CHUDENKO CORPORATION FY2027 Q1 Earnings Report

Quick View

Executive Summary

The quarter resulted in higher revenue and income, driven by the core Facilities Construction Business, which improved operating-level profitability. However, growth in net income slowed due to the increased tax burden and losses on equity-method investments. Revenue was ¥503.3B (+13.3% YoY), Operating Income was ¥51.9B (+21.5%), Ordinary Income was ¥56.1B (+12.5%), and Net Income attributable to owners of the parent was ¥34.7B (+3.7%). The primary drivers of revenue growth were increased orders for indoor electrical construction, air-conditioning and plumbing construction, and underground transmission and transformation line construction. Operating Income grew faster than revenue due to a decline in the SG&A ratio (8.8%, compared with 9.8% in the previous year), while the increase in losses on equity-method investments and the higher effective tax rate restrained net income growth.

Factors Affecting Performance

【Revenue】Revenue of ¥503.3B (+13.3% YoY) was driven by the Facilities Construction Business, a reported segment, which generated ¥450.3B (89.4% of total, +14.3% YoY), while Other Businesses remained at ¥58.0B (+5.8%). By construction type, underground transmission and transformation line construction increased by +62.4%, air-conditioning and plumbing construction by +25.0%, and indoor electrical construction by +17.5%. In contrast, information and communications construction declined by -48.6%, while distribution line construction declined by -3.1%, indicating a change in project composition.

【Profit and Loss】Operating Income was ¥51.9B (+21.5% YoY), and the Operating Income margin improved by +0.7pt to 10.3% from 9.6% in the previous year. Although the increase in cost of sales slightly exceeded revenue growth, causing the gross margin to decline by -0.2pt to 19.1% from 19.4%, the SG&A ratio decreased by -1.0pt to 8.8% from 9.8%, offsetting this effect and securing growth in operating-level profit. Ordinary Income remained at ¥56.1B (+12.5%; the 11.2% margin was broadly unchanged), as losses on equity-method investments increased from ¥0.3B to ¥4.0B, exerting downward pressure. Against Profit Before Tax of ¥55.5B (+11.4%), the effective tax rate increased from 32.4% to 37.3%, and Net Income attributable to owners of the parent was ¥34.7B (+3.7%), representing slower growth than at the ordinary-income level. Extraordinary losses of ¥0.6B consisted mainly of losses on disposal of fixed assets and had a limited impact. Overall, the company achieved higher revenue and profit at the operating and ordinary-income levels, while growth in final profit slowed.

Segment Analysis

The Facilities Construction Business generated Revenue of ¥450.3B (+14.3% YoY), segment profit of ¥51.6B (+22.0%), and a margin of 11.5%, improving from approximately 10.4% in the previous year and driving company-wide profit. Other Businesses, including sales of electrical equipment and construction materials and insurance agency services, generated Revenue of ¥58.0B (+5.8%), segment profit of ¥1.1B (+65.2%), and a margin of 2.0%, representing substantial profit growth despite low profitability. The gap in profit margins between segments is significant, and the company-wide Operating Income margin of 10.3% is heavily dependent on improved profitability in the Facilities Construction Business.

Key Financial Indicators

【Profitability】The Operating Income margin improved by +0.7pt to 10.3% from 9.6% in the previous year, while the gross margin declined by -0.2pt to 19.1% from 19.4%, indicating that the improvement in profitability was largely attributable to greater SG&A efficiency. The Net Income margin attributable to owners of the parent declined by -0.6pt to 6.9% from 7.5% in the previous year, affected by the higher effective tax rate and increased losses on equity-method investments.【Cash Quality】Accounts receivable from completed construction contracts declined to ¥506.3B, down -30.3% from ¥725.9B at the end of the previous fiscal year, while advances received on construction contracts in progress increased to ¥90.4B (+19.5%), indicating progress in the conversion of earnings into cash.【Investment Efficiency】ROE for the quarter, based on Net Income attributable to owners of the parent, was 1.4% (quarterly result, before annualization). Although total asset turnover improved, the substantial asset base, including ¥1,151.5B in investment securities, is diluting capital efficiency.【Financial Soundness】The Equity Ratio was 80.7%, up +3.8pt from 76.9% at the end of the previous fiscal year. Current assets of ¥1,353.8B versus current liabilities of ¥406.7B resulted in a current ratio of approximately 333%, indicating a conservative financial foundation.

Cash Flow Analysis

Cash and deposits amounted to ¥354.4B, increasing from approximately ¥304.4B at the end of the previous fiscal year, and financial flexibility expanded. The substantial decline in accounts receivable from completed construction contracts from ¥725.9B to ¥506.3B indicates progress in collecting receivables and contributed to reducing the working capital burden. Meanwhile, costs on construction contracts in progress increased from ¥79.9B to ¥103.4B, raising working capital requirements as projects under construction expanded. Advances received on construction contracts in progress also increased from ¥75.7B to ¥90.4B, and the accumulation of advance payments supported cash management. Construction-related accounts payable, including construction payables, declined significantly from the end of the previous fiscal year, while the reduction in income taxes and other taxes payable, reflecting payment of amounts recorded in the previous period, compressed total current liabilities to ¥406.7B. Overall, progress in collecting receivables and the increase in advances received had a positive effect on cash generation from a working capital perspective.

Quality of Earnings

Non-operating income was ¥8.9B, or approximately 1.8% of revenue, and consisted primarily of ¥5.0B in dividend income, which is recurring in nature. Non-operating expenses were ¥4.7B, with the increase in losses on equity-method investments to ¥3.96B from ¥0.3B in the previous year being the main factor behind the increase. Extraordinary losses were ¥0.6B, consisting of losses on disposal of fixed assets and other items, and were small in scale, limiting their temporary impact on performance. Against Ordinary Income of ¥56.1B, Net Income attributable to owners of the parent was ¥34.7B. The primary reasons for the gap were the increase in the effective tax rate (32.4%→37.3%) and the expansion of losses on equity-method investments, both of which include non-operating and potentially non-recurring elements. From an accrual perspective, the decline in accounts receivable from completed construction contracts and the increase in advances received on construction contracts in progress occurred simultaneously, indicating an improving trend in the cash conversion and collection efficiency of earnings.

Earnings Forecast and Guidance

Progress against the full-year plan was 20.5% for Revenue (¥503.3B/¥2,450.0B), 19.2% for Operating Income (¥51.9B/¥270.0B), 19.0% for Ordinary Income (¥56.1B/¥295.0B), and 17.6% for Net Income attributable to owners of the parent (¥34.7B/¥197.0B), all below the simple one-quarter benchmark of 25%. In the construction industry, the recognition of progress is generally weighted toward the second half of the fiscal year, and the relatively low progress rates in Q1 should be interpreted in light of this seasonality. Neither the earnings forecast nor the dividend forecast had been revised as of the quarter, and management maintained its initial plan.

Shareholder Returns

The company’s annual dividend plan is ¥140 per share. Based on approximately 5,294万 issued shares after deducting treasury shares, calculated using the average number of shares outstanding during the period, total annual dividends are estimated at approximately ¥74.1B. The Payout Ratio against the full-year forecast of Net Income attributable to owners of the parent of ¥197.0B is approximately 37.6%. Given the substantial liquidity of ¥354.4B in cash and deposits and the conservative financial structure represented by an Equity Ratio of 80.7%, the company appears to have sufficient capacity to secure funds for dividends.

Risk Factors

1. Declining gross margin: The gross margin was 19.1%, down -0.2pt from 19.4% in the previous year, suggesting that increases in material prices, subcontracting costs, and labor costs may be affecting cost of sales.

2. Volatility in equity-method investment income and losses: Losses on equity-method investments increased from ¥0.3B in the previous year to ¥3.96B in the current period, contributing to a wider gap between Ordinary Income and Net Income.

3. Exposure to fluctuations in securities prices: Investment securities reached ¥1,151.5B (+9.9% from the end of the previous fiscal year), while valuation differences of +¥90.5B substantially boosted comprehensive income of ¥125.7B. This structure makes net assets and comprehensive income susceptible to fluctuations in equity markets.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the Operating Income margin and Net Income margin are substantially above the median within the construction industry, placing the company’s profitability among the higher performers.

Growth and Capital Efficiency

The Revenue growth rate is substantially above the industry median, indicating strong growth within the industry.

※Source: Compiled by the company

Key Points from the Financial Results

1. The Operating Income margin improved to 10.3% from 9.6% in the previous year, supported by the decline in the SG&A ratio (8.8%, compared with 9.8% in the previous year). Meanwhile, the gross margin declined slightly to 19.1%, warranting continued monitoring of cost trends.

2. Net Income growth of +3.7% lagged Operating Income growth of +21.5% and Ordinary Income growth of +12.5%. The increase in the effective tax rate and the expansion of losses on equity-method investments are notable factors contributing to the divergence between ordinary income and final profit.

3. The decline in accounts receivable from completed construction contracts and the increase in advances received on construction contracts in progress occurred simultaneously, confirming an improving trend in collection efficiency. Full-year progress rates for both revenue and profit were below 25%, but they should be assessed in light of the construction industry’s seasonality, with performance weighted toward the second half.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type, with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥4,571–¥4,837 at ±1% for the cost of equity, and ¥4,696–¥4,704 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, resulting in a timing difference from the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.

(Model used: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not forecast or guarantee the future share price)

---

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 a professional as necessary.

---End of Report---