CHUDENKO (1941) FY2027 Q1 Earnings Report

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Executive Summary

In Q1 of the fiscal year ending March 2027, Chudenko posted higher revenue and earnings, driven by increased revenue in its core Equipment Construction Business and operating leverage resulting from the containment of SG&A expenses. Revenue was ¥503.3B (+13.3% YoY), Operating Income was ¥51.9B (+21.5%), Ordinary Income was ¥56.1B (+12.5%), and Net Income was ¥34.8B (+3.2%). The Operating Margin improved to 10.3% from 9.6% in the same period of the previous year, while the increase in Net Income was less pronounced than the increase in Operating Income due to a higher effective tax rate.

Factors Affecting Performance

【Revenue】The core Equipment Construction Business led overall performance, with revenue increasing +14.3% YoY to ¥450.3B, bringing consolidated Revenue to ¥503.3B (+13.3%). By breakdown, Indoor Electrical Construction (+17.5%), HVAC and Plumbing Construction (+25.0%), and Power Transmission, Transformation and Underground Cable Construction (+62.4%) grew, while Information and Communications Construction declined △48.6% YoY, indicating variability in the recognition of completed construction work across business areas. Revenue from Other Businesses remained limited to ¥58.0B (+5.8%).

【Profit and Loss】Although the gross profit margin declined to 19.1% from 19.4% in the same period of the previous year, SG&A expenses were contained to an increase of +2.4% (¥44.4B), substantially below the +13.3% rate of Revenue growth. Consequently, Operating Income improved to ¥51.9B (+21.5%) and the Operating Margin improved to 10.3% (9.6% in the previous year). Supported by non-operating income, primarily dividends received and interest received, Ordinary Income increased to ¥56.1B (+12.5%). However, Net Income was limited to ¥34.8B (+3.2%) as the effective tax rate rose to approximately 37.3%, indicating that the increase in Operating Income did not sufficiently translate into bottom-line earnings. Revenue and earnings increased.

Segment Analysis

The reporting segments consist of the Equipment Construction Business and Other Businesses. The Equipment Construction Business is the core business, with Revenue of ¥450.3B (+14.3% YoY), Segment Income of ¥5.16B (+22.0%), and a margin of 11.5%, accounting for nearly all consolidated Operating Income. Other Businesses, including sales of electrical equipment and construction materials, generated Revenue of ¥58.0B (+5.8%), Segment Income of ¥1.1B (+65.2%), and a margin of 2.0%, making only a limited contribution to profit. By type of construction, Indoor Electrical Construction, HVAC and Plumbing Construction, and Power Transmission, Transformation and Underground Cable Construction were the primary drivers of revenue growth, while Information and Communications Construction declined.

Key Financial Indicators

【Profitability】The Operating Margin was 10.3% (9.6% in the previous year), while the Net Profit Margin was 6.9% (7.6% in the previous year). Improvement at the operating level through SG&A expense containment offset the decline in the gross profit margin (19.1%, compared with 19.4% in the previous year), while the higher effective tax rate weighed on the Net Profit Margin. 【Cash Flow Quality】Accounts Receivable for Completed Construction Contracts declined 30.3% YoY to ¥506.3B, confirming a reduction in receivables despite Revenue growth. However, Costs on Uncompleted Construction Contracts increased +29.4% to ¥103.4B, exceeding Advances Received on Uncompleted Construction Contracts of ¥90.4B (+19.5%), indicating net investment. 【Investment Efficiency】ROE (annualized) was 5.4%, decomposed into a Net Profit Margin of 6.9%, Total Asset Turnover of 0.643x, and Financial Leverage of 1.22x. Total Asset Turnover is constraining capital efficiency relative to the substantial asset base, which includes ¥1,151.5B in investment securities. 【Financial Soundness】The Equity Ratio was 81.9%, the Current Ratio was 332.9% (approximate), and total liabilities accounted for only 18.1% of total assets, indicating an extremely stable financial foundation.

Cash Flow Analysis

Although no cash flow statement has been disclosed, fund movements can be assessed from changes in the balance sheet. Accounts Receivable for Completed Construction Contracts declined 30.3% YoY to ¥506.3B, and the reduction in receivables while Revenue increased 13.3% can be viewed positively from a working capital perspective. Meanwhile, Costs on Uncompleted Construction Contracts increased +29.4% YoY to ¥103.4B, exceeding the +19.5% increase in Advances Received on Uncompleted Construction Contracts of ¥90.4B, suggesting that cost investment in ongoing projects is preceding collections. Cash and deposits increased +17.4% YoY to ¥354.4B, and together with short-term investment securities of ¥223.6B, the Company maintains substantial liquidity, providing strong capacity to address working capital needs and shareholder returns.

Earnings Quality

Profit at the Ordinary Income level was supported by improved profitability in the core construction business and the stable recognition of non-operating income, while extraordinary losses were small at ¥0.6B, indicating a limited impact from one-time factors. Of ¥8.9B in non-operating income, dividends received of ¥5.0B and interest received of ¥2.2B were the primary components, resulting in an earnings structure with a somewhat high dependence on financial income from investment securities. Comprehensive Income of ¥125.7B substantially exceeded Net Income of ¥34.8B, primarily due to ¥90.5B in valuation differences on other securities. This divergence reflects a significant contribution from unrealized gains resulting from market price fluctuations and therefore needs to be considered separately from recurring business earning power. The fact that the increase in Operating Income did not sufficiently translate into Net Income due to the rise in the effective tax rate from the same period of the previous year is also an important consideration in evaluating earnings quality.

Earnings Forecast and Guidance

The full-year Company plan calls for Revenue of ¥2,450.0B (+7.5% YoY), Operating Income of ¥270.0B (+3.1%), and Ordinary Income of ¥295.0B (+7.4%). The Q1 progress rates were approximately 20.5% for Revenue, 19.2% for Operating Income, and 19.0% for Ordinary Income. There was no revision to the earnings forecast during the quarter. Although the Q1 rates of Revenue and earnings growth exceeded the growth rates in the full-year plan, the progress rates themselves were slightly below the simple 25% benchmark. In the construction industry, recognition of completed construction work tends to be weighted toward the second half of the fiscal year; progress on construction projects and trends in profit margins in the second half will be the key factors determining achievement of the plan.

Shareholder Returns

The full-year dividend forecast is ¥140 per share, an increase from the previous fiscal year's actual level of a total of ¥65 for the interim and year-end dividends. There was no revision to the dividend forecast during the quarter. Based on the full-year EPS forecast of ¥372.12, the projected Payout Ratio is 37.6%, below the sustainable level of approximately 60%. Given the Company's financial capacity, including an Equity Ratio of 81.9%, cash and deposits of ¥354.4B, and short-term investment securities of ¥223.6B, retained earnings of ¥2,231.0B available as a source of dividends also provide substantial support, and the Company's resilience in maintaining dividends is considered high. No disclosure has been made regarding share repurchases.

Risk Factors

1. Construction profitability risk: The gross profit margin declined to 19.1% from 19.4% in the same period of the previous year. If cost increases due to material prices, subcontracting expenses, and shortages of skilled workers continue, profitability could deteriorate, particularly for fixed-price projects.

2. Investment and collection management risk for ongoing projects: Costs on Uncompleted Construction Contracts increased +29.4% YoY to ¥103.4B, exceeding the increase in Advances Received on Uncompleted Construction Contracts (+19.5%). If construction delays or additional costs arise, both the timing of profit recognition and profit margins could be affected.

3. Demand fluctuation risk by business area: Revenue from Information and Communications Construction declined △48.6% YoY. The future trend should be monitored to assess the ability of Indoor Electrical Construction, HVAC and Plumbing Construction, and Power Transmission, Transformation and Underground Cable Construction to offset any slowdown in revenue growth.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (construction)

Profitability and Returns

Both the Operating Margin and Net Profit Margin are substantially above the industry median, placing the Company among the higher profitability levels in the construction industry.

Growth and Capital Efficiency

The Revenue Growth Rate also exceeded the upper limit of the industry IQR (10.1%), indicating high growth compared with peers.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The Operating Margin improved to 10.3% (9.6% in the previous year), but the improvement was primarily driven by SG&A expense containment offsetting the decline in the gross profit margin (19.1%, compared with 19.4% in the previous year). Whether profitability of construction costs themselves will continue to improve is the key focus going forward.

2. Due to the impact of the higher effective tax rate, Net Income increased only +3.2% compared with the +21.5% increase in Operating Income. The extent to which higher operating-level earnings will translate into bottom-line profit will also depend on the trend in the full-year tax burden.

3. The increase in Costs on Uncompleted Construction Contracts (+29.4%) exceeded the increase in Advances Received on Uncompleted Construction Contracts (+19.5%). Whether ongoing projects smoothly transition to completion, billing, and collection will be a key point to monitor in future earnings results.

Theoretical Share Price (Reference Value)

Sensitivity: ¥4,556–¥4,820 at ±1% for the Cost of Equity, and ¥4,680–¥4,689 at ±0.1 for ω.

Notes:

• As 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).
• As net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.

(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 the future share 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. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting professionals as necessary.

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