in which ordinary income was substantially substituted by non-operating sources. The gap between net income and comprehensive income was ¥6.51B, mainly due to a ¥6.83B increase in valuation differences on securities. This represents other comprehensive income associated with fluctuations in market prices and should be distinguished from recurring profit generated by business activities. The year-on-year decline in net income was largely attributable to the comparative impact of the low effective tax rate in the same period of the previous year (income taxes of ¥0.98B), while the current-period effective tax rate of 32.8% can be assessed as having normalized.

Earnings Forecast and Guidance

Progress for the nine months ended Q3 against the full-year forecast was 64.5% for revenue, 73.2% for operating income, and 74.5% for ordinary income. Revenue progress was 10.5pt below the standard 75% progress level, but profit progress was broadly in line with plan. Required operating income in Q4 is calculated at approximately ¥6.44B, with a required operating margin of approximately 7.8%. Accordingly, the full-year forecast could be achieved even at a level below the cumulative operating margin of 11.7%. On the revenue side, the pace of recognizing completed construction revenue in Q4 will be the key factor in achieving the full-year forecast of ¥232.00B.

Shareholder Returns

The full-year dividend forecast is ¥130.00 per share, comprising an expected Q2 dividend of ¥65.00 and a corresponding expected year-end dividend of ¥65.00. Based on the full-year forecast EPS of ¥297.26, the forecast payout ratio is approximately 43.7%, below the 60% level used as a benchmark for assessing the sustainability of dividends alone. Capital capacity, including an equity ratio of 79.7% and retained earnings of ¥217.13B, also provides a foundation supporting the current dividend plan. No data explicitly indicates share repurchases during the current period; therefore, shareholder returns are assessed based on the payout ratio rather than the total return ratio.

Risk Factors

1. Collection risk for accounts receivable from completed construction contracts: Accounts receivable from completed construction contracts were ¥60.395B, representing 46.4% of current assets. Delays in billing and collection of construction proceeds could result in working capital burdens characteristic of the construction industry.

2. Increase in costs on uncompleted construction contracts and project profitability: Costs on uncompleted construction contracts reached ¥14.09B, up 68.1% from the end of the previous fiscal year. If materials, labor, or subcontracting costs exceed assumptions, project profitability could come under pressure.

3. Delay in full-year revenue progress: Revenue progress was 64.5%, below the standard 75%, indicating a structure reliant on the recognition of completed construction revenue in Q4. Delays in revenue recognition could pose a risk of falling short of the full-year forecast.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (construction)

Profitability and Returns

The company’s operating margin and net profit margin are both considered to be at favorable levels; however, relative comparison is limited because industry median data has not been prepared.

Growth and Capital Efficiency

Revenue growth was negative, but assessment of its positioning is limited because comparative data against the industry median has not been prepared.

※Source: Company analysis

Key Takeaways from the Earnings Report

1. Despite lower revenue, the gross profit margin improved by 2.8pt and the operating margin by 2.1pt, making the achievement of higher operating income through improved profitability a defining feature of the current period.

2. Full-year progress for operating income and ordinary income was 73.2% and 74.5%, respectively, broadly in line with standard progress levels. In contrast, revenue progress of 64.5% was 10.5pt lower, making the pace of revenue recognition in Q4 the critical factor in achieving the full-year forecast.

3. The robust financial foundation, including an equity ratio of 79.7% and a current ratio above 280%, supports resilience against risks specific to the construction industry, such as increased costs on uncompleted construction contracts and delays in collecting accounts receivable from completed construction contracts.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,061–¥4,294 at ±1% for the cost of equity, and ¥4,165–¥4,181 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 discrepancy with 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 / This is a 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 predict or guarantee future share prices.)

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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. 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.

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